If you missed Peter Schiff’s testimony before the Congressional Jobs Committee last week, it is a must see. For fans of Schiff, you’ve heard much of this before but it is fascinating to watch the committee and the panel react to his Austrian viewpoint. The highlights for me were Schiff’s focus on the damaging effects of deficit spending. Schiff is no fan of this country’s tax policy but he insists that deficit spending has a more harmful effect on job creation than taxation. While the government touts those who were hired for jobs due to the stimulus, Schiff explains the concept of opportunity cost: that is, the government does not see all of the jobs it destroys through borrowing and expansionary monetary policy. The extraordinarily low interest rates are of no use to typical small businesses. Cheap credit helps the government as they can borrow money from the bond market; major corporations have access to cheap money; and Wall St. can gamble with it, but small businesses cannot sell bonds. This lack of available credit is evidenced by the $1.6 trillion in excess reserves held by behemoth banks. The cheap money doesn’t seem to get to small business. Only the resulting inflation.
Schiff also addresses the ongoing economic “chicken or the egg” debate: which comes first, supply or demand? According to Schiff:
Demand doesn’t come from government spending. Inflation comes from government spending. Demand comes from supply. You can’t consume something that isn’t produced. You have to make things first.
Nobody knew they wanted personal computers, iPhones, memory foam mattresses, Lunarlite foam running shoes, etc. before they were created. And they were created from capital investment and R&D. If nothing else, it is unwise to completely ignore either the supply or the demand side in your economic viewpoint.
There has to be something in it for the lender to expose themselves to start-ups or business expansion. Rock bottom interest rates aren’t going to get it done. Particularly when banks can just borrow money from the Federal Reserve and turn around and buy Tresuries with it. This is a surefire way to stagnate the economy and grow government.