Thursday, February 12, 2015

The US Needs the Next Crash Sooner than Later (Video)

USAWatchdog’s Greg Hunter spoke with Peter Schiff this week. They discussed the intricate problems of Europe and Greece, the phony economic recovery in the United States, and how investors can protect themselves when wars break out. Peter also responded to the ongoing negative sentiment of gold bears who continue to predict a lower gold price despite evidence to the contrary.

Highlights from Peter’s interview:

Greg Hunter: The headlines [concerning Greece] are all over the map. They’re going to get a six month extension. The Greeks are looking like they’re not going to do anything with the bailout. They’re making noises that they’re going to get help from Russia and China. One European official said it was berserk and there was no plan. What’s going on?
Peter Schiff: They had to cheat their way to get into the euro. They had to lie and cook the books with the help of maybe Goldman Sachs, but they managed to get in. Now they’re holding everybody else hostage. It’s unfortunate that they’re even part of this experiment, although I didn’t hold out a lot of hope for it from its inception…
First of all, you’ve got this group of politicians that are freshly elected. They rode a wave of populism. They promised to get tough with Europe, and they got to put on a show for the electorate… At the end of the day, I think Greece has little choice. If they follow through with their ‘my way or the highway, we’re going to leave the eurozone’, I think it would be a disaster in Greece. I don’t think the Greek politicians want to go through that…
I think for Europe, and Germany in particular, there’s a lot at stake here. People always talk about, ‘What about Spain or Portugal or Italy? What might they do if Greece leaves?’ I think Germany is more worried about what they may do if Greece wins some incredible concessions, because now everybody is going to want to be treated the same way. I think if they’re tough with Greece, they have a better chance of toeing everybody else into line.
If Greece does leave the euro, and it collapses in runaway inflation and debt, then it could be a poster child for what could happen. It could scare the rest of Europeans straight and do the reforms that the Greeks have been reluctant to agree to…
I think nations should be allowed to default. I don’t think they should be bailed out by the central bank. I don’t think the central bank should be monetizing government debt. I don’t think the Italian government should borrow at the same rate of interest as the German government or the Spanish government or the French government. I think governments should borrow based on their own criteria. US states, municipalities, some issue debt at higher interest rates than others because they’re deemed for creditworthy by the markets…

Greg: If Greece does [abandon the euro], Bernie Sanders says the US should bailout Greece with US dollars. If there’s no deal, could Greece implode the European Union and cause a daisy chain of derivative default?
Peter: I doubt that Greece leaving would set off that chain. In fact, a lot of the bonds that used to be owned by the banks are now owned by hedge funds. I think the losses now would not be as badly felt in the banking sector as they would have been several years ago…
The question is what would an independent Greece do? Once it’s left to its own devices, yes, there’s going to be a complete collapse if they go back to the drachma. You’re going to see a dramatic decline in the purchasing power of the drachma. Prices will rise dramatically. Real wages will fall. The economy will be a disaster, especially if the Greek government follows a Marxist playbook… Obviously that’s not going to work. They would be forced to a more market oriented approach. Imagine if Greece were to become a tax haven?
I’ve always thought that if the Greeks wanted to get something from Europe, threaten to abolish the corporate income tax. Threaten to abolish the personal income tax for any European businesses that relocate to Greece. That could scare the hell out of some of these higher tax nations… But they’re probably not even thinking along those lines…

Greg: You’re saying other things could break down Europe. Like what?
Peter: What if Germany wants out? Everybody is worried about the weaker countries wanting out. What about the stronger countries? The Germans’ tradition is a sound currency. The euro was sold to the Germans as the new deutschmark, not the new lira, not the new franc or peseta… You’ve got this situation where everybody is encouraged to have debt, because they push the problem off on somebody else. You have an incredible moral hazard inherent in the way this system has been designed. They need to deal with these problems… Otherwise, ultimately it will lead to the demise of the euro. But I am even more concerned with the problems of the dollar…
We have even more advanced problems in America with our currency than in Europe with the euro – the degree of the debt that we have, the degree to which we’re dependent on artificially low interest rates… massive trade deficits that we have chronically year after year… These are growing problems that are ultimately going to lead to a US dollar crisis… But our creditors haven’t figured this out yet, so they’re content to clip coupons on low yielding US debt. But they’re patience is going to run out.
We’re talking about Greece. The real problems in Greece began when interest rates rose. Greece had a lot of debt before interest rates went up. But while rates were very low in Greece, it wasn’t perceived as a problem, because the Greeks could pay the interest. They couldn’t pay the principle, but at least they could pretend to afford it by paying the interest. That’s all the United States does. We have no hope of repaying the principle, but at 1% or 0% we can at least pay the interest… We cannot afford higher rates of interest.

Greg: Which brings us to gold. A lot of people out there are saying gold is going lower. Gold is going $700, $650. Of course, you’re here with SchiffGold… Why are they wrong?
Peter: People have been very negative on gold for years. In fact, the entire bull market that really began in 1999, 2000 when gold was below $300. It went as high as $1900. People were bearish the whole way up, so bearishness on gold is not new. Some of the bears have become more emboldened , because after so many years of being wrong, they were finally right. We finally had a couple of down years. But gold has not fallen nearly as much as the gold bears have expected. In fact, last year gold was only marginally lower in dollars. But in terms of just about every other currency, gold did very, very well. Up 5, 10, 20% or more. In fact, gold outperformed almost all the stock markets in the world in 2014…
The skeptics have constantly overestimated how much gold has declined. And they’re still very negative on the price of gold despite the fact that it’s now really been rising for well over a year in terms of foreign currencies, and it hasn’t been falling in terms of dollars. You can really see that skepticism reflected in the price of gold stocks, [which] were really sold down based on the idea that gold prices would keep falling. In fact, it hasn’t happened. Year to date, gold stocks are outperforming maybe any other segment of the market as these real bearish forecasts about the price of gold are not panning out.

Greg: People are saying that if you combine higher interest rates with the global economy slowing down, gold is going to take a hit. What say you?
Peter: I don’t really think interest rates are going to rise very much. They may not rise at all. One of the reasons the Fed has been talking so much about raising interest rates, is because they don’t want to do it. If they really wanted to raise rates, they would have done it a long time ago… I think the Fed doesn’t want people to realize that it can’t raise rates… Now people really expect them to raise rates…
I wouldn’t bet that we’re going to get a rate hike this year. But it is possible that we get some trivial 10, 15, 25 basis point hike and that’s all they do… It’s really not substantive, it’s just psychological. But if the Fed even makes a small rate increase, what will that set in motion? Will the market now begin to anticipate more rate hikes faster? …

Greg: The head of Gallup openly worried about being able to make it home after criticizing the unemployment numbers that are bogus. We keep hearing this recovery story, and then we keep hearing stories behind it that say there is no recovery. What do we have? Do we have a recovery that will end up raising rates? Or do we have a bogus recovery?
Peter: We had a recovery in the stock market. The prices went up. We had a recovery in the real estate market, if you’re going to look at real estate prices. But we didn’t have an economic recovery. Did we recover the jobs that we lost? No. We recovered jobs, but not the ones that we lost. We lost higher paying, full time jobs and we gained lower paying, part time jobs. We lost manufacturing jobs. We gained service sector jobs… The average American has a lower standard of living…
This is a big transformation from a full time economy to a part time economy. As businesses try to survive Obamacare, they try to restructure the way they pay people. This is what the president has decreed. It’s ironic that he’s done something so bad that it results in a lower unemployment rate. It results in lots of jobs being created. If you’re going to replace full-time workers with part-time workers, the numbers are that you’re going to have more jobs. You’re going to have more people to do the work and each one is going to work fewer hours…

Greg: Anyone who manages a lot of money worries about war. You have Angela Merkel, lead of Germany, and the leader of France flying – to me, frantically – to Kiev and Moscow. They went to Putin. Putin didn’t come to them. They appear to be between the US and Russia in what might end up being a pretty nasty war in Ukraine. France doesn’t want it. Germany doesn’t want it… Is that one of your fears? The war fear in Ukraine? You can tack on ISIS in the middle east.
Peter: I don’t spend that much time worrying about wars. Obviously they can happen, and when they do it’s destructive in general. Wars are expensive. Not only in human lives and suffering, but they’re expensive to finance. They divert resources from peace time purposes to war time purposes…
I hope we can avoid some of those conflicts. I can’t necessarily invest around them, because I don’t necessarily know how to anticipate them. But to the extent that there is war, they’re historically financed by inflation. Government print money to pay for wars, rather than raise taxes. At least, that’s the modern way to do it. So it’s good for precious metals. It’s good for hard assets. Oil prices have come down. One way to get oil prices back up is to have a war, particularly if it involves oil producers…


Wednesday, February 4, 2015

Official Unemployment Is a Big Lie

Jim Clifton of Gallup, CEO of one of the largest public polling companies in the world, has published a severe indictment of the official unemployment data reported by the United States Department of Labor. Obama and Wall Street cite the 5.6% unemployment rate as a triumph of the American economic recovery, while conveniently ignoring the raw data behind that number.

"There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie."

So who is not counted in the Department of Labor’s headline unemployment number? At least 30 million Americans fall into the following categories: People who are paid at least $20 a week for odd jobs.

The severely underemployed, like highly trained professionals working only 10 hours a week.

Anyone who hasn’t looked for a job in the past four weeks.

That’s 30 million people unaccounted for in the government’s unemployment rate. With a population of about 320.25 million, that’s a nearly 10% underemployment rate on top of the official 5.6%. According to Gallup, a “good job” requires at least 30 hours per week of work with a regular paycheck. Only 44% of the adult population has this sort of full-time job. Clifton argues that these are the jobs needed to revive the dwindling American middle class. He wants the media and people in power to start telling the truth to the American people.

"I hear all the time that ‘unemployment is greatly reduced, but the people aren’t feeling it.’ When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t ‘feeling’ something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class."


Tuesday, February 3, 2015

The Fed Tries and Fails to Debunk the Gold Standard

Last month, the Federal Reserve Bank of St. Louis published an essay that supposedly debunks the idea that a monetary gold standard can stabilize and improve economies. The piece is blatant propaganda that returns to the same excuse central bankers always use to discredit the gold standard. Namely, that tying a currency to gold prevents a government and its central bank from quickly responding to economic problems by manipulating the money supply. This is the same argument used to defeat the “Save Our Swiss Gold” campaign back in November, which would have forced the Swiss National Bank to significantly increase its gold reserves.

Here’s the conclusion of Scott A. Wolla’s gold hit piece for the Fed:

"A gold standard ties the value of money to a country’s stock of gold reserves. While some argue that a gold standard can effectively maintain price stability over long periods, governments still have the ability to change their money supply and price level simply by changing the official gold-to-money ratio. Moreover, a gold standard can be problematic because of sudden gold inflows and outflows that cause the supply of money, and therefore prices, to fluctuate. In the end, a gold standard is not needed to preserve price stability as long as a country’s central bank is independent and has a clear mandate to achieve price stability."

You’ll notice Wolla also relies upon the idea that central banks like the Fed are independent of the government. He argues that this autonomy prevents central banks from printing money solely to “inflate away” sovereign debt for the benefit of politicians. It’s hard to read this dribble with a straight face, especially when one of the most notorious central bankers of our time – Alan Greenspan – recently and publicly declared, “I never said the central bank is independent!” Greenspan also suggested gold is a good investment, because he sees inflation coming thanks to the Fed’s policies.

Forbes has published a sharp rebuttal to this paper by Nathan Lewis, author of Gold: The Once and Future Money. Lewis walks us through a brief history of the money supply and inflation in the United States during and after the gold standard. His article neatly cuts the legs out from under the Wolla’s key points and finishes with this:

"The reason we don’t have a gold standard policy today is not because it doesn’t work – the last twenty years of the gold standard era, the 1950s and 1960s, were the most prosperous of the last century – but because people forgot what it was for, and how it operated. The world gold standard era didn’t end because it was producing bad results, but because it was left in the hands of people who blew it up out of sheer ignorance and stupidity…

I think there has been a bit of disinformation over the years. It serves some people’s interests if people don’t understand the most basic concepts of gold-based money. In any case, if we are to create a viable alternative to today’s floating-fiat madness, we need to have a strong foundation regarding these core principles."

The fact that the Fed feels it is necessary to publish official arguments against the gold standard could be a good sign. If gold really has no purpose in modern economies, if gold is truly a “barbarous relic,” then why even bother addressing it? Perhaps the Fed is concerned that people are waking up.

Just think of all the news in the past year or two. The Swiss gold vote last year; Germany and other European nation’s gold repatriation efforts; Russia’s gold buying spree; the seeming end of the gold bear market of the past couple years; China’s liberalization of its gold markets while turning into a bigger international economy. Could all of these trends have central bankers worried that the world is getting fed up with manipulated fiat currencies? Let’s hope so.


GDP Growth Slows Sharply in 4th Quarter: 2015 to be Worse

Thursday, January 29, 2015

Ep 49: A Dove in Hawk's Clothing

Peter Schiff: QE 4 will send gold toward new highs

Gold has had a solid January - up close to 10% as measured by the SPDR Gold Shares ETF (GLD). It’s not unlikely territory for the yellow metal. 2014 started out in much the same way, up more than six percent that month before closing the year a few percentage points lower than where it began.

Peter Schiff thinks while the start of 2015 is similar, the end will be quite different.

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“All the Wall Street strategists are all bearish on gold. They’re bearish on gold stocks and I think instead of giving up the early rallies that happened last year, I think we’re gonna build on the gains throughout the year.”

He notes that the price of gold in just about every currency but the dollar has shot up even faster this year, though he’s not completely ready to discount the precious metal’s standing here at home.

“I think gold is going to go up in all currencies - it is rising faster in euros and some other currencies than it is in dollars but it’s still rising in U.S. dollars...I think it’s breaking out - now is a good time to buy….In fact this year I believe gold prices are going to hit all time record highs in just about every major currency except the U.S. Dollar. We might have to wait until 2016 before gold prices hit a record high in dollars."

Schiff believes the strong dollar has no where to go but down, another catalyst for gold as the year plays out. Still, he says the biggest move in gold in dollars will come at the hands of the Fed.

Related: Schiff: QE won't work in Europe just like it didn't work here

“When the Fed announces QE 4, that’s gonna be a big game changer. It’s gonna catch everybody by surprise.” Schiff says such a move by the Fed would prompt China to follow in Switzerland's footsteps, depeg-ging the yuan from the dollar as the Swiss did from the euro two weeks ago.

He also notes that gold and the Swiss franc have a history of mutual benefits. He believes a strong Swiss franc, un-pegged from the euro, will also aid in gold’s ascent.


Friday, January 23, 2015

Schiff: QE won't work in Europe just like it didn't work here

Put away the party hats and the champagne. Mario Draghi’s version of quantitative easing is a “major mistake” says Peter Schiff, CEO of Euro Pacific Capital.

“The only thing they’re going to succeed in doing is lifting the inflation rate but it’s going to be a case of ‘be careful what you wish for.’”

Schiff argues the European Central Bank mandate is to keep inflation below 2%. While the environment there is currently one of deflation, he believes Euro QE will work quickly to bring inflation above 2%.

“I think this open-ended program might end a lot sooner than people think,” Schiff says. “Once they blow through that 2% level they have to cut back the quantitative easing.”

Schiff believes the real problems facing Europe’s economy have less to do directly with inflation versus deflation and more to do with employment.

“Higher inflation is not going to solve the labor problems in Europe,” Schiff contends. “The problem is that the governments have all of these onerous restrictions that punish employers. You have serious structural problems creating unemployment and detracting from economic growth. It has nothing to do with low inflation... all Mario Draghi is going to succeed in doing by raising the rate of inflation is slow down economic growth and make the unemployment problem worse.”

Here at home, he thinks all the “QE worked, the economy is saved” talk is no more than wishful thinking. While Europe may have used our success as an argument to institute their own version of the policy, Schiff notes that “We still have a QE high. But as the stimulus is wearing off, the hangover is setting in," he says. "The U.S. economy is rolling over and I think we’re going to head into recession in 2015 if we don’t get QE 4 and I think we might get it before the end of the year."

Schiff says in the second half of the year the U.S. will see unemployment tick up, the GDP tick down and pressure will grow on stock and housing markets. That, he says, will lead to a QE 4 here at home even bigger than the one Mario Draghi just announced.


Weakness Is Not Strength. European QE Will Impoverish the People

Follow along with this transcript:

Question: Most people say [quantitative easing] doesn’t work. So why [is the ECB] trying it?

Peter: I think they’re trying it, because they want to try to bail out European governments that have too much debt. What they’re doing is monetizing government debt. They’re printing euros and buying government bonds. What that really does is prevent European governments from actually cutting spending, which is one of the big problems in Europe. The problems there are too much government spending, too much debt, and too much unemployment. Quantitative easing not only doesn’t solve these problems, but actually prevents gets.

Question: Things were kind of improving in Europe, generally. Maybe not so much for Greece, not so much for Southern Europe. But generally, the rest of Europe was over the worst of it. Not true?

Peter: I think things are going to get worse because of this quantitative easing. What they are going to succeed in doing is lifting consumer prices throughout Europe. So Europeans who are struggling are going to have to struggle even harder, because the cost of living is going to go up. So compounding the unemployment problem with an inflation problem is not a solution that’s going to work.

Question: What about the currency wars that the chairman of Goldman Sachs is warning of today in Davos, where countries devalue their money… I kind of get it, but when everyone does it, then it doesn’t work.

Peter: It doesn’t work at all. A currency war is where a government tries to destroy its own people. You don’t make your country richer by making your citizens poorer. That’s all that happens when you devalue your money. It means that the prices of the things that you want to buy –

Question: Yes, but it’s about imports and exports, isn’t it?

Peter: Well, it just means that you export for less. It’s like putting your stuff on sale. Sure, if you reduce the price of your exports, you’re going to sell more. But why would you want to discount your exports? You want to get as much as you can for your exports, so you can import more. But what happens when your currency goes down, your standard of living goes down, because you’re poorer. You have to work harder to consume the things that you want and need.

Question: Back in 2013, the G7 leaders said they wouldn’t interfere with currency rates. They said the market should determine it. That seems to have gone out the bucket?

Peter: Yeah. And you know, the only way to win a currency war is not to fight. The winners don’t participate. The best thing for your country and your economy is a strong currency. A strong currency reduces the cost of living. It increases the standard of living, and people benefit through strength. Weakness is not strength.