Peter Schiff views stimulus as a sedative is a school of thinking right out of the Austrian School of economics, which is based on the idea of individualism, that economies and societies advanced from the collective aspirations of individuals. But the Austrian ideology is at complete odds with Keynesian state capitalism, which looks more like where we have landed in the wake of the pandemic great lockdowns.
“Austrian ideology is at complete odds with Keynesian state capitalism”
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Keynesians believe that governments should increase public spending in times of recession, to make up for the shortfall of private investments during tough economic times. So, the idea is that fiscal spending pump primes the economy as public jobs are created, household’s sentiment improves along with consumption, then as aggregate demand perks up, businesses start investing, according to the theory.
But the Austrian school of thinking argues for less government in tough economic times. These thinkers view the state as burdensome, bearing in mind the State is not productive nor does it generate an income. So, what is left after massive public spending is the burden of debt on the shoulders of future generations, which weighs down future economic prosperity. Put another way, Austrian thinkers argue that state spending should be aligned with levels of economic activity. So, in boom times, the economy can sustain a large State, and in hard times public spending needs to be cut, they argue.
Austrians would argue that necessity, survival, is the mother of invention, and it is in those hard times when humans become resourceful, creative, which sparks ingenuity. Opposing thinkers would view this as callous and Darwinian.
Put simply, the Austrian school views the State as the problem, not the solution, and they advocate laissez-faire economics, which argues that price levels to be determined by the market and not the State or a central bank.
“Austrian thinkers argue that state spending should be aligned with levels of economic activity”
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Peter Schiff views stimulus as a sedative because it holds back individual self-betterment and burdens posterity with massive amounts of debt
“Powell talked about how much the government is helping during the pandemic. Peter said if the government wants to help, it should get out of the way” said Peter Schiff.
“Power and ignorance are a dangerous combination, especially when you’re the chairman of the Federal Reserve. You have the power to print all this money, and you think that if you exercise that power, you’re doing good. But you’re harming” added Peter Schiff
“The government needs to lighten the burden that it places on the economy” – Peter Schiff
Having a different ideology, a view from that of the Austrian school, doesn’t make you ignorant
The Great lockdowns forced many small businesses to shut down, in some cases owners, faced arrest for attempting to open their doors for business. So, the state prevents business from conducting face to face business, due to fears of pandemic spreading, then it seems only just to provide these businesses with financial aid.
Peter Schiff views stimulus as a sedative, what then does he recommend should be done?
“The government needs to lighten the burden that it places on the economy. It should be cutting spending. Instead, it’s doing the opposite and it’s adding an inflationary problem to the health problem, so we’re in much worse shape” said Peter Schiff.
Endless monetary easing and the proliferation of Zombies is another reason why Peter Schiff views stimulus as a sedative
Indeed, a 1.9 trillion US dollar stimulus and ongoing accommodative monetary policy are what lies ahead. “Before Biden announced his stimulus plan, Jerome Powell spoke and reassured everybody that the Fed will continue with its loose monetary policy. He emphasized that the central bank will hike interest rates no time soon,” said Peter Schiff. Peter Schiff noted that there has been pushing back against some of the other Fed presidents, particularly Atlanta Federal Reserve President Raphael Bostic, who hinted the central bank might consider “pulling back” on asset purchases shortly. “Be careful not to exit too early,” adding “by the way, try not to talk about exit if you’re sending that signal because markets are listening” said Powell.
“this is not going to stimulate the economy. This is going to sedate the economy” – Peter Schiff
The burden of servicing the ballooning deficit is also why Peter Schiff views stimulus as a sedative
Peter Schiff noted that it is difficult to overstate the level of spending, bearing in mind the US government set a record high December budget deficit of $143.6 billion last month. In just the first quarter of fiscal 2021, the federal government spent $1.3 trillion. And the spending isn’t about to slow down. It will likely accelerate, noted Peter Schiff.
Last week, Joe Biden unveiled plans for a $1.9 trillion stimulus bill but Peter Schiff views stimulus as a sedative.
“First of all, this is not going to stimulate the economy. This is going to sedate the economy. So, it’s not a stimulus. It is a sedative” said Peter Schiff,
“In a nutshell, Biden wants to “stimulate” the economy with a bunch of government spending paid for by more Federal Reserve money printing” he said
Here are just a few highlights, which Peter Schiff views stimulus as a sedative.
- Direct payments of $1,400 to most Americans
- Increasing unemployment benefit to $400 and extending it through the end of September
- $350 billion in state and local government aid
- $170 billion for schools and institutions of higher education
- $50 billion toward Covid-19 testing
- $20 billion toward a national vaccine program.
Perhaps the crux to Peter Schiff views stimulus as a sedative is that it makes not working more beneficial than actually working
“They don’t have to start looking for jobs because they got a better deal on unemployment” he said.
Peter Schiff also thinks that increasing the minimum wage to $15 an hour will make many low skilled workers permanently unemployed. “If they can’t convince an employer to pay them $15 an hour, they’re out of luck. They have no choice” he said.
All this money – the $1.9 trillion – is going to be printed and spent into circulation. And that is the inflation that is driving commodity prices. It’s the anticipation of that inflation”.
This isn’t a rescue plan. It’s the equivalent of throwing a drowning man an anchor. See Podcast.