This is Just the Beginning
The intense scrutiny recently paid to my investment strategy in the immediate wake of the financial crisis of the last six months has unfortunately obscured the central element of my larger economic forecast. The standard line has been that although I was able to predict the crash, in the form of the housing collapse and the credit crunch, my expected fallout of a weaker dollar and global decoupling has been proven false. However, this assumes that the crash has fully played out. In reality, all we have heard thus far is the overture.
In 2008, the bubble economy that I had meticulously described years ago finally hit the pin that I knew was out there. The corporate losses, frozen credit markets and plunging home prices were the opening salvo in the unfolding economic crisis. However, the vast majority of air has yet to leak out of the bubble. As it does, the U.S. economic crisis will kick into a much higher gear. I have positioned my clients to withstand the full fury of the gale, and when it finally comes, the question "was Peter Schiff right?" will finally be answered.
Thus far, our economy has actually been spared the worst due to the temporary strength in the dollar and the recent desirability of our Government's debt. These movements derailed the short-term performance of many of my investment recommendations (though clearly not to the extent alleged by my critics) and threw a life-line to the downing U.S. economy. The demand for U.S. Treasuries has led to one of the sharpest dollar rallies on record, which has helped bring about just as pronounced a decline in commodity prices. As a result, although consumer income has fallen, so too have prices and interest rates.
The stronger dollar gives the Federal Government plenty of cover to a pursue a policy of rampant monetary inflation in order to re-inflate the collapsing bubble. Even though the Federal Reserve has thrown trillions of new dollars into circulation, those dollars have actually gained purchasing power - contrary to economic law. This, along with inventory liquidations and going-out-of-business sales, has kept a lid on consumer prices. The continued, although misguided, appeal of U.S. debt has also made it possible for the government to garner cheap financing for its equally misguided and massive bails-outs and stimulus packages.
In addition to cushioning the blow for us, the dollar rally has exacerbated the pain abroad. As money has rushed to our aid it has created a global credit crunch. The rest of the world is not only dealing with losses on toxic U.S. credit instruments but is also shouldering the burden of financing our new borrowing as well. As foreign currencies have fallen, foreign consumers have not received as large a windfall as Americans have from falling commodity prices.
In effect, Americans have been using these life-lines to pull the rest of the world into the stormy seas. However, there are signs that those holding the lines are about to cast them adrift. The dollar rally has run out of steam, gold has clearly broken out, and commodity prices are moving back up. 2009 is already the worst year ever for US. Treasury bonds and foreign stock markets are once again outperforming ours.
This week President Obama claimed that failure to pass his economic stimulus bill will have catastrophic consequences for the U.S economy. The reality is the catastrophe will be far greater with his plan than without it. If the trends of January and early February of 2009 continue, the rug will be completely pulled out from beneath the U.S. economy, and the full cost of the President's "economic depressant package" will be apparent to all.
If foreign capital does not continue to pour into Treasuries, interest rates and consumer prices in the U.S. will soar. At that point, we will finally be confronted with the real crises that I have long predicted. When the day of reckoning arrives our policy response will be critical. If we continue on the course our new President has mapped out, the catastrophe will far exceed the scope of any he hoped to avoid.
to buy Peter Schiff's best-selling, latest book, "How
an Economy Grows and Why It Crashes." For a look back at how Peter
Schiff predicted the current crisis, read his 2007 bestseller
"Crash Proof: How to Profit from the Coming Economic
here] More importantly, don't wait
for reality to set in. Protect your wealth and preserve your
purchasing power before it's too late. Discover the best way to buy gold at
www.goldyoucanfold.com, and subscribe to
our free, on-line investment
to buy Peter Schiff's best-selling, latest book, "How
an Economy Grows and Why It Crashes."
For a look back at how Peter Schiff predicted the current crisis, read his 2007 bestseller "Crash Proof: How to Profit from the Coming Economic Collapse" [buy here]
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, and subscribe to our free, on-line investment newsletter.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange