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"There is so much talk about green shoots of recovery on CNBC that I think I'm watching the Gardening Channel." Peter Schiff on CNBC (26/06/09). One of the few people that predicted the collapse of the economy before it happened was Peter Schiff. When science makes a testable prediction people are receptive to the idea. They watch on with eager interest to see what the outcome will be. When it comes to something like economics it seems that no one wants to hear about the bad news: house prices can't rise forever, prices of tech stock won't rise forever, the Western economy can't continue to thrive on credit and spending money. We live in a bubble economy Peter said and few people listened. If someone can make a testable prediction then I'm willing to listen, if that prediction is correct then I'm much more eager to listen. The secret of his predictions is common sense: don't spend more than you can afford and if someone sounds too good to be true then it probably is too good to be true.
There is a lot of talk about green shoots of recovery in the economy but I'm inclined to see it as optimism at best and delusion at worst. Recently someone at the Motley Fool finance website said that armageddon had been averted: "Germany and France are out of recession. Economists in the US are almost universally saying their economy bottomed in July or August. China is still going gang-busters. Australia still hasn't officially been in recession." Fortunately the replies from joe public suggest that they are too smart for the wool to be pulled over their eyes. I'd believe that China isn't fairing as badly as Europe and that Australia was never in recession but that's far from saying that everything has recovered. But I'm not keen to trust these big finance websites or news reports blindly, a little bit of critical thought is always required. From the first link above we can hear Schiff's opinion about CNBC'c forecasting ability: "The good news is your record of inaccurate forecasting looks like it is going to be safe." He is heavily critical of the golden boy Obama and even of Warren Buffett. The criticism of Obama is not about him as a person but particularly about economic policies. He hasn't said that Bush or McCain are better than Obama (perhaps the opposite). I feel that's a relevant point to make as Obama followers are always quick to point out that the others were worse. Unfortunately this doesn't ensure that his point of view is flawless; however, the fact that Buffett (in the top 5 richest people of the people) backs Obama is not a sign that Americans shouldn't be worried. Buffett maintains that you can't "bet against America" and that past successes are an indication of future success. On a long timescale I think Buffett will be correct but previous successes do not ensure future success; that's practically the first 'law' of the stock market. Nothing is a guarantee. The key criticism is this: you can't spend you're way out of debt. An economic stimulus package in the form of free money may make money 'flow' but it doesn't decrease debt. So the problem is exacerbated. Peter Schiff's main points of economic success are summed up as follows: Prime rule: Don't spend more than you earn. Spending money is the reward for earning it. If you don't earn, you can't spend. One key point to note before continuing: Schiff has admitted that not all of his predictions have came out exactly as he said. He admits that his biggest flaw might be that he thinks too long term. Well, the only problem with that is that he has to wait longer to see the results of his prediction and that deference of pleasure is an unknown concept in the western world. Fancy government schemes cost. Taxes have to be raised in order to pay for these schemes: you can't implement something like an NHS healthcare system unless you raise taxes. Although Schiff advocates lower taxes (perhaps no tax ?) and keenly pushes for capitalism, I don't think an NHS type healthcare in the USA will break their economy. The US they will need to increase taxes in order to maintain it. Peter notes that raising taxes at the moment is not wise with crippling inflation. He also maintains that if credit was not so freely available then healthcare and education would not be as expensive as it is in the USA and that people would not have to pay as much for these services or for insurance. He concludes that if credit was not so readily available then education and healthcare would be affordable to everyone. I admit that I'm slightly sceptical on that last point but I do believe that is a great deal of truth in it. Part of the problem with cost of education is that people go to university because they believe that they have to. If they don't go to university then they can't get a job. This increases demand and hence forces the cost to rise. In short: we haven't recovered and we are not taking the correct measures to fix the economy. Let's place all talk of "capitalism versus socialism" aside and actually talk about good economic practices: more saving, less spending.
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