The Issue: Peter Schiff, the President of Euro Pacific Capital, predicted the economic crisis currently occurring in the United States back in 2006.  The following video shows Schiff providing commentary on various network news programs.  A believer in Austrian Economics, he was obviously in the minority opinion..until now.

Peter Schiff is the President of Euro Pacific Capital, an investment bank that follows the principles of Austrian Economics.  He served as the Economic Advisor to former Republican Presidential Candidate Ron Paul, a well know fiscally conservative congressman.

A few of the points that Schiff makes:

1. While many say the US economy his gaining wealth, Schiff argues that the wealth is fake because the paper value of property and stocks has increased.
2. The US has less and less production, a real indicator or the health of the economy.
3. The recession is actually a much needed shift from an economy of borrowing and spending to production and savings.

Observations:

1. All of the other economists and advisers recommended buying financial companies that have filed for bankruptcy or sold their assets for pennies on the dollar to other banks (Washington Mutual and Merrill Lynch).
2. Schiff recommends buying gold.  This is putting your money into a tangible asset, not an intangible (like stocks).

Analysis: Apply this to the California Budget

The Governor has wisely said that California will not borrow more money to close the revenue gap.  The state should follow the advise of the investors who were right about the economy from the beginning (like Schiff).  California must stop borrowing and consuming to strengthen it’s economy, but rather increase production and save.