Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Less Government or Lower Wages? You Decide

Politics / Economic Stimulus Aug 15, 2009 - 12:41 PM GMT

By: Peter_Schiff

Politics

The nationwide revelry surrounding our apparent economic recovery was disrupted this week by the release of lower-than-expected retail sales data. However, rather than sending a chill up the spines of those hoping for a quick end to the downturn, the numbers should be welcomed. Though this may come as a surprise to most observers, lower retail sales are precisely what our economy needs.


To return our economy to health, we must first allow market forces to ring out the excesses of the bubble years. Even government economists acknowledge that this decade’s spending boom resulted from a combination of asset bubbles and the dangerous overextension of consumer credit. Yet the same economists balk at the logical need for spending to drop now that the stimuli are no longer in effect. They argue for the resumption of spending by any means, regardless of its ultimate cost. This is a recipe for momentary gain and lasting pain.

America’s economic vitality will never be restored until we rebuild our savings and pay down our debts. To build back up, we must change the pattern of capital flows from the phony economy. It is a painful process, but one that will leave our economy on a stronger foundation. Unfortunately, Americans cannot accomplish these goals unless they stop shopping, live within their means, and replenish their savings.

Though this may be problematic for retailers, it is beneficial to the overall economy.

But rather than accepting the market’s medicine, our government is overriding its own citizens’ responsible behavior. To do so, it has put borrowed money into consumers’ pockets, and then conjured various incentives for them to go out and spend it. This process requires more government bureaucracy, more debt, and more regulation at a time when we can’t afford any of it.

In contrast, I believe that we must restore the conditions that led to our economic preeminence. We must once again become the leader in economic freedom. This entails dismantling a significant portion of our federal and state governments, repealing countless unnecessary regulations, significantly lowering and simplifying taxes, and reinstituting sound money. If we accomplish these tasks, conditions will be ripe for a lasting recovery that solidifies our place at the top of the global economic totem pole.

However, if we neglect these reforms, and instead continue on our present course of more government and less freedom, more borrowing and less savings, more spending and less production, then our standard of living is doomed to fall. As the world cuts us off from its savings and production, we will finally be forced to live within our means. On a practical level, imagine living without easy access to the cheap and abundant goods with the “made in China” label. Imagine Walmart rolling up prices every week, while wages continue to fall. This pain would hit every American, not just retailers.

There are two ways to rebalance the American economy. The right way is to restore competitiveness through diminished government spending, deregulation, lower taxes, and higher savings. Higher savings will facilitate capital formation, and lower taxes and fewer regulations will allow that capital to improve the competitiveness of American labor. Improved productivity and capital investment will translate into higher real wages and pave the way to higher future living standards.

Alternatively, if we don’t rebalance our economy on these terms, our foreign creditors will do it for us – and they may have no compunction about imposing harsh measures. This tough medicine will be delivered in the form of declining value for the dollar. This will effectively raise consumer prices and interest rates for all Americans and dramatically lower the real value of our wages. In other words, balance will be restored from abroad by forcing our living standards to match our diminished industrial capacity. If we cannot compete based on lower taxes and increased capital investment, our only alternative will be to do so based on cheap labor.

Though president Obama claims that his policies will not raise taxes on average Americans, the unfortunate truth is that the effect of his policies will be to lower wages. The choice is simple: either we shrink government and enjoy higher wages, or grow government and accept lower wages. As for me, I prefer the former. However, if we do not change course soon, we will all be stuck with the latter.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

For an updated look at his investment strategy order a copy of his just released book ‘The Little Book of Bull Moves in Bear Markets.”  Click here to order your copy now

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in