In the bowl, hand on the chain

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A reader of this blog, Nicolas Nilsen sent me an interesting video where, a couple of years before it happened, stockbroker-agent-provocateur, Peter Schiff, in Roubini mode, correctly predicted the disaster we are entering into now. The video appears to be a montage of Schiff predicting and other "prestigious" analysts literally laughing in his face.

Let's look a the video:

Wow.

Bang on.... and the best parts are all these jerks laughing at him.

Now Schiff's analysis is that, and I quote his Wikipedia article:

The US consumer in the world, saying that the US consumer thinks he's doing the world a favor by consuming what the rest of the world produces. Schiff is quick to point out that this relationship will come to an end, in his view, much sooner than people imagine, and with negative consequences for the US. Schiff has been quoted as saying: "Consumption is its own reward for Production" -- meaning that without production, the US cannot indefinitely sustain its ongoing consumption. Schiff, and other adherents of Austrian economics, promote savings and production as "the engine of economic growth -- not consumption".

Now up to here I agree totally with Schiff. I would add that in my opinion the United States at this point is a Ponzi scheme of cosmic proportions. Here is how Schiff would fix it:

Schiff has said on numerous occasions that the current economic crisis is not the problem; it is the solution. According to him, the transition from borrowing and spending to saving and producing cannot be accomplished without a severe recession, given the current imbalances of the US economy. But according to him, that transition needs to happen. He also thinks the government is doing no one a favor by trying to "ease the pain" with stimulus packages, bailouts and such. Schiff believes these actions will only make the situation worse and possibly result in hyperinflation if the government continues to "replace legitimate savings with a printing press."

It is when Schiff gets to the remedies that, while I agree that they are logical, I can't believe they will ever work, simply because people like the Americans, precisely because they have been raised, encouraged, nay brainwashed to consume endlessly on credit, are not going to tolerate the puritanical pain implicit in Schiff's solutions. As I have written recently, I also fear that hyperinflation is a real danger and for the same reason I doubt Schiff's remedies will work: the politicians will not be able to stop their printing money to try to keep consumption afloat.

Let's have another look at the figures we saw the other day:

The bailout has cost more than all of these big budget government expenditures - combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

Obviously there is no relation in value here, the bailout is being paid for with funny money. When I look at those figures I am afraid that the dollar is already worthless and I am just waiting to see how long it will be until the world finds this out and will no longer accept them in payment for goods that Americans no longer produce themselves (almost everything).

Where I disagree totally with Schiff and the whole Austrian School is that government is "the problem" or with my admired Paul Krugman that half-assed Keynesian money printing is going to fix it all. We are looking at a situation with all the ingredients necessary for fascism, even if it is dressed up in trappings of democratic government.

In many parts of the world people are going to have another hard look at socialism, but I can't imagine (yet) what it would take for Americans to get there. What progressives are going to have to organize themselves to do in the coming years is to prevent the United States from sliding into a major war.

When I look at the pain in store for Americans even my "inner Lenin" shrivels up and if I could kiss the economy and make it well I would. However... What I think or wish is not going to change anything.

Like a mule in a hailstorm we are just going to have to stand here and take it. DS