Skip to comments.They Just Don't Get it
Posted on 03/08/2008 5:31:18 AM PST by Travis McGee
Prior to my last appearance on CNBC in October 2007, I had made more than 50 appearances on the network over the prior two years. In those segments, I repeatedly exposed the superficiality of our prosperity, described the American economy as a house of cards, pointed out that borrowing and spending were a ticking time bomb rather than a viable plan for long term economic health, and explained how investors could prepare for the tough times ahead. At the time, those forecasts were met with ridicule and led to my being nicknamed Dr. Doom. Now that these predictions have come to pass, most on CNBC now claim that no one saw it coming!
In my 2006 and 2007 on-air appearances, to a chorus of sneers and laughter, I predicted the bursting of the housing bubble, the collapse of the subprime mortgage market, the credit crisis, tightening lending standards, waves of defaults, bankruptcies and foreclosures, weakness in financials, retailers and homebuilders, stagflation, surging gold, oil and other commodity prices, soaring federal budget deficits and a collapse in the value of the U.S. dollar. You would have thought that some of the reasons I gave for making those predictions would now be given some credence. They have not.
The current line at CNBC is that, prior to the unexpected contagion emanating from the subprime mess the U.S. economy was experiencing a Goldilocks era of optimal health. They now believe that if the Fed and the Government can divine the right combination of fiscal and monetary policy, Goldilocks will once again be blissfully picking daisies or more precisely, buying SUVs. Unfortunately, as I said then, Goldilocks was, and still is, a fairy tale. In fact, the unfolding economic disaster is a direct consequence of the misguided faith placed in that absurdly optimistic parable. And since they were incapable of diagnosing the disease, is it any wonder that their cures are completely ineffective?
This lack of understanding is further confirmed by the skepticism with which the mainstream financial community still regards my diagnosis. For example, in a Feb 22, 2008 article in TheStreet.com, entitled Dr. Doom Zeros in on Inflation, Mike Holland, a CNBC regular leveled two common criticisms often used to discredit me. Holland says investors who listened to Schiff throughout the recent bull market missed out on some attractive returns in the stock market and A broken clock is right twice a day. If you say things are going to be bad long enough, eventually you're going to be right."
What attractive returns does Holland think my clients missed out on? Those who followed my advice invested in foreign stocks, bonds and currencies, as well as precious metals, oil and other commodities. Investors who listened to me instead enjoyed much greater returns by participating in the real bull markets. Its amazing how few people have managed to figure this out!
The stopped clock analogy is one I have been dealing with for years. Those using it maintain that my early warnings invalidate my forecasts. It is precisely because my warnings were so early that they were so valuable to investors. In addition, such charges assume that the current downturn is unrelated to those warnings and that my critique of the U.S. economy was inaccurate until now. My critics, the real stopped clocks, still do not understand that the phony prosperity they were defending and that I was challenging lies at the root of the current crises. When the bubble was still inflating it is understandable that those trapped inside viewed me as a stopped clock. However, now that it has burst, it is amazing how many still cannot get the soap out of their eyes.
If a picture, or in this case a video, is worth 1,000 words, this CNBC match up from August 2006 between me and Arthur Laffer, a CNBC favorite, is priceless. Some of Laffers best one-liners include the U.S. economy has never been in better shape, and monetary policy is spectacular. I kid you not -- Click Here and enjoy the show.
“Embrace the recession”
I’ll say that I didn’t realize so many people were using home equity to buy stuff they couldn’t afford. Because the value of their homes went up they thought they were in money... I don’t understand why they didn’t realize that every cent was borrowed money that had to be paid back regardless of the current value of their home. I really, really don’t understand.
All of America seems to have the head-in-sand condition. Corporate America is just as bad. Most execs and managers never seem to see the doom coming yet every employee is screaming about it. It is pure laziness. As long as they are getting a paycheck and can go home at 5:00 they believe things will be just fine.
Schiff is an Austiran, and he is right. Laffer is a Keynsian, and he is dead wrong.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."~~Ludwig von Mises
"Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump."~~Ludwig von Mises
"True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression."~~Ludwig von Mises
"Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness."~~Ludwig von Mises
"What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse."~~Ludwig von Mises
"If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders."~~Ludwig von Mises
Oh, boy. I can't wait for the super-capitalists here on FR to come to this thread and tell us how important it really is for China to take our dollars.
Or, to tell us that debt is better than tangible assets.
Or, that equity really IS wealth.
Or, that GDP is more important than a middle class.
” I really, really dont understand. “
Neither, apparently, did the vast multitudes that bought into the “Equity Farming” myth....
And, on the ol’ Equity Farm, the chickens are coming home to roost.....
What does this guy know? It is common knowledge in Amerika that you can borrow your way to wealth. The bigger the loan they “give” you, the luckier you are!
I just got approved for a 900,000 dollar loan, I’m going to be RICH! /s
My wife was like that. She couldn't grasp that equity didn't exist unless you took out a loan and had to pay it back.
Luckily I was able to get through to her.
Then I guess it’s time againg for “Spanish Lessons.”
William R. Hawkins, Wednesday, April 07, 2004
“Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: ‘Let London manufacture those fine fabrics of hers to her heart’s content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.’ A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.”
Art Laffer sounds just like Alfonso Nunez de Castro in the video.
Perpetual Bears are like broken clocks, they are eventually correct. I don’t listen to them.
The time to listen is when a Bullish person makes Bearish predictions.
I remember a guy that was predicting a burst of the tech bubble from 1990 all the way to when it burst ten years later. Then he wanted to be treated like a profit. All high growth sectors eventually burst. It happens every single time.
I wonder which FR super-capitalist is really Laffer?
Laffer staked a penny and his sacred honor on the current.
Laffer - "seignorage gain" is what he calls it when we run a $60B per month trade deficit. He also claims that families have 2 incomes because the "love their work."
I think Laffer lost the bet.
Believe it or not, there ARE times when it is prudent to be Bearish.
Thought admittedly it is not en vogue here on FR with a R in the WH.
These are some of the 'Boys' that Ben Bernanke is trying to save by raping the dollar. Read the report for yourselves. I say 'Line 'em up and shoot 'em down.'
Get out your popcorn. These investigations are just getting started. Corrupt mortgage lenders get burned in live testimony. Will 'Big Angelo' go to jail or get whacked by his cronies when he travels to Sicily? . . . LOL . . . LOL !
If you do not have a high speed Internet connection, use a friend's or drive to the public library. Have a good, long horse laugh for free.
There are a lot of times when its prudent to be bearish. I'm bearish right now. I was just pointing out that there are people who make a career out of being bearish and then want to be treated like a profit when they are right. Like a weather man that predicts snow every day of the year, and then runs around yelling "I told you so" on the day of the big blizzard.
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