Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Are you enjoying the summer? I hope so, because the U.S. economy is about to collapse. That’s what financial adviser Peter Schiff predicts in a new book called, appropriately enough,”The Real Crash, America’s Coming Bankruptcy.”
Schiff is a best-selling author and a fixture on financial talk shows thanks largely to the notion that he predicted the 2008 economic meltdown. He is also legendary for his negativity, sensationalism and self-promotion.
According to Schiff, the current economic pause is actually the beginning of a serious recession that will hit full stride at the end of this year. At that point, the Federal Reserve will unleash a third round of Quantitative Easing, or “money printing.” This move, Schiff warns, will weaken the dollar without jump-starting the economy. As a result of the weak dollar, import prices will rise, pressing the profits of corporate America. Lower margins will prompt heavy layoffs, sending millions into unemployment. Banks will fail, housing will collapse and taxes will be raised in an effort to give the tapped-out government capital to try yet more futile stimulus.
These developments, Schiff predicts, will force the U.S. government to make massive budget cuts similar to the draconian austerity measures in Greece. Programs like Social Security and Medicare will be dramatically reduced or even eliminated.
“Alternatively,” says Schiff, “we can bail everybody out, pretend we can print our way out of a crisis, and, instead, we have runaway inflation, or hyper-inflation, which is going to be far worse than the collapse we would have if we did the right thing and just let everything implode.”
Schiff’s scenario seems like a stretch to me. While he makes some logical and legitimate points about our current economic challenges, bear in mind that he is selling a book that promises to protect readers from financial cataclysm. It’s obviously in his interest to predict such a cataclysm.
In order for Schiff’s nightmare to come true, every single element in his disastrous chain of events would have to work out perfectly. And if our economy hit the brakes hard again, I would be more worried about deflation than inflation. Things seldom go exactly as predicted.
For example, I find it hard to believe that in the face of a severe recession politicians would cut spending and hike taxes. Congress just doesn’t have the willpower to make such dramatic moves, regardless of the stakes. Last summer, with the U.S. facing a credit rating downgrade, lawmakers spent weeks debating our federal debt limit. The result: minuscule spending cuts and no tax increases.
Is there another recession in our future? Count on it. We’ve had 14 recessions in the past 70 years. But unemployment won’t hit 20 percent, and Social Security will be around for a long time.
When the next recession does hit – whether it’s ten months or ten years from now — Americans will survive it and go on to even better times. We’ll do that on the strength of innovation — by coming up with new and better ways to do things and by maximizing our resources. We’ll develop new technologies and tap new sources of energy for security and export.
In short, the bright light of America’s can-do spirit will wipe the darkness from Schiff’s crystal ball.
– By Wes Moss, for Atlanta Bargain Hunter