Schiff was Right

I recently read a post on www.europac.net where Peter Schiff felt the need to defend himself from a critic. This doesn’t surprise me. I call it the “Day Trader Mentality” which is the real reason we are in our current mess. It is the Generation-X get rich quick mentality that drove excessive risk taking, rather that considered, medium- to long-term value investing. Understanding economic cycles is not about picking the peak or troughs in markets but in developing a comprehension of what part of the cycle we are currently experiencing. The warning signals of the bubble economy had been growing since the 1990’s, with the first bubble emerging in the internet economy from 1996-2001; its collapse lead to a mini-recession. It should have been a full correction but Alan Greenspan attempted to monetise the recession away, possibly for political reasons. To achieve this, Greenspan floored US interest rates and delayed and greatly amplified the effect. Massive monetary expansion occurred with huge bubbles emerging in asset prices in both equity and property (especially the US). These asset prices were fuelled by cheap credit, leveraging and inappropriate pricing of risk. Securitisation and derivative products were key culprits in this process – as was cited in the very first post of this blog in 2004. As a result the recession of 2001-02 was smothered and has emerged as the Depression of 2008-2015, or as we like to say here the Great Recession. Where we are at now is really the beginning of the downward slope probably akin to 1931. The next two to three years will likely see the worst of it.

Mr. Schiff has my sympathies, he has been, and continues to be the most insightful and prescient economic commentator over the last decade. Unfortunately people who allow there own self interest to govern their thinking, those who operate without self examination or intellectual rigour, will always be jealous of those that do, especially when their follies are magnified by reality.

Do a search for “Peter was Right” videos on YouTube – that’s Peter Schiff not this one!