Peter Schiff, author of the book Crashproof, was recently interviewed on CNBC debating Stephen Leeb. Peter’s position was that the US economy was crashing just as he had predicted, but, in regards to the bailout, the cure would be far worse than the disease. Schiff correctly points out that the money for this bailout will have to come from somewhere, and that somewhere is going to be the Federal Reserve’s printing press. Schiff in further on target when he says that we got into these positions by bailing out the economy before, and that what we really need in this country is a recession. My favorite point of Schiff is how eleoquent he is in simply pointing out that “We’re broke.” That sums up our position pretty well. When you look at it, how can we bail ourselves out of the poor house? Isn’t it just going to take the long hard road of saving your earnings? That’s what household’s have to do. Shouldn’t it be that way for nations as well?
I had real problems with Stephen Leeb’s position, and I wanted to go through it point by point. First, he argues that at the cost of only $700 Billion, the US taxpayers would have the chance to make an investment in something that might just show a profit. He’s not specifying whether he’s talking about a nominal profit or a real one. Just showing a nominal profit (i.e. you receive more dollars than you purchased it for) means very little in a highly inflationary scenario. It’s only a real profit that counts, and how exactly are we going to show a real profit by using the printing press to go further into debt to buy other people’s debt?
Leeb’s main position was that this $700 billion bailout would somehow save trillions of dollars for the owners of real estate and equities. What Leeb doesn’t explain, is how $700 billion is going make up for the trillions lost. Is it really that easy to make money for everyone? Just throw some money into a bailout and far more than that will be made on secondary markets? How will that work? If it’s really that easy, why haven’t we been doing it all along? The truth is, it’s never that easy. You can’t predictably add some money to one side of the equation, and far more money to be made on the other side. And since that isn’t the case, the question becomes why exactly we the taxpayer need to share in the loses for foolish homeowners and bankers. I’m not even going to reply to Leeb saying that the market will be freer from government control by empowering the Treasury to directly intervene in it.
Lastly, Leeb makes an open appeal to preserving the American Empire. When countries such as Russia have stopped backing down, it’s a sign that we need to… to… bailout Wall Street? Leeb’s position is very insightful here. We need to bail out the American markets so that our international competitors will continue to bow to our will. Should our markets fail, we won’t command the necessary stature on the world stage. All we’re missing here is Leeb making an empassioned plea with tear in eye as he looks to the camera and says that “We must bail out Wall Street… for America.”
But what is it that makes America so great? Why do we deserve to be able to command other nations of the world? If it’s because of our freedoms, as our President likes to say, then we shouldn’t worry about losing our stature so long as our freedom is not endangered. If it’s because of our society is the greatest bastion of capitalism ever, then let the participants in the market place learn that they need to be able to look after themselves and not count on handouts from the US taxpayer.
On the other hand, if it’s just because we’re the biggest and strongest right now because we’ve used a stretched a fiat currency to its breaking point financing the largest military in the world, then we have no moral grounds upon which to command the rest of the world to do our bidding. And perhaps a bailout will help to prop up the empire as Leeb is arguing, but there can be little doubt that the ultimate fate of all this will be exactly as Schiff predicts. A total collapse of the US dollar and the economy that relies on it.