Taking issue with the Obama Administration’s contention that the economy is showing signs of recovery, Peter Schiff, a well-known American economic commentator, firmly believes that this economy will never recover unless the government changes its policies of taxing, spending and expanding the government.
Schiff, currently serving as president and chief global strategist of the brokerage firm Euro Pacific Capital Inc, told Xinhua during an exclusive interview on Saturday that "the things the government is doing with the economy only put us into deeper debt and deeper trouble. All they will probably do is buy us time, interfere with the current situation and postpone the unpleasant consequences in exchange for more damage in the future."
Regarding recent numbers showing slight growth in retail sales and a dip in first-time jobless claims, Schiff said, "they’re depending on that to rein in the massive deficits they’re creating. But they aren’t doing anything that will lead to recovery; they’re doing the opposite!"
As an expert on money, economic theory, and international investing, Schiff is best known for his prescient predictions of the economic crisis of 2008. He is one of the few investment advisors to have correctly called the current bear market before it began.
He said, "the Obama Administration will be like Jimmy Carter’s. They’re going to tell everyone to ‘sacrifice’ to support a government that is just too large and too powerful." Regarding interest rates, Schiff noted, "We may have reduced interest rates now, but with higher inflation, we will have to raise them in the future. Then, we will have recession, rising prices, and no available credit. This will smother any potential for recovery."
Turning to the unemployment rate, Schiff pointed out, "the current headline unemployment rate of 9.5 percent does not truly capture the situation on the ground because it ignores those who are ‘marginally attached’ to the workforce; 16 percent is more realistic representation of the situation, and I estimate about a 20 percent unemployment rate by the end of this year."
Commenting on the government’s stimulus plan and its effect on job creation, Schiff said: "The kind of jobs created by the government stimulus are not productive and viable for the economy, but the private sector is forced to subsidize them. Not only are they a drain on the real economy via taxation, they also divert human capital from private businesses."
Then what should the government do to bring the economy back on track? Schiff advised: "If the government changes its policies, the economy will start to recover immediately. But the symptoms will get worse before they get better. It’s like ripping off a band-aid — they’re so worried about the pain that they’re pulling it off slowly. If they just ripped it off, it might hurt a lot for a second, but then it would be over and we could move on."
Schiff criticized the Federal Reserve as the ultimate culprit in this crisis. He said, "in response to the dot-com bust, Alan Greenspan kept interest rates artificially low to stimulate the economy. The only thing he stimulated was an artificial boom in real estate and stocks. Now, we’re paying for that with a recession."
"Instead of allowing this restructuring to happen, Ben Bernanke has dropped interest rates to near-zero and started intervening directly in the market. He’s ‘monetizing’ Treasury debt to make up for a drop in foreign demand. These policies will lead to a collapse in the dollar, which will be much worse than the current crisis," he added.
Schiff is a supporter of the Austrian School of Economics and the Ludwig von Mises Institute, and was an economic adviser for Ron Paul’s campaign in the 2008 Republican Party primaries, through which Schiff also expressed support for sound money, limited government, and free market capitalism.
Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse.