The Next Depression?
Wednesday, December 10, 2008
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The Next Depression?
ZAA NKWETA, TRNN: With a financial bailout total now in excess of $8 trillion and no end to the crisis in sight, many economic experts are warning of a nearing depression. In an internal memo regarding the unprecedented news global financial authorities are making, Citigroup’s chief technical strategist said, "They are throwing the kitchen sink at this…. The world is not going back to normal after the magnitude of what they have done." (Tom Fitzpatrick, chief technical strategist, Citigroup) One particularly outspoken economist, Peter Schiff, is claiming that the US dollar will plunge in value due to hyperinflation. The Real News spoke to him from his company headquarters in Connecticut.
PETER SCHIFF, PRESIDENT, EURO PACIFIC CAPITAL: Hyperinflation ultimately results when the demand for money collapses, where confidence is lost in money and people won’t hold it, because paper money intrinsically is worthless and the confidence can go away. When the confidence goes away, the buying power goes away. History is replete with examples of hyperinflation. It is not uncommon. It is something that generally happens with a paper currency. When the money is just a piece of paper, it’s very easy for the public to lose confidence, especially when the government is printing too much of it, which is what’s happening in our economy: the government is trying to create additional consumer spending, and they’re trying to do it by printing money. Given what the government is doing, we’re facing depression, and inflationary depression. If the government was not making the problem worse, then we would be facing something far less drastic. But even if the government did all the right things, which is basically allowing the market to work, the resolution of years of reckless spending would not come without pain. What’s happening today is not the problem; what we are living through are the consequences of the problem. The problem was that we blew all our money, that we borrowed and spent ourselves into bankruptcy, and we allowed this phony economy, this service sector economy, to replace the industrial economy we once had. But it’s not viable; it was only viable temporarily because we were able to borrow money from the rest of the world to make it work.
NKWETA: As of November 19, the total US federal debt was $10.6 trillion. Adding unfunded social security, Medicare, Medicaid, veterans pensions, and similar obligations, this figure rises to over $53 trillion of debt, or roughly half a million dollars per American household.
SCHIFF: I think most Americans think the government has money and they can just spend it. The government has no money. The government has to take money from somebody else in order to give it to a different somebody. People think if they just print the money, if they don’t raise taxes, that it’s a freebie. But it’s not a freebie. We have to pay the cost of government programs. And if they pay for them or finance them with inflation, it debases the value of our savings, it debases the value of our wages, and prices rise across the board. The economy is going to continue to weaken. The government is going to continue these fool-hearted policies meant to interfere with the market’s correction of the imbalances. They’re going to try to encourage even more reckless consumption, that we go even deeper into debt. And so if we are basically in trouble because we’ve borrowed and spent too much money, you know, we are going to be in much more trouble every time the government stimulates the economy, ’cause the only thing that the stimulus does is increases our debt. The dollar either has no future at all, meaning it will just become worthless, or it’s going to have a very rocky road, I mean, that it’s going to lose a lot of value. If it’s going to be maintained in its present form as the currency of this country, there is going to have to be some radical and very painful changes in the way we run monetary policy and the government.
NKWETA: Economists are not alone in expressing their concern about the future. UN Secretary General Ban Ki-moon last week said, "Without exaggeration, we can say that the well-being of our people and the health of our societies—even the future of our planet—depend on what we do today and in the weeks to come. If not handled correctly, today’s financial crisis," he said, "will become tomorrow’s human crisis." The danger, ultimately, is a cascading series of crises, each building on the other, with potentially devastating consequences for all.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.