Is the Economy Still Recovering?

06/01/2012 11:00 am EST

Focus: MARKETS

Peter Schiff

CEO, Euro Pacific Capital, Inc.

Mixed data on the economy has many wondering whether the economy is still recovering, but Euro Pacific Capital’s Peter Schiff has some clear ideas on this question.

Is a recovery underway? Peter Schiff says not so fast.

Unfortunately, the economy is not recovering at all. It’s actually getting sicker.

You have to understand the nature of the ailment, and that was government stimulus. Interest rates were too low for too long. As a result, we borrowed too much money, we spent too much money, we didn’t save enough, we didn’t produce enough, we didn’t invest enough.

And when the financial crisis hit, instead of allowing the market to cure the economy, we just shot it up with more of the stimulus that was making it sick. Unfortunately, I think we’re about to overdose on government stimulus.

We asked for audience questions and Nick from Tucson simply said: How long is this mess going to last?

Well, it’s going to last for a while. The question is, are we ever going to clean it up?

I don’t have the answer to that. I explore a lot of that in my new book, The Real Crash, which just came out and in which I really go into the solutions and what we need to do as a nation if we’re ever going to have a legitimate economic recovery instead of the phony stimulus-induced high, which is all we have now. But of course, when that stimulus wears off, it leaves one hell of a hangover.

So those who think the recovery is underway, you say they’re being naïve?

Well, they’re wrong. I mean, these are the same people that said there was no crisis, the same people that said the economy was great back in 2007 just before we went over the edge of a cliff. They’re the same people that say the economy is improving, but it’s not.

All we’ve done is borrow more money and spent it. We’re more deeply indebted today than we were before the crisis. So fundamentally, I think we’re in worse shape, and unfortunately we’re headed for an even bigger economic collapse than the one that we experienced in 2008.

And inflation is now underway?

Oh, it is. And it’s going to get a lot worse. I mean, that’s really the illusion that the government uses to try to pretend that the economy is improving. But it’s not. All we’re doing is measuring GDP with depreciated dollars, but you can see the cost of living going up—energy prices, food prices.

Wages are stagnant, or of course for many cases, they’re nonexistent, because lots of Americans have lost their jobs. In fact, you have record numbers of Americans who are now claiming disability because they can’t find jobs. We’ve had a complete collapse in labor force participation, and more and more of the jobs are offshore.

Our trade deficit is now running at three- or four-year highs. In fact, I heard just recently that in the last month, Americans borrowed more money in one month than in any month in ten years. Why are they borrowing so much money? Because they have to go deeper into debt just to stay afloat. But ultimately, we’re drowning in a sea of debt.

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