US Dollar Held Up by Confidence, Not Reality: Peter Schiff

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July 18, 2006 at 10:44 AM #6918

powayseller
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An excerpt of a July 13, 2006 article from Peter Schiff from Euro Pacific Capital ( I read his site every day, but don’t subscribe or buy from him).

QUOTE
….In the last five years, crude oil prices have risen more than four-fold, with no end to the rally anywhere in sight.

Over the years, the government has anaged to “solve” economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected. President Bush demonstrated this to perfection in his televised speech earlier this week. Despite a building sense among the population that the economy is shaky, the President was able to effectively say, “What are you complaining about, look how good you have it? Inflation is just 2.5% and the economy is growing at 4% per year. Why back in the seventies and eighties people had to struggle with 8% – 10% inflation and 1%- 2% growth.” The reality is that today’s generation is experiencing similar struggles.

Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors?

From the government’s perspective, all the misrepresentations are part of a giant confidence game that is meant to keep all the markets, most of them foreign, from wising up.

A fiat-based monetary system only functions as long as confidence is maintained. The minute it’s lost, the whole scheme implodes.

Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government’s highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it.
END QUOTE

July 18, 2006 at 11:14 AM #28718

VCJIM
Participant

Amen.

July 18, 2006 at 11:34 AM #28722

waiting hawk
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I was on his July 12th’s radio brodcast lol. If you listen to it you will know which I was. I couldnt shut up.
http://www.europac.net/radioshow_archives.asp

July 18, 2006 at 11:39 AM #28723

masayako
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I can honestly tell you. The current U.S economy is so shaky to the point I simply don’t dare to invest in any U.S. equity at this point until I see a clearer big picture.

I envision a recession starting end of 2006 to early 2007. I simply don’t see how the economy can hold up when tons and tons of people are trying to cash in with their houses at this point.

Let me tell you one interesting thing I observed. Past Saturday, me and my wife went to check out rental homes. Rental proprties mgmt company now organizing OPEN HOUSE for rental homes because the demand is so high. We visited the house at 2:00pm and there are literally more than 20 people waiting for the agent outside the house!!!

This is not the interesting part. The funny part is that there are 2 OPEN HOUSE for sell (one on the side, one across the street) and have absolutely NO ONE visit.

People already in panic. That’s for sure. Everybody want to cash in including the people who bought way before 1998 housing bubble simply because no one want to see their equity disappeared.

July 18, 2006 at 11:46 AM #28724

waiting hawk
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Multiple bids for rentals lol. Hey you never know. Hope the sellers saw that. I have some money in gold but I would like Chris to jump on and tell us which foreign investment would be really really be safe so I can park my ING cd out of the dollar. I do not like how the fed measures inflation and believe they are way way off. Only +.2 CPI for June? No way… If they included energy and housing (not rents) then it would be way higher. Where has MR. Chris been?

July 18, 2006 at 1:27 PM #28734

powayseller
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masayako, that is a very important story, that must be relayed to the media. This is huge!!!!

I am getting more worried about holding US $, and wondering how safe is my cash investment in CDs. I am not doing anything, because I don’t know what is better. But I am definitely scared holding 95% of my assets in US $. I don’t see that Bernanke or Bush have any plans at all for our future. I see inflation, $200 oil, massive foreclosures and bank failures starting in 2008 at the latest, and NO plan for any of it. Add to that the Social Security and Medicare problems, deficit, budget debts, flat wages, and that there is little prospects for any new jobs that will pull us out of this. Once we can no longer buy and sell homes to each other, what in the world will we do? I am getting scared.

July 18, 2006 at 3:04 PM #28744

Diego Mamani
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C’mon people! SUVs are necessities?

Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors?

We are an overindulged society that feels entitled to have everything and have it NOW. We have such huuuge salaries compared to the rest of the world, that if we were to drive smallish cars, live in houses of under 1650 sf, and not buy every stupid NEW gadget under the sun, we would be able to save enough to retire in our 40s. We are just spoiled, we want to comsume, and then consume some more. And what’s all this junk we consume? 4000 sf MacMansions? Humongous SUVs, PlayStations?, Designer clothes? It’s all junk. By calling them “necessities” we only fool ourselves and fall deeper into debt.

July 18, 2006 at 3:09 PM #28746

waiting hawk
Participant

Having my US CD’s worry me also PS. No clue where else to go thats 100% safe. No FDIC security overseas, but FDIC wont mean much if they print off more money to pay me back, might as well be blank on white lined paper.

July 18, 2006 at 3:48 PM #28749

lindismith
Participant

We are just spoiled, we want to comsume, and then consume some more.

Such a great line! I could not agree more.

I have traveled all over the world, and am always surprised when I return home, and see people popping pills to overcome their depression, going into debt to have a new car, etc, when others in less fortunate places are just trying to figure out where their next 1000 calories are going to come from.

I can honestly say, a lot of it has to do with very, very savvy marketing. It’s very, very persuasive. The only thing that has helped me, is turning off my t.v. I have not watched tv in 4 years. (Ok, some World Cup, and I was completely mesmerized by the ads!)

Do not underestimate how seductive it is. On you, and your children.

July 18, 2006 at 3:57 PM #28750

VCJIM
Participant

Agreed! No TV here for years, and I have sons! My friends think I’m weird because I don’t have TV. I just miss watching sports, everything else I can live with out. Besides, when there are good sporting events to watch, I invite over to my friends’ houses!

July 18, 2006 at 4:14 PM #28757

speedingpullet
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LOL! llndismith, you can count me as a third.

I grew up in London, and while the UK is a First World country, it seems (until fairly recently) that there wasn’t that sort of consume,consume,consume mentality.
Even now, while people have a lot more disposable wealth than they did a few decades ago, people tend not to live ‘beyond thier means’. Lenders are a lot more conservative over there, so its harder to get in over your head.

Not saying its impossible, and they are having a housing boom too, but in most cases mortgage companies won’t allow you to borrow over 3.5 times your annal salary (or 3 times main earner + 2 times secondary earner).

Of course, the UK and the Us are very different from each other, have different histores and economies. I’m not ‘having a go’ at Americans, far from it, i live here now after all, but I have to admit at being shocked at the consumerism over here.

Regarding the TV, my favourite ads are still the perscription drugs they sell on TV, where they won’t even tell you what it is . Apparently, if they name the drug on TV, they also have to tell you the side-effects. So, its easier to say “talk to your doctor about XYZ” and leave out what its for…still makes me chuckle

July 18, 2006 at 4:49 PM #28760

lindismith
Participant

Yes, those drug ads exemplify how seductive advertising/marketing is! People are asking for drugs from their physicians, without even knowing what they are!

I think it is only a matter of time before the UK and the rest of Europe begin consuming like Americans.

It isn’t totally our fault. We have just never really known shortages, like Europeans have. Plus, like I said, marketing is coming at us from every angle here, and we don’t even realize when we’re being sold something (think product placement in movies, fabulous packaging on junk products, web pages that are news, but really they are selling stuff too – MSN homepage for example). Plus, you have to admit, getting something done/purchasing is really easy in the US compared to other countries. Grocery/drug stores open all the time etc. Customer service departments that always answer your call. You can buy a car on Thanksgiving! What other country would open a car dealership on a public holiday???

I have to add here: we don’t get enough time off in this country. We work a lot. And it’s hard to see the forest for the trees when we’re stressed, and being pressured to buy/consume/spend etc. Afterall, that’s why we’re working right?

Consuming is both a hobby and a drug.

We just aren’t used to going without. Our current generations have very little idea what it’s like to go without, and the ones that can remember The Great Depression didn’t pass along what they learned to us, or don’t speak up enough.

In the past, I have had days where I challenged myself to not buy/consume anything for a day. It is really hard.

For those interested, there is a movement against consumerism with participation from these cool folks:
http://www.adbusters.org/metas/eco/bnd/

Amongst other things they bring us, “Buy Nothing Day,” and “Turn Off Your TV Week.”

July 18, 2006 at 5:09 PM #28761

powayseller
Participant

Diego Mamani, are you persian too? From your name, Mamani…

Waiting Hawk, everbank.com, highly rated online bank, lets you buy foreign currencies, FDIC insured. Pretty cool. Some are pro euro, others say the euro will weaken. I say, why not diversify? Is the euro weaker than the dollar? At least Germany, the strongest European economy (and my native country), is a net exporter. Why not hold some euros?

What do you all think about Schiff’s opinion, that the US dollar is propped up only by the government misleading us into a false confidence, because if we all knew the truth about the poor economy, we would lose confidence and our economy would be in turmoil. Foreign central banks don’t have a choice but to invest in T bonds or other US assets, because if they convert the dollar they get from exporting to us, into their own currency, their currency will appreciate and their exports will get more expensive for us, reducing exports. So the T bond purchases don’t mean they trust our economy at all. At some point, the Asian export countries will have to revalue their currency or increase wages, and that will increase prices and reduce exports, but also make them less export dependent, which is a high priority for them. Doesn’t China realize the US is starting a recession, and then who will buy all that stuff?

July 18, 2006 at 5:26 PM #28766

waiting hawk
Participant

PS you have good point and thanks on the bank info. As for Schiff, it is possible that we could be lied to due to my belief that home purchase and energy SHOULD be listed into the inflation measurement cpi. But can the government hold the public down for so long? It would be very doubtful. I am betting my main purchasing power within the US. Peter did state that the items we purchase within the US would go down with the value of the dollar also. We would be most hurt on buying foreign items (everything from China). If rents start raising it would raise the CPI making the fed raise rates again also. So worse case I could use my US currency to buy a US home but fill it with crappy furniture that I would have to make myself (along with a spray painted granite counter top 🙂

My website tracking Temecula and South Riverside County

July 18, 2006 at 5:54 PM #28768

Diego Mamani
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Actually, Mamani is an Andean pseudonym I’m using these days.
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