In a column in the Washington Post, entitled "Don't Blame Capitalism," Peter Schiff, the President of Euro Pacific Capital, argues that government largely caused the current crisis in the financial markets, and, more ominously, that the "remedies" currently being pursued by government threaten to prolong and deepen the downturn. As market forces act to deflate the credit bubble, created by government policies, the government is stepping in to reinflate it, Schiff notes:
"First came the Treasury's $700 billion plan to purchase mortgage assets that no one in the private sector would buy. Now it has recapitalized banks to the tune of $250 billion, guaranteeing loans between banks and fully insuring non-interest-bearing accounts. Policymakers say that absent these steps, banks would not be able to extend loans. But given our already staggering debt burden, perhaps more loans are not the answer. That's what the free market is telling us. But the government cannot abide solutions that ask for consumer sacrifice.
"Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease."
Schiff concludes with a warning that "Binding the country to a tangle of socialist ideals will seal our fate as a second-rate economic power."
I think he is right? How about you?