Main-stream economics keeps perpetuating this myth that it’s consumer spending that drives the economy. But, consumer spending doesn’t exist in a vacuum. You can’t spend what you don’t have. Well, actually you can for a while. But when Vinny shows up on your doorstep wanting his money you’re gonna wish you hadn’t. The same thing is true for countries as is true for individuals. Spending beyond your ability to pay is not going to work. Default is inevitable. Spending may “drive” an economy, but producing makes an economy stable and sound. That’s the point that Peter Schiff(and many others) has been making for a while now, but people keep misunderstanding his basic premise. Case in point:
Schiff’s basic point here is a simple one. Imagine you have a farm with about 40 acres. On this farm you have a few large gardens, livestock of the food and work variety, a gravity fed well system and a decent house. You also have plenty of guns and ammo. In addition to all this, you’ve used part of a creek running through your property to put in a turbine generating power setup. This provides you with plenty of power to run the basics and stores extra power in a battery array for when the creek isn’t running strong. Now, contrast that with your neighbor. He has a lot of entertaining gadgets and never thinks beyond the next paycheck. Now imagine that there is a severe financial breakdown such as hyperinflation or the like. You will be self sufficient and your neighbor will be at your door begging for food. Your neighbor doesn’t even have anything to trade. What do you need that he has? Nothing. You already have all you need. But, he very much needs, what you have. And this is the basic premise. China is you, and America is the neighbor. They produce and we buy.
The example above is what is meant by the term decoupling. It’s the idea that other countries (primarily Asian) are self sufficient, and have grown past their dependency on the U.S. economy. Of course, they are laughing at Peter Schiff in this video for believing that. But, looking at it through an example such as the one above, I don’t see anything to laugh at. China in particular is very much over it’s dependency on the U.S. They have large stockpiles of precious metals and a robust agricultural sector. Am I saying that a financial meltdown in the U.S. wouldn’t be felt? Of course not. It would be a nightmare for people all over the world for quite a while. That’s not the point though. The point is that their wouldn’t be some sort of secondary collapse in China just because the U.S. failed. They would recover quickly.
All this doesn’t mean that we can’t go back to self sufficiency as a country. We definitely could. And I actually think we will. But it’s gonna hurt. Bad. Over the last 60 years we have moved from being an agrarian, industrial economy to being an entertainment and service based economy. Transitioning back, even partially will mean lots and lots of financial hurt for many people. I don’t see it any other way though. Don’t kid yourself. The budget deficit in this country is going to top 2 trillion this year. These estimates of 1.7 are gonna be way low. That kind of debt is the stuff hyperinflation is made of. When that happens we are going to have no choice but to move back to basic goods. Hopefully it will be a slow move as people transition out of the rat race and into more rural, agrarian living over the course of a decade or so. That would be a lot more preferable than a total hyperinflationary collapse. We’ll see.