I first came to national
attention back in 2008 and 2009 when the housing and credit markets imploded.
I became known as the guy that other market "experts" laughed at
when I warned of trouble brewing in the seemingly indestructible American
economy. After the wheels ground to a halt in mid-2008, people noticed that
my book Crash Proof, originally released in early 2007, read like a
detailed preview of many of the events that eventually unfolded.
Three years later I am
now catching heat from many who assume that my predictions actually fell
short. They argue that I was able to anticipate the crash but that I severely
underestimated the resiliency of the American economy. They admit that we
took an "unexpected" blow to the chin, and that it left a lingering
bruise, but they argue that we never hit the canvas like I predicted we would.
However, they mistakenly
assumed that the crash I was warning about was solely a housing led credit
bubble. While that was part of it, I never saw it ending there. The crash
that most concerned me was the one that would result from the government's
response to the initial crisis. My concern was not that our economy would
succumb to the disease that I had diagnosed, but instead would be taken down
by the "cure" that the government unleashed to combat it.
When the government's
delaying tactic, which involves continuous debt accumulation and money printing is no longer tenable, the dollar could collapse,
borrowing costs and consumer prices could soar and the U.S. economy could
implode. That's the real crash that I was warning about, and the one we all
need to be worried about now.
This is the subject of my
new book "The Real
Crash: America's Coming Bankruptcy, How to Save Yourself and Your Country." For now it is just a prophecy but as with my
first book, it soon may be regarded as history. Unfortunately, the policies
of both the Bush and Obama administrations, and the Ben Bernanke led Federal
Reserve, have vastly raised the chances that my catastrophic view will come
to pass. However, it's not all gloom and doom - I devote a large majority of
the book to solutions. The real crash may be inevitable, but what we do in
response is not. We can follow on the path that I recommend back to prosperity,
or we can continue on our current course which I believe will lead to
economic ruin.
When looking back from a
point in the future, I believe that the years immediately after the credit
collapse of 2008 will stand out as a period of dangerous economic negligence.
We have bought ourselves some time by sweeping enormous problems under the
rug. Through a combination of political cowardice, economic ignorance, and
false confidence, we are digging ourselves into a hole so deep that it may
take generations to crawl out.
Most people assume that
half way through 2012 we have made some important positive strides since
flirting with the brink of economic catastrophe in the dark days of 2008.
Although no one is wildly celebrating the below trend 2 to 3 percent GDP growth,
we are continuously reminded that we have turned the corner and that our
situation is better than many other regions around the world. But what has
really changed?
Immediately prior to the
crash, the United States economy was experiencing unprecedented consumer debt
levels, persistently high trade deficits, historically large government
budget deficits, high-energy prices, and a moribund manufacturing sector.
Four years later, all of these problems have gotten worse. And unlike four
years ago, we are now saddled with the highest unemployment rate in
generations and levels of public debt that would have been unimaginable then.
Yes we are no longer technically in recession. But I believe that is just an
illusion created by perhaps the cheapest, and most obvious, trick ever
devised.
I had argued that our
economic growth prior to the crisis was largely a function of the real estate
bubble. When that bubble popped, I knew that the economy would have to
shrink. And that's just what happened. From 2008 to 2009 our national GDP (of
around $14 trillion) contracted by $212 billion. To prevent any further dips,
the government aggressively spent, borrowing heavily to do so. To the relief
of just about everyone, these moves did stop the nominal contraction. From 2010
to 2011 the U.S. GDP expanded by $502 billion, and from 2011 to 2012 it added
an additional $508 billion. All told, from the end of 2008 the U.S. economy
added a cumulative $798 billion in GDP. But those gains came at a very high
price.
The combined federal
deficits for the same time frame come in at a staggering $4.2 trillion! In
2009 alone the feds chalked up a chart breaking $1.4 trillion in debt (the
deficit was a mere $161 billion in 2007). In other words, we borrowed five
times more than we grew. This "strategy" for growth is no different
from an individual who loses half his income, but continues to spend by
running up credit card debt. Could this be described as economic growth? But
that's just how we are describing our current economy, and for the large
part, expert economists, politicians, investors, and academics all agree.
I felt certain before
writing Crash Proof that the government would never let the economy
contract far enough to restore balance and sustainability. I knew the
spending and deficits would head off the charts. I thought those realities
would push down the dollar and cause foreign creditors to shun American
government debt. However, I did not factor in the reprieve we have gotten
from the false perception that Europe is in even worse shape than we.
As the curtain eventually
falls on the drama unfolding in Europe, the world will refocus its attention
on the more spectacular events in the U.S. The sovereign debt crisis that is
now playing out in Europe will cross the Atlantic, and when it opens here the
Real Crash may indeed finally begin. The average American will
have a front row seat but will hardly enjoy the show.
To save 35% on Peter
Schiff's new book, The Real Crash: America's Coming Bankruptcy - How to
Save Yourself and Your Country, order your copy today
Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and
silver dealer selling reputable, well-known bullion coins and bars at
competitive prices. To learn more, please visit www.europacmetals.com or call (888) GOLD-160.
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