A Category Five Economic Hurricane Is on the Horizon
Saturday, Sept. 15, was the 10th anniversary of the Lehman Brothers bankruptcy. Many people consider it the seminal event of the 2008 financial crisis.
In his latest podcast, Peter Schiff said as we look back at the anniversary, we should realize that the next crisis is going to be worse. In fact, the next economic hurricane is going to be a category five.
As Peter noted, a lot of people think the biggest mistake regulators made in ’08 was allowing Lehman Brothers to go under. Peter said he thinks that was about the only thing policymakers got right. They got pretty much everything after that wrong. But at the time, most people still didn’t realize exactly what Lehman represented.
They still didn’t appreciate, at the time, what the significance of that bankruptcy would have been. I believe that had our legislators, had Congress known in advance what was going to happen after Lehman went bankrupt, they never would have allowed it to happen. But of course, by bailing out everybody else, once they let Lehman fail and they got a taste of how bad the free market can be when it’s trying to clean up a mess that government created, when they got a taste of that bitter medicine, they spit it right out, and of course everybody else got bailed out. But that was the problem. The problem wasn’t letting one firm fail. It was not letting all the other bad banks fail, because we created an enormous moral hazard that is going to ensure that that the next crisis is worse.”
Instead of allowing the system to cleanse itself and filter out the bad actors, the government stepped in and allowed them to remain in power. The intervention prevented any substantive restructuring of the financial system. The “too big to fail” institutions are even bigger today. So, if they presented a “systemic risk” in 2008, they present an even bigger “systemic risk” today.
The media coverage of the anniversary was about what you would expect. You didn’t see Peter out there – even though he actually predicted the crisis. Instead, you got to hear from the people who actually caused the crisis and those who were completely blindsided by it. And of course, the narrative generally ran along the lines of, “the government saved us, the bailouts worked, the Fed was great, thank goodness for quantitative easing and everything is fine now.”
Nobody realizes that everything that we did in the aftermath of the financial crisis simply exacerbated all of the problems that created that crisis.”
Peter said where he made his mistake was in thinking that the Federal Reserve wouldn’t be able to actually reinflate the bubbles. But they did. In fact, they managed to make the bubbles in both real estate and the stock market even larger than they were when they popped.
So, we now have the biggest bubble ever, but unfortunately what that means for the United States is that instead of rectifying these problems years ago when they were smaller … we dug ourselves into a deeper hole. In fact, we’re now in the Grand Canyon of holes and there is no way out.”
As Peter noted, the ironic thing is that the same people who were blindsided in ’08 are the same people that are confidently predicting that everything is great today.
Especially now that we have Donald Trump and it’s the greatest economy ever. It’s the greatest boom ever. Nothing to worry about; it’s just blue skies and rainbows and sunshine as far as the eye can see. The truth of the matter is a category five hurricane – probably, actually, they don’t even have a number on the Saffir Scale for how bad this financial hurricane is going to be to describe it. But this thing is right around the corner, just like the 2008 financial crisis was. And everybody is completely clueless — absolutely oblivious to what’s going on.”
A lot of people accuse Peter of being a “stopped clock.” Look how long he’s been predicting another meltdown and he’s been completely wrong.
I haven’t been wrong. I’ve just been early, the same way I was early about 2008.”
Make sure you listen to the whole podcast. Peter also talks about the actual Hurricane Florence, current levels of government spending and more.