Intro post to "Crash Proof - How to Profit from the Coming Economic Collapse"

Is there anyone else out there who reads more than one book at a time?

This is the introductory post to Peter Schiff's best seller Crash Proof.  Mr. Schiff has been making the rounds lately, and with increasing frequency, on the financial networks due to his extremely accurate economic predictions made in this book.  Here's a great video of his predictions over the last few years.  Better still are the reactions of the "experts" to his predictions.

 

In the preface to his book, Mr. Schiff mentions how the attitudes to the Trade Deficit have unfortunately softened over the years, especially in the business press and political circles.  His argument is that the trade deficit is a bad thing.  I agree with him because I also agree with his premise that is a little lost in the argument.  So let's clarify it:

Question: Are trade deficits bad?

Answer: It depends.

Question: On what does it depend?

Answer: It depends on what the deficit is spent on.

A trade deficit occurs when imported goods exceed those that are exported.  Now the only reason the rest of the world would give the U.S. more goods than it gets in return during a specific period of time is under the expectation that it will get that wealth back in the future plus a return on its investment.  So what did America do with those extra goods it received?  Well, if it had combined those extra goods into a form that increased the productive capacity of the country then there might be increased productivity with which to pay back the deficit with interest at some point in the future.  Unfortunately, that is not what happened.  Instead, it consumed those goods.  Mr. Schiff likes to say that Americans, rather than investing this loan from the rest of the world into additional productive capacity, bought SUVs and plasma TVs instead.  When this "debt" is spent on consumption rather than production, and when no additional productive capacity is built, the only way to pay off the previous loan and interest is to issue a bigger loan (here's the most famous practitioner of this system).

The introduction to the book is entitled "America.com" - obviously an implication that the rest of the world has bid up the price of the American economy to unsustainable levels in a speculative bubble much like the dot-com bubble of the late 1990s.  In it Mr. Shiff begins with a quote from Alan Greenspan's 1966 article Gold and Economic Freedom, a lucid and logically sound defense of economic freedom, which also throws into sharp relief the tragic path taken by one of the free market's rock stars.  Anakin, I mean, Alan Greenspan sadly chose the darkside later in his career - becoming the State's favorite monetary socialist and inflationist.  Although he correctly diagnosed in his article the causes of what we now know as the Great Depression of the thirties, he made the same mistakes as Fed chairman - only on a greater scale - in the run-up to our current situation.

The next chapter - The Slippery Slope: Consumers, Not Producers