Peter Schiff Video Blog - March 15, 2011





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Uploaded on Mar 15, 2011

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The media has done a great job talking about the loss of life in Japan. But they have been terrible when it comes to the economic impact. They have been saying that this will be great for the economy because there will be a lot of jobs available as they rebuild their infrastructure. This is just another version of the Broken Window fallacy.

If it was true that an earthquake is so great for an economy, then we could easily replicate that without all the messy loss of life. We could choose a city at random and then just bomb it to rubble. Then there will be a lot of jobs available for all those citizens as they rebuild their city.

Resources will need to be redirected from more productive uses towards building things that have been destroyed. They will be spending all their time rebuilding what they have lost, rather than building new things.

The central bank in Japan is going to print money in order to help the problem. But this won't help anything. Japanese people need to scale back on their consumption to cause a deflationary environment. This will lead to a stronger Yen, which will allow them to purchase more goods from foreigners more cheaply. They're going to need to buy oil, steel, and concrete. A stronger Yen would allow them to buy more of these things. But people are saying that the Japanese people might retrench, so their economy needs to be stimulated to promote consumption.

The Japanese government should be using this opportunity to sell some of their U.S. treasuries in order to finance this. But they won't do it because they are afraid that that will lead to a collapsing United States dollar. So while they are trying to build up their own economy, they are going to keep trying to prop our up as well. They are doing this because they still think that exports are the most important for their economy. But they are going to need to import a lot of stuff this year, not export.


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