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Introduction: Peter Schiff is CEO of Euro Pacific Capital, Inc. and Euro Pacific Precious Metals, LLC. He is an internationally recognized economist specializing in the foreign equity, currency and gold markets. Mr. Schiff frequently delivers lectures at major economic and investment conferences, and is quoted often in the print media, including the Wall Street Journal, New York Times, L.A. Times, Barron’s, BusinessWeek, Time, and Fortune. His broadcast credits include regular guest appearances on CNBC, FOX Business, CNN, MSNBC and Fox News Channel, as well as hosting a daily radio show, The Peter Schiff Show. Mr. Schiff is also the author of several bestselling books, including: Crash Proof 2.0: How to Profit from the Economic Collapse and the illustrated parable, How an Economy Grows and Why It Crashes. His latest bestseller, The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country, was released in May 2012.
Daily Bell: Peter, thanks for sitting down again with us again. Please introduce yourself and your firm for those who don’t know you.
Peter Schiff: My name is Peter Schiff. I have several companies; the largest one is Euro Pacific Capital and also in the US I have Euro Pacific Precious Metals.
Daily Bell: Talk about your father, who is now in jail as a tax protestor. How is he doing?
Peter Schiff: He’s hanging in there. He’s 84. He turns 85 next month. I think he’s a political prisoner. He’s in jail not because he really violated the law but because he represented a threat to the government’s illegal collection of income taxes. So I think it’s very unfortunate that my father is in jail and I think it says a lot about the character of our country when we can have a political prisoner.
Daily Bell: You ran for office, but it didn’t work out. Are you finished with politics? What do you think of the political system?
Peter Schiff: I ran for office once. I was in the primary for the US Senate. I ran in a pretty blue state, Connecticut, so even if I had won the primary it would have been a difficult challenge to win the general election. The person who beat me, Linda McMahon, lost. In fact, she lost twice. She spent about $100 million and still couldn’t win the election.
I have no idea whether or not I’ll try it again and whether or not I’ll try it again in Connecticut or maybe I’ll try from another state. I certainly might move out of Connecticut. They’re raising taxes here in Connecticut so one day I might live in a more tax-friendly state. And also, those states might tend to have a greater chance of electing somebody like me. But you never know; you never say never. I have no immediate plans to run for anything.
Daily Bell: Bring us up to date about Euro Pacific Capital Inc. [a broker/dealer based in Westport, Connecticut] and its ongoing success.
Peter Schiff: Euro Pacific Capital is a brokerage firm. We work with mainly American investors and help them diversify globally, invest in foreign stocks and bonds. We also work with US opportunities as well. But I think the biggest threat that most Americans face is a collapse in the value of the dollar and so I think to mitigate the loss of purchasing power that will result from that you really need to look abroad and concentrate in countries that have currencies that will hold more of their value, where the governments are not pursuing policies that are as destructive as the ones that we’re pursuing here. I think universally, though, politicians in all countries are doing foolish things. We don’t have a monopoly on stupidity here in America but we’ve certainly raised it to a higher level than most countries. So I think Americans have to protect themselves. We also deal with commodities and precious metals, things of that nature.
Daily Bell: Tell us about The Peter Schiff Show.
Peter Schiff: It’s a radio show that I do, on the Internet at schiffradio.com. It’s also syndicated nationally. We’re on maybe 50 or 60 stations right now, mostly smaller markets but we’re starting to get some traction at getting some bigger markets to carry the show. Hopefully, we’ll have more and more stations picking it up as the year progresses.
I’m hoping to make a much bigger impact. Right now it’s pretty much preaching to the choir. I think the people who listen to the show are primarily people who follow me anyway and who appreciate listening to me everyday to get my take on what’s going on but I’m hoping to broaden my reach. That’s the whole purpose for the show, to try to get this message to a wider audience. And as more stations pick up the show, hopefully we’ll be able to accomplish that.
We do it live from 10:00 a.m. to noon Eastern Time, Monday through Friday. Of course, you don’t have to listen live. It’s great if you do because you can call in but you can also listen to the show later. We repeat it; there’s a loop that continuously runs each day so if you don’t listen live you can certainly listen to the rebroadcast.
Daily Bell: Are you still bearish on the dollar and bullish on investment in tangible assets?
Peter Schiff: Oh, very much so. Everything that’s happening just makes me even more confident that my bearish forecast is correct. For example, the House just voted to suspend the debt ceiling, which makes it easier for the government to create dollars, and the more dollars they print, the less they’re going to be worth. And I think now that we have cleared the way for much bigger deficits in the future. We’re going to have a lot more money printing when the Fed monetizes them. And so the dollar’s days are numbered. How many days are in that number? That I don’t know but I do know that you want to prepare for its demise and that’s what I’m helping people do.
Daily Bell: Tells us about Euro Pacific Precious Metals.
Peter Schiff: That’s my precious metals company. I sell individual investors gold and silver for physical delivery. We sell bullion bars and coins. We don’t sell numismatics. I think a lot of Americans have been fooled by some of my competitors into buying rare coins rather than just gold and silver. Most people who want to buy gold and silver are looking for an inflation hedge and they call up a gold firm looking to buy Maple Leafs or things like that but they end up being sold a rare coin, a collectible coin, on the guise that it would be a better investment.
But it’s not a better investment. It’s just a much bigger commission for the broker who sells it. The markups are horrific. In many cases they exceed 50 percent 60, 70 percent markups are commonplace, meaning that if you want to buy $6,000 worth of gold you’ve got to send a check for $10,000 and $4,000 of it is commission. And what has to happen is the price of gold has to really double before you can even sell your coins and get your original investment back.
So we don’t do that at my firm and that’s the reason I set it up. Too many people were being conned by salesmen into buying these overpriced collectibles and being talked out of legitimate gold investment. We only sell legitimate investments. The markups are very small; they average maybe about 2% above our cost and so you don’t need a doubling in the price of gold to break even. You just need a small movement in the price of gold. And, of course, I’m expecting a much larger movement in the price of gold, which is the reason I have and keep owning it in the first place.
In fact, I’ve got a special report people might want to download. I put it up for free on the Internet. Just go to goldscams.com and in my special report that you can download I go over all the scams, the popular cons that are being used by a lot of the gold companies to fleece their clients out of their money. So if you read that you’ll know what to be on the lookout for.
Daily Bell: Are physical metals a good buy? Which is better right now, gold or silver?
Peter Schiff: I think they’re both good. I think you’re seeing pullbacks already in both. I think if I’m correct on what I think is going to happen the price of silver, percentage-wise, will probably go up more than the price of gold. But recognize that if I’m wrong then silver prices will probably go down more than gold prices. So you get more risk upside in silver but you probably also have more downside. That’s generally the way it works in the investment world; the more gain if you’re right; the more you can lose if you’re wrong.
I think Americans should have both. I think it makes sense for people to have both gold and silver as an alternative to dollars or other fiat currencies. The dollar isn’t the only flawed fiat currency. I think we just have a larger flaw than most. But I think everybody needs to be worried, no matter where they live. Central banks everywhere are printing too much money. Interest rates are too low everywhere. There’s too much inflation and people need to protect themselves. Gold and silver represent an excellent way to do that.
Daily Bell: Is silver money or just gold, historically speaking?
Peter Schiff: Well, both. In the United States the Founding Fathers put us on a bimetallic standard. If you look at the Constitution, both gold and silver were established as money in the United States and gold and silver circulated as money in this country for most of its history. We went off the gold standard in 1971 and we basically took silver out of our coins in 1964, 1965. So we pretty much followed the Constitution for most of our history but we abandoned it, of course, eventually, and that’s the reason for our downfall. We are no longer operating under the rules that our Founding Fathers set up. We became a wealthy nation, the wealthiest nation in the history of the world, because the Constitution limited the size of government, and we had sound money.
Well, we destroyed the Constitution. Now we have fiat money, we have a massive government that gets bigger and bigger and bigger, we have the exact opposite type of nation that the Founding Fathers created for us and now we’re having the opposite result. We’re now broke. We’re now the world’s biggest debtor nation, we’re hemorrhaging red ink, our standard of living is falling and it’s about to collapse.
Daily Bell: Does one need to be careful when buying gold and silver generally?
Peter Schiff: Yes. First of all, you want to make sure that you’re actually getting gold and silver. You don’t want to have something else. So you want to deal with a reputable dealer and you want to buy products that you can trust from a dealer that you can trust like Euro Pacific Precious Metals. If you buy a recognizable coin or bar from a reliable mint or issuer then you can be confident that you own real gold and silver and not just some other kind of base metal that’s just coated with the gold or silver.
But you want to not buy numismatics unless you want to collect coins. You can be a coin collector just like you can be a stamp collector or a baseball card collector, any kind of memorabilia. People collect art. But it’s different than being an investor in gold and silver because a rare coin is valuable because of its rarity, not because it’s made of gold or silver. People want it because it’s rare. Just like if you want to invest in paper you don’t buy a rare baseball card because it’s made of paper. The paper has got nothing to do with the value of the card. You can buy a rare gold coin and you can pay $20,000 for it, $50,000, even though it might only have $1,500 worth of gold. The gold is immaterial to the value of the coin. Just like a char is made out of wood but it doesn’t mean you’re investing in wood and lumber when you buy a chair. You’re buying a chair. So if you want to be a coin collector that’s one thing but it’s difficult to make money and the spreads are very wide. The difference that you pay between the bid and the ask.
But I think if we have a real collapse in the US economy with lots of inflation I would expect rare coins to lose value relatively. People who own coin collections might have to sell their coins because they lost money someplace else. And so I think if you really feel that there’s going to be a lot of inflation and a weak economy you don’t want to start a coin collection; you want to own just gold and silver. So you want to buy coins that are made of gold and silver where the price you pay closely approximates the value of the gold and silver in the coin.
If you buy a one ounce gold coin and gold’s $1600 an ounce, if you’re paying $1640, $1650 you’re getting your money’s worth. If you pay $5,000, $10,000 to get a one ounce gold coin the price that you’re paying has very little to do with the value of the gold that’s in the coin. But the reason the gold and silver dealers try to talk people out of buying a bullion coin as opposed to a rare coin is the markups in the bullion coins are 1%, 2%, 3% tops whereas their markup is 50%, 60%, 70%, 100% when they sell you the so-called rare coins.
And I even say "so-called rare" because most of the coins that are being marketed as rare aren’t rare at all. They’re actually quite common and in reality they have very little numismatic value. They’re just marking these things up so enormously. So even if you want to buy legitimate rare coins, the last place you want to buy them is from a lot of these firms that are advertising on TV because even what they’re selling isn’t rare at all. And if you are a collector the last thing you would want to buy is a circulated French rooster or a British sovereign. Those are no more rare than junk silver coins quarters and dimes that you can buy for pretty much their melt value.
So you want to realize that the salesman has a big interest in switching you over into one of these coins and they try to tell you that, "Well, the reason to buy it is because if the government ever confiscates gold or silver they’re not going to confiscate these coins," and I just think that’s a bunch of BS. I don’t know if the government is ever going to confiscate gold and silver but if they do they’re going to confiscate everything, including those coins.
Daily Bell: What about commemoratives?
Peter Schiff: This is also kind of like a scam because these commemoratives aren’t rare at all. The mint issues them like hotcakes. What makes something rare is its scarcity. If you buy a coin that was minted 100 years ago and it wasn’t minted as a collectible, it was minted as an actual coin but a few people maybe set them aside and never used them so now maybe there’s five or ten of them left in the world, then those are legitimately rare and some collector will pay a lot of money to possess something that hardly anybody else has. But all these proof sets that are being made today will never be rare and so they don’t really have any value other than to somebody who doesn’t know any better and buys them.
But the thing is, if you buy a freshly minted coin it’s in proof condition even if it’s not a proof set. There’s really no difference between a brand new, just minted coin and one that’s in a little plastic box that says "proof set." It’s the same thing yet you pay a huge markup for it when you buy it but if you try to sell it you’re not going to get any more money than any other silver coin. So you don’t want to buy anything that’s marketed as being a proof, a collectible. All you’re going to do is overpay for it and make somebody’s day the salesman, the firm that he works for, they’re going to make a bunch of money at your expense.
You want to buy as much gold and silver as you can for the money. You want to pay the lowest premium you can over the melt value of the coin and that’s what we do at Euro Pacific. We always make sure that we’re selling bullion bars and coins that enable people to maximize the amount of money going into metal and minimize the amount of money going into my pocket when it comes to a sales commission.
Daily Bell: Is it time to buy precious metals stocks? Will it ever be?
Peter Schiff: I’ve been saying it for a long time. I’ve been buying gold and silver stocks for about 12 years for myself and there have been rallies, there have been pullbacks. Recently we’ve had a pretty substantial pullback from the highs. I think there’s lots of opportunity in the mining stocks, particularly if I’m correct on what I think is going to happen to the price of gold and silver.
One of the interesting things about the move that we’ve had so far, even though gold has gone from $300 an ounce to $1600 and silver’s gone from $4 an ounce to $30. You would think that these gold and silver companies are just minting money right now and they’re making a fortune but they’re not because the cost of mining has also gone up by roughly the same percentage. It’s no more profitable to mine gold at $1600 an ounce than it was to mine it at $400 because of the cost. What’s ironic about it is that inflation is driving up the cost of mining but because the governments have convinced most investors that there is no inflation, they don’t see a reason to buy gold as a hedge. And so gold companies are kind of a victim of inflation as opposed to benefitting from it, which is what you would believe.
But I think ultimately they will. I think ultimately you’re going to see gold and silver prices just skyrocketing much higher than the cost of mining and that’s when these companies are going to be able to really start making money. So you would want to buy them before that happens and I think there are some great deals right now in the mining sector. If people are interested in knowing which stocks are my favorites they should contact Euro Pacific Capital, talk to the brokers, find out if these types of investments are suitable and then have a discussion about which of the gold and silver stocks I would recommend that people buy.
Daily Bell: Do you believe in a gold standard? How about a market-based gold and silver standard? Isn’t that a historically prevalent standard?
Peter Schiff: I believe what the Founding Fathers believed. My views are aligned with George Washington and Thomas Jefferson and Benjamin Franklin and John Adams. The Americans who founded this country founded it on a gold standard. They believed in real money, that the free market should determine the price of money and the quantity of money, not the government. Money is too important to be turned over to government. And whenever government has the power to do something they will abuse that power and that’s what they’ve done. Ever since they usurped the power to create money out of thin air they’ve debased the dollar dramatically. Ever since we created the Federal Reserve 100 years ago the dollar’s lost 98% of its purchasing power and now the country is on the verge of complete collapse.
The government, with fiat money, has turned us from the world’s wealthiest creditor nation to the world’s biggest debtor. We have a trade deficit with every country we trade with. We have an enormous national debt that we can never pay back. The only reason we can even pay the interest on the debt is because the Fed has got interest rates at zero. That’s the highest rate we can afford. But the minute interest rates go up the party’s over.
And this is the consequence of allowing government to usurp all these powers that were denied to it by the Constitution but they found a way around those safeguards and one way around it was the monetary system that unfortunately now exists in our country, where we just have fiat money, we have paper that has no intrinsic value, that is just created at will by the Federal Reserve, used to monetize government debt and the country’s suffering because we didn’t heed the good advice and the laws that were created by our founders.
Daily Bell: What do you think of President Obama’s reelection?
Peter Schiff: I think it’s a shame but sometimes you elect the government you deserve. To say that we deserve Obama is quite a statement because it’s pretty bad to say that we deserve this. But we voted for him and we’re going to have four more years of growth in government, four more years of decline in our living standards, four more years of taxes and inflation and regulation and stagnation and unemployment. President Obama constantly talks about how unlucky he was that he inherited such a bad economy from his predecessor. Well, his successor is going to inherit an even worse economy than the one that he did. I think the economy is going to be in much worse shape in 2016 when Obama finishes his second term than it was in ’09 when Bush finished his second term.
Daily Bell: Will Obama be able to turn the economy around in his second term?
Peter Schiff: No. The second term is going to be when it hits the fan. That’s when the chickens are going to come home to roost. People think that now that the economy is going, this is where we’re going to have the Obama legacy. He has an opportunity to really form his legacy and he doesn’t have to worry about fixing the economy anymore because he already fixed it.
He didn’t fix it; he just broke it beyond repair. We just don’t realize how broken it is because we’re drunk on a bunch of new, cheap money and more stimulus, the exact same monetary and fiscal policy that created the housing bubble and created the financial crisis of 2008. So we’ve numbed us to the greater pain but the novacaine is going to wear off in the Obama second term and we’re going to find ourselves in worse shape than we were in the depths of the financial crisis because we didn’t solve any of our problems. We made them bigger. Most people just don’t know that yet. It’s the same people that didn’t realize that we had a housing bubble, that didn’t see the financial crisis until they could see it in a rear view mirror. Those are the same people who think that the worst is behind us.
I think we’re in the eye of the hurricane and I think that once we get out of the eye and we get to the other side we’re going to realize that we were in the weak side of the hurricane before. We’re about to get into the much stronger side because I think the next downturn is going to be the more severe.
Daily Bell: Are elections rigged these days? Are votes trustworthy?
Peter Schiff: They’re rigged in the sense that you can’t outvote the mob at this point. The government has created so many people who depend on government, who are voting for theft, who vote for somebody who promises to steal from somebody else and distribute the loot to their supporters. That’s the problem. This is the fatal flaw in democracy. That’s why the Founding Fathers, when they wrote the Constitution had the foresight to create a republic, not a democracy. The Founding Fathers called democracy mobocracy. They thought it was tyranny of the majority, which they feared as much as tyranny from a king. And so they built in all these safeguards to protect us from what they regarded as the evils of democracy but over time, those barriers have been removed and now we’re suffering exactly the way the Founding Fathers warned.
So yeah, I don’t think the elections are rigged in that the votes are fraudulent; they’re rigged in that you don’t really have a choice. You can vote for the Republican or the Democrat, the lesser of the two evils. As far as I’m concerned it’s kind of both the same party, the Republicrats or the Demopublicans. They all believe in big government; it’s just that the Democrats want big government to be slightly bigger than the Republicans. But they all want to keep growing government, they all believe in this fiat monetary system, they’re all Keynesians and so you don’t really have a legitimate choice and even if you do your vote’s going to be canceled out by somebody who wants something from government.
When you have all these people who aren’t even paying income taxes voting to raise taxes on the few who are still paying, the society unravels. You’ve got people riding in the wagon and you’ve got people pulling it. And as you get more people in the wagon the wagon moves slower because you don’t have enough people pulling it. And now you try to whip the people who are pulling it even harder by raising their taxes and now you incentivize them to jump in the wagon, too. And you reward the people who are riding in the wagon with more government subsidies and you punish the people who are pulling the wagon with taxes and pretty soon the wagon can’t move at all because everybody’s trying to ride in it. That’s about where we are so voting is almost a waste at this point. We need real change and it doesn’t seem like we are going to get it at the ballot box.
Daily Bell: Can anything help the US economy at this point?
Peter Schiff: Yeah. Sure, there are a lot of things could help the US economy but unfortunately, they’re not going to happen. What we need is less government. We need big cuts in government spending. We’re getting opposite. We need to repeal lots of government rules and regulations; instead, we’re getting more of them. We need higher interest rates; instead, we continue at zero percent. The Fed needs to contract its balance sheet; instead, it keeps expanding it. We’re doing everything backwards from what we need to do and so instead of repairing the damage that’s been done to the economy, we damage it even further.
We’re digging this deep hole even deeper and eventually we’re going to suffer. Right now we’re kind of delaying the pain because we’re papering it over with debt and so we can continue to live beyond our means but at some point we’re going to run out of credit, we’re not going to be able to borrow to consume anymore, the world won’t finance this profligacy and then just like you see in Greece, the whole thing is going to implode.
Unlike the 2008 financial crisis, this time it’s going to be a crisis for the government. It’s going to be government bonds that are collapsing. It’s going to be the dollar that’s going to be collapsing, which means there’s no bailouts for anyone.
Daily Bell: Is the US turning into an authoritarian state?
Peter Schiff: Yeah, certainly. I think that we’re losing our freedoms, our individual liberty. It’s being replaced by this collectivist mentality, that it’s not about the individual; it’s about the State. And if you listen to President Obama’s inaugural that’s pretty much what he said. It’s not about individual liberty, about the value of the individual, but about society, about the State, about the collective. That is not the ideology that built this country. That’s the kind of ideology that built the Soviet Union or communist China or Cuba or any place they tried this nonsense.
We tried socialism in America initially. When the Pilgrims first landed in America they tried socialism and it didn’t work. They almost starved to death. It wasn’t until it was every man for himself, it wasn’t until it was about the individual that anybody actually farmed and that the Pilgrims didn’t die out. When they tried to do it all collectively and pool their resources, nobody worked, nobody farmed and they all almost starved.
Daily Bell: You’re very critical of the Fed. Is it improving?
Peter Schiff: Is the Fed improving? No. They’re getting worse. I’ve been joking about that everybody has been preoccupied with Lance Armstrong and the fact that he cheated because he doped. He used artificial stimulus to win the Tour de France. Well, that’s exactly what we’re doing on a national level. Ben Bernanke is doping the economy just like Lance Armstrong.
So we’ve got a Lance Armstrong economy. Instead of condemning him we might as well memorialize him. Maybe we should build a big statue to him in Washington, DC or maybe put pictures of Lance Armstrong on our money. That would be a little bit more honest because all we’re doing is juicing the economy with cheap stimulus but when it wears off we’re going to collapse. We’re going to have a fall from grace just like Lance Armstrong.
Daily Bell: Will there be hyperinflation?
Peter Schiff: I hope not. I don’t think we’ll have Zimbabwe-style hyperinflation because I think cooler heads will prevail before it gets that bad. Maybe before it gets that bad we’ll discover the error of our ways and take the very painful steps necessary to prevent hyperinflation. But it’s still certainly a scenario that is not impossible or even improbable. If we continue to do what we’re doing it’s inevitable. The question is will we continue on this path or will we reluctantly ultimately change directions. But I know that the longer we wait to do that, the more painful it’s going to be and maybe the less likely it will be.
Daily Bell: We tend to figure that there has been some deflation around the world as the bubble has collapsed but will there still be real further deflation as a certain group continually argues? We have a hard time with that idea because so much money has been printed.
Peter Schiff: We’re gong to see deflation in the sense that prices, including asset prices and consumer good prices, will come down when measured in gold. If you look at deflation as falling prices, you will see falling prices if you’re pricing things in gold. But the problem is, most of the people who are calling for deflation think that you’re going to have deflation in terms of dollars, that the dollar is going to become more valuable.
That’s not going to happen. The dollar intrinsically has no value at all but the government can create its dollars at will. They were talking about minting trillion dollar coins a few weeks ago. That shows you how easily the government can create money out of nothing. They can make trillion dollar bills. They’re making them in Zimbabwe. So I think that if you think that you’re going to see a collapse in prices in dollars you’re wrong because even though the price of things might come down, I think the value of the dollar will come down even more. So from that perspective you’re going to see inflation and potentially hyperinflation.
But in terms of real money you could see deflation, which is one of the reasons I’m saying people should buy gold because if you own gold then your cost of living is going to come down because for you, prices are going to get cheaper. But if you’re putting your faith in dollar bills, your cost of living is going to skyrocket because the Fed will always try to fight the markets because of deflationary forces. And these are healthy, corrective forces. It’s the market trying to re-price assets to where they should be. The government tries to artificially prop things up with cheap money and the market is fighting against that. But the government has a weapon that can overcome the market, and that’s the printing press, and so as long as you’re dealing in a fiat world, the rules of the game are different.
People who like to talk about deflation and they look at prior periods of deflation, they’re looking at countries that were operating under a gold standard. We’re not operating under a gold standard. We have no standard. And if you look at countries that have taken on tremendous debts in a fiat world, in a fiat system, it’s never been deflation in terms of that currency; it’s always been massive inflation or hyperinflation. It’s only deflation if you measure prices against the currency that didn’t collapse or against something like gold.
Daily Bell: Is it right that one man like Ben Bernanke should have the power to okay the printing of tens of trillions of dollars in a short period of time? How is it possible that people accept he and other central bankers have such great power?
Peter Schiff: No. It’s not right that one man should have that authority, nor would it be right for a group of men to have that authority. I don’t think any one man or any group of men is smart enough to know how much money should be there or what the price of money should be, no more than somebody can guess what the price of bread should be, or the price of oil should be. Prices should be determined by the marketplace. And I think money, interest rates are the price of money, the price of credit, is the most important price there. Money is one-half of every transaction. I think prices for money need to be set by the market.
Whenever the government does it they’re going to do it wrong and they’re going to create problems, either shortages or surpluses. Just look at America. Nobody is saving and everybody is borrowing because money is priced wrong. It’s too easy to take on debt. It’s too cheap to borrow, so we have too much of it. There’s not enough reward for savings so Americans aren’t saving because rates are too low. So rates need to rise so that we have more savings and less borrowing but the Fed won’t let it happen. So we have all these problems and eventually, as I said, it’s going to end in disaster because of this price-fixing.
If you believe in the free market then believe in it. But you can’t believe in the free market and then think the government should control the price of money.
Daily Bell: Should the US get rid of the Fed? How would it be possible?
Peter Schiff: Getting rid of it would be problematic because if we just got rid of it we wouldn’t get rid of their bad policy. I think Congress would just take over where the Fed left off and then some, and it might even be worse. At least with the Fed we have the pretense of an independent central bank. If we got rid of the central bank we would get rid of the pretense and we would just have this straight monetization and we’d have the government in control of the printing presses without any kind of buffer even though the Fed, for all practical purposes acts like an arm of the government and it doesn’t really act like the independent central bank that it was designed to be.
What I advocate is limiting the Fed’s power, not turning the power over to Congress but limiting the power the Fed has so it can’t do as much damage making it smaller, taking away its powers, kind of restoring to the Fed its original mission, which it has strayed from so dramatically. And I think if we diminish the Fed’s power enough then maybe we can eventually abolish it without worrying about Congress taking up those powers directly but right now it would be pretty dangerous to get rid of the Fed, knowing what’s likely to replace it. We wouldn’t want to turn all that power over to Congress or the president.
Daily Bell: You received criticism due to the performance of some of your client’s accounts in 2008, as well as controversies over the predictions themselves. How has your performance been of late?
Peter Schiff: Obviously, you’re always going to have critics. Whenever you put yourself out there people are going to want to criticize you, they’re going to want to take you down a peg. Sure, in 2008 we owned a lot of foreign stocks that went down and we owned foreign currencies that went down. The dollar went up in 2008 so pretty much everything we owned, including physical gold, went down in 2008. So if you were going to try to evaluate my performance and just use 2008 well then, yeah if you were following my advice in 2008 you lost money in 2008.
But I think that’s an unfair benchmark. What if you followed my advice in 2007 and 2006 and 2005 and 2009 and 2010? You can always focus in on one short time horizon and say, "Well, gee, if you listened to him only during this period of time you lost money." I never claimed to be perfect. I never claimed that if you listen to me you’ll make money every day, every week, every second, although I think if you evaluate what I’ve been telling people to do over the long term then over the long-term perspective I think my advice has been very good. The dollar has weakened. In fact, the dollar surrendered all of its gains that it made in 2008, 2009 and 2010. Whatever gold lost in 2008 it more than made up in the following years. And, of course, I didn’t start recommending gold in 2008; I was recommending it ten years earlier, whether it was under $300 an ounce. So even if it fell from $1,000 to $700 in 2008 to say, "Well, gee, we followed Peter Schiff’s advice and bought gold at a thousand and it went to $700," I didn’t tell people to start buying it at $1,000; I’ve been telling people to buy it since it was under $300. And if it didn’t matter if it went down to $700; then it went up to $1900 so even if you bought it at $1,000 and rode it down to $700 you’re still ahead.
And, of course, they didn’t want to give me credit for shorting subprime mortgages. They didn’t point out, "How much money did people make who took my advice and shorted subprime mortgages in 2007?" They cleaned up. They didn’t point out Peter Schiff’s clients who were short subprime or who shorted any other of the financials that we were telling people to short. So again, if they’re looking at the long clients the majority of our clients were long but if they’re looking at it just in 2008, they’re not looking at it in its proper context.
And, of course, what makes it more difficult is that security regulations don’t allow me to basically point to the accounts that did really well. If I’ve got 15,000, 20,000 clients, certainly after a year like 2008, depending on when somebody started you’re going to find some clients that were unhappy back then. Every broker had unhappy clients in 2008. You probably can’t find any whose clients are happy because everything went down. No matter what you bought, if you bought anything it went down. So it’s easy to find some people who can criticize the performance but I can’t go ahead and point to the accounts that went up because that’s a violation of security law.
So I thought it was very unfair. I think some people tried to make a name for themselves by criticizing me. They tried to orchestrate marketing campaigns for their own firms based on saying, "Hey, you shouldn’t invest with Peter. You should invest with me." I think they were very unfair and unethical attacks. Everybody who attacked me back then refuses to come back and say, "You know what? We misjudged him. We were premature." Even the Wall Street Journal did an article about how much my clients lost in 2008 but they refuse to do an article about how much they made in 2009 or 2010 or 2011 or how much they made in 2003 or ’04 or ’05. The only article that the Wall Street Journal ever wrote about me was about my performance in 2008.
All they want to do is discredit me because I’m one of the only people who was publicly predicting the financial crisis of 2008. Instead of saying, "Hey, what did this guy know that everybody else missed?" they just want to discredit me so people don’t listen because I’m identifying a bigger problem now that nobody wants to acknowledge. I’m saying that the worst isn’t over yet, that we have a worse crisis coming, and the main establishment doesn’t want people listening to me. And they know that if they legitimize me by giving me credit for my prior predictions then some people might listen. So they want to try to create this false picture that I didn’t really get it right and if I got anything right it was because I was a stopped clock, I was the blind squirrel that stumbled on an acorn. They don’t want to acknowledge the accuracy of my forecasting and why I knew what I did so they try to use this supposed bad performance in 2008 to somehow discredit me. Meanwhile, all those people that they want us to listen to also had lousy performance in 2008. The difference is, they didn’t see the financial crisis coming and I did. And I might have been short subprime and they had no clue, and we were long gold or we were long commodities or we were short the dollar for ten years, not just for one.
I think that my overall track record in investments is good but I think my track record for forecasting economic events long term is better. I think I understand what’s going on and if people go back and read the things that I’ve been writing for the past ten years, look at the interviews that I’ve given, the more you learn about me the more you’ll appreciate the accuracy of what I’m saying. And it’s not because I’m so smart. I acknowledge that I’m not any smarter than all the people that are getting it wrong; I just think I have a better understanding of economics. Not that it’s a complex subject; it’s because it’s a simple subject. But so many other people have just been brainwashed. They drank all this government Kool-Aid and they believe what they were told by some professor at some university who also was clueless. I didn’t swallow any of that nonsense. I think my head is on straight and so I think I’m in a position where I can see something that’s obvious where other people are blind to it.
Daily Bell: Is gold going to US $5,000? Why isn’t it moving faster? Are powerful interests selling it short and otherwise manipulating the market for precious metals?
Peter Schiff: I don’t know whether or not the metals market is manipulated. Some say it is; some say it isn’t. Clearly, if it is being manipulated it’s not working. The prices have gone up dramatically so if people were trying to prevent the prices from rising it’s failed. Maybe the manipulation has somehow slowed the assent but even if that’s the case I still think that the assent is going to continue. A lot of people are worried about or point to the fact that gold hasn’t rallied more in the last year. I don’t know why. Markets don’t always move exactly the way you think they’re going to move. They’re going to move in steps and I think we’ve consolidated a big increase.
I think there are a lot of people that don’t understand. I think the short run assets get mispriced because the majority of people who are buying and selling and who are investing other people’s money I think get it wrong. So I think people don’t understand the real predicament the US economy is in. They don’t understand how much value the dollar’s going to lose. The people who are not buying gold right now are the same people who were buying houses at the top of the real estate bubble or buying mortgages, the same people who were buying dotcom stocks in 1999. Dotcoms were mispriced, houses were mispriced, gold was being mispriced because you have the same problems in the market but buyers and sellers are not getting it right.
But eventually, long term, the price is right. The fundamentals will win out and I am expecting a major, major rally in the price of gold and silver that will surprise a lot of people, including the gold and silver bulls.
Daily Bell: You’ve raised your profile tremendously by using the Internet to spread your views. Is the Internet generally an important force in spreading the word about free-market thinking? Is it still a positive choice for change and freedom?
Peter Schiff: I think so because you bypass the gatekeepers. Without the Internet, the only information you can get out there is what will be published in a newspaper or if you get an interview on ABC or CBS or CNN. So if they don’t want to advance your agenda, if they actually want to stifle it, then it’s difficult to get the word out. You can always write a book but then people have to know that the book is there, they have to buy it or check it out in the library.
But with the Internet you can bypass all those gatekeepers. I can bring information directly to the public and, more importantly, it’s easy for the public to discover that the information is out there because they can search it on the Internet. It’s not a function of me having to put an ad in front of their face that they’re going to see. If they’re looking for this material, they’re going to find it at their fingertips. All they have to do is search for it. So it’s a lot easier for people to discover voices like mine and, therefore, it’s a lot easier for me to get my message out there because the audience is there.
Then, if I help convince people of something or help educate people and they believe in something it makes it easier for them to pass this information on to other people because they have the vehicle, the Internet, to transmit this information either directly or to encourage other people to read my stuff or listen to my radio show or watch my video blogs. So it’s easier to get this information out there than it was in the past when you didn’t have this Internet and the social media forums to disseminate the information.
Daily Bell: Would you like to recommend any books and articles that are especially valuable?
Peter Schiff: My books, my articles I write all the time. You can read my stuff on Europac.net, watch my video blogs at my YouTube channel, SchiffReport, listen to my daily radio show and you’ll get a lot of information. I bring on a lot of good guests that you might not hear if you just listen to more mainstream talk shows. Of course, people can get a free subscription to the newsletter I put out monthly, Peter Schiff’s Gold Letter.
Daily Bell: What’s your latest book? Are you working on a new one?
Peter Schiff: No new books right now. My latest book is The Real Crash: America’s Coming Bankruptcy How to Save Yourself and Your Country. That just came out earlier in 2012 so that’s the latest one. Before that, I came out with a revised edition of Crashproof, Crashproof 2.0. You can even buy that one in paperback. And I have a great little cartoon book I wrote called How an Economy Grows and Why it Crashes. It’s an illustrated fable but it really teaches you a lot about economics and it’s quite humorous so if you haven’t picked that one up, that’s a really good one, especially if you have children. Children in fifth, sixth, seventh grade can really learn a lot about economics by reading that book.
Daily Bell: Where do we go from here?
Peter Schiff: I think we’re going to have a crisis. I think it’s going to be a real collapse and that’s going to be the catalyst, potentially, for constructive change. But until there’s a crisis it’s going to be more of the same until more of the same precipitates the crisis.
I think in the meantime we prepare personally, we get our investments in order, we make sure we have our money invested properly so it’s not a financial crisis for us, it’s just an economic crisis for the country not that I want to belittle that but I think it’s important that you not go down with the ship financially, that you put yourself in a position to be able to help other people by being in a lifeboat. And then once it hits the fan and we have the crisis, hopefully we’ll be able to make a loud enough and strong enough argument so that we finally do the right thing, that the crisis is a catalyst for productive change where we re-embrace our roots, where we go back to the ideas of the Founders, where we re-embrace the Constitution and free-market capitalism and sound money and limited government. We do all that and then the collapse can be a force for good.
On the other hand, if we completely abandon those ideas and embrace big government, if we blame everything on freedom and capitalism and we see a solution in even more government, then I think we’ve really consigned America to generations of poverty and oppression and at that point probably the only thing that we could do would be leave, to get out of the country while it’s still legal. I hope it doesn’t get that bad but we’ve got to be prepared to win this ideological battle because I think the future of the country will hang in the balance.
Daily Bell: Thank you for your time once more.
Daily Bell After Thoughts
Peter Schiff is a philosopher of sorts as well as an accurate prognosticator. He actually predicted the current crisis, and warned about its inevitability throughout the 2000s. Of course, Schiff is anti-state and not in the "elite" club, which is why his forecasts did not get circulated widely in the mainstream press.
Yes, Schiff’s message is negative, but his perspective is positive. He sees what’s taking place as a "catalyst, potentially, for constructive change." In fact, he believes that it will take a crisis to precipitate the end of destructive economic practices in the US and the larger Western world. The prospects on the other side of the crisis are favorable, in his view.
In the meantime, he wants people to protect themselves against what is inevitably on the way. He says, "We [must] make sure we have our money invested properly so it’s not a financial crisis for us, it’s just an economic crisis for the country." And he adds, "I think it’s important that you not go down with the ship financially, that you put yourself in a position to be able to help other people by being in a lifeboat."
These are good points. Schiff has a panoply of financial solutions that people might want to consider. They are all based on the same sound logic that led Schiff to make his accurate predictions about the problems of the US economy and how they might unfold.
Too often predictions of what is occurring and is about to occur in Western markets sound apocalyptic. While Peter Schiff shares some of this negativity, his overall optimism a sense that Austrian-style human action can help people weather the storm and emerge unscathed on the other side is encouraging, or ought to be.
What’s taking place is a battle of ideas, he reminds us. "We’ve got to be prepared to win this ideological battle because I think the future of the country will hang in the balance."
Peter Schiff himself, through his successful businesses, his outspoken advocacy for market-based economics and his profound knowledge of the Way the World Really Works, has proven a sound ally for people who value the truth and are concerned about where Western society is headed.
Anthony Wile is an author, columnist, media commentator and entrepreneur focused on developing projects that promote the general advancement of free-market thinking concepts. He is the chief editor of the popular free-market oriented news site, TheDailyBell.com. Mr. Wile is the Executive Director of The Foundation for the Advancement of Free-Market Thinking — a non-profit Liechtenstein-based foundation. His most popular book, High Alert, is now in its third edition and available in several languages. Other notable books written by Mr. Wile include The Liberation of Flockhead (2002) and The Value of Gold (2002).