How to Fix the U.S. Economy: Tough Love

pt 5/5 Peter Schiff on Financial Sense Hour: Deflation vs Inflation Debate 12 Sept 2009

Pay particular attention to 2:48 through 5:12. Peter Schiff nails it.

For the hearing impaired:

"The only thing that could potentially [keep inflation from happening - i.e. fix the economy] would be a complete change in Washington, where if Washington said, 'You know, what? We are going to restore sound money' [by returning the dollar to the gold standard.] - If they actually did raise interest rates, very sharply - defaulted on their Social Security obligations - defaulted on their Medicare obligations - allowed all the banks that would fail with higher interest rates... if they allowed them all to go bankrupt - if they don't bail out the depositors - if they let people lose money - if they let your bank fail... and then they tell the voters, 'We're sorry. The FDIC is broke. You lost your money.' - If we default on our national debt. - If we go to the Chinese and the Japanese and say, 'You know what? We promised to pay you back all this money. But, you know what? We're broke, sorry. We default.' - The government goes and slashes spending, to live within its means. - It balances the budget. - If the government does all the honest things it needs to do, to fess up with everybody that its promised something, that they're not gonna get paid, then deflation is going to happen. [It would fix the economy.]"

"I hope that happens. I would love for that to happen, because that's better than what we're gonna have. I don't see that happening. I don't see anybody in Washington doing that. I don't see any political will or anybody who even thinks that that would be the right thing to do. They think the best thing to do is keep printing, keep stimulating, and hope for the best."

"I think the real crisis is in our future, not in our past. I think we've postponed that real crisis. I think it's coming soon. Maybe it will come in 2010. I don't know but, it's coming soon and that's when the world pulls the plug on buying dollars and buying our debt and that's when it really hits the fan. Right now the government is able to bail everybody out because the government can borrow the money from China and Japan but, when the government can't do that, then the only source of bailout money is the Federal Reserve and that's when the inflation really starts to gather momentum. That's when it can lead to hyperinflation." -- Peter Schiff

For the American economy, it's time for tough love.

Mothball the helicopter.