The Fall of Greece, Rise of China, and Collapse of the Dollar

Peter Schiff lays out for RT the future he sees for both Greece and China. As China abandons its communist past, he sees the Eastern country continuing to grow as an economy and world trade partner. Meanwhile, Greece’s debt crisis and basically socialist leadership is a stark reminder of the problems facing the West.

Follow along with this transcript:

RT: What the options would be for Greece if it leaves the eurozone. Could Greece become the free market paradise of Europe like Singapore or Hong Kong in Asia? The Real Crash: Americ... Schiff, Peter D. Best Price: $3.00 Buy New $9.55 (as of 12:25 EST - Details)

Peter: Not with its current leadership, unless they do an about face and surprise everybody. Because if you listen to the rhetoric, they’re not free market guys. They’re socialists over there. I don’t see much hope for Greece in that respect. You might think the best hope would be to stay in the eurozone, where they have some discipline, and where they have a currency that people have some confidence in. Even though people haven’t been too confident in the euro recently, I think they’d have a lot more confidence in the euro than the resurrected drachma…

RT: What is the likelihood of the drachma coming back?

Peter: I think they keep that card out there, but I think they’re very reluctant to play it, because again, it’s not going to go very well for the Greeks if they try to return to a drachma that nobody is going to want. I also think it will be a powerful example for other countries that might be thinking of following in their footsteps to rethink that and get their economic houses in order to stay in the eurozone, rather than be exiled to a currency that collapses in value. Because runaway inflation is not going to solve the problems in Greece.

But the real problem was why was Greece able to borrow so much money in the first place? That was because of the moral hazard that was inherent in that system, which should have been dealt with back then. They still have yet to deal with it. There needs to be the idea that there is no backstop for sovereigns in Europe. That the ECB will not bail out a government that borrows beyond its capacity to repay, so that interest rates have to reflect the various risks associated with different countries. If you’re Italy or you’re Spain, you’ve got to borrow at a much higher rate than Germany, because there’s a better chance that there will be a default. How an Economy Grows a... Schiff, Andrew J. Best Price: $1.99 Buy New $7.20 (as of 11:05 EST - Details)

RT: What are your thoughts on China? We recently got a lot of data that showed us what we all kind of knew, that being that growth is slowing there. What impact will slower growth have on the global economy?

Peter: I think that China is ultimately being held back by its own monetary policy, which is designed to prop-up the value of the US dollar and to suppress the value of its own currency. That creates distortions and bubbles within the Chinese economy. Beneath the surface, I think beats the heart of a very vibrant economy that has been unleashed ever since they started rolling back all the big government programs of the communist days. There is a vibrant economy trapped beneath this bad monetary policy that ultimately I believe is going to come to an end.

We’ll see. The Chinese have been quietly accumulating gold. We don’t know how much they have. They haven’t been accumulating dollars as rapidly as they once were. They’re still holding on to a huge stockpile. But I think they’ve figured out that they’ve made mistakes with respect to the peg, and they’re looking for a way to basically restore their currency to one that is no longer tied to the US dollar. I think when they do that, the currency is going to rise rather substantially. I think the purchasing power of average Chinese citizens is going to rise dramatically, and they’re no longer going to have to be exporting so much to the United States. They will be consuming a lot of what they produce themselves.

Meanwhile, over the years, China is trading with a lot more nations. China is now a larger trading partner with more nations than the United States. So China is certainly rising in importance, and Crash Proof 2.0: How t... Schiff, Peter D. Best Price: $2.01 Buy New $1.99 (as of 11:40 EST - Details) it’s dominating global trade. It will be even more significant once they fully unpeg their currency from the dollar and allow their currency to rise and the dollar to sink.

RT: Overall, [the dollar’s] been pretty strong. Why is the US dollar so strong at the moment, and is this a sign that the US economy recovering?

Peter: The dollar wasn’t necessarily strong in that its domestic purchasing power wasn’t necessarily growing. It was just less weak than other currencies, like the euro… So the dollar rose relative to those other currencies. The reason for that relative strength was the false belief and false confidence that the United States has a genuine recovery and that the Federal Reserve is going to begin raising interest rates. None of that is true. We don’t have a real recovery, we have a bubble. The Fed is not getting ready to raise rates. They’re getting ready to launch QE4.

The truth that nobody wants to acknowledge is everything the Federal Reserve has done since the financial crisis has made the underlying problems that caused that crisis worse. The US economy is in the worst shape it has ever bene in. If the Fed were to raise interest rates, we would have a much worse financial crisis than the one we had in 2008. So they’re trapped in this zero-percent, QE world that they can’t get out of. Ultimately, the end crisis is now going to be a currency crisis, when the world figures out the box that we’re in and the dollar collapses…

RT: Why do you believe that we’re going to get more QE and not a rate hike? In the past, this economy and the markets have been able to rally on 3-4% interest rates. So why not just increase rates and see what happens?

Peter: Well, the America in the past that used to be able to handle 4-5% interest rates had a much lower amount of debt. So it’s one thing when you have a small amount of debt (not that it was necessarily small), but given how much more debt we have now, that 4% of interest rate would be a much greater burden on the economy today than it would have been 10 or 20 years ago when we had much less debt.

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