Over the holidays between family parties I had a chance to catch up on some reading.
Among the hand full of books that I read my favorite has got to be Peter Schiff’s new book, “Crash Proof 2.0: How to Profit from the Economic Collapse”.
This is Schiff’s third book, which includes his original book “Crash Proof” that was published in 2007.
Is the first chapter, Schiff explains how we have moved from producers to consumers in the last several decades and how that is the cause of our economic disparity. Peter says;
“Our economy needs to be restructured from the foundation up to regain the viability it had when profit-minded people were making the important decisions and the U.S. was becoming the world’s leading industrial power. “
Then he goes on to explain what needs to be done,
“We’ve consumed too much and have more than we need, and until we stop consuming and start savings and producing, our economy will never enjoy a real recovery. Get credit flowing again? There’s nothing to flow. The banks blew their money on bad loans. That money is gone. The only way we can restore our banking system is with savings. To get from here to there, we have to allow a lot of banks to fail. “
I completely agree and have suggested that 1700+ banks will fail before the recession is over. Real savings are the key to economic recovery. Perhaps I should write an article series about how important savings are to the economy.
In the next chapter Schiff explains why the primary cause of the economic crash was a failure of government, guided by political motivation to interfere with the free-market.
And the reason our government was able to pull off the largest expansion in money supply in history so many years was because our trading partners around the world took part is what is known as vendor financing.
Vendor financing is where the seller of goods gives the buyers the loan to purchase the goods.
To this day, global vender financing is the reason the dollar has not plunged. If foreign nations would not have bought trillions of dollars with their own savings and expansion of their money supplies, the dollar would have lost much more value than it has many years ago.
The dropping dollar would have created inflation and that would have forced the government to stop spending money. Consumer credit would not have continues to expand as well.
In fact this ‘vender financing’ of America has gone on so long that many foreign nations have become dependent on the U.S. consumer just as the U.S. consumer is dependent on foreign savings to purchase goods.
It’s not a healthy relationship and the breakup has just begun. But because of the length of the relationship, the decoupling process could take many years.
The Messy Breakup
Both parties are going to suffer from the breakup. The foreign nations are trying to find new customers to purchase their goods and the U.S. consumer is trying to find a new source of funds to spend.
In 2009, the new source of funds for U.S. consumers came from government stimulus packages and trillions of new dollars injected into the economy by the Federal Reserve to stop the market from adjusting to the bad loans handed out to consumers that cannot pay for them.
The new money was suppose to be a temporary solution, but with an economy that runs on 70% consumption, the government cannot find an exit strategy without re-establishing the ‘vender financing’ relationship with foreign nations.
But that relationship is on the rocks because of the trillions in loans that have been lost from the collapsing housing market.
Foreign nations are not happy about losing their best customer or lots of money borrowed to that customer. As a result, they are not as interested in the ‘vendor financing’ relationship anymore because of the trillions in losses that they have endured.
A New Relationship
They would like to move to a less risky relationship in which we pay for the goods we consume. But that cannot be done because we have no savings and no cash flow (production) to pay for the goods that we consume.
In chapter six and seven, Schiff explains why an economic collapse is inevitable. There is no easy way out of this relationship. We are dependent on easy money and need to get a grip on our way of life because the good years are over.
The last three chapters are about Mr. Schiff’s investment advice to protect your wealth as the economy continues to crash and the 'vender financing' relationship comes to an end.
Mr. Schiff is now running for U.S. Senate in the state of Connecticut so that he can become more influential in educating government leaders in the process of restoring our economy.
I highly recommend this book to everyone trying to understand what is actually going on and to learn about how to protect your wealth.
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