and now, a word from my favorite talking head

.
market-player that i've recently become, i've started to watch the financial channels in the morning--and, for the most part, they're all populated by the same bloviating assholes spouting and reinforcing each others' blindly-optimistic bullshit.

except for one guy who, from day one, always made me sit up and take notice--the one who gets derisively dismissed by all the other talking heads whenever he joins squawk box on cnbc as "dr. doom."

first time i heard peter schiff speak, his common sense resonated with me immediately, even as he was being laughed at by the occupants of the other seven boxes on the screen.

so, me being me, i investigated--i went out and got my hands on a copy of the book dr. doom wrote in late 2006 (you know, back when the economy was "sound"), just to see.

and guess what: pretty much everything this guy forecast back then has come to pass today--i.e., had you taken his advice then, you wouldn't be tearing your hair out now.

[and yeah, this is the same peter schiff who was ron paul's chief financial advisor, although i didn't know that at the time.]

for a little glimpse into what got my attention early on, i offer to you a link to a column he wrote for the washington post* last week--it's short and sweet.

the money quote:

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear [emphasis added]. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

and then he goes on to nail the problem to the wall:

But over the past generation, government has removed the necessary counterbalance of fear from the equation.

truer words were never spoken. and do you think either party presently pandering to the clueless electorate with their laughably unrealistic proposals for a soft landing from this mess has any intention of putting fear back into the mix? hell, no--telling the hard truth to the american people might cost 'em votes.

read the article and think about it before you wholeheartedly assume the policies of either candidate are gonna lead us outta the wilderness, ok?

[and after you do that, go buy yourself some gold and then sit back and watch the fun]

_________________

* on second thought, for those who don't have a washington post account and/or don't wanna jump through the hoops necessary to obtain one, i am hereby thoughtfully providing the article in its entirety below:


Don't Blame Capitalism

By Peter Schiff
Thursday, October 16, 2008; A19

Amid the chaos of recent days, as the federal government has taken gargantuan steps to stabilize the financial markets, realigning the U.S. economic system in the process, comes a nearly universal consensus: This crisis resulted from government reluctance to regulate the unbridled greed of Wall Street. Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism.

For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime.

Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets.

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow -- until it could grow no more.

Prominent among these wrongheaded advantages are the mortgage interest tax deduction and the exemption of real estate capital gains from taxable income. These policies create unnatural demand for home purchases and a (tax-free) incentive to speculate in real estate.

Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.

Interest rates contributed the most to creating the housing boom. After the dot-com crash and the slowdown following the attacks of Sept. 11, 2001, the Federal Reserve took extraordinary steps to prevent a shallow recession from deepening. By slashing interest rates to 1 percent and holding them below the rate of inflation for years, the government discouraged savings and practically distributed free money.

Artificially low interest rates invigorated the market for adjustable-rate mortgages and gave birth to the teaser rate, which made overpriced homes appear affordable. Alan Greenspan himself actively encouraged home buyers to avail themselves of these seeming benefits. As monetary policy caused houses to become more expensive, it also temporarily provided buyers with the means to overpay. Cheap money gave rise to subprime mortgages and the resulting securitization wave that made these loans appear safe for investors.

And even today, as market forces deflate the credit bubble, the government is stepping in to re-inflate it. First came the Treasury's $700 billion plan to purchase mortgage assets that no one in the private sector would buy. Now it has recapitalized banks to the tune of $250 billion, guaranteeing loans between banks and fully insuring non-interest-bearing accounts. Policymakers say that absent these steps, banks would not be able to extend loans. But given our already staggering debt burden, perhaps more loans are not the answer. That's what the free market is telling us. But the government cannot abide solutions that ask for consumer sacrifice.

Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.

The United States reached its economic preeminence on the strength of its free markets. So far, the economic disaster exacerbated by government policies is creating opportunities for further government interference, which will lead to bigger catastrophes. Binding the country to a tangle of socialist ideals will seal our fate as a second-rate economic power.

The writer, who was economic adviser for Ron Paul's 2008 presidential campaign, is president of Euro Pacific Capital. He is the author of "The Little Book of Bull Moves in Bear Markets."