February 25, 2009

Schiff on the State of the Union Adress

Peter Schiff`s reaction to the Obama`s State of the Union adress, live from his Office. This is the video transcript:

This is Peter Schiff again, in this tuesday evening, February 24, and I have just finished watching president Obama make his speech.

I am recording this from my home office on my laptop, so the quality is not quite as good as the recording I made recently from my office.

The biggest problem with the president speech and there were a number of them, but it reveals a total lack of understanding of basic economics and of what makes an economy grow. In the beginning of his speech the president talked about credit and the need to restore the flow of credit. That the markets need credit for people to buy things and that without credit the economy cannot function.

He basically refered to credit as the life blood of the economy. Credit, consumer credit has indeed been the cancer of our economy.

The president simply thinks he can restart the credit flow and that everything will be fine. People can just borrow and spend money and that if people spend money we will have economic growth and employment. This is all a bunch of nonsense.

What the president does not understand is that credit comes to existence through savings and the reason the credit has gone is because the savings are gone. Initially we run out of our own savings and through the securitization process we were able to tap into the savings of the rest of the world. But the world now as lost a lot of money making bad loans to americans and so the credit has dried up, because the savings are gone, the money has been lost.

Before americans can go out and borrow money, someone has to save it. We cannot just skip savings and go out and buy things and spend money. And of course at this point where we need the credit to flow to the extent that we can regenerate that credit through increased savings and we need the credit to go to businesses, to producers so that we can make, produce stuff.

Unfortunetely, Obama thinks that if we just print enough money and put it into the banking system the banks are going to make the loans and we are going to have economic growth.

We are not going to have anything but inflation. The only result of the president`s policies is going to be massively and unprecedented inflation in the United States.

Barack Obama mentioned that the day of reckoning has arrived. He is wrong. That day is coming soon but is hasn`t arrived. Its going to arrive when the money we print no longer has any value and when the world will not continue to buy our paper to finance our misguided stimulus package and bailouts.

It is interesting that a good portion of president Obama speech had to do with the grandious plans that he has for new government spending just all preceding presidents, he spoke a lot about the need of the government to assure that all americans have a proper education, healthcare without even realizing that we already broke. This is not a time to be talking about this grandious ideas.

What we need is the government to shrink, to get out of the way, they have already done enough damage. And we don`t need a president talking about credit flowing again so that americans can go out and buy more cars.

As I have already said the last thing we need to do is to buy more stuff. We don`t need more cars, we bought to many cars. We have americans that have 6 or 7 mortgages on their cars. We don`t need to buy cars, we need to make cars.

But we are not going to make anything until we save. We are not going to have any savings with zero interest rates. The only way we are going to have savings available bor businesses is if the government and consumers stop borrowing.

Peter Schiff is the President and Chief Global Strategist of Euro Pacific Capital. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned.

He has been quoted in many financial TV channels and newspapers like The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News and appears regularly on CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V..
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