Monday, November 17, 2008

A Big Pill

Although I never cared much for Ron Paul on a lot of issues, his former economic advisor Peter Schiff was spot freaking on in 2006:
Whether it starts in 07 or 08 I think is immaterial. I also think its going to also not just for quarters but for years. The basic problem with the US economy is we have too much consumption and borrowing and not enough production and savings and what’s going to happen is the American consumer is basically going to stop consuming and start rebuilding his savings especially when he sees his home equity evaporate.

And when you have the Economy 70% consumption you can’t address those imbalances without a recession. Rather than the recession being resisted, it should really be embraced because the disease is all this debt financed consumption. The cure is that we stop consuming and start saving and producing again, and that’s a recession. Sometimes medicine tastes bad but you gotta swallow it.

To which our newly ordained Dear Leader says:

The government will do ``whatever it takes'' to revive the economy, Obama said. That means ``we shouldn't worry about the deficit next year or even the year after,'' he said, adding that in the short term, ``the most important thing is that we avoid a deepening recession.''

I don’t know if this is the most prudent course of action, later on in the video Schiff makes the case that we need to get the deficits under control, otherwise inflation will explode and do more damage than to the economy than any correction. Unfortunately as spot on as Schiff was, I think that people will continue to ignore him at our peril.

No one wants to acknowledge the hard truth that we have collectively been living beyond our means for the past 20 years, it will only get harder to correct this imbalance the longer we allow it to continue.

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