Peter Schiff On The Trillion Dollar Coin

The coming and going of the idea of the trillion dollar coin, says Peter Schiff, CEO of Euro Pacific Capital, will one day become just a ‘footnote’ when opposed to the debt crisis we are currently in. The fact that this idea was totally rejected by both the Federal Reserve and the President, however, is a positive sign, showing us that after all it is not irresponsible congressmen and ‘out-of-touch academics’ that run the economic policy of the United States. In fact, Schiff claims, during the past five years, the government has created more than one trillion ‘out of thin air’. The difference is that the platinum coin of a trillion dollars is blatantly dishonest and this is easy for the public to see – this means no one would be expected to take the bait. Americans may be totally willing to be fooled, but they would not accept to fall for such a simple trick.

People have acquired the instinct to judge the value of a coin by its metal content. That’s how we know a quarter is bigger than a dime, says Schiff. Because of that, people have rejected the idea of the platinum coin. Everybody thinks that putting such a high value on such a small piece of metal is an act of deceit and despair. And they are right to think so.

These people, however, do not seem to have a problem with so many pieces of paper being printed. The number of zeros on bills does not impact acceptance. It is generally believed that the value of paper money is not derived from paper but from numbers. Originally, this wasn’t so. When money was first put into use, they were promissory notes intended to pay particular amounts of gold. When the use of paper became typical, hardly anyone cared when they removed the gold backing. Thus, the public would probably have been more tolerant towards the printing of a bill of one trillion dollars, than towards the creation of a trillion dollar coin by the government. However, the Fed could not legally hand over to the government that money, claims the Euro Pacific Capital CEO. It is the government that mints coins, not the Fed. So the government didn’t have to depend on the Fed about creating value ‘out of thin air’. This is the reason why the idea of the platinum coin was so seductive, even though ‘unsellable’.

The same thing is being done by Fed, however. They are using the best computing possible along with sophisticated accounting. The Fed purchases private banks’ government bonds in order to, as Schiff says, ‘expand its balance sheet’. Then in return, the banks get credited by the Fed with out-of-thin-air-created funds. Afterwards, the funds are passed by the banks through loans to the general public. But it must be pointed out that the Fed doesn’t have the resources needed to buy these bonds. A Fed computer ‘creates’ the funds. This is easier than the minting of a trillion dollar coin – after all, in that situation something more is required than just the production of a computer code. Window dressing lacks – this is the only difference.

A similarly meaningless distinction is now being made in regard to the raising of the debt ceiling. In a press conference, the President stated that the reluctance of the Republicans towards raising the debt limit was equal to a person buying and enjoying a meal and then leaving the restaurant without having paid the bill. Obama is arguing that if the person had no cash, the use of a credit card would be more responsible. However, the President does not pay attention to the fact that this person has the intention of paying his credit card bill using another card, later repeating this process until he loses all of his cards. Thus, in the end the issuer of the diner’s last card ‘gets stiffed’, instead of the restaurateur. Schiff defines this as a distinction with no difference, as with the trillion dollar coin.

More than 16 trillion dollars in funded obligations are currently counted by the Federal Government. In 10 years from now, expectations are that we will add about 10 trillion dollars, if not more. A balance in the annual budget is not in the least expected in the near future. All future bills we face will be paid by a massive-scale future borrowing. People who have an ounce of integrity, Schiff says, would have to get prepared for the possibility of a debt rollover that is ever increasing, turning out to be a ‘limited prospect’. This kind of understanding will mean someone is about to ‘get stuck’ with the bill. In the CEO’s opinion, this is just as irresponsible as ditching after dining.

In truth, failing to raise debt ceiling cannot be viewed as a commitment to abandon obligations. This is a decision to put a stop to borrowing. The government is able to meet all the obligations by means of tax raises, spending cuts and entitlement reforms. It chooses, however, not to act on it.

Peter Schiff claims that America is sending a message to its creditors – the US is not willing to repay debts using tax power. It will continue to rely on borrowing more. Thus, it gives us a sign that it refuses to deal with our fiscal problems in a responsible way. Schiff points out that it’s a pity so many people cannot accept these simple facts.

Peter Schiff: Patriotic Millionaires Unmasked

Peter Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, an SEC-Registered Investment Adviser and a full service broker/dealer, shares his thoughts about the post-election landscape in the USA.

Despite the breathless post-election "think pieces" that have drawn sweeping and deeply considered conclusions about the political drift of the country, at its core President Obama’s re-election is easy to understand. He essentially promised millions of middle and working class voters that if he were to be re-elected, they would receive benefits paid for by the rich. You don’t need to read a Time Magazine cover story to untangle this political strategy. Now that he has been given a second term, Obama needs to deliver the goods by raising taxes on the rich and only the rich. He will be "asking" them to pay their "fair share," (as if "asking" and "fairness" have anything to do with it). In reality the wealthy already pay taxes at a much higher rate than average Americans and in many cases will now have to pay more than half of their income in federal, state, and local taxes.

While most people would assume that the wealthy would chafe at such a heavy burden, some affluent individuals have apparently organized spontaneously to express their willingness to help the country. In interviews and articles, these self described "Patriotic Millionaires" have implored Congress and the President to raise their taxes. They claim they can easily afford to pay a little more to save the nation from fiscal insolvency.

Conservative economists believe that an economy is most vibrant when as much money as possible is left in the private sector where it can be used for business investment and job growth. Left wing economists believe that government spending, which they term “investment,” does more good. Through this lens, it’s tempting to see the Patriotic Millionaires as well meaning Americans who have simply subscribed to a misguided economic philosophy. However, the reality may be far more sinister.

Washington is Blind to Main Street's Biggest Concern, believes Peter Schiff

The world renown economist Peter Schiff hits once again Federal Reserve and speaks about US government and medias in his weekly column

Journalists, politicians and economists all seem to agree that the biggest economic issue currently worrying voters is unemployment. It follows then that most believe that the deciding factor in the presidential race will be the ability of each candidate to convince the public that his policies will create jobs. It seems that everyone got this memo...except the voters.

According to the results of a Fox News poll released last week (a random telephone sample of more than 1,200 registered voters), 41% identified "inflation" as "the biggest economic problem they faced." This is nearly double the 24% that named "unemployment" as their chief concern. For further comparison, 19% identified "taxes" and 7% "the housing market" as their primary concern. A full 44% of women, who often do more of the household shopping and would therefore be more sensitive to prices changes, identified rising prices as their primary concern.

While these statistics do not surprise me, they should shock the hell out of the establishment. According to the Federal Reserve, inflation is not a concern at all. Time after time, in front of Congress and the press, Fed Chairman Ben Bernanke has said that inflation is contained and that it is below the Fed's "mandated" rate of inflation (whatever that may be.) The Bureau of Labor Statistics is saying the same thing. The measures they use to monitor inflation, such as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE), show annual inflation well below 2%. In fact, the GDP price deflator used by the Commerce Department to calculate the second quarter's 1.3% annual growth rate assumed annual inflation was running at just 1.6%.

In fact, Bernanke thinks inflation is so low that he is actually worried about deflation, which he believes is a more dangerous issue. As a result, he is recommending policies that look to raise the inflation rate, not just to combat the phantom menace of deflation but to boost the housing market and reduce unemployment. He mistakenly believes these problems are the ones that concern Americans the most.

Peter Schiff: We are losing the jobs we need and gaining the ones we don’t

American investment expert Peter Schiff made an analysis of the jobs numbers for September that the US government has published recently. According to the financial guru, the situation with the unemployment in the States is not as bright as the authorities try to prove.

The US gained 114,000 jobs on the month, but 10,000 of them were government positions while there was a loss of 16,000 manufacturing jobs in September. "We are losing the jobs we need and gaining the ones we don’t," commented Schiff and added that the USA do not need more people working for the government, as they derive their salaries from the private sector.

Peter Schiff explained that the increase of the government jobs is not that good, because these are non-productive and they actually make USA poorer as a nation because they add to the overall tax burden and trade deficit. According to Mr. Schiff, the government employees create an imbalance in economy. The reason for this is that they do not produce anything, which will force the jobs to be lost when the economy restructures. And the reasonable question is in that case, how was the unemployment rate able to fall so rapidly?

According to a household survey, 873,000 jobs were added in September. These numbers are the largest of its kind in nearly 30 years. Schiff adds the caveat that a large number of these were part-time employment. Mr. Schiff goes on to rather bluntly hypothesize that the massive jump in part-time work came from those who have finally used up unemployment and were forced to go out and find some kind of work.

The U-6 unemployment rate, a much more effective measure of our actual employment, was virtually unchanged for the month, staying a tick under 15%. Just another reason that we all need to take official unemployment numbers with a grain of salt. With the approach of the holiday season, part-time work will spike and could potentially decrease the unemployment figure even further, which is not a real indicator of the unemployment rates fall.