Schiff: The economy is is worse shape than 2008

Via Doug Ross and Gateway Pundit

Somehow I doubt those who laughed at Peter Schiff when he predicted a collapse of the economy will be brazen enough to laugh at him again.  Schiff commented on the latest 213 point plunge in the Dow while the S&P dropped 28 points:

A lot of people were confused – they thought the market going up was somehow ratifying what the government had done – that the stimulus and bailouts were good and the economy was improving – it's not," Schiff says. "The economy is in worse shape than in 2008."

Rather than resolved the crisis, all we've done is papered over problems in the banking system with "phony accounting" and "dug ourselves deeper into debt," says Schiff, a longtime deficit hawk.

The crisis of 2008 was merely the "overture" to the "real crisis" Schiff (still) sees coming: "The real crisis is going to be a currency crisis, a funding crisis, a sovereign debt crisis – and that's when we have to pay the piper," he says. "We're in very bad shape. Sovereign credit risk in the U.S. is just as great -- if not greater than [in] Greece."

Schiff is dead on once again. The stimulus merely delayed the inevitable, papering over city and state deficits that won't be ignored for long. Case in point, I noticed this article linked on a friend's facebook page earlier. Harrisburg, the capital of Pennsylvania has been advised to seek bankruptcy protection:

Harrisburg, the capital of Pennsylvania, the sixth-most populous U.S. state, has guaranteed payments on $282 million in bonds on the incinerator, run by the Harrisburg Authority. The payments on the bonds and on a working-capital loan this year add up to four times the amount the city collects in property taxes each year, budget documents show.

“It’s not good,” Miller said at the start of the hearing before a silent audience of about 20 that included city officials and union members. “Nobody wants to do it, but it’s there for a reason,” he said. “Maybe for the purpose of helping cities that are in the situation we are in now.”

The city this month skipped a $637,500 payment due on a loan to Fairfield, New Jersey-based Covanta Holding Corp., operator of the incinerator.

How many cities are in the same shape as Harrisburg?   While the Federal Government has the ability to print money, cities and states have no such power to deal with deficits. Ultimately, as you will see in the video below, the currency crisis would be worse for the government than it wold be for cities and states. As Schiff explains, those in a position like Greece, who can't print the Euro, may default but will return a larger portion of their debt than will those who print currency. He makes a fair point that the longer the fall is dragged out, the sharper and deeper the drop. Schiff's commentary is sobering but informative as always: