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Deep Creek Hot Springs

The Moon is Waxing Gibbous (62% of Full)


Re: SC49

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August 15, 2007 10:56PM


He's one of the doomsayers having a day in the sun as the US stock market plummets. A regular on the business shows, Schiff is shouting from the rooftops that this is the beginning of the end for the US economy.

The disturbing thing is he's been right so far, making his clients at his Connecticut-based brokerage firm Euro Pacific Capital wealthy by having predicted years ago that the US dollar would start falling and tipping them into euro-denominated assets.

Among his predictions: a housing-led slump, even depression, with at least a 20 per cent US economic contraction. He says the US dollar will lose half its value.

Where once it was about saving, investment and production, now the US is more about massive consumption on borrowed money. "We have a very sick economy -- it's been papered over because everyone around the world has been willing to lend us money," Schiff tells The Australian. "Now they are finding we can't pay them back."

"Everyone thinks the US is the No1 economy in the world. We're not. All we've been doing is consuming stuff on borrowed money. There's no savings."

Schiff is scathing about the mortgage fallout that has caused the current global market shake-up. Sub-prime mortgages - money lent to low-creditworthy borrowers - were "crap", but packaged up and sold around the world.

Now that the loans are being called-in and borrowers can't pay-up, Schiff predicts dire repercussions for the US. "America is going to lose access to the world's credit markets. If someone here wants to borrow money now they are going to have to borrow from another American."

To many, these claims are fanciful and most economists, while predicting an economic slowdown, are not predicting a recession. "The US economy has its problems but fundamentally it is really strong," says Mark Zandi, chief economist at Moodys.com. "The US economy is enjoying six years of growth, unemployment is low and inflation is low."

Schiff says all this is a mirage. And in economic forecasting, timing is everything. Schiff's seemingly outlandish claims get traction, helped by a book he's written: Crash-Proof: How to Profit From the Coming Economic Collapse. It charts an almost conspiratorial tale of how the public have been fed lies over the state of the US economy for years. "The economic statistics put out by the US Government are propaganda, pure and simple," Schiff writes.

"Issued by government agencies, interpreted by spokespersons for the Government and the financial community ... the information we get has been manipulated to mould a public understanding favourable to the agenda of the powers that be." Schiff's prediction of economic doom has everything to do with the US mortgage and housing meltdown, a prophecy he made in the book before the latest market turmoil.

"The collapse of consumer spending, associated with higher mortgage payments and vanishing home equity, will plunge the economy into severe recession, further exacerbating the collapse in real estate prices, worsening the recession and continuing the vicious cycle," he says.

"The country will be a lot poorer as a result of the unprecedented dissipation of wealth and accumulation of consumer and mortgage debt that occurred during the bubble years. Before real estate prices can return to normal levels, they will first have to get dirt cheap."

He tells The Australian the latest market gyrations are evidence of the "beginning of the end of our economy".

"People call us the biggest economy in the world but it's false, we'll be lucky if our per capital GDP is still in the top 20 in two years' time."..............


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