I’m thinking about going to worship at the church of Peter Schiff
The economic disaster we’re in the middle of - this guy predicted it all before it happened, and people laughed. He predicted what would happen, how it would happen and why it was going to happen, and people didn’t listen. In his most recent posting at the Motley Fool, he says a lot of things that make perfect sense to me. Most sensible of all is the commentary about the credit crisis.
Look, I am the furthest thing from an economist, but to me what’s happening in the credit market needs to happen. Very few people are saying that. There’s all this bailing out, and trying to keep things running, when actually things really need to change. Things need to fail if they’re badly built, not be propped up on some kind of crazy scaffold made of toothpicks and the taxes we hope will be paid by our grandchildren. (Read the entire piece at the link below. Bolding mine.)
Peter Schiff: The Humpty Dumpty Economy
We Shopped and DroppedThis week, the bankruptcy filing by Circuit City and a profit warning from Best Buy, served as proof positive that America’s national shopping spree is over. As I have long said, the business model of importing cheap goods for Americans to buy with credit cards was unsustainable. We were told to “Shop till we dropped,” and we did.
Americans two primary sources of spending money, home equity extractions and unlimited credit card availability, have been shut down. With only dwindling paychecks to rely on, Americans are justifiably economizing. As a result, many more retailers will file for bankruptcy over the next few years, and those that remain solvent will only do so by drastically cutting their capacity.
In a desperate move to arrest this necessary process, Treasury Secretary Paulson announced his intention to use part of the $700 billion TARP (Troubled Asset Recovery Program) funds to re-liquefy consumer lending.
Paulson observed that “illiquidity is raising the cost and reducing the availability of car loans, student loans, and credit cards”, “creating a heavy burden on the American people” and reducing jobs. While all of this is true, this is precisely what needs to happen. Americans need to reduce their spending on all of these things, and market forces are in the process of bringing that change about. By encouraging even more borrowing, Paulson’s plan will aggravate the crisis.
Along those lines, our nation’s various bank regulators issued a joint press release this week that “encouraged” banks to make more loans and to reduce their lending standards if need be. Since lax lending standards are one of the primary reasons that those banks “needed” to be bailed out in the first place, it is lunacy to now encourage them throw good money after bad. More risky lending (and currently nearly all lending is risky) interferes with the market’s attempts to rebalance our economy along the lines that Paulson himself admits is necessary, and sows the seeds for even bigger bailouts in the future when this new crop of loans go bad.
Coming from someone who doesn’t carry credit card debt at all and has paid off her students loans, it may be easy to say that there should be a tightening in those credit markets. But hell, you think I don’t want a new car? You think I wouldn’t like to get a Home Depot credit card and replace my faulty appliances? I am putting off things that aren’t emergencies because I can’t afford them, and that’s how it’s supposed to work. Making it easy for us to borrow money again will just let the average person go right back to the “buy now, pay forever” model that they’ve been running for the past twenty years. If there’s one thing that gas prices have taught us it’s that we only care about solving problems when there’s a crisis. Once it’s not hitting us directly the impetus to solve the problem permanently goes away. Sorry, but America needs to feel the credit crunch - not just have it bandaged over with play money that Paulson looted from our great-great grandchildren.
It all makes me want to start stocking up on bottled water and dry rations. I don’t think it’s going to look any better a year from now - I hope like hell I have a job and I hope that my salary will still be enough to pay my mortgage plus the cost of basics like food and heating. But I am really, really worried about that.
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You can imagine how I feel about people who whine that they maxed out their cards getting a hugemongous plasma TV.
Rant over, now. Whew. Sorry, I got started and couldn’t stop.