I first came to national attention back in 2008 and 2009 when the housing and credit markets imploded. I became known as the guy that other market "experts" laughed at when I warned of trouble brewing in the seemingly indestructible American economy. After the wheels ground to a halt in mid-2008, people noticed that my bookCrash Proof, originally released in early 2007, read like a detailed preview of many of the events that eventually unfolded.

Back in the late 1980s, when annual trade and budget deficits were but a small fraction of today's levels, the markets were rightly concerned about America's ability to sustain its twin deficits. This anxiety helped lead to the stock market crash of 1987. More recently, large and persistent trade deficits were a significant factor in building the imbalances that caused the U.S. economy to implode in 2008. But in recent years, most Americans have lost their concern with gaping trade deficits. I believe it will soon come back with a vengeance.

The Federal Reserve ran another "stress test" on major financial institutions and has determined that 15 of the 19 tested are safe, even in the most extreme circumstances: an unemployment rate of 13%, a 50% decline in stock prices, and a further 21% decline in housing prices. The problem is that the most important factor that will determine these banks' long-term viability was purposefully overlooked - interest rates.

The communist revolutions in the 20th century sought to nationalize the wealth generated by privately held industries back to the exploited workers on whose backs the profits were supposedly derived. America has made the rejection of this idea and its support of free market principles the centerpiece of its economic narrative. However, as a result of our current and proposed tax policies towards corporate shareholders, our government collects a portion of industrial output that would inspire envy in even the most rabid Bolshevik.

Oil and gas prices are high now for a very simple reason: the Fed has gone on a campaign to push up inflation and push down the value of the U.S. dollar. Just last week on CNBC James Bullard the President of the Federal Reserve Bank of St. Louis, stated this unequivocally. What is overlooked is the degree to which an inflationary policy at home creates inflation abroad. Many countries who peg their currencies to the U.S. dollar need to follow suit. As China prints yuan to keep it from appreciating against the dollar, prices rise in China. This is especially true for commodities like crude oil.

Regardless of what the triumphant Keynesians would have you believe, my analysis continues to be that the current combination of monetary and fiscal stimulus is driving us toward disaster. Instead of a real recovery, the US will experience an inflationary depression. Europe, on the other hand, will suffer much less, precisely because it was not seduced by the short-term appeal of stimulus.

As long as interest rates remain far below the rate of inflation, the U.S. economy will fail to equitably restructure itself for a lasting recovery. As a secondary effect, U.S. savers will likely continue to suffer from a lack of yield and a weakening currency. In the end, the collapse of the U.S. economy will be that much more spectacular due to the great lengths we have gone to postpone it.

All self-perpetuating virtuous cycles are vulnerable to a sudden break in the positive feedback loop. When reality rears its ugly head, and the spell breaks, the reverses can be vicious. It happened with dot com stocks, it happened with real estate, and I believe it will happen with the dollar and Treasuries. Even if Europe does not resolve its problems, the day of reckoning will still eventually arrive. The unfortunate truth is that the longer it takes, the worse it will be, as we will have that much more debt to reckon with.

This all lends itself to a volatile, but nearly flat trend for stocks and bonds in 2012. Fundamentals dont yet support a run-up, but easy money may put a floor underneath assets over the short run. Unless the situation were to change, we believe aggressive dips in stock markets represent buying opportunities. We tend to think bonds will underperform equities in 2012, given their dramatic outperforming in 2011.

History has proven time-and-again that capitalism works and socialism does not. Taking money from the rich and redistributing it to the poor does not grow the economy. On the contrary, it reduces the incentives of both parties. It lowers savings, destroys capital, limits economic growth, and lowers living standards. Maybe Obama should take his eyes off the teleprompter long enough to read some American history. In fact, he could start by reading the Constitution that he swore an oath to uphold.

Any significant reversal of the current upward dollar trend could provide a long awaited catalyst for nations holding large dollar reserves to diversify into other currencies. My guess is that Merkel understands the great advantage the U.S. has enjoyed as the issuer of the worlds reserve currency. I believe she covets that prize for Europe, and based on her strategy, it is clearly within her reach.

Last week, I spent the afternoon visiting the Occupy Wall Street demonstrations in lower Manhattan. I brought a film crew and a sign that said 'I Am The 1%, Let's Talk.' The purpose was to understand what was motivating these protesters and try to educate them about what caused the financial crisis. I went down there with the feeling that much of their anger was justified, but broadly misdirected.

President Obama today announced a plan that will ensure students are able to commit to higher levels of federally backed student loans. By limiting student obligations to repay, and by passing more of the repayment burden onto taxpayers, colleges and universities will be able to continue to raise tuitions at a rate that outpaces nearly every other cost center in the American economy. The move will come as a great relief to an education establishment increasingly concerned that students might no longer be able to afford skyrocketing tuition rates.

Herman Cain has been gaining much traction with his 9-9-9 Plan, a bold proposal to replace our dysfunctional tax code with what could be a simpler and more economically stimulative. While I don't agree with the full spectrum of Mr. Cain's policy choices, I applaud his courage on the tax front. Judging by his rising poll numbers, this appreciation is shared. However, the plan has deep flaws the most glaring of which is its creation of a hidden payroll tax which represents a fourth "nine" This serious pitfall has been unmentioned by Mr Cain and overlooked by those who have analyzed his plan.

In the spirit of sharing our favorite dollar-alternatives, I recently sat down with Axel Merk, founder and president of Merk Investments, who is a well-known authority in the international currency arena today. That conversation resulted in a new report, entitled Peter Schiff's and Axel Merk's Five Favorite Currencies for the Next Five Years, which is now available for free download. In a world where gold is in the quadruple-digits and the S&P has downgraded US debt, we both feel it's high time every American consider diversifying his or her portfolio to mitigate currency risk.

But many of those who oppose QE3 do so because they believe the economy doesnt need more stimulus not because the stimulus itself is causing the economic weakness. As a result when the economy deteriorates, support for QE III could grow. In the end QE3 will likely be far more popular than another bank bailout, which may be on the table if the Fed fails to rescue the banks it may be pushing over the edge with Twist. But our zombie economy does not need to be perpetuated by more QE. It must be allowed to die so that a living, breathing, self-sustaining economy can replace it.

Today marks the third anniversary of the death of Lehman Brothers, not the first, nor the last, bank or broker-dealer to require emergency meetings of exalted officials to take place over a weekend, but it is the only one that resulted in a complete loss for shareholders and significant losses for bondholders. Whether you see this as the example of the officials getting it right or stunningly wrong really depends on where you sit, and it should color your perspective on everything that has occurred since.

On Tuesday, September 13, Peter Schiff will testify before the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending. The hearing entitled, "Take Two: The President's Proposal to Stimulate the Economy and Create Jobs" will examine federal job creation efforts. Mr. Schiff is well known for his views on how federal regulatory activism and irresponsible monetary and fiscal policy is actively destroying jobs in America. The following statement from Mr. Schiff will be read into the Congressional Record this morning.

No real economic growth or job creation is going to occur until the failed policies of both Obama and Bush are reversed. In his speech the President mourned the death of the American dream. Obama should stop killing it. To revive that dream we need to revive the American spirit that produced it in the first place. That means returning to our traditional values of limited government and sound money. Unfortunately we are still headed in the wrong direction.

This morning many on Wall Street were stunned by the big fat zero put up by the August jobs report, the worst showing in 11 months. The data convinced many previously optimistic economists that the United States will slip back into recession. I believe that we have been in one giant recession all along that was only temporarily interrupted by trillions of useless and destructive deficit and stimulus spending. Unfortunately, the August numbers will increase the talk of government efforts to stimulate the economy.

Picking up where they left off in 2008, the media is in the midst of a campaign to ignore and undermine the presidential candidacy of Ron Paul. Political pundits just do not know what to do with a candidate who fails to fit into the blue and red boxes that form the simple narrative of American politics. They are perturbed by the grass roots nature of the campaign, by the strange honesty and earnestness of the candidate and his supporters, and the odd mixture of conservative values and liberty-minded policies. And like most adolescents, they reject what they don't understand.

Until interest rates are allowed to rise to appropriate levels, more resources will be misallocated, additional jobs will be lost, government spending and deficits will continue to grow, the dollar will keep falling, consumer prices will keep rising, and the government will keep blaming our problems on external factors beyond its control. As the old adage goes, 'insanity is doing the same thing over and over again and expecting different results.'

I expect that as soon as our creditors decide that they are no longer willing to lend to us at ultra-low rates of interest, we will refuse to repay what they have already lent. Besides default or major cuts to domestic spending, inflation provides the only other means for the government to deal with this intractable crisis. Once we go down that path, we risk high inflation turning into hyperinflation, which would decimate the remainder of our economy. So, as our leaders congratulate themselves for saving the nation, the reality is that they may have just sold it down the river.

I expect that as soon as our creditors decide that they are no longer willing to lend to us at ultra-low rates of interest, we will refuse to repay what they have already lent. Besides default or major cuts to domestic spending, inflation provides the only other means for the government to deal with this intractable crisis. Once we go down that path, we risk high inflation turning into hyperinflation, which would decimate the remainder of our economy. So, as our leaders congratulate themselves for saving the nation, the reality is that they may have just sold it down the river.

I have been forecasting with near certainty that QE2 would not be the end of the Fed's money-printing program. My suspicions were confirmed in both the Fed minutes on Tuesday and Fed Chairman Ben Bernanke's semi-annual testimony to Congress yesterday. The former laid out the conditions upon which a new round of inflation would be launched, and the latter re-emphasized ? in case anyone still doubted ? that Mr. Bernanke has no regard for the principles of a sound currency.

As attention focuses intently on the negotiations to raise the debt ceiling, House Republicans have made a great show of drawing a line in the fiscal sand. They claim that they will not vote for any deal that includes tax increases to narrow the budget deficit. But we all know how the game works in Washington. With the 2012 elections looming the Republican bluster is merely a bargaining chip that they will quickly toss into the pot when they sense a political victory. In fact there are signs that such a compromise is already underway.

Today the U.S. government officially borrowed beyond its $14.29 trillion statutory debt limit. And even though the Obama administration has assured us that accounting gimmickry will allow the government to borrow for another few months, the breach has given seeming urgency to Congressional negotiations to raise the debt ceiling. Republicans are making a great show of linking their ?yes? votes with promises for future budget cuts. But as we go through the process, many wonder why we have a debt ceiling at all when our government has never shown any inclination to respect its prior limits.

I've worked on Wall Street my entire life, and one thing I've learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people's money to stick their necks out alone-if their investments go bad, at least they can point to everyone else who fared just as poorly. For this reason, these funds are often lagging in their perception of crucial market changes. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years.

The only thing more ridiculous then S&P?s downgrade of U.S. sovereign debt was the market?s severe reaction to the announcement. Has S&P really added anything to the debate that wasn?t already widely known? In any event, S&P?s statement amounts to a wakeup call to anyone who has somehow managed to sleepwalk through the unprecedented debt explosion of the last few years. Given S&P?s concerns that Congress will fail to address its fiscal problems, on what basis can it conclude that the U.S. deserves its AAA credit rating? If S&P has genuine concerns, the AAA rating should be reduced now.

Very few people have the time to sift through the data released by the Treasury Department in the wake of its bond auctions. But the numbers do provide direct evidence of the country?s current financial condition that in many ways mirror a financial shell game that typifies our entire economy. Despite continued deterioration of America?s fiscal health, the Treasury is still attracting buyers of its debt. Market watchers take these successful auctions as proof that our current monetary and fiscal stimulus efforts are prudent. But who?s doing the buying, and what do they do with the bonds?

One of the immediate financial consequences of the catastrophic Japanese earthquake is that Japan needs to call on its huge cache of foreign exchange reserves to rebuild its shattered infrastructure. To pay for domestic projects, Japan will require yen ? not dollars, euros or Swiss francs. In order to maintain Japan?s position as a net-exporter of manufactured goods and net-buyer of US debt, the yen needs to stay down. So, the G-7 group of the world?s leading economies has intervened in the foreign exchange market by selling yen holdings, thereby pushing the currency down.

As the world confronts one of the most critical periods of economic upheaval that it has ever seen, it is clear that our most influential economic stewards have absolutely no idea what they are doing. But, like kids with a new chemistry set, they are nevertheless unwilling to let that stand in the way of their experimental fun. As they pour an ever-growing number of volatile ingredients into their test tubes, we can either hope that they magically stumble on the secret formula to cure the world?s ills, or more pragmatically, we can try to prepare for the explosion that is likely to result.

When the rest of the world no longer links their currencies to ours, the Fed will truly not have to worry about fueling global inflation. Instead, all of its inflation will burn through our banks accounts right here at home. And that blaze, so concentrated, will burn a lot hotter than the fires we see abroad.

We do not need more regulation. Government interference has done enough damage already. We simply need to return to a sound monetary policy and get the government out of the mortgage and housing markets. Unfortunately, that?s not going to happen.

The global economy has become so unbalanced that government ministers recognize that something has to give. To a very large extent the distortions are caused by China?s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China?s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.

In retrospect, it wasn't just me whom Mr. Rothenberg overlooked, but the entire Tea Party movement. I'm sure, back in 2009, he said many similarly dismissive things about the campaigns of Rand Paul and Marco Rubio. Fortunately, he was wrong. Hopefully, as more and more voters finally get sick of politics as usual, pundits like Mr. Rothenberg will have to find a more honest line of work. After the campaign was over, I had a job to go back to. As a creature of Washington, I doubt Mr. Rothenberg has similar choices.

Sure, without a federal bailout there is a chance the Post Office will go under, and forever stamps will end up lining bird cages. However, given the track record of government bailouts and the clout of unionized postal workers, chances are very high that the Post Office will always get the bailouts it needs. As a result, forever stamps are a better bet than Treasury debt. They also have prettier pictures.

What lies ahead is a new era of rising interest rates, soaring consumer prices, increasing unemployment, economic stagnation, and lower living standards. Instead of stimulating the economy, quantitative easing and deficit spending will prove to be a lethal combination. Bondholders beware, the bell tolls for thee.

This week Washington displayed the kind of ?bipartisanship? that will bankrupt our country and wreck our currency. Coming at a time when both parties say they want to address our long-term fiscal imbalances, the compromise extension of the Bush era tax cuts should be a wake-up call to anyone who somehow expected the American leadership to ever have an ?adult conversation? about the country?s long term economic health.

Unless politicians can be roused from their stupor, we will soon confront an imminent sovereign debt and currency crisis that will make the credit crisis of 2008 look like a happy interlude. Hopefully, when the first major shock strikes in the US, as is currently happening in Ireland and Portugal, it will finally provoke a 180-degree change of policy in Washington. Hopefully, it won't be too late to spare millions from a life of subsistence, or worse. These are my hopes, but my fear is that we are on the cusp on the largest economic downfall in modern history.

Given the opposing views of the potentially parsimonious new Congress and the continuously accommodative Federal Reserve, there is a movement afoot among Republicans to eliminate the Fed?s ?dual mandate.? Prior to 1977, the Fed only had one job: maintaining price stability. However, the stagflation of the 1970s inspired politicians to assign another task: promoting maximum employment. This ?mission creep? has transformed the Fed from a monetary watchdog into an instrument of social policy. We would do well to give them back their original job.

In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno.

The intent of QE2 is to lower interest rates to promote job growth and avoid the growing threat of deflation. The very idea that the economy is weak because interest rates are too high, however, is laughable. Deflation is the market's cure for asset bubbles that have recently burst, and any attempt to avert it will only weaken the economy further. What we need now is to make hard choices, not engage in more easing - to deleverage, not borrow more.

Congressional Republicans and Democrats are engaged in a heated debate over which Americans deserve not to have their taxes raised, with both claiming that some form of tax cut will stimulate the economy. The real impediment to economic growth is not taxes, however, but the government spending that makes high taxes necessary in the first place. Rather than trying to disguise another misguided round of stimulus in the cloak of a tax cut, we should deliver what the economy really needs - genuinely smaller government.

The Fed must raise interest rates aggressively, shrink its bloated balance sheet, and allow the real recession to finally run its course. It will be much more painful now than it would have been in 2008, but at least this time the pain will end and real recovery will take hold. By forcing the federal and state governments to slash spending, sound monetary policy will allow market forces to rebuild a solid foundation upon which future prosperity may be built.

NY Fed President William Dudley's outrageous statements Friday closely conform to recent pronouncements from other Fed officials and confirm that a massive round of dollar devaluation is poised to begin. Seemingly overnight, the Fed appears to have altered its mandate, ditching its former goal of "price stability" in favor of "moderate price inflation." While no one is under the illusion that the Fed has kept prices stable over the last century, it used to be that the governors would at least pretend to fight inflation. Low inflation used to be the aim, now it's the enemy.

At one time, a strong currency was viewed as a reward for the reliability, competitiveness and growth of a national economy. Now governments look to take market share from competitors by lowering the cost of their exports through a beggar-thyself policy of habitual currency debasement. Although such a policy may benefit those who buy the products, it is a burden to the country's own workers, who have to get by on subsistence wages. More successful economies will compete on quality and innovation, rather than price alone.

Today's weak GDP numbers have finally caused the mass of economists to revise downward their formerly optimistic recovery forecasts, with many finally entertaining the possibility of a "double dip" recession. It should be obvious by now that these economists only have the capacity to describe where the economy is moving in the short-term...they have no ability to explain the reasons behind the macro trends or make predictions that go beyond the next data release.

In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace.

Modern-day Keynesians seek to significantly increase debt levels in an effort to boost aggregate demand. In their view, only once recovery takes hold due to government spending, money printing, and borrowing does a discussion of deficits become appropriate. The U.S. has persisted under this theory for close to a century. As a consequence, Washington is now entirely dependent on the reserve currency status of the dollar and the continued hibernation of bond vigilantes. It's almost as if the federal government is daring its foreign creditors to pull the plug.