If you want to start a heated debate in a sports bar show up wearing a Broncos jersey and start "Tebowing" while waiting for your beer. If you want to stir things up at Festivus, Minyanville's annual celebration of all things financial and charitable, grab a couple smart guys and ask them who's better off: The U.S. with an economy utterly reliant on Federal Reserve policy or the Eurozone where the European Central Bank ("ECB") is little more than a puppet for Germanic economic desires?
Breakout did the latter with the always loquacious Peter Schiff of Euro Pacific Capital and Peter Atwater, former Bank One Treasurer, now CEO of Financial Insyghts. In the attached clip, filmed prior to EU Summit meetings of last week, Atwater presciently suggests the ECB is "hamstrung by the divisiveness within the organization itself." To him this is "no different than the situation we have here."
Dare to dream, responds Schiff.
"The fact that the ECB can refrain from monetizing all this debt, which is what everyone seems to want, is a good thing... that's the only way to force governments to actually cut spending," Schiff explains. "At least the EBC, Germany, understands what the stakes are."
To clarify, what Germany and Schiff seem to believe is at stake is rampant inflation caused by excessive Central Bank spending.
Atwater believes there can be no inflation where there is no spending. U.S. corporations are awash in cash but they won't spend regardless; a fact that is a function of banking policy. The lack of inflation is the result of "a complete deterioration in social mood," says Atwater "You need to have some engine from an inflation perspective that doesn't exist today."
Though sharply differing in their views of whether the capital in the system is causing inflation are sitting idle, neither Schiff nor Atwater thinks the direction we're headed now benefits anyone. Schiff says the answer is austerity; an answer elected officials have rejected to date in large part because telling the unemployed and disenfranchised you're going to cut their benefits has never won anyone votes.
With the Federal Reserve holding their last meeting of 2011 this week, Schiff says the best thing they could do is to stop doing anything at all.
"If Bernanke jacked up rates and stopped printing money Congress would have to do something," Schiff says.
The problems with Schiff's "if... then" scenario is: a) The Fed won't stop doing anything, b) Congress isn't going to start doing anything, c) the amount of pain from a withdrawal of free money is unknown but hideous and long-lasting.
"The way it is now (a recovery) is going to take forever and it's going to get worse and worse," says Schiff. "It ain't gonna be pretty but at least we'll have some sort of recovery."
Whatever that pain is, it's a small price to pay, according to Schiff. As of Monday morning it isn't at all pretty but the jury's still out as to whether or not any recovery has begun.
With gold getting rocked along with stocks and the euro, the question is how are you playing it? Buying the gold dip, getting long stocks, heading for the hills, or none of the above?
Let us know via Facebook or in the comment section below.
- Peter Schiff