Peter Schiff Argues We Will Have A Depression Worse Than The Last & States His Case

Discussion in 'Economics' started by ByLoSellHi, Oct 19, 2008.

  1. His views and words - not mine. Interesting commentary. He wrote this, in part, to rebut Barron's lighter take this weekend, I do believe.

    Not Your Grandfather's Great Depression
    by: Peter Schiff October 19, 2008

    The current stock market crash has spurred a vital national debate about the causes and catalysts of the Great Depression. The dominant school of thought believes that the stubborn refusal of then president Herbert Hoover to intervene after the stock market crash of 1929, and his preference for free market solutions, led directly to the ensuing decade-long catastrophe. Through this lens, our leaders assure us that the most recent raft of government measures will prevent another episode of bread lines, Hoovervilles and pencil salesmen. As usual they have it completely wrong. In my view, the Depression was created precisely because Hoover followed the path that our government is now taking.

    When the stock market bubble of the Roaring Twenties (which was created as a result of the loose monetary policy of the newly created Federal Reserve) finally popped, Hoover would not allow market forces to correct the imbalances. His policies were aimed at propping up unsound businesses, artificially supporting prices, particularly wages, and providing Federal funds for public works projects. These moves went well beyond the progressive reforms of Teddy Roosevelt, and established Hoover as the most interventionist president ever up to that point. In fact, much of what eventually became the New Deal had its roots in Hoover's policies.

    However, at the time, there were those who recommended a different course. Andrew Mellon, the long-serving Secretary of the Treasury whom Hoover had inherited from the prior two Republican Administrations, was labeled by Hoover as a "leave it alone isolationist" who wanted to "liquidate labor, liquidate stocks, liquidate the farmers, and liquidate real estate." Hoover would have none of it. In fact, during his nomination speech for his second term, Hoover bragged, "We determined that we would not follow the advice of the bitter liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction."

    Hoover chose to ignore the sound advice of his Treasury Secretary (in contrast to today where the current Treasury Secretary Henry Paulson is actually leading the charge over the cliff) and instead used every tool at his disposal to "fix" the problem. As a result, rather than allowing a recession to run its course, with healthy and rapid liquidations of the mal-investments built up during the boom, Hoover inadvertently created what became the Great Depression.

    When Roosevelt took office he continued the same failed policies only on a grander scale. The magnitude and the idiocy of many New Deal programs, such as the wage and price setting National Recovery Administration (NRA), compounded the problems. So while Mellon's advice would have caused a sharp but relatively brief economic downturn (which occurred after the Panic of 1907, for example), the Depression plodded on for nearly a decade until the country began gearing up for the Second World War.

    In an amazing feat of revisionist history, somehow Hoover's interventionist policies have been completely forgotten. It is taken as fundamental that his inaction led to the Depression and Roosevelt's "heroics" got us out. Unfortunately, since we have learned nothing from history, we are about to repeat the very mistakes that led to the most dire economic circumstance of the last century.

    A major difference however, is that the structure of the U.S economy today is far weaker than it was in the fall of 1929. Years of reckless consumer borrowing and spending, and enormous trade and budget deficits have resulted in a hollowed out industrial base and an unmanageable mountain of debt owed to foreign creditors. Instead of the support of a strong currency backed by gold, the public now must deal with a modern Fed free to print as much money as politicians want. So rather than getting the benefits of falling consumer prices (as happened during the Depression), consumers today will contend with much higher consumer prices, even as the economy contracts.

    With Barack Obama now waiting in the wings to conjure a newer New Deal, far larger than even FDR could have imagined, and at a time when we cannot even afford the old one, this will not be your grandfather's Depression. It may be much worse.
  2. dinoman


    Just look at world history and it screams depression. The biggest question is when.
  3. W4rl0ck


    Schiff = Gold nut.
  4. Although I'm not a gold bug, prudence dictates that I have a small stash of gold and other things just for emergencies.
  5. In the 30's they went with protectionism, we won't do that, they worried about inflation, we won't do that until later, it's a lot different this time.. I'm kind of looking for a parallel banking system to the current one to appear, maybe in cyberspace.. there are a few in operation already but the ones I've seen have been personal scale, maybe it can be expanded to business scale... and hopefully it will be light on derivatives.......
  6. lrm21


    I am still not convinced that we are heading for a depression.

    However, if people truly really decide to stop buying frivolous crap then we are in the works for a massive shock.

    Been to a mall lately or just go down to your local strip mall.

    How many stores do you need to sell the same crap. There have been sectors of the economy where there is alway consolidation. Except for the retail sector and I believe that is what is coming next and given that retail and the consumer are a big chunk of our economy there could be some serious pain.

    Just think of the number of stores that sell the same crap and the footprint and penetration

    CVS and Walgreens, Walmart Pharmacy, Local Supermarket Pharmacy. I live in a section where I have more CVS and Walgreens than starbucks, I think I saw a starbucks close and they opened a CVS in it.

    Casual ware, Teenset, Womens Clothing, Kids, Baby, Pregnant, its all the same crap made from thailand, peru or china. Teen stuff is maybe more insulated assuming mom and dad have jobs.

    Dollar Stores, although some may be a hedge because of the need for cost savings, a lot of these stores just bring in cheap crap on consigment.

    All the crap specialty Boutiques in the mall that sell shit like kangaroo skinned belts and matching wallets. that you think who goes in there its got be some time killer for a bored wife with a rich husband who said "sure honey Ill help you setup your own store"
    In no particular order
    - Pet Boutiques
    - High End Baby Clothes
    - Italian/French/"Insert your fashionista country of choice/ Accessory Boutique
    - Handcrafted Mexican/Greek/Chinese/African Pottery
    - High Stationery Stores
    - High End Cutlery Cooking Supplies
    - High End confectionery, fudge, choclateirs
    - Candles, Aromatherapy, Scent Stores

    Sporting good stores, everyone is fat, and we are only going to get fatter.

    Home Furnishings and Appliance retailers have already been obliterated the pain will continue

    High End Retailers, Nordstroms, Bloomingdales, ZFA,

    Electronic retailers. I think everyone in America has at least 3 plasma screens in their homes.
    Bulk Retailers, Sams Club, BJs, Costco. People will be so tight they wont be able to front the money to stock up on crap for 6 months, to save 15%

    Coffee Shops that aren't Dunkin Donuts. Hard to justify $4 for a latte when you have no job.

    Mall Kiosks. C'mon if there is anything thats a true sign of money to burn its anything that is sold at a mall kiosk. The worst of the worst crap. Photo-Tshirts, Chines Robo toys, imitation jewelry, time share condos, bling for your cell phone,

    - this is the short list.
  7. That's my sentiment.

    There is so much overcapacity in the U.S. supply chain, that if Americans tightened their belt significantly, they'd still get by fine, while putting 25% of retailers out of business.

    Just look at the shit that Americans buy. They buy so much shit, that they run out of space to store their shit, with garages, basements, and attics overflowing, which is what gave rise to the storage shed business.
  8. did you read his book BiLow ?
    I did few days ago and although he has been right on major developements like the financial crisis his investment advices are horrible.
    It shows again that even a bright and open mind like Schiffs can draw wrong conclusions because it does not count if he is right as long as he can't make money out of it.
    He said to invest in Commodities and commodity related stocks and as we know now this was the worst choice possible.
    The emerging markets where he also wanted to put his money instead of US fell even more.
    There is also no explanation why the dollar is soaring where instead every Doomer expects it to evaporate. I have to admit that I also did not see the dollar coming so strong but my experience is that if nobody can explain a strong move it is likely to continue on in this direction.
    Maybe its better to wait now until the dust settles and where the money is going and then follow the herd for a while. Its just to difficult right now especially with gouvernemts going back to Bretton Wood maybe.
  9. trendy


  10. #10     Oct 20, 2008