Peter Schiff: Dollar, Fed, GDP, Japan, Bailouts

In a recent video commentary, Peter Schiff discusses the comments by the President of the St Louis Federal Reserve, James Bullard, calling for more quantitative easing. Dr Bullard thinks that the US economy is on the verge of turning Japanese, so wants Bernanke to create more Dollar inflation to counteract what Bullard sees as deflationary dangers. However, Schiff thinks that the US would be lucky to enjoy the Japanese experience.

When the Japanese experienced their initial problems, they were the world’s largest creditor nation with an enormous productive capacity. They also possessed millions of households who were willing to use their large savings pool to buy Japanese government debt.

The US is almost the exact diabolical counterpart to this wondrous heavenly image. The US is the world’s largest debtor nation; it has seen its productive capacity collapse over the last couple of decades; and it possesses millions of households who survive from day to day simply by borrowing.

Schiff predicts that the forthcoming American experience will be more like that of Argentina rather than that of Japan. He also thinks that the increased calls for more quantitative easing, from people such as Dr Bullard, are simply because the last bout of quantitative easing is rapidly wearing off and reality is emerging from out of the narcotic mist.

Mr Schiff then disputes the feel-good factor coming from recent upwardly-moving US GDP figures, which he puts down simply to more borrowing and spending, and the growth of government, rather than to the growth of genuine productive industrial capacity. We need the cold turkey of coming off these quantitative easing binges, thinks Schiff; this is the only route through to genuine economic recovery.

He then moves on to ridiculing President Obama for his claim of success in the US automobile industry bailouts. Schiff thinks that all Obama has done is turn General Motors into the automotive equivalent of Amtrak or the US Post Office, and that before long all of the bailed out US car companies will be back at the trough for more pork.

[Having lived through the British Leyland experience myself, which saw many formerly successful private British car companies turned into dust through several decades of government interference and subsidy, I think Mr Schiff could easily be right.]