by Peter Schiff
Recently by Peter Schiff: The Fed’s Tightening Pipe Dream
A transcript of the Lew Rockwell Show episode 287 with Peter Schiff.
ROCKWELL: Well, good morning. This is the Lew Rockwell Show. And how great to have as our guest this morning, Mr. Peter Schiff. What do we say about Peter? He’s had four best-selling books. He’s a star of television, star of radio. He’s had his own show for some time now. He’s taking the place of G. Gordon Liddy. I must say, taking that show to a much higher level. He’s on three hours a day.
Peter, I don’t know how you do that.
SCHIFF: Well, I don’t know if I’m actually a star of radio and TV.
SCHIFF: Let’s just say that I appear on radio and TV.
ROCKWELL: No, you’re a star. For those of us interested in the cause of freedom and interested in Austrian economics and interested in the hole this country is in, you are a star.
And, of course, he’s also president of Euro Pacific Capital.
And, Peter, your latest book, your latest best-seller is called The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country. So is there more of a crash coming? 2008 wasn’t sufficient?
SCHIFF: I think so. I mean, you can take a look at what’s happening in Europe right now as kind of a harbinger of things to come. You know, Europe suffers from many of the same problems that we do. I just think we have more of it. I think our problems have progressed to a worse degree than Europe. It’s just that Europe’s problems are coming to a head sooner, even though I believe they’re smaller in scope, simply because creditors are waking up to the European problem and not cooperating by wanting to, you know, lend them more money at low rates; whereas, our creditors still have their heads in the sand. I mean, we’re still able to borrow beyond our capacity to repay.
But, you know, I don’t think there’s a lot of time before we’re going to deal with this. I mean, just look, on a smaller scale, I think Stockton, in California, is about to file for bankruptcy I think as early as tomorrow. And Stockton is like a Greece here in California. I mean, Stockton, the government there made a lot of promises to its government employees. And, when the real estate boom was going, there was plenty of revenue coming in, and they promised the moon to voters and to employees, big pensions, health care benefits. And then the bottom dropped out. You’ve got 20 percent unemployment now in Stockton. They don’t have the tax base. They can’t afford all these commitments. And what are they doing? They’re telling their bondholders, we can’t pay. You’ve got all the municipal bonds outstanding. I mean, this is going to be a major problem for those bondholders and now government workers.
But Stockton is not going to be the last city to declare bankruptcy, not by a long shot. And I think it’s going to go up the food chain. We’re going to have state governments that are going to face these problems. We’re going to have the federal government face this problem, especially when interest rates go up.
I mean, look at the talk now about Spain. They’ve got 7 percent interest rates. People are trying to speculate how long Spain can finance its debt, having to pay 7 percent. Well, if we had to pay 7 percent, if the federal government had to pay 7 percent, it’s actually in a worse position than Spain. And the same thing with the states. If interest rates go up, or rather “when” interest rates go up, the debt becomes unserviceable. And the minute it becomes unserviceable, the minute our creditors worry that we can’t service the debt, then they actually want their principle back. Then it’s not about just the interest; it’s about coming up with the principle. Where are we going to get that?
ROCKWELL: But isn’t this actually a good thing, Peter? Don't’ we want these broke governments to admit that they’re broke and maybe do some restructuring? I mean, a city like Stockton, as you know, the median government employee is making more than double what the median taxpayer makes. Why should they be able to do that? And then, of course, you say these crazy pensions, crazy benefits they have. Don’t they need to go bankrupt in order to –
SCHIFF: Well, absolutely.
SCHIFF: That’s what has to happen in Europe. The problem is bailouts make it possible to postpone the pain. And I’m hoping that we don’t get a bailout for Stockton, you know, and I hope that, you know, nobody in the U.S. gets a bailout. After all, you know, if you look at what is theoretically the difference between a U.S. city or state and a country in Europe, I mean, because all of our countries – you know, everybody has the same currency. We all have the dollar. All the debts are in dollars and nobody but the federal government can print them. And so, if it’s OK for Stockton to go bankrupt, why isn’t it OK for Greece to go bankrupt? You know, they don’t have to get kicked out of the Eurozone. I mean, we’re not going to kick Stockton out of the dollar zone –
– if they go bankrupt.
ROCKWELL: But we should.
SCHIFF: But, you know, it is going to be problematic for a lot of people who have based their lives on assumptions of a revenue stream coming in from a government entity. And so it’s going to be very painful for the people involved. And it’s also going to be painful to people who loaned money to the city of Stockton, who hold those bonds, who thought they were going to get certain interest payments and they were going to get their principle returned. They’re going to wake up to the reality that Stockton can’t pay. So when we do have the restructuring that we need, there is going to be pain. We just have to be able to suck it up and bear that pain.
And, of course, for some people, it’ll be relief because, you know, otherwise, in order to keep their promises, we have to increase taxes. And if you already have 20 percent of the city unemployed, how are you going to increase taxes on the few people that are still working, and will they stay in town to pay those taxes or will they leave, particularly the employers? So we have to do this.
But my fear is we will resist it on a national level. In fact, we are resisting it right now because we can print money. And because so many people around the world are worried about Europe or the emerging markets, they’re buying dollars. And so we’re able to print all this money and send it all around the world to delay the pain. We can keep on importing the goods that we didn’t produce. We can live off of everybody else’s savings. But at some point, our creditors are going to wake up – we’re not willing to do this anymore. And the fact that we delayed it for so long because we have the extra rope – and then we promptly hung ourselves with the rope – I mean, we’re going to regret the fact that we didn’t take advantage of the opportunity to try to solve the problems instead of using the extra time to kick the can down the road.
ROCKWELL: Well, Peter, what’s going to happen to, say, the people in this country who think that they are going to be taken care of by Social Security or Medicare, food stamps, Medicaid?
SCHIFF: Oh –
ROCKWELL: I mean, go down the list. There are hundreds and hundreds of these government giveaway programs.
SCHIFF: Oh, well, what happened to people who thought they were going to retire on Bernie Madoff, you know?
SCHIFF: There are a lot of people that put their faith in a con. And unfortunately, a lot of people put their faith in a government con. I mean, a ponzi scheme run by the government is no different than the one run by a private citizen.
The problem is a lot of people were forced to contribute to Social Security. Even the ones that knew it was a ponzi scheme, they couldn’t get out from under it because the money was taken out of their paychecks. But maybe they could have made alternative plans. But a lot of people didn’t have the wherewithal to both save for their retirement and fund Social Security because Social Security took such a big chunk out of their pay. Remember, you know, it’s 15 percent of payroll. I mean, if American citizens had been allowed to invest 15 percent of their payroll on their own over the last 20 or 30 years, then they would have – they would be able to retire. And the country would have benefited by that enormous build-up of savings that could have been invested productively. So we’d have a much stronger, more productive economy, had we had the benefit of those savings all these years.
Instead, the government took the money, spent every nickel of it. We had no savings. And now you have a generation of people looking to this giant ponzi scheme. You know, look, is Generation X – I mean, look at the net worth of the average Generation Xer, who is, you know, behind the baby boom. How are they supposed to finance the retirement of their parents when they’re broke?
ROCKWELL: No, of course, it’s true. And the young kids who pay into Social Security are the poorest group in the country among the working people. And, of course, the people getting Social Security are the richest group. So –
SCHIFF: And, of course, a lot of them are struggling –
ROCKWELL: – it’s not sustainable.
SCHIFF: – to pay interest on their student loans.
SCHIFF: I mean, they’ve got to pay student loans. They’ve got to pay mortgages on the inflated values on their homes that they overpaid for their houses. They overpaid for their education. You know, and now they’ve got to retire the baby boomers?
ROCKWELL: So here we have government spending at insane levels, whether it’s here or in Europe, government debt at insane levels, all other kinds of crazy monetary things going on. What’s going to happen? I mean, they’re going to, I guess, create a United States of Europe, a new mega-state to have even more spending and more inflation and more everything else, and the U.S. in partnership with them. How long can all this crazy business go on?
SCHIFF: Well, there’s a limit because, you know, eventually you run out of other peoples’ money. I mean, that’s what’s going to happen.
You know, I don’t know. Angela Merkel just the other day basically said the equivalent of “over my dead body” when it comes to sharing sovereign debt, you know, jointly among Europe. I mean, just like, look, I don’t think Texas wants any part of California’s debt, you know, and so you can understand why the Germans wouldn’t want to assume the Greek debt. And so I don’t know that they’re going to have a United States of Europe, considering the basket case of some of these countries. I can see why Greece would want to be a part of it but I can’t see why Germany would. And so maybe that won’t happen.
But I think the more important consideration is when is the world going to stop obsessing or focusing solely on Europe’s problems? When are they going to notice that, on our side of the Atlantic, the problems are even bigger? You know, it’s amazing. We’re actually lecturing Europe on taking care of their debt problem –
SCHIFF: – when we’re in bigger trouble. We have more debt in comparison to our GDP than Europe does. And we have a much bigger unfunded liability problem than Europe does. And we are far more vulnerable to an increase in interest rates than Europe is.
ROCKWELL: And, Peter, isn’t the basic underlying problem the same in both continents that they’re sort of bankocracies? I mean, isn’t all this money actually to bailout the banks? It’s not –
SCHIFF: Well, a lot of it is.
ROCKWELL: – Greece that’s being bailed out, but isn’t it the banks that hold the Greek debt, the Greek government debt?
SCHIFF: Oh, yes. I mean, it’s a lot of banks but also, you know, there are depositors, particularly here in America. When they bailout the banks, they’re also trying to bailout American citizens who have money in those banks. Because if the government let these banks fail, you know, the FDIC doesn’t have anywhere near enough money to cover the losses on the insured deposits. So, you know, there are a lot of people who are going to lose when these banks fail. I’m not saying that we should bail them out because of that. I’m saying that we should allow those losses, as bad as they are, because the losses will be even worse in terms of real purchasing power if we continue on the course we’re on.
ROCKWELL: Well, Peter, considering the course we’re on, considering the situation here in this country – as you say, worse than in Europe – tell us about why your book is important, why it explains the crisis and also helps guide people in what the heck to do as individuals.
SCHIFF: Well, I think it’s important that people understand why we’re having these problems. Because the tendency, you know, in Washington is to blame the markets, blame capitalism for what are basically failures of government. And there’s a tendency for a lot of people to rewrite history, and they look back at America’s success and somehow think that we – it was a creation of government and that what we need is more government, more regulation so that we can have more prosperity, and that what is hurting us is all this unbridled capitalism. And so I need to point out that that’s not the case, that it was capitalism that made us rich, and it’s government’s undermining of capitalism that’s impoverishing us. And so, if you understand, you know, where the crash is coming from, what’s caused it – and what I wanted to do in my book is I wanted to kind of expose a lot of fallacies and get people to actually understand that, if we get the government out of the economy, their lives will improve.
You know, the government wants to convince us that, you know, we need government for education, we need government for health care. And the point of my book is to show that, without government involvement, we’d have better education, we’d have more accessible education, we’d have better health care, we’d have less expensive health care, that we – everything that we need, we get better from the free market than we will from government. Because when free people provide us with services and products, you know, the consumer is in charge. Everybody is trying to satisfy a consumer, and they measure that by a profit and a loss. And so, if you’re a private entrepreneur and you’re trying to generate a profit, you can only do that by satisfying the desires of your consumers. So if you desire education, if you desire health care, where are you going to get a better product? From a private businessman who needs your business, who needs to convince you to voluntarily buy his services or from some government that couldn’t care less whether you use the services or not because they’re compensation is not tied to whether or not you get any value for your money?
You know, so when you’re looking to government to provide you with something, government workers don’t care about you. They just care about themselves. But a private businessman has to care about his customers. He has to put the customer first because, if he doesn’t, he’s going to go out of business.
ROCKWELL: Well, that’s for sure.
And, Peter, you know, you’re known as a politically savvy guy. Do you think there’s any – what do you think about the coming election? Do you think that it really makes a difference, despite his business background –
ROCKWELL: – to have Romney in the White House versus Obama?
SCHIFF: No. I mean, the problem with the current election is that one of these two guys is going to win.
And, you know – (laughing) – neither one of them is what we need. I mean, if Ron Paul were the candidate, you know, we could both agree the election would really have consequences; it would mean something.
ROCKWELL: Peter, thanks so much for coming on the show today. And, of course, we’ll link to your books, to your web page and Facebook page and your Twitter page and so forth.
But I especially want to urge everybody – Peter’s most recent book is really quite extraordinary. And I want to urge everybody to read it. It’s called The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country.
Peter, thanks for all you do and thanks for coming on the show today.
SCHIFF: Thanks for all you do and thanks for having me on.
ROCKWELL: Well, thanks so much for listening to the Lew Rockwell Show today. Take a look at all the podcasts. There have been hundreds of them. There’s a link on the upper right-hand corner of the LRC front page. Thank you.
Peter Schiff is CEO of Euro Pacific Precious Metals and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.