How Our Modern Free Market Destroyed Our Free Market

July 11th, 2009 · No Comments · Wall Street

UPDATED July 12, 2009

July 11, 2009

In late 2006 Peter David Schiff gave a speech at a Mortgage Bankers Conference in Las Vegas. If you are at all familiar with Schiff, you may already know of his dead-on accurate prediction at that time of the eventual housing market collapse. And you may already be aware that his one hour-plus speech has been circulating all over the internet in an eight part video since late last year. But the reason for the circulation was, and is, primarily to point out his accurate prediction of what eventually happened to the housing market. However, Schiff also points out what I consider the wider and more pressing problem, and he covers that in the first two of the eight videos. Therefore, I’ve included only those two videos in this post. The remaining 6 videos are well worth the time to watch, and should you care to watch them, you can visit the site linked at the bottom after the two videos.

In Schiff’s opening statements he points out that we were once the world’s greatest creditor nation, but since about 1980 we have become the world’s greatest debtor nation. He says the reason America was the place for other countries to come to borrow money is because we had money. And we had money because we built factories and produced widgets here in America. He says “we became the worlds leading exporter of high quality and low cost consumer goods. Even though we eventually paid the highest wages in the world, American products were still the cheapest in price and highest in quality”. In addition to pointing out that we are the world’s greatest creditor nation, he also points out that we have more foreign assets than all the other creditor nations combined. And that our debt is more than all the other nations combined.

Not necessarily said, but insinuated, by Schiff, beginning about 1980 we decided to make the bulk of our money in the stock market rather than by making widgets. What he does say is that “Wall Street had people believe that stock prices could rise regardless of the fact that the companies had no earnings, paid no dividends, without any regard to any fundamental measure of valuation. The same Wall Street economist that told us the Internet era was a new era are now telling us that this current era of American consumption and global production is viable, and it’s not”.

At the same time we decided to make the bulk of our money on Wall Street, the national debt started accelerating. As such, since our government does not get its money from the stock market, we have grown in debt to the point now that “we routinely borrow from the poorest nations on earth”.

Schiff also does not point out that 20 of the past 30 years our country had Republican Presidents who not only widely supported the stock market and Wall Street, but departed from the old Republican ideas of smaller government and less spending. Nor does he point out that those Presidents were the ones responsible for our debt acceleration. (During the eight years of Clinton, our debt decelerated.) But Schiff does point out that it was also during that time that we basically stopped making widgets here in America and exporting them, to the point that we now are the world’s greatest consumer importer.

Schiff uses a story, which he says is on his website, as an analogy for what we Americans are doing today. The subjects in the story are five Asians and one American who are stranded on a deserted island. Very interesting, and very appropriate. Be sure and catch that part.

LATE ENTRY: About two years ago I was jotting down some general notes inspired by some headline of the day, of which I can’t recall. But as I wrote this post I was reminded of one of those notes, so I went looking for it. I finally found the note and this is what I wrote: “Here we are — a generation and a half doesn’t know of any other way to dream of prosperity (make money) other than making it in the stock market or something similar. Corporate leaders know of no other way to increase company value except to grow stock prices and manipulate PE ratios. Wealth without contributing to society”.

To get the full impact of what Schiff says relative to my above points, watch the two videos in their entirety. Especially the last two minutes of the part 2. Otherwise, you will not get the most important points in the entire eight video string. Remember — Schiff gave this speech in 2006.