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A Brief Summary and Review,
This review is from: The Real Crash: America's Coming Bankruptcy--How to Save Yourself and Your Country (Hardcover)
*A full executive-style summary of this book is now available at [...]
Since the housing and financial crash of 2008, America's recovery has been tepid at best. Unemployment has remained high; manufacturing has not returned; personal savings are as low as they've ever been, and personal debt as high; housing is still a mess, and banking not much better; and, to top it all off, government debt is awe-inspiring and seems completely insoluble. According to financial investor, commentator and author Peter Schiff, while all of this is certainly disheartening, it should not come as much of a surprise. Indeed, Schiff argues that all of this economic slumping is a natural result of America's misguided economic policies; including especially the Federal Reserve's manipulation of interest rates, the government's uncontrollable borrowing, and, in connection with this, the maintaining (and even expansion) of unsustainable social programs . For Schiff, these same policies led directly to the crash of '08 (which he correctly and very famously predicted), and are leading the U.S. directly into an even worse crash now. In his new book `The Real Crash: America's Coming Bankruptcy--how to Save Yourself and Your Country' Schiff outlines how America got itself into this mess in the first place, what the end game is likely to be, and what the nation and its citizens should do to make the coming unpleasantness the least unpleasant as possible.
The main problem--and where most of the other problems begin--according to Schiff, is the Fed's manipulation of interest rates. By interfering with the free market value of money, and making it cheaper than the market would dictate, the Fed encourages financial bubbles that then necessarily pop. When a bubble pops, the market needs to correct itself; however, over the past 20 years, the Fed has not really allowed this correction to take place, as every time a bubble pops the Fed has lowered the interest rate even further, causing more money to enter the system and a new bubble to form. First it was dot-com stocks, then it was housing, and now it is government spending.
As a matter of fact, while government spending has reached new and mind-boggling heights in the recent past, it has actually been ballooning in this direction for years, spurred on largely by the low-interest rates that the Fed has provided. The government has used this borrowed money to establish social programs (such as Social Security and Medicare), and, more recently, bailout packages for failing businesses and entire industries. All the while, the government has been going deeper and deeper into debt. A big part of what has allowed the American government to borrow as much as it has (and to keep on borrowing now) is the fact that the American dollar is the world's reserve currency, which means it is always in demand, and hence people and organizations have been willing to act as creditors in order to get it. For Schiff, though, the sheer size of the debt, and the fact that it is running away faster and faster everyday (and has no realistic chance of ever being repaid) will sooner or later turn investors away from considering the American dollar a valuable reserve--at which point it will lose its status as the world's reserve, and investors will stop investing in it.
At this point, the American government will have but two options. It can either declare bankruptcy, or it can print the money it needs to pay its debt. In either case, an enormous crash will result, for in the first case, an astronomical sum of money that the economy had assumed existed will suddenly be wiped away, and in the latter case hyperinflation will set in, and the American dollar will be whittled down to worthless.
At this point, the country will be forced to start over. For Schiff, this may not be such a bad thing, for, according to him, the nation has simply put itself in an unsustainable position, and the sooner it starts over the better. At that time, Schiff argues, America can finally get back to the small government and free-market forces that the country's founding fathers designed the nation around. While much of the book is focused on how the country can do this now, before the crash hits (in such areas as banking & finance, taxation, healthcare, education, the military, et. al.), Schiff very much believes that nothing can actually prevent the crash from coming, and that therefore, most of the rebuilding will have to be done after The Real Crash.
The book is very easy to read and the arguments laid out clearly and concisely, and backed up with both theory and historical evidence (though a little more of the latter would have been nice, on occasion). The author has done well to bring libertarian views into the mainstream. For a full and comprehensive summary of the main argument of the book visit [...], and click on article #14.
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Initial post: 4 Aug 2012 19:03:37 BDT
Mr. R. H. Johnson says:
Would it be reasonable to assume that the people that run this system are quite clever?
If you owed everyone money and had the power to make that money worth nothing would you do it?
By inflating, the American debt is void, surely?
Billions for nothing?
In reply to an earlier post on 4 May 2014 03:43:11 BDT
Baraniecki Mark Stuart says:
A very good point. The financial elite of Germany's Weimar Republic took out large loans that went straight into foreign currencies and real estate and they came out of the other side of hyperinflation with their power enhanced. There's no compelling reason why the US financial elite couldn't do the same.
The middle class would be ruined but employment would be OK (high demand for goods and competitive exports) and government and private debts would evaporate.
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