Credit Card Cancer('culture of credit vs savings for a rainy day')

Euro Pacific Capital ^ | March 13, 2009 | Peter Schiff

[sickoflibs]

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[Nervous Tick]

>> This week, [Obama] with his pronouncement that “credit is the lifeblood of a healthy economy,”

Well, you gotta admit, with $1.3 trillion on his gubmin credit card, the bastid certainly practices what he preaches.

[sickoflibs]

The Peter Schiff/Redistribution Watch Ping. (Washington Bankrupting our Nation by Spending your past, present and future money!)

Your Schiff fix

"Lastly, savings can always be relied upon whereas credit is ephemeral. Remarks this week from the Chinese premier Wen Jiabao should serve notice to all Americans that the day will soon come when the Chinese stop lending us their umbrellas. When that happens, the average American will be soaked to the bone."

[Lorianne]

However, despite his seemingly earnest intentions, the president and his economic advisors have misdiagnosed the ailment.

Spot on! And Bush and his advisors before him.

The point being missed by nearly everyone is that there IS NO PLAN that will bring us back to the days of unsustainable hyper-consumption based on massive consumer debt and fantasy 'profit' off of tricky 'financial instruments'.

Nor should there be.

They are measuring economic 'recovery' against a standard that was never sustainable in the first place.

[ken21]

bump de bump.

[Wally_Kalbacken]

Wen Jiabao is blowing smoke. Where else are the Chinese going to invest their surplus? Our economy may be doing poorly but it is still the best game in town. Witness the flood of funds, form all over the world into treasury instruments that are effectively paying 0%. Why would hey do it? Because it is better (much better) than the next best alternative.

[wmfights]

A drop in spending will create a sharper contraction in our economy - which is now comprised of 70% consumer spending.

I don't see how you get people spending in the near term. Most folks have lost a substantial portion of their 401K's and are confronted with the reality that they might not have enough to retire. I don't see these people going on a spending spree.

I think savings will go up and debt will get paid off quicker.

[Rembrandt]

This is all bull. The way to having a healthy personal balance sheet is to get a thug to buy a house for you. As an example, Tony Rezko bankrolled The Messiah’s house and now the One is doing real fine. Everyone should be issued their own Rezko - skip the other stimulus package. Just give me a Rezko.

[Huck]

Obama was talking like Schiff today:

http://www.politico.com/news/stories/0309/19981.html

"And he spoke of a day beyond the current crisis, when he would try to create a “post-bubble” economic model, one that doesn’t rely for growth on “just on an overheating housing market, or people maxing out their credit cards. Those days are over. What we need to do is go back to fundamentals.”

He might just be talking smack, but it says something about where we are culturally that it's being talked about by our president. His solutions may be incorrect, but he's got the disease identified.

[mysterio]

The good paying jobs were shipped out, and people borrowed to make up the difference. Now the credit has run out. There's no buffering the effects of outsourcing / trade policy now.

If your GDP is 70 percent people going out and buying stuff, it helps if those people have discretionary income.

[KarlInOhio]

Lastly, savings can always be relied upon whereas credit is ephemeral.

At least until it is stolen without the safe even being opened by the Federal Reserve and Treasury printing way too much money. Invest in a wheelbarrow now while you can afford it.

[dennisw]

unsustainable hyper-consumption based on massive consumer debt........

That is gone for years and maybe a generation or two. There are attempts to re-capture that era even in part. It will fail

[JSDude1]

The only way he’d do that is if Obama suddenly became a free-marketer..a lazzie faire in his economic thinking a true Adam Smith, Frederick Hayek, or Ludwig Von Mises Austrian..I would welcome this, but I doubt..

[palmer]

Wen Jiabao is blowing smoke. Where else are the Chinese going to invest their surplus? Our economy may be doing poorly but it is still the best game in town. Witness the flood of funds, form all over the world into treasury instruments that are effectively paying 0%. Why would hey do it? Because it is better (much better) than the next best alternative.

The reason they have that surplus is mercantilism. They built up their manufacturing (and destroyed ours) by both lowering their yuan and lending us money. There is synergy between our government needing to finance the deficit and the trade deficit. The money goes from American credit cards to Chinese merchants to the Chinese government to the American government. There is also truth to the notion of no better alternatives, but the loop was a bigger factor.

The current bubble in Treasuries is due mostly to the Fed driving rates lower. That raised the value of existing treasuries at higher rates. Foreigners simply bought the treasuries and waited for the value to go up, a no-brainer. It ends, more or less at the zero bound which is where we are at. The Fed has kept the game going a bit by creating artificial demand, like giving 300B in treasuries to Citibank which has to hang onto them. But this bubble will end and be replaced with the FRN bubble.

[Lorianne]

Maybe, but his ‘stimulus’ is based on getting the consumer spending again.

[Huck]

Actually, his stimulus, at least the way he touted it, was job creation. We can argue over the effectiveness of what he signed as a job creating bill, but that was his approach, create jobs in infrastructure, education, etc.

That's different than the Bush approach, which was to cut gubmint checks with money they didn't have, and tell us to go out and spend it. I spend the last two stimulus checks I got on the black market.

[only the truth]

If you think this economy can sustain itself with the spending programs,not without counting the Bush programs,but just on the Obama programs,someone is living in a dream world.We spend more than we make,we count on the government to make up the shortfall when things go south.And guess what sometime this year or maybe next,all our foreign buyers of our debt will go bye bye,syonara,adios,hasta la vista.Then we will be screwed and all the fancy talk out of our elected officials will be exposed as nothing but hot air and a worthless currency.

[April Lexington]

What everyone seems to have forgotten at this point is that credit does not come from thin air. Even in a system in which bank reserves are leveraged many times, someone has to put savings in a bank for the bank to turn around and make a loan.

First... I like Schiff. Second, Schiff seems to have forgotten that his example is Old School. In a closed economy like the USA of the 1900s, savings = investment (bank loans). Now... Savings come from African dictators and oil sheiks into Swiss banks as deposits then the deposit money was used to buy crappola CDO trash from Bear, Lehman, Morgan, et. al. and this created an ocean of foreign "savings" that became American consumption.

American savings rates were almost zero but global savings rates were rather high. So, forcing American savings rates up will have only a marginal effect in increasing Investment.

I agree that Americans need to save more and spend less but this will depress aggregate demand and keep the economy flat until savings rates stabilize at some equilibrium and spending returns.

By the way, I waited over two hours for a table at my favorite restaurant tonight. The recession is apparently over...

[killermosquito]

I actually woke up thinking about this parodox. We are encouraged to spend in order to help the economy. We are encouraged to save so that banks can use our money to make loans that help the economy. What should I do?

Any bankers, economists or money people out there have any words of wisdom on this paradox?

[hinckley buzzard]

The problem is that, in Obama's eyes, "the fundamentals" are central planning, high taxes, and government regulations. Never take these moles at face value.