Schiff On the Coming Austerity

 Like Schiff, I think that the bailouts, even easier credit, and even more printed money have prevented markets from reaching a natural equilibrium. The longer we try to fight the market with destructive policies, the worse the pain of the eminent correction in the end. The canary in the coal mine is the value of the dollar. Note that while the stock market is up 50%, the dollar is down 30%. Which will win?  This is just inflation we have not fully experienced yet.

This soon-to-be-called depression will not end until the pendulum of consumer spending habits swings violently in the other direction. This will be a jarring change, but it is the splash of cold water that we need to return our economy to viability. I believe that consumer spending as a share of GDP will need to temporarily contract to roughly 50% of GDP, before eventually moving toward its historic mean of 65%. Such a move would indicate a restoration of our personal savings, a decline in borrowing and trade deficits, and an increased industrial output. That would be a real recovery.
In the meantime, the higher the spending percentage climbs, the more painful the ultimate decline becomes.
Consumers and governments must spend less so their savings can be made available to businesses for capital investments. Businesses, in turn, will produce more products and employ more people – increasing domestic prosperity. However, rather than allowing a painful cure to return our economy to health, the government prefers to numb the voting public with a toxic saline-drip of deficit spending and cheap money.
The primary factor that enables our government to peddle economic snake oil is the dollar's unique role as the world's reserve currency, and our creditors' willingness to preserve its status. By buying up dollars and loaning them back to us through Treasury debt, productive countries give American politicians carte blanche to play Santa Claus.


http://seekingalpha.com/article/167101-american-austerity-is-about-to-begin?source=email