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Peter Schiff For Senate!

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brian0918

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For an Objectivist forum, some of the members here have a disgusting lack of knowledge of macro economics and fiscal policy.

Also, to misunderstand Peter so much as to think he doesn't understand capitalism doesn't demonstrate Peter's writing/speaking abilities, but rather the reader's lack of reading comprehension... EDIT: and misplaced knowledge of past economic history.

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For an Objectivist forum, some of the members here have a disgusting lack of knowledge of macro economics and fiscal policy.

Rather than making this sort of blanket statement, why don't you point out specific examples where people have displayed a "disgusting lack of knowledge" and challenge those statements? From what I've seen, there are a lot of members on this site who have forgotten more about economics than most people will ever know.

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Schiff doesn't claim they will. He has repeatedly asserted that the Chinese will eventually start buying the stuff that they currently export to the US, once they realize we're incapable of repaying our debt. That is how they will dump the dollar.

Brian,

I can show you at least a couple different Schiff scenarios for China to begin dumping dollars. I don’t want to get into what China “realizes” today or may "realize" tomorrow, but I have't seen any evidence that they are either as ignorant, gullible, or stupid as that argument requires.

Are you aware that China’s surpluses are China’s policy, not ours? For example:

Europe’s trade with China is characterised by two trends. First, it has been steadily growing in recent years. Europe is China’s largest export market and is the fourth most important destination for EU exports. That is the good news. Second, the bad news: China has been building up a huge bilateral trade surplus towards the European Union.

http://www.voxeu.org/index.php?q=node/1150

The 2007 Euro – China deficit was 55B Euros (same source). Not as big as our is, but significant. The Euro is also a manipulated currency.

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He definitely could be a better writer and speaker. But at least he knows what capitalism is. I don't know where you get the idea he doesn't understand capitalism.

Eiuol,

You and others have stated repeated ly that Schiff knows what capitalism is. Admittedly, I have not looked at all of his writings or videos. I did read his book closely and reviewed it. The book contained no positive statement about capitalism. In it he did say that money expansion was bad, and gave a backhanded swipe at regulation, but nothing really positive about capitalism. The index contains no reference to capitalism. Why do you say that he knows it?

Where did he say there would be less stuff? He only said that you don't *need* to buy stuff. That doesn't mean that you *shouldn't ever* buy stuff.

Regarding “less stuff”, my complaint is his emphasis. I can’t tell if he realizes that capitalism will produce more or not. Schiff doesn’t say. An advocate of capitalism would say that the initial purchase of less stuff would lead to a better standard of living. Capitalism is good for you. Schiff, being quiet, leaves people in the position of wondering if Schiff is advocating sacrifice like Obama.

I can't think of anything the US produces that is of greater value than other countries. Maybe software, but besides that... "Nothing" of value would be a poor word choice, but it's safe to say this is what he means.

I am sorry, Eiuol, your not being able to think of anything is not an argument. That foreigners and U.S. citizens find plenty to buy from the U.S. is all the evidence necessary.

A currencies worth, as with anything in an economy, is what people are willing to trade for it. Gold as a currency is most important because it cannot be manipulated in the long run. It makes people independent of the government. The dollar is not a “pretend” value because Kyle could buy lunch (a good one I hope) with it. The lunch was real. The problem with a fiat currency is not its medium of exchange aspect, but its failure as a store of value. You can still buy some pretty good stuff with the dollar, just not as much as you used to, and less tomorrow.

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To the sense of your comment, I agree. I agree wholeheartedly. I am not sure that Schiff means that, however. If you are right, good.

I know that's what he means if you listen to his radio show he talks about it constantly.

From his Europac website:

We borrowed and spent too much money, bought goods we couldn’t afford, built houses we couldn’t carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.

But Schiff does not say that the dollar is going to fall (Sometimes he does become unclear what he really means, however. He once said what sounded like the “crash” would be slow.). The word Schiff uses is "Crash". He says "dump". He does not mean that the dollar will annually drop 10%, 15%, or even 25% against other currencies. He says it will loose all value. The sky will fall.

He never said it would 'lose all value immediately' he has said that hyper-inflation is a possibility depending on the Fed but he does expect the dollar's value to decline once foreign creditors realize that they won't get their money back.

The actions that may be taken in China and Japan will, I am sure, be responses to the dollar's troubles, and Obama's insanity. Neither set of leaders, however, is going to cause an additional mess in their own economies, and undercut their reserves by "dumping" the dollar and causing a "crash". Schiff claims they will.

No one is saying they are going to dump the dollar overnight. However, newly elected Japaneses officials including the new PM has stated they will no longer devalue the yen for the sake of export companies. They also indicate that their history of buying US treasuries will most likely end also. Once countries like Japan stop lending us money the US government will no longer afford bailouts and zero percent interest rates.

I will allow that something out there could cause what no one really wants, a real "crash". Just like our recent panic, things can go crosswise fast and badly in our over regulated world, and none of the leaders understands economics. But, that isn't Schiff’s claim either.

That's one of the very cores of Peters messages.That the Fed and the government have no understanding of whats happening.

From Peter's article "The Experts Never Learn"

As congress and the president consider the best policies to right our economic ship, it is my hope that they will pursue a strategy first developed by Seinfeld character George Costanza. After wisely recognizing that every instinct he had up unto that point had ended in failure, George decided that to be successful, he had to do the exact opposite of whatever his instincts told him. I suggest our policymakers give this approach a try.

I would go back and read his book again. Your writings show that you have little understanding of his work. I would recommend going to the Europac website and reading his article archive. You can also download his radio show on iTunes under the tile "Wall Street unspun". Peter Schiff is a defender of reason, laissez faire capitalism, a student of Austrian economics and a great admirer of Ayn Rand. If you can find anything that points to the contrary I would be interested in hearing it.

Edited by Rearden_Steel
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For an Objectivist forum, some of the members here have a disgusting lack of knowledge of macro economics and fiscal policy.

Also, to misunderstand Peter so much as to think he doesn't understand capitalism doesn't demonstrate Peter's writing/speaking abilities, but rather the reader's lack of reading comprehension... EDIT: and misplaced knowledge of past economic history.

Andrew,

The economics of von Mises, Bernstein, Salsman, Anderson, Hazlitt, et al., do not have a use for the concept of “macro economics”. It is a term invented to try and avoid the problems that Kaynes, Roosevelt, and the liberals encountered with economics. Probably, it is an anti-concept. Also, the issues we are discussing concerning money have to do with monetary policy, not the federal budget per se.

More importantly, please, just a little respect for your fellow forum participants.

My comments concerning Schiff are not meant to disparage his political ambitions. From what I can tell, he would be an improvement, especially considering the current representation from CN. I think that it is important that we, Objectivists, have a clear understanding of the limitations of Schiff’s views.

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I would go back and read his book again. Your writings show that you have little understanding of his work.

I intend to look at his other writings. Your comment about my reading his book, however, while probably well intended, didn't come off too nicely.

If you go to the blog listed below, you will see that I looked at his book (the original) closely. I will have the chance to see his revised edition soon.

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I am sorry, Eiuol, your not being able to think of anything is not an argument. That foreigners and U.S. citizens find plenty to buy from the U.S. is all the evidence necessary.

I didn't mean that statement of proof of anything, just that since I can't think of something, and you can, I'd like to know what the US is the top producer of or what amazing product that I can only find from a US company. SoftwareNerd's link was good for that though (I only skimmed through it though)

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Peter's exact quoted answer to the question posed was:

"We need to have a sound economy before we can afford the luxury of troops around the world."

That's an awful statement, as it stands. If he completed it, and explained which specific deployments are not in the US's best interest to have, and which are, then you should post that.

Until then, if I were to take your word on Peter Shiff's official stance on foreign policy, I could not support him. The various US governments (federal, state, local), waste many trillions of dollars every year on social programs, while the defense budget for supporting foreign deployments is under 1 trillion. If his reasoning is that we must give up legitimate military actions, meant to defend this country, because we can't afford them, then he is dead wrong. If he means that we must give up those that aren't meant to defend this country, then he should say so, and call for giving them up permanently, on principle, not try and link his intentions to the bad economy, and imply that the cuts would not be permanent.

The US can easily afford a comprehensive, proper self defense policy, if we give up on all the other waste. What it cannot afford is to sacrifice that, for the sake of political pragmatism. If Peter Schiff intends to cut legitimate military spending before completely abolishing all illegitimate spending first, to try and reduce spending out of some real or perceived sense of economic emergency, then his ideology is not compatible at all with Objectivism. And, since he is referring to American foreign policy as a luxury, not as a vice, his choice of words leads me to believe that this is exactly what he is saying.

Peter Schiff should come out and clarify his stance on foreign policy and its purpose, just as he should say exactly what other government spending he supports. So far, it seems that he wants less spending, but that he's a pragmatist, and he wants to cut all types of spending by just enough to save the economy, based on no particular principles. If that is the case, this country is probably better off without him (and with Vince McMahon's wife-or horse) in the Senate. He should instead stick to being a good economist, rather than a bad politician.

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The US can easily afford a comprehensive, proper self defense policy, if we give up on all the other waste. What it cannot afford is to sacrifice that, for the sake of political pragmatism. If Peter Schiff intends to cut legitimate military spending before completely abolishing all illegitimate spending first, to try and reduce spending out of some real or perceived sense of economic emergency, then his ideology is not compatible at all with Objectivism. And, since he is referring to American foreign policy as a luxury, not as a vice, his choice of words leads me to believe that this is exactly what he is saying.

This would make him one of the many species of Libertarian out there, and this is *exactly* the issue I broke with them over--the belief that there was *no* proper foreign policy other than surrender and hope they stop bothering us. (After the break I realized the problem had deeper roots.)

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I didn't mean that statement of proof of anything, just that since I can't think of something, and you can, I'd like to know what the US is the top producer of or what amazing product that I can only find from a US company. SoftwareNerd's link was good for that though (I only skimmed through it though)

The question isn't if the U.S. has anything that is best in the world. Schiff argues that we have become a service economy, no longer manufacture, and thus have nothing to offer the world. That is chapter one of his book. His statements are pretty clear on that point. So are the little stories he offered.

My contention is that we are competitive in many areas. We may be the best in many of those areas, but I would leave that consideration to experts in those areas. I am saying that the actual export figures undercut his stance. For example, from the U.S. Export Fact Sheet of the International Trade Administration:

Capital goods represent the largest goods export category (end-use) for the U.S. with $469.5 billion worth of exports in 2008. The U.S. trade surplus in capital goods rose $12.8 billion to reach $15.7 billion in 2008, up from a surplus of $2.9 billion in 2007.

or

Industrial supplies the largest growth category in dollar value represented $387.3 billion of U.S. exports in 2008, up $70.9 billion (or 22.4 percent) from 2007.
.

I will allow that the businessman buying millions of dollars of machinery is going to buy the best at the price he can afford. I will accept his judgment. The U.S. is nearly every nation's biggest trading partner. There is a reason for that. It is a valid reason.

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Peter Schiff is a defender of reason, laissez faire capitalism, a student of Austrian economics and a great admirer of Ayn Rand. If you can find anything that points to the contrary I would be interested in hearing it.

Bruce,

You and I are defenders of reason, laissez faire capitalism, students of Austrian economics, and great admirers of Ayn Rand, aren't we? Yet, that doesn't give either of us a free pass, does it? No, and it shouldn't.

I am afraid that some have read his book and looked at all the things they like and ignored the rest. I am not being critical of that attitude. We all want to find people out in the world that we can like and support. Schiff's targets are certainly our targets. My complaints are that his arguments concerning the U.S. economy are often unsupported leaps. Maybe he feels that he needs to make these big claims to gain attention. I, as a defender of reason, etc., want my arguments to be as sound as I can make them. I am sure that is true of all on this forum.

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Bruce,

You and I are defenders of reason, laissez faire capitalism, students of Austrian economics, and great admirers of Ayn Rand, aren't we? Yet, that doesn't give either of us a free pass, does it? No, and it shouldn't.

I am afraid that some have read his book and looked at all the things they like and ignored the rest. I am not being critical of that attitude. We all want to find people out in the world that we can like and support. Schiff's targets are certainly our targets. My complaints are that his arguments concerning the U.S. economy are often unsupported leaps. Maybe he feels that he needs to make these big claims to gain attention. I, as a defender of reason, etc., want my arguments to be as sound as I can make them. I am sure that is true of all on this forum.

Ok lets look at your criticism:

one, neither the dollar or the U.S. economy is worthless

Peter never said that the dollar holds no value but rather that it is overvalued that our level of production is no where near the value of the dollar. I would like to see your source where he says the Dollar has no value. If you want a summary of Peters reasons the dollar will lose value look here.

two, there is a better explanation as to why foreigners accept and keep the U.S. dollar

You need to specify your explanations and how it conflicts with Schiff's. Schiff gives several reasons why foreigners hold our debt. One of the main reasons is to create a favorable trade balance for exporter nations. However, most of the real wealth in the US has dried up and this practice is losing validity.

three, there will be no “crash” of the dollar as it would be a crash of the world system (not just “dislocations”).

Peter says there will be a decline in the value of the dollar however he states it will take place over time and that we may see inflation as high as the double digits.

The dollar will decline a significant amount though ( I think you agree with that) its impossible to maintain its current value (even though its fallen 40% since 2001).

However it won't hit other countries as hard as the US. For one they haven't accumulated the amount of debt that we have. Many countries unlike the US especially in Asia still have the capacity to produce wealth. It won't happen over night however their is signs of it every where even today.

Mitul Kotecha, head of currency strategy at Credit Agricole, said:

"The real risk remains that we get a dollar rout. The news from from the US is consistently negative and investors are actually not overly long euros."

Decoupling will continue particularly in China, which developed to the point where they no longer depended on the US for growth, and has increased domestic consumption will replace lost U.S exports. China just last year had bought more cars domestically then the US for the first time in history. Some goes for household appliances like refrigerators.

From Crash Proof:

There is no question that in the short run, by allowing the U.S dollars to collapse there will be some disruptions of Asian economies. Of course, there will be some initial losers, particularly among those Asians who currently profit from the present arrangement. However, these profits come only at the expense of greater losses borne by the entire Asian population.
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three, there will be no “crash” of the dollar as it would be a crash of the world system (not just “dislocations”).

He is an example from crash proof I think is relevant.

"Let us suppose six castaways are stranded on a desert island, five Asians and one American. Their problem is hunger. So they sit down and divide labor as follows: One Asian will do the hunting, another will fish, the third will scrounge for vegetation, the fourth will cook dinner, and the fifth will gather firewood and tend the fire. The sixth, the American, is given the job of eating.

So five Asians work all day to feed one American, who spends his day sunning himself on the beach. The American is employed in the equivalent of the service sector, operating a tanning salon that has one customer: himself. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table built by the Asians specifically for this purpose.

Now the American is practical enough to know that if the Asians are going to continue providing banquets they must also be fed, so he allows them just enough scraps from his table to sustain them for the following day's labor.

Modern-day economists would have you look at the situation just described and believe that the American is the lone engine of growth driving the island's economy; that without the American and his ravenous appetite, the Asians on the island would all be unemployed.

THe reality, of course, is that the American is not the engine of growth, but the caboose, and the best thing the Asians could do would be to vote the American off the island--decoupling the caboose from the gravy train. Without the American to consume most of their food, they'd have a lot more to eat themselves. Then the Asians could spend less time working on food-related tasks and devote more time to leisure or to satisfying other needs that now go unfulfilled because so many of their scarce resource are devoted to feeding the American.

Ah, you say, but that analogy is flawed because in the real world the United STates does pay for its "food" and Asians do receive value in exchange for their effort.

Okay, then let's assume the American on the islands pays for his food the same way real-world Americans pay, by issuing IOUs. At the end of each meal, the Asians present the American with a bill, which pays by issuing IOUs claiming to represent payments of food.

The castaways all know that the IOUs can never be collected since the American not only produces no food to back them up, but also lacks the means and the intention of ever providing any. But the Asian accept them anyway, each day adding to the accumulation of worthless IOUs. Are the Asians any better off as a result of this accumulation? Are they any less hungry? Of course not.

Suppose an Asian Central Banker suddenly washes up onto the island and volunteers his services. Now each day the central banker taxes the other Asians on the island by confiscating a portion of the scraps of food the American throws them each day from his table. The central banker then agrees to return these morsels to the other Asians each day, in exchange for each Asian's daily accumulation of the American's IOUs, less a small percentage for himself because he, the central banker, also has to eat.

Does the existence of a central banker change anything? Do the Asians have any more to eat because their own central banker gives them back a portion of the food he took from them in the first place? Do the American IOUs have any more value because they can now be exchanged in this manner? Of course not.

The Asians will be better off without us

The real world lessnon is that if it doesn't make sense for the six make believe Asians to support millions of real-world Americans. The fact that they do so in exchange for worthless IOUs in no way alters this reality.

There is no question that in the short run, by allowing the U.S dollars to collapse (in effect, voting millions of Americans off the island), there will be some disruptions of Asian economies. Of course, there will be some initial losers, particularly among those Asians who currently profit from the present arrangement. However, these profits come only at the expense of greater losses borne by the entire Asian population.

In the end, the cessation of America's excess consumption, which is not a benefit Asians enjoy but rather a burden they now disproportionately bear, will be the best thing that can happen to them. Like the serfs being liberated from their lords, their scarce resources will be freed to satisfy their own needs and desires, and their standards of living will rise accordingly. As their savings finance increased capital investment, rather than being squandered on American consumption, their future standards of living will rise that much faster as well."

Edited by Rearden_Steel
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This would make him one of the many species of Libertarian out there, and this is *exactly* the issue I broke with them over--the belief that there was *no* proper foreign policy other than surrender and hope they stop bothering us. (After the break I realized the problem had deeper roots.)

He has already stated numerous times from sources already in this forum that he feel National defense and protection of people is the only job of the government. He stated on Freedom watch that Missie defense is the type of thing the government should be spending money on. He does point out the problem though that we can't defend ourselves with money borrowed from our perceived enemy. It hinders our defense to be paying for the fight against terrorism in the middle east when were paying for it with money borrowed from Saudi Arabia.

Edited by Rearden_Steel
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He is an example from crash proof I think is relevant. ..(long Shiff quote, would make my post way too big, read it in Rearden's original post)...

I have only read the quote you posted, so maybe there is some kind of disclaimer in the rest of the book, but if there isn't, this seems about as great a world view as that of Michael Moore, or any other collectivist.

There are individual Asians, selling goods in exchange for money from individual Americans, on the open market. Those dollars are then sometimes exchanged, by the Asian governments, who issue local money for the dollars (which is used to pay for wages, and local resources). But the dollar (and US debt) reserves of the various Central Banks in Asia, and not just Asia, exist for a reason (specifically these Central Bank's ability to bail out their own currency, by buying it in exchange for those dollars, if there's a problem), they are the only thing that is allowing their currency to have any value at all. I guess it kinda works the way gold would, except maybe not as well. (but I am getting in over my head with this last sentence, and gold is more complicated than that, maybe someone can clear that up)

For America, on the other hand, the thing that is allowing the dollar to have value, is the stable, productive economy itself. The American government's " solid currency reserves" consist of actual value, in the hands of future generations of Americans, who can at any time be taxed for this actual value, which then can reinforce the dollar, which then can be used by Asian (developing world, really) governments to reinforce their currencies.

If the American economy goes (and not just crashes, but if it declines consistently), then the dollar will no longer be sustainable (the US won't be able to pay its IOU's). If the dollar crashes, with it the Asian currencies their dollar reserves are supposed to back up crash as well. (Note: if this isn't true, please jump in here, and explain why, because I can't think of anything)

What has happened lately is that the American government has become reliant not only on a tax on the work of Americans, but also on an indirect tax on everyone who is holding dollars (inflation), including Asians. But whatever currency Asians hold, they are being taxed, because those currencies are all government issued and inflated too, and on top the risk of them crashing is also higher. So, even with somewhat higher inflation, the US can still get away with having people hold dollars, because their rational self interest is to choose the dollar (and the US debt, risks, and taxes that come with it), rather than another government's currency, which only relies on dollar reserves anyway. That has to be so, why else would people export to the US, if it doesn't work for them? [in other words, individual businesses are free to vote the fat American off the island at any time, and they vote fat people off the island all the time- no one is iexporting anything to Venezuela or Iran for instance, except if they pay with oil -, so why don't they this time?]

Now, if the Asian governments start reducing their dollar reserves, they better have something to replace it with, or they're going bye bye. I honestly doubt there is something, but that's a bit over my head.(again, how would gold work?)

If you think the euro will work, make your case. (I know the pound would be a worse one, since Britain still has a little higher debt levels than the US.) But please, no island analogies with fat Americans eating all the Asians' lunch, because that simply isn't the case. The free US economy is still very productive (which is why the dollar is still a global currency), and any analogy that fails to differentiate between the private sector and the government is rubbish.

Edited by Jake_Ellison
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I have only read the quote you posted, so maybe there is some kind of disclaimer in the rest of the book, but if there isn't, this seems about as great a world view as that of Michael Moore, or any other collectivist.

Come on Jake that's hyperbole and you know it. However, I assume your not understanding the principle behind it. So here we go:

There are individual Asians, selling goods in exchange for money from individual Americans, on the open market. Those dollars are then sometimes exchanged, by the Asian governments, who issue local money for the dollars (which is used to pay for wages, and local resources). But the dollar (and US debt) reserves of the various Central Banks in Asia, and not just Asia, exist for a reason (specifically these Central Bank's ability to bail out their own currency, by buying it in exchange for those dollars, if there's a problem), they are the only thing that is allowing their currency to have any value at all. I guess it kinda works the way gold would, except maybe not as well. (but I am getting in over my head with this last sentence, and gold is more complicated than that, maybe someone can clear that up)

You forget that the dollars that the Asians are getting were funded through service sector that received them from a bank( loans..ect) which was back by the fed who printed them backed by US treasuries bills that were borrowed from the country that's receiving the dollar. We didn't actually produce anything with that dollar so the value was never increased. That's the problem with a "service economy" which is why a service economy is a phony one because it relies on increasing its debt in order to keep it running rather than producing actual wealth.

For America, on the other hand, the thing that is allowing the dollar to have value, is the stable, productive economy itself. The American government's " solid currency reserves" consist of actual value, in the hands of future generations of Americans, who can at any time be taxed for this actual value, which then can reinforce the dollar, which then can be used by Asian (developing world, really) governments to reinforce their currencies.

Where are the reserves getting their value? What are we producing that is going to account for that amount of wealth? The amount of debt the U.S. Treasury needs to issue to finance day-to-day operations will drive up bond yields, and hence borrowing costs across the spectrum. Further, the amount of debt will eventually pull down the value of the dollar and the drop could be acute if foreigners who have gobbled up the bonds over the years take a pass. That would ultimately force the Fed to step in, print money and act as a buyer of last resort.

If the American economy goes (and not just crashes, but if it declines consistently), then the dollar will no longer be sustainable (the US won't be able to pay its IOU's). If the dollar crashes, with it the Asian currencies their dollar reserves are supposed to back up crash as well. (Note: if this isn't true, please jump in here, and explain why, because I can't think of anything)

I'm not exactly sure what your saying here.

What has happened lately is that the American government has become reliant not only on a tax on the work of Americans, but also on an indirect tax on everyone who is holding dollars (inflation), including Asians. But whatever currency Asians hold, they are being taxed, because those currencies are all government issued and inflated too, and on top the risk of them crashing is also higher. So, even with somewhat higher inflation, the US can still get away with having people hold dollars, because their rational self interest is to choose the dollar (and the US debt, risks, and taxes that come with it), rather than another government's currency, which only relies on dollar reserves anyway. That has to be so, why else would people export to the US, if it doesn't work for them? [in other words, individual businesses are free to vote the fat American off the island at any time, and they vote fat people off the island all the time- no one is iexporting anything to Venezuela or Iran for instance, except if they pay with oil -, so why don't they this time?]

That is the question isn't it. The answer is when we started down this road thirty some odd years ago there was wealth and saving to be had in the US. However, today this wealth has been squandered. The truth is that their finally getting to the point were they realize that we are unable to to pay off this debt. They have been doing it to maintain a favorable trade balance but they have seemed to have gone to the well one too many times.

Now, if the Asian governments start reducing their dollar reserves, they better have something to replace it with, or they're going bye bye. I honestly doubt there is something, but that's a bit over my head.(again, how would gold work?)

If you think the euro will work, make your case. (I know the pound would be a worse one, since Britain still has a little higher debt levels than the US.) But please, no island analogies with fat Americans eating all the Asians' lunch, because that simply isn't the case. The free US economy is still very productive (which is why the dollar is still a global currency), and any analogy that fails to differentiate between the private sector and the government is rubbish.

No the Dollar was accepted as a global currency because the US government promised that for every thirty five dollars a country held that it would be redeemable for one ounce of gold. We welshed on that promise long ago. Why do you think they are discussing a replacement for the dollar at the G20 as we speak. The replacement for reserve currencies around the world will be more dynamic. The Chinese are already buying massive amounts of gold and Japan is talking about using a basket of currencies.

To get a better understanding of all this I highly recommend reading Thomas Woods "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse". This book should answer some the questions you have as well as discusses Peter Schiffs example you took offense to. I always have a hard time explaining economic issues and don't always have the time to write lengthy post like these.

Edited by Rearden_Steel
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I just don't understand the notion that the "service sector" is a second-class value. There is only so much coffee one can drink. When one gets wealthy (by world standards), one can afford to drink that coffee in Starbucks, where the bulk of the costs in the supply-chain are no longer classified as "agricultural", but as "service". Wealthy countries can spend over 10% of their annual production to doctors and nurses and so on: service. They can go on holidays: service. If one projects a world that is extremely rich, one will find that costs of agricultural goods and manufactured good form a decreasing proportion of overall cost of living. This is the nature of development. It is a good thing that today a single U.S. farmer can feed so many non-farmers.

A strong economy is characterized by a high proportion of services, coupled with a high proportion of saving and investment. One can fault the U.S. on the latter score.

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I just don't understand the notion that the "service sector" is a second-class value. There is only so much coffee one can drink. When one gets wealthy (by world standards), one can afford to drink that coffee in Starbucks, where the bulk of the costs in the supply-chain are no longer classified as "agricultural", but as "service". Wealthy countries can spend over 10% of their annual production to doctors and nurses and so on: service. They can go on holidays: service. If one projects a world that is extremely rich, one will find that costs of agricultural goods and manufactured good form a decreasing proportion of overall cost of living. This is the nature of development. It is a good thing that today a single U.S. farmer can feed so many non-farmers.

A strong economy is characterized by a high proportion of services, coupled with a high proportion of saving and investment. One can fault the U.S. on the latter score.

Every sophisticated economy needs a manufacturing base before it can begin any focus on service-sector industries. If your service-sector economy collapses, then you need a springboard of manufactured goods industries, which have intrinsic value (versus a service which is valuated in non-physical properties).

Jake: I think you're missing the general point. There would be nothing wrong with the amount that we produce in this country if we consumed far less to match this rate of production. Unfortunately, our dollar's strength is not representative of the country's productive prowess, but rather of the fact that it is the reserve currency of the world. Countries with a high savings rate and an extremely productive output can handle having a currency with no intrinsic value, such as Japan and New Zealand. But a country like the United States, which does not have much of a manufacturing base anymore, does not have anything to leverage against big government. In our case, the dollar's decline will occur because of the fact that we cannot "afford" the economic policies we're undertaking - assuming that the world doesn't dump the USD as the reserve currency before that can happen.

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To Rearden Steel:

Here's what, I believe, you (and Schiff) are ignoring, when attacking a service based economy that's relying on imports, in general, in the global economy.

First off, you're ignoring the crucial distinction between government services funded by debt, and private services. The former is a waste, and a drain on everyone, both Americans and Asians who deal with Americans.

Second, what the actual, immediate benefits are, to a developing country's economy, if they have a higher than one export/import ratio with the US. Not only is US money flowing into the country, which by itself is more stable and reliable than the local currency, but with that US money being invested, comes US expertise in both business and specific industry. For a developing country that just came out from years of Communism or some fascist dictator, those things matter far more than the unfortunate reality that the US government is a leech on anyone who must deal with American citizens and American dollars.

So those poor Asians are benefiting enormously from their economies becoming linked to the American economy. All that production, that they are exporting to the US, would not exist at all, if there was a law passed that exports have to equal imports. If a developing country exports more to than it imports from a developed, "service-based" country, that is natural, and they both profit. The reason: capital (and expertise)flowing into the developing country does not show up on the statistics about imports and exports For all the exported goods that come into the US, Americans invest into the developing country, buy land, build factories, etc. While seemingly the production moves from America to Asia, in fact the two economies are simply united, and can no longer be considered separate.

Would your theory that imports of goods have to equal exports also apply to Manhattan Island vs. the rest of the US? Is it a problem that Manhattan has not exported as many goods to Iowa as Iowa exported to Manhattan? What exactly does Manhattan produce anyway, except various services, such as banking, entertainment, hotels etc.?

To Andrew:

No, I am not missing the fact that consumption should stay at the level of production. What I am missing is the reason why in Schiff's analogy the American simply does nothing, while the Asians feed him for no reason, and more importantly: why both Shiff and Rearden seem to be saying that exports = imports is the same as production=consumption? How exactly do you measure intellectual production, and how much of it was exported from the US, to China, by Americans who are making money over there right now?

Here's an example:

If I live in America, but invest and make a killing in China, in a factory that exports tires to the US, why do you count the tires, but not my time and capital investment that was exported to China, when deciding if the American economy is viable or not? (I'm not saying anything about the US economy being viable -it's not, as long as the government keeps wrecking it with regulations and debt-, just asking about your methods of deciding)

Edited by Jake_Ellison
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To Rearden Steel:

Here's what, I believe, you (and Schiff) are ignoring, when attacking a service based economy that's relying on imports, in general, in the global economy.

First off, you're ignoring the crucial distinction between government services funded by debt, and private services. The former is a waste, and a drain on everyone, both Americans and Asians who deal with Americans.

Second, what the actual, immediate benefits are, to a developing country's economy, if they have a higher than one export/import ratio with the US. Not only is US money flowing into the country, which by itself is more stable and reliable than the local currency, but with that US money being invested, comes US expertise in both business and specific industry. For a developing country that just came out from years of Communism or some fascist dictator, those things matter far more than the unfortunate reality that the US government is a leech on anyone who must deal with American citizens and American dollars.

What you don't realize is that the private services are being funded by foreign debt through the t-bills and the fed. The money that's there for goods and services would not be near as close to where it is without foreign debt. The amount of wealth and production in this country comes no were close to the amount were accurately consuming.

It's not that services are bad it's that the U.S. service economy was a sham. It's very possible to have a service economy, but America did not and does not have it. It has a fake economy.The only truly profitable service industry in America is the entertainment industry. Movies, games, books, and porn. These things are Made In America goods.Everything else is either a scam (Wallstreet) or unprofitable (Detroit) or non-existent (The South) or communist (agriculture, dept. of defense, government jobs in general).

Schiff is arguing that the trade deficit + exponentially increasing debt + inflation means that our service economy is phony. If the services we export were of equal value to the products we import there would be no deficit. The problem is that we have been borrowing money in order to service ourselves, then we pretend that consumption = GDP.

The issue is that people need to buy goods, not just services. If the only thing Americans make are services then goods must be produced elsewhere. This means that the net money flow is out of the US; i.e. the huge trade deficit. If Americans manufactured goods then the money would stay within the economy.

So, if money flows out of the economy but doesn't flow back, what happens? The available money supply in the US drops, so the value of the dollar increases -- deflation, the bane of Keynesian economists. To compensate, the Fed prints more money so the money that people hold loses value while the economy in the US remains functional.

Since people holding cash don't want to lose value they have to invest it. Where is the best place to invest it? Back in the US, the "powerhouse" of the world. So the foreign governments and investors lend the money we gave them back to us. Now, not only do we owe these investors the original principle back, but we also owe them interest. Since the net flow of wealth is out from the US, how do we do we pay them back? Inflation! We pay them back with worthless money.

So, as you can see, the answer is always inflation, a terrible and invisible tax that destroys all wealth.

Edited by Rearden_Steel
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No, I am not missing the fact that consumption should stay at the level of production. What I am missing is the reason why in Schiff's analogy the American simply does nothing, while the Asians feed him for no reason, and more importantly: why both Shiff and Rearden seem to be saying that exports = imports is the same as production=consumption? How exactly do you measure intellectual production, and how much of it was exported from the US, to China, by Americans who are making money over there right now?

Here's an example:

If I live in America, but invest and make a killing in China, in a factory that exports tires to the US, why do you count the tires, but not my time and capital investment that was exported to China, when deciding if the American economy is viable or not? (I'm not saying anything about the US economy being viable -it's not, as long as the government keeps wrecking it with regulations and debt-, just asking about your methods of deciding)

Schiff's Asian-American island example is meant to demonstrate the absurdity of the claim that the Chinese economy relies on the US economy - basically, his views on people who don't agree with decoupling. The five Asians work all day, and the American enjoys the fruits of their labor. The fallacy is that the Asian workers need that American to eat, otherwise they wouldn't have jobs. But the fact is that the Asians are just as capable of enjoying the fruits of their labor as the American is, so there is no productive use in having him on the island.

Yes, this is exaggerated because, obviously, America DOES make SOME stuff still. But remember that Peter writes those books for the every-day person - he writes much more straight-forward in his Euro Pacific Capital articles and newsletters.

Peter does not say imports = exports. He doesn't talk about American exporting all that much, actually. Peter's talking more about saving/producing vs. consuming/borrowing - not exporting vs. importing.

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Every sophisticated economy needs a manufacturing base before it can begin any focus on service-sector industries. If your service-sector economy collapses, then you need a springboard of manufactured goods industries, which have intrinsic value (versus a service which is valuated in non-physical properties).

....But a country like the United States, which does not have much of a manufacturing base anymore, does not have anything to leverage against big government...

Andrew, this claim that the US doesn't manufacture anything anymore is a common misconception. In fact, the real value of US manufactured goods has generally grown. I don't doubt that this most recent recession has caused declines (as recessions in the past have done), but prior to that, 2006 was the peak year of US manufacturing output in real terms. However, this output is being created more efficiently so that manufacturing employment in the US continues to decline. Of course, this is what tends to get media coverage and public attention.

"Remarkable increases in American productivity due to technology, capital investment (in no small part because we run merchandise trade deficits), and entrepreneurialism mean that “America” can produce far more goods today with far fewer people than at any point in its history. To wit, American manufacturing output reached an all time high last year, as did revenues, profits and worker compensation."

http://www.aier.org/research/commentaries/...f-manufacturing

http://www.uschina.org/public/documents/20...nufacturing.pdf

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Yes, this is exaggerated because, obviously, America DOES make SOME stuff still. But remember that Peter writes those books for the every-day person - he writes much more straight-forward in his Euro Pacific Capital articles and newsletters.
I think this exaggeration is what really puts me off Schiff. Not only does America make some stuff, it make a whole lot of stuff. Most of the things it does not make, it ought not make: i.e. it does not make business sense to do so. If the Chinese start to change their behavior, you will also see the relative advantages change, and you will see a very quick re-emergence of certain U.S. based businesses.

On the other hand, there's no question that the U.S. government ought not to be running deficits, and that the piper will have to be paid one day. When this comes, inflation will be one way of addressing it. In addition, taxes will go up. Chances are pretty good that taxes will go up even for the middle-class in some hidden ways: e.g. via increased payroll taxes and lower social-security benefits for anyone who is well above the poverty line.

None of this has to happen, because people can change. However, both parties want to exacerbate the problem. The GOP not only want to spend more, but they also keep chanting a tax-cutting mantra which takes us further into debt. So, given that scenario, it is reasonable to believe that we will see higher interest rates and higher inflation before voters in the U.S. are finally convinced that they have to do something: one way or the other.

So, (back to the topic of him running for congress) if Schiff is going to be a voice in Congress for fiscal responsibility, that can't hurt. On other issues -- war, etc. -- I don;t have a clear picture of his views.

Edited by softwareNerd
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Andrew, this claim that the US doesn't manufacture anything anymore is a common misconception. In fact, the real value of US manufactured goods has generally grown. I don't doubt that this most recent recession has caused declines (as recessions in the past have done), but prior to that, 2006 was the peak year of US manufacturing output in real terms. However, this output is being created more efficiently so that manufacturing employment in the US continues to decline. Of course, this is what tends to get media coverage and public attention.

"Remarkable increases in American productivity due to technology, capital investment (in no small part because we run merchandise trade deficits), and entrepreneurialism mean that “America” can produce far more goods today with far fewer people than at any point in its history. To wit, American manufacturing output reached an all time high last year, as did revenues, profits and worker compensation."

http://www.aier.org/research/commentaries/...f-manufacturing

http://www.uschina.org/public/documents/20...nufacturing.pdf

The CATO institute has been putting out this kind of documentation for some time now, but I hate to say I cannot agree with your analysis of the data. For one thing, a lot of "manufacturing output" measurements, like the manufacturing index, simply measure the aggregate of multiple aspects of manufacturing industries, such as price, employment, inventories, etc. Manufacturing sectors could certainly be performing better as a whole without actually increasing gross output.

I'm not writing off your claims, just your evidence provided for those claims. The CATO institute has been arguing this position for some time without ever actually providing the data needed to confirm its findings.

I think this exaggeration is what really puts me off Schiff. Not only does America make some stuff, it make a whole lot of stuff. Most of the things it does not make, it ought not make: i.e. it does not make business sense to do so. If the Chinese start to change their behavior, you will also see the relative advantages change, and you will see a very quick re-emergence of certain U.S. based businesses.

On the other hand, there's no question that the U.S. government ought not to be running deficits, and that the piper will have to be paid one day. When this comes, inflation will be one way of addressing it. In addition, taxes will go up. Chances are pretty good that taxes will go up even for the middle-class in some hidden ways: e.g. via increased payroll taxes and lower social-security benefits for anyone who is well above the poverty line.

None of this has to happen, because people can change. However, both parties want to exacerbate the problem. The GOP not only want to spend more, but they also keep chanting a tax-cutting mantra which takes us further into debt. So, given that scenario, it is reasonable to believe that we will see higher interest rates and higher inflation before voters in the U.S. are finally convinced that they have to do something: one way or the other.

So, (back to the topic of him running for congress) if Schiff is going to be a voice in Congress for fiscal responsibility, that can't hurt. On other issues -- war, etc. -- I don;t have a clear picture of his views.

What does the US manufacture? Computers? No, that's India and Pakistan. Clothing? No, that's Asia - even couture is hard to come by in the US these days. Cars? That's Japan and Europe for the most part. Food? Much of our agriculture has been sent south of the border. Whatever the US does manufacture, it's not nearly enough. Whatever the US does specialize in, other nations specialize in more (and more profitable) industries.

For a country that spends the most money, and borrows the most money, we sure don't show for it through productive capacity. Otherwise, how come we have trillions of debt looming above the clouds? I think we can agree there.

The only reason why it "does not make business sense" to manufacture many of the items that China does, is because the policies of the US have forced this type of production out of the country. You'd better believe that many of the specializations of China would be produced cheaper and better in a free market.

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