Peering Into The Abyss by Peter Schiff
(2009-03-29 at 10:47:09 )

Peering into the Abyss - by Peter Schiff - from LewRockwell.com

For a few fleeting, horrifying moments this past week the fault lines that
underlie the global economic crisis erupted into plain view. With deft and
quick effort leaders in Washington, Europe and Asia papered over the
fissures and fears largely subsided. But the shock of plain truths which
resulted in violent currency movements are the latest reminder that the
21st century economic order will bear little resemblance to the world we
now know.

The tremors began in Beijing, where an essay from the governor of the
Peoples Bank of China seemed to favor the creation of an IMF currency to
replace the U.S. dollar as the worlds reserve. In Europe, the rotating
president of the European Union, outgoing Czech Prime Minister Mirek
Topolanek, characterized the American plan to combat the widening global
recession as the road to hell. At the same time, British Member of the
European Parliament Daniel Hannan made headlines the world over with his
stinging rebuke of the inflationary and debt-focused policies of the
current UK government.

As a result of these clearly voiced frustrations, the U.S. dollar suffered
a drubbing. However, Treasury Secretary Geithner and his ministerial
counterparts in Berlin, Paris and London did their best to convince every
one that the world is pulling together as one to combat this economic
crisis. The charm offensive was effective in restoring calm.

Given the size and scope of the remedies that the Obama Administration is
cajoling the world to adopt, it is likely that the unease will grow until
many countries emerge in open revolt to American plans.

President Obama and the majority of our leadership on both sides of the
aisle are confident that the right mix of monetary and fiscal policy can
restart the spending party that defined America for a generation. And as
the bleary-eyed revelers wisely reach for a cup of black coffee or stumble
into a rehab center, Obama is pouring grain alcohol into the punch bowl
hoping to lure the walking zombies back onto the dance floor. Europe and
Asia fully understand that Obama will ask them to lend the booze.

Washington is telling us that our problems result from a lack of consumer
spending. Therefore, the solution is for government spending to pick up
the slack. However, if Americans are too broke to spend, then how can our
government spend for us? The only money they have is taken from us through
taxation. To postpone immediate tax hikes, adding interest for good
measure, Washington plans to borrow more from abroad. However, if our
foreign creditors refuse to pony up, much of the money will simply be
printed instead.

Printing money is merely taxation in another form. Rather than robbing
citizens of their money, government robs their money of its purchasing
power. Many people assume that if government provides the funds we can
spend our way back to prosperity. However, it is not money we lack but
production. If the government simply prints money and doles it out, we
will not be able to buy more stuff; we will simply pay higher prices. The
only way to buy more is to produce more. It is production that creates
purchasing power, not the printing press!

Our current predicament resulted in part from our efforts to maintain
consumer spending at unsustainable levels, primarily by the reckless
extension of consumer credit. Pushing up consumer credit to levels not
supported by market realities required government subsidies and guarantees.
In addition, Wall Street pitched in with securitization and credit default
swaps, which created a false sense of confidence among our creditors that
high-risk consumer loans could actually be repaid. However, now that all
those gimmicks have blown up, the entire farce has been exposed. There is
simply no way to sustain an economy based on consumer credit.

The Administration argues that more debt will restore growth which will
then allow the repayment of borrowed money. First, our government has
never, and will never, repay anything. Second, the assumption that
additional borrowing and spending will restore growth is flawed. In fact,
more consumer debt and government spending will undermine our economy and
restrain growth.

To solve our problems we must first come to terms with their source. That
is what the voices from abroad are telling us. We borrowed and spent our
selves to the brink of bankruptcy, and now we must save and produce our
selves back to prosperity.

Of course, this simple solution is rejected by Keynesian economists who
insist that we must keep spending. The Paradox Of Thrift, as they call it,
holds that if we stop spending the recession will worsen. While this is
true, it is hardly a paradox. As they say in the fitness game, No Pain,
No Gain. No one said this was going to be easy, but the only way we can
rebuild a viable economy is to let the phony one collapse. If we follow
the Keynesians, the fault lines will continue to widen until our wealth,
our lifestyle, our very ability to prosper is swallowed up. The calls from
abroad will only get louder until we face this ugly truth.