Peter Schiff is Almost Right

Peter Schiff, an economic advisor to Ron Paul, has been a vocal and strident critic of our culture of borrowing and spending. He called the market collapse accurately and is now speaking out against Obama's massive stimulus plan. Here's a particularly good summary of his views.

While I agree with his opposition to spending sprees, I don't see how this is going to lead to a run on the dollar. Where are investors going to go? Certainly not the Euro as Greece, Italy, Spain and Ireland are all likely to default in the near future. Here's a little about the problems Greece faces.

"Eventually, the interest payments on debts will be higher than was thought, and you need to recoup those interest rate payments by higher taxes in the future," said Cailloux.

"There's not much we can do," said Papanicolaou when asked about his reaction to widening debt spreads, which are essentially a result of the bond market's perceived risk of Greece's ability to pay back its debt ...

Chris Pryce, Western Europe director at Fitch Ratings, says the current yield differential between Greek and German bonds reflect a better assessment of the risk. "Previously euro zone investors did not property distinguish the risks in the euro zone. Greek government accounts are pretty appalling. They have the highest debt after Italy." Greece's debt-to-GDP ratio is forecast by Fitch to have hit 92.0% in 2008; Italy's hovers around 100.0%.

Peter Schiff says that "America is going to lose its dominant position in the world." In order for us to lose that, it's got to go somewhere else. Where? Europe? Not likely with the Eurosocialists decades ahead of us on implementing stupid fiscal policies. Japan? Probably not. The Japanese "Lost Decade" left them with a debt load about three times the size of ours as they tried all of the things the Democrats and Obama are planning to try now.

South America has Brazil as a candidate, but they're hardly an industrial powerhouse. Argentina can't seem to stop nationalizing their assets to hand out goodies. Australia would be a possible candidate to replace us if it wasn't so tiny. The leader of the world can't be that small.

That leaves us with India and China as the ones to replace us. While I think that's possible in the future, right now they are both still very poor countries. I can't see the world turning to China or India yet. In ten years, maybe. But for now, the US is still the place to put your money in times of crisis. That fact is going to provide the illusion that Obama's policies of borrow and spend are working.

In the meantime, Greece, Italy, Spain and Ireland are in big, big trouble. If you want to see where profligacy and debt lead when you aren't the world's safe haven, watch what happens there.