What’s the Problem With Stimulus Checks, Trade Deficits and the Minimum Wage?

February 10, 2021  by   0   0

So, what’s wrong with stimulus, money printing, trade deficits, and the minimum wage? Peter Schiff appeared on Meet Kevin to tackle these questions and more.

If price declines are normal, why not run the printing presses and hand out those stimulus checks? Simply put, it stops prices from falling and that represents a tax.

Now people are denied the benefit of those lower prices.”

Peter pointed out that if something becomes less expensive, it frees up purchasing power. You can buy more things – or save for the future.

That’s going to result in economic growth in other areas, employment in other areas. So, we miss out on all that if the government inflates away those gains.”

Last year, the US ran the biggest trade deficit ever. Why does that matter?

Peter said in the short-run, it’s actually good. We get to live beyond our means.

We get to consume stuff that we didn’t produce.”

Imagine if you were making $50,000 a year but you were spending $60,000 or $70,000 a year using credit cards or a loan.

While you are living beyond your means and spending money you didn’t earn, life is good, right? Because you’re buying stuff that you really can’t afford.”

Why is that a bad thing?

Eventually, you’ve got to pay back that money. And how do you pay back that money? Well, that means you actually have to start consuming less in the future to make up for the fact that you consumed so much more in the past or you present. But now you also have to pay the interest on what you borrowed.”

Trade deficits are simply a reflection of the fact that we’re living beyond our means and we are accumulating liabilities – debts to the rest of the world that will have to be repaid through diminished consumption. Meanwhile, countries with trade surpluses can take those dollars and invest in real assets.

At the end of the day, we become serfs in our own country because we’ve sold out all of our assets. In order to consume today, we sell out our productive assets to our creditors. And now they own the real estate. They own the stocks. We basically sold all the seed corn and now we’re sharecroppers.”

Peter said when rich countries start running big trade deficits — that’s how they become poor countries.

President Joe Biden is pushing to raise the minimum wage, but Peter said all it really does is make it harder to be lawfully employed.

In effect, every worker is a businessperson selling a product – their labor. So, what do you have to offer? What are your skills? How much value can you add to an organization? If you can only add $12 of value an hour, nobody is going to hire you for $15 an hour.

You have to convince the employer to pay you $15, you ain’t getting a job because you only got $12 an hour worth of skills. Now, if there’s no minimum wage, or the minimum wage is $7.25, you can get a job. But the higher they make the minimum wage, the more people get priced out of the labor market. That’s why the best minimum wage is zero. That way, nobody gets priced out. Everybody can get a job.”

Biden’s argument seems to be, “Don’t worry about the debt now — we’ll pay it off with a stronger economy later. We’re going to pour in stimulus now to grow the economy.” But Peter said we aren’t going to get a stronger economy because of more government spending. We’re going to have a weaker economy.

Government spending isn’t investment. It doesn’t grow the economy. These are the same empty promises that the Soviet Union made. They had all these 5-year plans. The government’s going to do all this and spend. It doesn’t work. Government can’t invest. Government can’t create wealth. Where is that $3 trillion going to come from? Or $4 trillion? The government only has what it takes from the private sector. So, what Joe Biden is promising is ‘we’re going to suck out $3 trillion from the private sector and we’re going to transfer it to government. And the government is going to be a so much better utilizer of capital, we’re going to be so much more efficient than the actual private sector owners would have been that the country is going to benefit from the collective use of these resources.’ But there is no example in all of history where that has ever worked.”

Of course, the government will borrow most of this stimulus money and the Federal Reserve will monetize it through printing money. Last year, we saw record growth in the money supply. That’s inflation. The mainstream continues to insist this isn’t a problem. But Peter said just because it doesn’t look like a problem today doesn’t mean it won’t be a problem tomorrow. And once inflation becomes a problem, there’s no going back.

If you let inflation get to 6 or 7%, how do you stop it? Well, maybe you have to raise interest rates to 10% or 15%. But we can’t even afford 1%. We have so much debt, it’s impossible. So, once that inflation genie is out of the bottle, we don’t have a prayer of putting it back in.”

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