January 31, 2011

A Mockery of a Sham

Back in October of 2009, when Congress first announced the formation of a commission to investigate the cause of the 2008 financial crisis, I knew immediately that their ultimate conclusions would support the agendas of their respective political parties. (Watch the video blog I recorded that day) Particularly, I knew that the commission's Democrat majority would use the crisis to justify more government involvement in the financial markets. These concerns have now been fully validated.

Given that I was one of the few people who had accurately predicted the magnitude of the housing bubble, and had laid out in my 2007 book Crash Proof the specific consequences for the banking system and the economy when it burst, I immediately contacted the commission offering my services as a witness. In particular, I assumed that the Republicans on the panel would appreciate hearing from someone who thought that the crisis resulted from too much rather too little government regulation. (see my 2008 Washington Post op-ed)

To burnish my credentials, I sent the commission a list of articles I wrote between 2004 and 2008. Much of that pre-crash critique is summarized in a speech I gave in 2006 to The Western Regional Mortgage Bankers Association.

However, despite these supporting materials, my repeated outreach to the commission bore no fruit. At that point, I realized that they had no interest in giving any visibility to the narrative that I favored, namely that the ultra-low interest rates engineered by the Greenspan-Bernanke Federal Reserve were the primary factor behind the financial crash of 2008.

Ignoring how low rates created the crisis is like blaming the crash of the Hindenburg on bad weather, poor piloting, lazy ground crews, and overly emotional broadcast journalists, while ignoring the 200,000 cubic meters of flammable hydrogen gas that the airship held in its structure.

The Democrats clearly wanted to place the blame squarely on "greedy" bankers and "derelict" regulators who had fallen under the spell of the "laissez-faire" impulse favored by Republicans. These conclusions would sanction Democrat plans to garner even greater government power.

Yet, even the Republican minority opinion widely missed the mark. In their dissenting opinion, three Republican commissioners blame the crisis on global factors beyond the ability of US policymakers to control. While it is true that other nations suffered housing bubbles, they did so because their own central banks also kept interest rates too low.

The best result was a third minority report, authored by Peter J. Wallason. He correctly blamed government-insured mortgages and government-mandated loans to non-creditworthy minority borrowers for the housing bubble, yet omitted the key role played by the Federal Reserve in making those loans "affordable."

The government has been subsidizing housing since the Roosevelt administration, and we never had a bubble of this proportion. It was not until these guarantees were combined with a 1% federal funds rate that they became supercharged. It was the unfortunate combination of government guarantees and cheap money that produced such a toxic brew.

During the bubble, a large percentage of loans, particularly those in high-priced markets like California, had adjustable rates. These rates were popular as a direct result of the ultra-low fed funds rate, which made them significantly cheaper than traditional thirty-year fixed-rate mortgages. Some of the most popular subprime loans were of the "2/28" variety, where borrowers enjoyed artificially low "teaser" rates for the first two years only. For conforming loans, Fannie and Freddie actually guaranteed mortgages based solely on borrowers' ability to afford the teaser rate, even if they could not afford the resets. Therefore, without low rates from the Fed, most of these ARMs never would have been originated.

Most importantly, it was low rates that made overpriced homes seem affordable. Buyers paid attention to monthly payments, not home price. These mortgages were tailor-made for real estate speculators and home flippers, whose only intention was to make quick profits on the resale. Higher rates would have put a lid on home price appreciation, as potential borrowers would not have been able to swing the higher payments.

Meanwhile, the low rates themselves created investor demand for mortgage debt. With Treasuries and CDs offering pitiful returns, investors were encouraged to look elsewhere for (seemingly) low-risk investments with higher yields. This created unprecedented demand for Fannie- and Freddie-insured debt as well as new varieties of mortgage-backed securities.

Since Wall Street needed additional mortgages to package, lending standards steadily eroded to meet the demand. Much of the demand came from foreign sources looking to recycle large trade surpluses, which would have been much smaller had the Fed not kept rates so low.

The reality is that no one wants to blame the crisis on loose monetary policy because monetary policy is even looser now then it was then. If the commission had correctly blamed the housing bubble on easy money, then it would have called into question current Fed policy. Given the fragility of our economy and its continued dependence on low rates, no one has the guts to open that can of worms. If so much economic damage was done by a 1% fed funds rate, imagine how much damage is being done by 0% rates, supercharged by quantitative easing.

Neither Democrats nor Republicans want the Fed to turn off the monetary spigots for fear of the short-term shock. That is why even the most vigilant government regulators would not have prevented the financial crisis. Any official who tried to rain on the real estate parade would have been out of a job.

Of course, the fact that three separate reports drew three separate conclusions - strictly along party lines - shows that politics was the driving motivation behind the entire farce. Even with the benefit of hindsight and $9 million taxpayer dollars, this commission still came up empty.

The conclusion that should have been drawn is that we do not need more regulation. Government interference has done enough damage already. We simply need to return to a sound monetary policy and get the government out of the mortgage and housing markets. Unfortunately, that's not going to happen.

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 28, 2011

We Can`t Really Grow The Economy Until We Shrink The Government

“What we’re doing now is we’re spending more borrowed money, and as we’re spending ourselves deeper into debt, we’re pretending the economy is growing. It’s not. We can’t really grow the economy until we shrink the government.” - in BullSource

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 27, 2011

State of the Union, Fed Reserve & Bogus Government Conclusions


Latest video market update.

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 26, 2011

The Only Way China Can Stop Its Inflation Problem

The only way China can stop its inflation problem is to stop importing it from the U.S., which means … they have to let their currency rise. If that happens, the U.S. had better brace itself. It will unleash an inflationary nightmare here in the United States. As the Chinese currency increases in strength, the dollar must decrease. And, so Americans [would] experience higher prices, falling purchasing power and a lower standard of living. - in Yahoo Finance

Related: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI) , SPDR S&P 500 ETF (NYSE:SPY) , iShares Russell 2000 Index (ETF) (NYSE:IWM), SPDR Gold Trust (ETF) (NYSE:GLD)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 25, 2011

A Lot Of Young People Are Going To Move Back With Their Parents

"A lot of young people are going to move back with their parents, a lot of elderly parents will move in with their grown children, a lot of people will have roommates that don’t have them today. Many Americans might rent out rooms in their houses, and so you’re going to have a lot less demand for houses." - in www.voanews.com

Related: Lennar Corporation (NYSE:LEN) ,PulteGroup, Inc. (NYSE:PHM), Toll Brothers, Inc. (NYSE:TOL), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 24, 2011

The Ressurgance Of The Euro

"I think the big news in the market this week was actually the ressurgance of the euro" - in Videoblog, January 21

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Real Estate Prices Are Still Too High

"There’s so many people that are waiting for real estate prices to recover, talking about 'Oh, the bottom is in, now real estate's gonna start to go back up.' I’m just trying to point out how crazy those assumptions are, because real estate prices are still too high.

"The government has done a lot to try to artificially prop up real estate prices and they’re still doing that. But ultimately prices are going to come down. In fact, they’re probably going to come down even more than otherwise would have been the case had the government simply let the market run its course."
- in voanews.com

Related: Lennar Corporation (NYSE:LEN) ,PulteGroup, Inc. (NYSE:PHM), Toll Brothers, Inc. (NYSE:TOL)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 21, 2011

China`s Inflation Problem

It was recently announced that in November China's consumer price index rose 5.1% from the same time a year earlier, with food prices rising more than 10%. As unrest builds, the Chinese government has unleashed a series of policies to address the symptoms of the disease while ignoring its root cause.

The feeblest of these attempts is the imposition of price controls in many Chinese cities. But as President Nixon found out in the early 1970s, the laws of supply and demand cannot be suspended at will. The Chinese leaders realize this and have more recently implemented a raft of seemingly more sophisticated responses.

Informed by the mistaken Keynesian economic principle that inflation is created by a strong economy rather than by an expanding money supply, China is hoping to solve its problems by restraining growth. To do this it has just raised interest rates and has moved to restrict bank lending.

On Friday, the central bank said it will raise the share of deposits banks must keep on reserve by half a percentage point. This comes after six such increases last year (the fourth hike in just two months). On the interest rate front, the People's Bank of China is mulling further rate increases, which many analysts expect to come in the first quarter. However, if these moves are not accompanied by a cessation of dollar purchases, they will do nothing to control inflation.

Related: PowerShares DB US Dollar Index Bearish (NYSE:UDN), SPDR Gold Trust (ETF) (NYSE:GLD)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 20, 2011

The US-China Economic Relation

Twenty years ago, China's leaders decided to ditch the disaster of economic communism in favor of privatized, export-focused, industry. The plan largely worked. Over that time, China has arguably moved more people out of poverty in the shortest amount of time in the history of the planet. But somewhere along the way, China's leaders became addicted to a game plan that outlived its usefulness.

In order to maintain the peg, China must continually buy dollars on the open market. But the weaker the dollar gets, the more dollars China must buy. And with the U.S. Federal Reserve pulling out all the stops to create inflation and push down the dollar, Beijing's task becomes nearly impossible. Last week, it was announced that China's foreign exchange reserves, the amount of foreign currency held at its central bank (mostly in U.S. dollars), increased by a record $199 billion in 4th quarter 2010, to reach $2.85 trillion. These reserves currently account for a staggering 49% of China's annual GDP (if the same proportional amount were held by the U.S., our measly $46 billion in reserves would have to increase 163 times to $7.5 trillion). - in europac.net

Related ETFs: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), Morgan Stanley China A Share Fund, Inc. (NYSE:CAF), SPDR S&P 500 ETF (NYSE:SPY), PowerShares DB US Dollar Index Bearish (NYSE:UDN), PowerShares DB US Dollar Index Bullish (NYSE:UUP)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 18, 2011

There Are A Lot Of Problems That We've Yet To Confront In The American Economy

There are a lot of problems that we've yet to confront in the American economy. The real U.S. economic collapse did not happen in 2008 -- it's yet to come, and 2011 could well be the year it arrives. The Federal Reserve is out of ammunition to artificially bolster the economy, though they insist the stimulus is working. But consumer and government spending do not equal economic growth -- because we're merely spending borrowed money to consume what the rest of the world produces!

The U.S. has more debt than any other country, and it's going to come back to haunt us sooner rather than later. That's why I'm focusing my energies on warning our elected officials, Wall Street CEOs, and every day Americans about the true state of the American economy, and government's role in creating and exacerbating the problem. - in Schiff for Senate

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Gold & Silver

"As gold gets more and more expensive, there are a lot of people who cannot afford to buy an ounce of gold anymore. So they take what's left of their paycheck and buy silver." - in TheStreet.com

Related: iShares Silver Trust (ETF) (NYSE:SLV), SPDR Gold Trust (ETF) (NYSE:GLD)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 17, 2011

Market Update: US Economy, Gold, Interest Rates


Latest market update on the US Economy and financial markets.

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 14, 2011

Bond Investing: The Most Important Thing Is The Strength Of The Currency Where My Yields Are Coming From.

"As an investor, the most important thing for me is the strength of the currency where my yields are coming from. We have Canadian bonds in my bond fund. If I’m a bond investor, it’s the only thing that matters really. I’m not worried about Canada defaulting. But I would be worried about Canada inflating. When you’re a bond investor, you want purchasing power. … I have to make sure the currency that I own [for clients] is going to deliver that purchasing power in the future. So the currency value is paramount." - in www.theglobeandmail.com

Related: Canadian Dollar, CurrencyShares Canadian Dollar Trust (NYSE:FXC)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 12, 2011

The US Dollar And The Euro

"The dollar is losing value. Right now it’s losing value more slowly than the euro. If two people jump off of a building, and one is falling at 40 miles an hour and the other is falling at 30, the one that’s falling at 30 isn’t flying. He’s still going to hit the pavement." - www.theglobeandmail.com

Related ETFs: iShares Silver Trust (ETF) (NYSE:SLV), SPDR Gold Trust (ETF) (NYSE:GLD)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 11, 2011

Canada`s Interest Rates Are Still Too Low.

"Canada’s interest rates are still much too low. But they [authorities] feel that they can’t raise them, because they don’t want to see their currency rise too rapidly against the dollar. That’s a mistake. The longer they follow our lead, the more problems they’ll create for their own economy. We’re going to take a lot of countries down that have tethered their currency to the [U.S.] dollar." - www.theglobeandmail.com

Related: CurrencyShares Canadian Dollar Trust (NYSE:FXC)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Investing In Canada - There Are A Lot Of Resource Stocks

"I’m already investing in Canada. I personally have more money invested in Canada than I do in the U.S. Part of that is my interest in owning resources. There are a lot of resource names up here. Pretty much all the stocks I own in Canada are resource stocks." - in www.theglobeandmail.com

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 10, 2011

Market Update: Employment Report, US Economy



Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Crash Proof 2.0 Is An Updated Version Of The Original Book

"Crash Proof 2.0 is basically an updated version of the original book, Crash Proof. I decided to update it based on the events that followed the crash of 2008, which I accurately predicted in the original book. When I predicted it, I laid exactly what was going to happen and why. I described how the government created this huge problem, it was all described in detail and turned out to be 100% right.

The people who didn't see the crisis coming have blamed it on capitalism. This book was meant to clear up some of the misconceptions that were circulating around the media in the aftermath. Since then I have written another book called, How the Economy Grows and How it Crashes. An expanded version of a book my father wrote called, How an Economy Grows and Why It Doesn't. That came out in February. It's an illustrated form, like an allegory and it explains our problems in a fictional tale but the characters are modeled after America."
- in rightsidenews.com

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Still Bearish On The US Dollar

"Yes, very bearish on the dollar. Based on what the government is doing, there's no way to be bullish on the dollar. I still like hard assets and certain foreign markets as alternatives." - www.rightsidenews.com

Related: PowerShares DB US Dollar Index Bearish (NYSE:UDN)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 6, 2011

The Dangers Of Buying Numismatic Coins

"If you are buying numismatic coins, chances are you're making a fast-talking salesman very rich at your expense." - in The Gold Newsletter

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 5, 2011

Big Names Are Buying Gold, Preparing For A Global Monetary Breakdown

Many people assume that the crash I wrote about in the original "Crash Proof" was the credit crunch of October 2008. They are mistaken. Though I did accurately forecast the economic events of 2008, my ultimate prediction was that these events would set into motion a larger crash to follow. That crash, the one I have been warning about for a decade, is a collapse of the international dollar standard.

This is the crisis for which the smart money is already preparing. The People's Bank of China, Reserve Bank of India, Goldman Sachs, Barclays Capital, John Paulson, Jim Rogers, and countless other big names are all protecting themselves from a global monetary breakdown by buying gold.

in Schiff`s Gold Newsletter

Related: SPDR Gold Trust (ETF) (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX) , Newmont Mining Corporation (NYSE:NEM) , AngloGold Ashanti Limited (ADR) (NYSE:AU) , NovaGold Resources Inc. (USA) (AMEX:NG), New Gold Inc. (USA) (AMEX:NGD)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 4, 2011

Numismatics May Actually Drop In Value While The Gold Price Rises

If we enter into depression conditions, numismatics may actually drop in value while the gold price rises. As I mentioned above, numismatic coins depend on the demand of collectors. Collectors are folks with plenty of discretionary income. When inflation is eating away savings and the economy is contracting, who are these mystery millionaires that are going to buy your stash of St. Gaudens Double Eagles? Chances are any collectors will also be liquidating their collections as they lose their jobs and their investments go south.

Sure, the coins' gold content will provide a 'floor' to their value that stamps and baseball cards don't have, but the gold value is typically only a fraction of the retail price of a numismatic coin. If you pay twice the bullion value to buy a rare coin, bullion could double in value and you still might not be able to sell your coin for a profit. If you buy a regular bullion coin, the gold price only has to rise the amount of the markup above spot before you profit.

in The Gold Report

Related: SPDR Gold Trust (ETF) (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX) , Newmont Mining Corporation (NYSE:NEM) , AngloGold Ashanti Limited (ADR) (NYSE:AU) , NovaGold Resources Inc. (USA) (AMEX:NG)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Housing Market Outlook

"With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher." - in WSJ

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

January 3, 2011

Housing Prices Still Haven`t Fallen Enough

“Housing prices right now should be considerably below their historic averages. Prices still haven’t fallen enough because the government is still artificially propping them up. We have to let real estate prices fall to the point where people have the 20% down payment and can qualify for a mortgage without the government cosigning it.” in CNBC

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.