U.S. Titanic hits debt iceberg, and the band plays on

Wanted: protesters with better math skills.

Wanted: protesters with better math skills.

Too many today are fixated on opposing pipelines, LNG plants, coal exports and other initiatives that could create real wealth for B.C.; too few are marching in the streets to demand governments stop looting the next generation’s inheritance.

In Vancouver recently to apply exclamation points around that issue and the U.S.A.’s looming economic collapse was Peter Schiff. The CEO of Euro Pacific Capital, which manages roughly US$3 billion in portfolios in the U.S. and another US$400 million in Canada, is perhaps best known in the wider world as a predictor of the 2008 global economic nosedive and a critic of subsequent government band-aid solutions.

Schiff is unrepentantly bearish on the dire state of U.S. government finances. The American economy, he told Public Offerings prior to speaking at Cambridge House International’s January 20 to 21 Vancouver Resource Investment Conference, “is a gigantic bubble. We don’t have an economy that can sustain the level of consumption that Americans have enjoyed, and we don’t have the ability to repay the money that we have borrowed to finance that lifestyle. We’re broke, and the people who loaned us money are going to suffer a loss because they’re not going to get it back.”

Worse still for fans of It’s a Wonderful Life happy endings, there are none here.

According to Schiff’s script: “Either we default on our debts and bondholders get shafted or we destroy the dollar and pay everybody off with a debased currency.”

That’s not going to sell down at the local movie house. But, then again, this is not Hollywood; it’s reality TV without the benefit of TV spin. When annual federal government spending jumps to trillions today from mere billion in the 1960s as it has in the United States, there’s not much to be spun from that outside of despair over reckless taxpayer money management.

Canada is not yet aboard the same ship of fools as America, but the sinking of that Titanic will drag this country down with it, along with a lot of other economies that depend on Americans continuing to spend more than they earn and borrowing against their future.

Money management down at shop level in Canada is not much better than in the United States. A recent Intuit Canada survey of Canadian small-business owners, for example, found that 83% ranked basic or lower on its financial literacy quiz.

Meanwhile, as pointed out in Richard Chu’s Data Points column (“Reliance on stocks threatening Canadian household net worth” – BIV issue 1213; January 22-28), Canadians continue to pile up debt and invest more cash and faith in stock market equities, mutual funds and other higher risk investments.

Down south, it’s the all- gain-and-no-pain school of economics: raise the debt ceiling and ramp up spending. No one espousing the tough love agenda needed to fix America’s economy is going to get elected in the United States, because, as Schiff points out, “the average American wants something for nothing. … The biggest impediment to doing the right thing [for the economy] is democracy.”

That’s one of the top threats in this whole economic time bomb: political and fiscal collapse.

Advice from Mr. Schiff for remedying American economic ills:

•raise interest rates to encourage savings and discourage borrowing;

•cut the size of government and government spending;

•free up markets;

•end subsidies and bailouts; and

•increase production and capital investment.

Advice from Public Offerings: start using that calculator app on your mobile device for more than figuring out restaurant tips. •

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