Who Predicted the Financial Crisis?

Peter Schiff was the man, who gave answers to my questions about the financial crisis and what is going on and they were most precise.

Peter Schiff is the author of the book “Crash Proof – how to profit from the coming economic collapse”. I was definitely amazed by the simplicity with which he explained economic issues and his ability to find facts supporting his statements.

Peter Schiff was constantly laughed about his prediction of the coming housing bubble. What made him famous are his very logical and at the same time simple explanations.

Peter Schiff is a representative of the Austrian School of Economics. Most of the representatives of this school have predicted financial collapses such as the Great Depression or the Financial Crisis in 2008.

Can Peter Schiff be wrong in his predictions that there will be a hyperinflation in USA?

I think he is right and a (hyper) inflation is the only way the US government will eventually go out of the debt. The same holds for some European countries, which are in deep trouble, because they tried to hold the status quo at any price. But they cannot support an unsustainable living standard forever.

Most people do not realize that the world has become interdependent – this means sooner or later the free capital will go where labor and technologies are cheaper and profit is higher.

If a worker in China or Taiwan is ready to work for 3 dollars an hour what makes us believe that his American fellow should be paid two to three times more for the same job?

The so-called “wage arbitrage”, e.g. higher wages in developed countries relative to emerging ones will diminish.

I believe that there will be a convergence worldwide of the wages in each industry in the world economy and sooner or later the people all over the world will receive the same amount of money if they work on a similar job.

Because of the global wage differentials and the highly speculative character of the fiat money we ended in a great economic tension which evoked the financial crisis. This is basically the reason for the US workers to receive more now than they have really produced, to spend more than they can afford ( they have inflationary expectations due to the fiat money, e.g. better spend now, because saving today means losing tomorrow).

Remember two things – the financial crisis hit this particular place in the world, where the financial problems were worst, e.g. USA. The second thing which is again obvious – countries affected mostly by the financial crisis, are those ones, where wages were relatively higher than the wages worldwide.

Some might argue here, that Germany still holds wages too high compared to other countries and that Germany is not that much suffering from the crisis – sooner or later wages there will go down. Yet there is still one more thing that needs to be considered, namely productivity. To some extent the different productivity worldwide holds the wage differentials, but as the world gets globalized, each enterprise can benefit from internet, sharing ideas, know – how. So at the end “wage arbitrage” will become an extinct word.

To make it plain – global economic tension was predicted and explained by Peter Schiff, roots of the crisis are however not in the “because the FED kept too long the interest rates too low”.

This argument implies the wrong question, namely “How high should have the FED raised the interest rates?”

The right question sounds to me “Do we need the “fiat money” system at all?”

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