Thursday, January 31, 2013

Schiff on Inflation

Peter Schiff was recently interviewed by Doug Casey.

As part of our mission to be able to say "I told you so," this is one of those posts that we'll point to someday in the future.

Is your standard of living worth 26 minutes?

I think that one of the biggest casualties, other than individual liberty, is going to be the value of Dollar.  And people have to recognize that the Dollar is going to lose a lot of value.

Because how does the government plan on financing all of its expenditures?

Because they are not going to raise taxes on middle class Americans.  No party wants to be the party that officially raises taxes.  They are willing to raise taxes on rich, which doesn't take a lot of political courage, cause if you're taxing 1% that is 1% of the vote.

But I think we're already bleeding the rich enough.  In fact I think these tax hikes on the rich are going to be counter-productive in that they might produce less tax revenue.  Not only from the rich, but from the people that the rich don't employ.  Or the businesses they don't start.  Because they are discouraged from doing so by the tax code.  Or they focus their efforts abroad rather than here in the US.  Or they start looking for tax shelters, you know, ways to reduce their income as opposed to ways to grow their income.  That could backfire.

But I think a lot of this is going to be financed by the central bank.  Inflation is the tax they are going to levy.  And its going to hit everybody.  But you can avoid it.
As an investor you want to look at the world the way its going to be.  You want to anticipate the future.  Because then you can kind of anticipate the re-evaluation of assets.  You want to buy something when its cheap and not a lot of people own it, so that you can sell it when it is expensive and everyone wants it.  You have to anticipate how things are going to change.  And what I think the biggest change that is coming in the global economy is going to be a realignment of living standards in the global pecking order.

America has been on the top for a long time.  And for a while, we deserved it.  We were the wealthiest people on Earth because we were the freest people.  We had limited government, and because government was small we created a lot and produced a lot.  And we exported our products all over the world.  And we had huge surpluses that we invested around the world.  And we were wealthy people because we deserved it.  That is not America today.

Today, America's standard of living is a result of debt.  We are no longer freer than a lot of other people.  We have more regulations.  We have higher taxes.  We don't have surpluses.  We have enormous deficits.  We are the world's largest debtor.  We owe more money than all the other countries combined.  We have a trade deficit with every country we trade with.  We are hemorrhaging red ink.  We've lived this phony standard of living based on the perception that we're good for our debts.  Which we're not.  We borrowed way more money that we can realistically repay.  In fact, Congress has even said this to our creditors.  We say every time if we don't raise the debt limit we're going to default.  Which means we can't pay our bills.  We can only borrow money because we can't pay.  But that means the bills get bigger and bigger and bigger. 

I think we're going to have a collapse in the dollar, and that is going to dramatically reduce the standard of living of Americans.
We touch on some of these concepts in our recent article on Inflation at The American Thinker.

U/T: ZeroHedge

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