For much of the past few generations, the debate over balancing the
federal budget has been a central feature of every presidential
campaign. But over time, the goalposts have moved. As the amount of red
ink has grown steadily larger, the suggested time frames to restore
balance have gotten increasingly longer, while the suggested cuts in
government spending have gotten increasingly shallower. In recent years,
talk of balancing the budget gave way to vague promises such as
“cutting the deficit in half in five years.” In the current
campaign, however, it appears as if the goalposts have been moved so far
that they are no longer in the field of play. I would argue that they
are completely out of the stadium.
It says a great deal about where we are that the symbolic budget plan
proposed last year by Congressman Paul Ryan, the newly minted vice
presidential nominee, has created such outrage among Democrats and
caution among Republicans. The Obama campaign warns that the Ryan budget
is a recipe for national disaster that will pad the coffers of the
wealthy while damning the majority of Americans to perpetual poverty.
The plan is apparently so radical that even the Romney campaign, while
embracing the messenger, is distancing itself from the message (it
appears that Romney wants to bathe himself in the aura of fresh thinking
without actually offering any fresh thoughts). In interview after
interview, both Romney and Ryan refuse to discuss the details of Ryan’s
budget while slamming Obama for his callous “cuts” in Medicare spending.
(It is extremely disheartening that the top point of contention in
the campaign this week is each candidate’s assertion that their
presidency could be the most trusted not to cut Medicare. Mindful of
vulnerabilities among swing state retirees, Republicans have also taken
Social Security cuts off the table as well. What hope do we have of
reigning in government spending when even supposedly conservative
Republicans refuse to consider cuts in the largest and fastest growing
federal programs?)
So what was the Ryan Budget’s radical departure from the status quo
that has caused such uproar? If enacted today, the Ryan budget would so
drastically upend the fiscal picture that the U.S. federal budget would
come into balance in just… wait for it…. 27 years! This is because the
Ryan budget doesn’t actually cut anything. At no point in Ryan’s decades
long budget timeline does he ever suggest that the government spend
less than it had the year before. He doesn’t touch a penny in current
Social Security or Medicare outlays, nor in the bloated defense budget.
His apocalypse inducing departure comes from trying to limit the rate of
increase in federal spending to “just” 3.1% annually. This is below the
4.3% rate of increase that is currently baked into the budget, and
farther below what we would likely see if Obama’s priorities were
adopted.
Read Full Article:
http://marketplayground.com/2012/08/17/peter-schiff-republicans-hope-but-dont-change/
Mac Slavo: With the Congressional Budget Office reporting that the United States will soon fall off the fiscal cliff unless the government takes immediate action, the Federal Reserve weighing another round of heavy-hitting monetary expansion, and the Republican Party now apparently jumping on board the gold standard train, the stars for precious metals seem to be in alignment. So says Peter Schiff, CEO of Europacific Precious Metals.
Having been ahead of gold’s massive upward move years before the bursting of the real estate bubble and crash of 2008, Schiff says there has been a “major development in precious metals,” and if you don’t have any gold or silver yet, this may be your last chance before they head to new record highs.
Read Full Article:
http://etfdailynews.com/2012/08/24/peter-schiff-major-development-in-metals-the-time-to-buy-cheap-will-soon-be-gone-gld-slv-iau-agq/
Peter Schiff, who was famously ridiculed for calling the crisis of 2008, steps up as a prognosticator again in his new book, The Real Crash: America’s Coming Bankruptcy - How to Save Yourself and Your Country.
We had way too much government and cheap credit leading up to 2008, he
says, and even more government and cheap credit since then, which is why
the next crisis will be the real haymaker.
His book is divided
into two main sections. Part I addresses the problems, while part II,
which is by far the lion’s share of his discussion, presents solutions.
In a nutshell, the problem is government, and the solution is to take an
ax to it - again and again. Since this view is currently unacceptable
to policymakers and the public at large, we can only hope reality will
win out before calamity hits.
The Real Crash is
encyclopedic in its coverage and highly readable in its presentation. Is
there a government agency that truly serves the interests of all
Americans? He finds few. What about services people actually want, such
as K-12 education: Could they be done better at the state or local
levels? Or better still by the free market? In most cases the answer is a
profound “Yes!” to both.
Living on Bubbles
Our problems stem from a love of bubbles and the flawed economic theory that blesses them.
During
Alan Greenspan’s reign at the federal reserve we had a savings and loan
bubble, followed by a tech bubble, followed by a housing bubble. Now
with Ben Bernanke at the Fed, we have a government bubble, meaning the
Fed is creating money that the banks are then lending to the Treasury to
expand government. “If you keep replacing one bubble with another, you
eventually run out of suds. The government bubble is the final bubble.”
When
the dot-com and housing bubbles burst we at least had something to show
for them - “a few good Internet companies and some pretty nice
McMansions, [but] no such benefits will remain when the government
bubble pops.”
The Fed, Schiff says, should let interest rates
rise so people can start saving again. The Fed’s low rates discourage
savings, which are
the
key to economic growth, as it finances capital investment, which leads
to job creation and increased output of goods and services. A society
that does not save cannot grow. It can fake it for a while, living off
foreign savings and a printing press, but such “growth” is
unsustainable— as we are only now in the process of finding out.
But
for politicians and central bankers, rising interest rates are an
abomination. The cost to service the national debt would go through the
roof, while the economic contraction that would likely result would
raise the deficit. The federal government would have to spend less, and
many of the country’s biggest companies depend on government spending,
through contracting, subsidies, or consumption.
But rising rates
and the terrible pain it would cause is the good news; the bad news, if
the Fed continues to hold rates low, is the economy will eventually go
into hyperinflation. “Rising interest rates will be productive pain—
like medicine,” he writes, “while hyperinflation will be destructive
pain.” If we stay the course and pretend everything will somehow work
out, we could be facing a crisis worse than the Great Depression.
Bernanke on the Great Depression
Chairman
Bernanke, of course, is well-known as an “expert” on the Great
Depression, and many people are betting the farm that he and his
Keynesian staff have the skills to steer us back to sunny beaches and
bikinis. Bernanke’s approach is to keep asset values from falling by any
and all means. One of the reasons the depression of the 1930s became
great, he believes, is because the Fed allowed the money supply to fall
following the Crash. With less money in the economy, prices nosedived.
People didn’t consume as much, consequently businesses didn’t profit as
much, therefore employees got fired, and the economy headed south in a
self-perpetuating spiral.
“Sustained deflation can be highly destructive to a modern economy and should be strongly resisted,” Bernanke said in a 2002 speech that inspired his nickname. And by deflation, he means “falling prices.”
Schiff explains what’s wrong with this analysis.
First,
for 100 years prior to the 1929 Crash, bank deposits actually gained
value each year. In other words, we had a century of deflation, that
much-feared condition that Bernanke has vowed to avoid at all costs.
Second,
from mid-1921 to mid-1929, the Fed increased the money supply by 55
percent, giving rise to a real estate and stock bubble. Most but not all economists
missed the bubble and its inevitable consequences because rising
productivity kept consumer prices fairly stable. Even as stock prices
were falling only days before the Crash, Irving Fisher said stocks had
reached a “permanently high plateau,” and he expected to see “the stock
market a good deal higher than it is today within a few months.” In
1928, Ludwig von Mises had published a full critique of Fisher’s
monetary theory, claiming that Fisher’s reliance on price indexes would
bring about the Great Depression. Nonetheless, Fisher’s stable price
theory carried the day, and when the sky fell the Fed, along with
Hoover, “did something,” as Schiff explains:
Hoover’s
Fed actually boosted the money supply by 10 percent in the two weeks
following the 1929 crash. Repeatedly throughout Hoover’s term, the Fed
created more money. But the money supply fell because people began
hoarding cash, and banks stopped lending out their money.
Also,
Deposits went down by 30 percent, but most of that was due to people pulling their money out.
In other words, the money supply shrank despite the Fed’s interventions, not because of its inactions.
Did a falling money supply promote massive unemployment?
Not
by itself. Hoover insisted on keeping wages high, and during his
re-election bid in 1932 boasted that the wages of U.S. workers were “now
the highest real wages in the world.” They probably were, and by not
allowing wages to fall along with other prices, unemployment soared.
Had
Hoover simply allowed the free market to function, the recovery would
have been so strong that he likely would have been elected to a second
term, and Teddy would have been the last Roosevelt to occupy the White
House. Instead he handed the Keynesian baton to Franklin Delano
Roosevelt . . .
None of this, as we know, is even close to the standard view of the Depression. Instead, we’re told
that
government needs to play a bigger role in battling downturns, and the
Fed needs to pump in cash to jump-start the economy. This bad lesson
stays with us today, and beginning in the early 1990s, this way of
thinking started the cycle of bubbles that put us where we are now.
End Keep the Fed
The
one puzzling part of Peter Schiff’s masterpiece is his view that the
federal reserve, as originally conceived, was a good idea. He describes
the Fed as “reckless,” the “biggest culprit in discouraging savings,”
and insists “we never should have trusted the Fed to respect its
boundaries.” But he also says:
The
original intention of the Fed was something I might have supported had I
been around back then. In theory, it was an agent of stability that
could also promote economic growth. . . .
The Fed would increase
the money supply as the economy expanded, and then reduce the money
supply as the economy contracted. . . .
In theory the Fed was a good idea. It’s just that in practice it did not work, because politicians quickly abused it.
He
argues that before 1913, banks were issuing their own currencies backed
“by assets, such as gold, and by the banks’ loan portfolios.” If “you
traveled to California, your bank note from Connecticut might not be
honored by other merchants or the California banks.”
Thus, he
concludes, it was natural “for bankers to hatch an idea of a “banks’
bank. Banks could deposit some of their assets— commercial paper or
gold— with the Fed, and the Fed in return would issue its own bank notes
to the individual bank.”
While this may sound plausible, questions arise as to (1) why the “banks’ bank” needed “guns and badges” (i.e., government cartelization)
to make it work; (2) why loan portfolios or commercial paper can be
assumed to be an acceptable substitute for gold coin; (3) why a central
bank is needed to expand and contract the money supply - in other words,
why assume the supply/demand relation of the free market fails when the
good in question is commodity money; (4) why the historical record of
central banks acting as an agent of stability and sustainable economic
growth is short on examples; and (5) why did the Fed, at its creation, possess a massive inflationary structure if it was sold as a means to promote stability?
I
believe central banking, by its nature, is a means of
institutionalizing, centralizing, and cartelizing moral hazard. It is my
view that the Fed was never a good idea, but one of the absolute worst
ever brought to fruition.
These concerns notwithstanding, his
critique of the Fed as it currently exists is emphatically on the money.
Though he doesn’t support its abolition he does say, “In an ideal
world, there would be no Fed, and I think the nation would be better off
if the Fed had never been created.”
How we can save ourselves
Readers
of his book don’t have to be swept up in the impending disaster. Unlike
the crash of 2008 when investors flocked to the dollar as a safe haven,
he believes the dollar and U.S. bonds will collapse before the U.S.
economy goes under. He devotes a chapter to crisis investing based on
the observation that since Americans have been living beyond their
means, many others have been living beneath their means.
Elsewhere
in the world there are more creditors than debtors, and there is
pent-up demand and excess production. In the future, these economies
will see a surge in demand, while ours will see demand fall. . . .
Bottom
line: purchasing power is shifting. You should try to invest in
companies that will benefit from this shift. These will primarily be
foreign companies. Of course, many foreign companies sell to the United
States. These aren’t the businesses I’m talking about.
He describes his investment strategy as
a
stool with three solid legs: (1) quality dividend-paying foreign stocks
in the right sectors; (2) liquidity, and less volatile investments,
such as cash and foreign bonds; and (3) gold and gold mining stocks.
Of
particular interest to this reader was his section on the poor man’s
investment strategy. If consumer prices head for the moon the government
will likely impose price controls, thereby creating shortages.
Solution: buy in bulk now and stock up. One advantage is that
any
returns are tax free. For example, if you buy a box of cornflakes today
and eat it two years from now when the price of a new box is 40 percent
higher, that’s a 40 percent tax-free return.
His
writing is full of fresh and sometimes bold insights on long-standing
issues. Readers will find his discussions on drug prohibition, marriage,
abortion, guns, health care, and prostitution especially engaging, I
believe. His detailed historical and legal discussion of the income tax
is the best I’ve ever read, nor does he pull punches in describing it:
It’s
hard to imagine a tax more destructive of productivity, more
destructive of entrepreneurship, more destructive of our lives, more
difficult and costly to comply with, more subject to gaming, or more
absurd in its logical consequences. Congress should immediately, fully,
and permanently abolish the income tax, and the Internal Revenue Service
(IRS) along with it.
He would replace the tax with a revenue-raising tariff on imports.
Yes, tariffs suck. But they suck less than income tax. In fact, they might be preferable to a national sales tax.
Conclusion
Peter
Schiff has written a riveting guide on what to do about our snowballing
social, financial, and economic problems. Inasmuch as he recommends
freeing people from government, his solutions are far from pain-free and
consequently will not be popular with the political class or their
dependents. Well, it’s time they got over it. As Schiff writes in his
introduction, it’s as if we’re headed down an icy hill with politicians
in the driver’s seat accelerating toward the bottom.
We
need a grown-up to grab the wheel and steer us into the ditch on the
side of the road. That won’t be pretty, but it’s better to go into the
ditch at 80 miles an hour than crash into a brick wall at the bottom of
the hill at 120.
Last week in an interview on CBS Network News, Economist Mark Zandi,
the chief economist for Moody’s, unwittingly revealed a central error of
the global economic establishment. Zandi has made a career out of
finding the middle ground between republican and democrat economic
talking points. As a result of this skill, he has been rewarded with
large quantities of airtime from media outlets that want to appear
non-partisan, despite the fact that his supposedly neutral analysis
often leaves listeners frustrated.
When asked about the recent deterioration in the global economy,
Zandi said that “the worst possible scenario” at present would occur if
Greece were to leave the Eurozone. He claimed that the economic
gyrations and liquidations of bad debt that would result from such an
exit would be sufficient to create a vicious cycle that could drag the
global economy back into recession. As a result, he urged policy makers
to take whatever steps necessary to maintain the current integrity of
the 17 nation Eurozone.
Given what most economists now know, few would actively argue that
Greece’s entrance into the Eurozone back in 2001 was a good idea. In
fact most concede it was a terrible idea based on bad forecasting and
outright fraud. There is little disagreement over the fact that Greece
grossly misrepresented its financial position in order to gain initial
entry into the monetary union. It is also widely agreed upon that in the
ensuing decade Greece exploited its monetary advantages to borrow
irresponsibly.
Much has been written about how the fundamental misfit between
Greece’s economy and currency gave birth to a deeply flawed system that
was destined to run off the rails. Most also agree that the countries
like Greece and Germany are too economically and culturally disparate to
exist under the same monetary umbrella. But despite all this, Zandi
wants to maintain the status quo. In his opinion, it is so imperative to
prevent the deflationary consequences of an economic restructuring that
it is preferable to prop up a failed system, perhaps indefinitely,
rather than allow a newer, healthier system to replace it. In the
process, the moral hazard created not only assures that Greece will
become an even greater burden on Europe, but so too will other nations
whose leaders will be emboldened in their profligacy by the anticipation
of similar help.
From Zandi’s perspective (and he is certainly in the majority on this
point) the goal of economic policy is to keep GDP growing. It follows
then that he will oppose large-scale debt liquidations which drag down
GDP in the short term. But sometimes debt needs to be liquidated. Bad
ideas need to be abandoned. Once economies stop throwing good money
after bad, capital is freed up to flow into more economically viable
purposes. But economists and politicians never look at the long term.
Their job seems to be to manage the economy for the next election.
The same “damn the torpedoes” mentality dominates economic thinking
with respect to the U.S. economy as well. Years of artificially low
interest rates, and government subsidies that direct capital towards
certain sectors and away from others, has created an economy with too
little savings and production, and too much borrowing and consumption.
The ultra-low interest rates currently supplied by the Fed serve to
perpetuate this unsustainable artificial economy. Higher rates would
work quickly to redirect capital to the more productive sectors. But
high rates could bring deflation and liquidation, which few economists
are prepared to risk.
We have too many shopping malls selling stuff, but not enough
factories making stuff. We have too many kids in college studying
liberal arts, and not enough in the workforce acquiring skills that will
actually increase their productivity. Banks are loaning too much money
to individuals to buy houses, and not enough money to entrepreneurs to
buy equipment. We have too many tax-takers riding in the wagon, and not
enough taxpayers pulling it. The list is long, but the solutions are
short.
We need to let interest rates rise to market levels, and allow the
economy to restructure without government interference. We need to stop
beating a dead horse and hitch our wagon to an animal that can really
pull. The process will be painful for many, but like ripping off a
band-aid, the pain will be over relatively quickly. However, since a
painful restructuring means recession, politicians resist the cure with
every fiber of their beings. So instead of a genuine recovery, one that
will provide productive jobs and rising living standards, we get a phony
recovery that produces neither.
Preserving a broken system merely to avoid the pain necessary to fix
it only makes the situation worse. Propping up sectors that should be
contracting prevents resources from flowing to other sectors that should
be expanding. eeping workers employed in nonproductive jobs prevents
them from gaining productive employment elsewhere. Encouraging activity
or behavior the market would otherwise punish discourages alternatives
that it would otherwise reward.
Unfortunately, leaders on both sides of the Atlantic put politics
above economics, and economists like Mark Zandi provide the cover they
need to get away with it.
Dominique de Kevelioc de Bailleul: With the dismal performance of goldstocks testing the patience of even hardcore gold bugs, Euro Pacific Capital CEO Peter Schiff believes investors should not panic and sell, but hold on, the bottom in the gold mining stocks is probably in.
And if the bottom is not in, hold on anyway.
“We could see another 10% pop in a week or two in the mining shares,” Schiff told King World News on May 23. “There’s a very good chance that the bottom is in, especially if we can get a rally in gold.”
At this time, it may be worth repeating a famous quote from economist
John Maynard Keynes: “The market can stay irrational longer than you
can stay solvent.” On the way up and on the way down, markets can
mis-price assets to ridiculous levels for longer periods of time than
appears rational. Today, it’s the U.S. dollar, U.S. Treasury market and
gold, which have been mis-priced for so long.
“Right now the U.S. dollar has been rising because of worries about
Europe, but the dollar is sicker than the euro,” Schiff said. “So both
currencies should be falling against gold and gold should be taking off
here.”
To put into better context how “sick” the U.S. dollar really is,
consider an article penned by USA Today journalist Dennis Cauchon, who
outlined in his May 23rd piece the horrific fiscal shortfalls
in Washington—a fiscal debacle so large that economist John Williams of
ShadowStats.com expects hyperinflation in America some time in 2014 as
global investors might eventually witness 100 percent Fed monetization
of fresh U.S. Treasury debt.
Under the Generally Accepted Accounting Principles (GAAP) rules of
reporting financial disclosures, “the [U.S. budget] deficit was $5
trillion last year under those rules,” stated Cauchon. “The official
number was $1.3 trillion. Liabilities for Social Security, Medicare and
other retirement programs rose by $3.7 trillion in 2011, according to
government actuaries, but the amount was not registered on the
government’s books.”
Whether investors are aware of the fraudulent U.S. Office of
Management and Budget (OMB) accounting, or not, the reality of millions
of baby boomers retiring each year and the growing budget deficits that
come with an aging population will reach an inflection point, whereby
investors of all stripes come to expect money printing as a way of life
and begin trotting, then running, to gold and the gold shares in an
effort to protect from a Greece-like financial collapse.
And the quick-fix to Washington deficits through Fed ‘stimulus’ and
the higher tax receipts that result from a U.S. “bubble economy” has
finally reached that ‘Minsky Moment’, according to Schiff. After
trillions of dollars of Fed stimulus since 2009, the economy just isn’t
responding like it had for nearly 70 years of Fed intervention—a
prediction made by 20th century economists Hyman Minsky and
Ludwig von Mises, among others, of the ramifications of chronic central
bank money supply injections.
“The market is just rolling over, as it’s coming to grips with the
fact that the fantasy they believed in is just that: fantasy,” Schiff
said in an earlier KWN interview of May 18th, referring to the recently reported poor economic numbers from Washington and private sources. “It’s not reality.”
Schiff went on to say that gold—and by extension gold shares—will
rise “as investors realize that QE3 [quantitative easing] is coming,
because the Fed has already said that. If the economy needs it, it’s
going to get it. And the economy is addicted to it [stimulus]. I mean,
this economy needs QE like a heroin addict needs another fix.”
Back to the May 23rd interview: Schiff suggested that the relative strength of the HUI index of mining shares to the gold price so
far this week indicates to him a bottom is in and a buying opportunity
is at hand. As far as the gold mining shares, “we could have a pretty
serious up-move in the goldstocks in a very short period of time.”
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust
(NYSEARCA:IAU), Market Vectors Gold Miners ETF (NYSEARCA:GDX), iShares
Silver Trust (NYSEARCA:SLV), Market Vectors Junior Gold
Miners ETF (NYSEARCA:GDX), Goldcorp Inc. (NYSE:GG), Barrick Gold
Corporation (NYSE:ABX), Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY).
Many people became convinced that data releases earlier this year
indicated that “recovery” in the U.S. was imminent. But as I have been
saying for months, this evidence would ultimately be shown to be as
reliable as sightings of Bigfoot. Lots of people claim to say they have
seen it, some even produce plaster footprints, but in the end all we
have is a guy in an ape suit. The economic recovery, that has been
discussed so loudly and often in recent months, will be shown to be
similarly mythical.
A torrent of recent economic data now reveals weakness, and investors
are beginning to take notice. Friday’s release of the May jobs report
showed a paltry 69,000 jobs created during the month, far below
consensus estimates. Not only did the current month disappoint, but the
June numbers were also revised down by 49,000. This release follows
yesterday’s downward revisions of first quarter GDP growth from 2.2% to
1.9%. Also lost in the headlines was that the savings rate dropped to
3.4% in April, the lowest rate since December 2007. This shows that
Americans may need to deplete their already meager savings just to keep
their heads above water as the U.S. economy sinks back into recession.
The bad news sent stocks swooning. The latest sell off brings the
S&P 500 down close to 10% from its levels in early April. On the
other hand, bonds have reached record highs as investors seek safety in
treasuries. However, I believe that treasuries will turn out to be the
Facebook of safe havens. Before Facebook (NASDAQ:FB) went public
everyone wanted a piece of the action. But once the allure wore off, and
people realized they owned shares of an overhyped company with
unreliable earnings and a sky high valuation, the shares quickly lost a
good deal of their appeal. Despite the best efforts of the media to
declare the end of gold’s appeal, the metal continues to shine. Friday’s
report also sent gold up nearly 4 per cent. Gold is now down just 3 per
cent from May 1, a period that has been horrific for other asset
classes.
Oil prices continue to slide as traders brace for a fall-off in
global demand that will come from the return of a global recession. What
these traders fail to understand is that the recession will likely be
resisted by central banks around the world with massive money printing.
Such action will be much more likely to push oil prices back up to
levels higher than those seen before the recent downturn. Yes recession
means consumers will use a lot less oil, but inflation created by the
central banks means that they will likely pay a lot more to purchase it.
In recent months as turmoil bubbled across the debt markets of
Europe, the United States had beckoned as a safe haven. But in truth,
the problems are as bad, if not worse, on this side of the Atlantic.
Ironically, America has not had to deal with its day of reckoning
because lesser problems surfaced first in Europe. But when Europe comes
to some modest resolution of its problems, or when bond investors
realize they have jumped from the frying pan into the fire, there will
be no hiding from the unresolved problems here.
As the intoxicating effects of Fed stimulus wear off, the hangover is
setting in. To delay the pain, I believe that there can be little doubt
that the Fed will unleash its next round of stimulus, in the form of
QE3. My guess is the Fed has always known more QE was needed but it has
been waiting for the most politically palatable time to announce it.
That “stunner” can’t be far off with the data so bad and the elections
so near.
Eventually more people will figure out just how precarious America’s
fiscal position truly remains. That’s when interest rates will finally
rise in the U.S. There is no way to justify record low interest rates in
this country given our atrocious fiscal position. I believe interest
rates here should approach levels comparable to the more indebted
European countries. Once it becomes obvious just how many dollars the
Fed is prepared to print to stave off recession, people running into
treasuries today will likely suffer buyer’s remorse. When they rethink
their assumptions, as buyers of the Facebook IPO clearly have, the Fed
will then become not just the buyer of last resort, but the buyer of
only resort. Then the Real Crash may finally be upon us.
If you thought the financial collapse of 2008 was bad, you haven’t seen anything yet.
So says Peter Schiff,
a financial investor and author who lives in Weston who unsuccesffuly
sought the U.S. Senate nomination from the Republican Party in 2010.
Schiff, who predicted the financial collapse in 2008, recently released a new book, The Real Crash: America's Coming Bankruptcy,
wherein he makes his case that an impending financial collapse will
leave Americans from all walks of life struggling—and will be much worse
than the one that plagued the country in 2008.
On Friday, Schiff posted a video to his YouTube channel following the 275-point skid the Dow Jones industrial average saw after a lackluster May jobs report
which broadcast 69,000 new jobs for Americans, fewer than half of the
150,000 new jobs which were estimated to be created last month.
Adding insult to injury, Schiff said, the report also included 49,000 downward revisions to jobs for March and April.
In the report, unemployment rose to 8.2 percent, while when factoring
in those who are discouraged workers not seeking jobs and part-time
workers who'd prefer full-time employment, the rate rose to 14.8
percent.
"I think that's the start of a trend," Schiff said of the increasing unemployment numbers.
Those numbers, Schiff said, speak of a larger problem.
“I think it’s all part of an ongoing depression, where we have a
series of recessions punctuated by artificial growth caused by
stimulus," Schiff said. "That’s really what is happening now—the
stimulus is wearing off and the hangover is setting in. And of course,
the bigger the stimulus, the bigger the hangover. As the economy builds
up a tolerance for stimulus, you need more and more of it to get any
effect. We’ve had record doses of stimulus and we’ve barely had any kind
of phony growth.”
With these record injections of cash into the economy, interest rates are still at zero at the end of the recovery, Schiff said.
"We're starting a recession from the levels that normally
characterize the bottom of a recession," he said. "All this economy can
produce with record amounts of stimulus is 8.2 [percent]
unemployment. That’s the best we can do. I think this next round of
stimulus is going to be the one we overdose on if we don’t go cold
turkey before that happens. This is the beginning of the real crash." The U.S. dollar
Schiff said that traders are beginning to realize that the dollar is not as sound an investment as it's been in the past.
"A lot of people thought that the problems were in Europe and that
the salvation lie in U.S. in the dollar," he said. "Now more people are
starting to come to terms with the fact that we're in trouble, too. You
know, America's problems are not made in Europe. They're one of the few
things that are still made in America."
Investors have been shying away from the Euro because of Europe's
debt problems, Schiff said, which means it makes no sense that people
would buy the dollar, which carries with it even more debt.
The fact gold rallied on Friday is proof that investors want "real money," Schiff said.
"When people realized they jumped out of the frying pan, into the
fire, they're going to try to dump their treasuries," he said. "They're
going to find out what they really want is ... gold. As gold gains its
appeal, that will take the luster off the dollar even further and off
the Treasury market even further."
Schiff said America's facing bigger problems than Europe. Across the
pond, interest rates are already rising, whereas they're still at zero
in America and we're borrowing for next to nothing, he said.
"As bad as their [problems] are, ours are worse," he said. "Few
people really perceive the gravity of the threat to the U.S. economy and
how precarious a position we are really in and how bad this crash is
going to be."
U.S. consumers will be hit hard, Schiff said, as banks will print more money and prices will continue to rise.
"If you see the bond market going down, the dollar going down and the
stocks going down simultaneously, and gold really going up, you'll know
the end is near ... and the real crash I've been writing about is
underway," he said. Jobs
Schiff said that Obama, trying to put a nice spin on the jobs report,
said he'd like to make it easier for veterans to get jobs by
eliminating some barriers such as licensing requirements, certifications
and expensive degrees being prerequisites to employment. Obama said
that since veterans were doing these types of jobs in the army, they're
obviously qualified to do them in the private sector and should be
fast-tracked to employment.
"What Obama doesn't seem to understand is where these barriers came
from in the first place," he said. "They came from government. They came
from politicians who were just as well-intentioned as Obama. All these
obstacles were placed in the path of everybody, not just veterans. Obama
is admitting that the way to create jobs is to get rid of the
government impediments to jobs."
Schiff said the federal government is doing all sorts of things to "legislate jobs out of existence."
"Why stop with veterans," he said. "Why not get rid of [the barriers]
for everybody. Why not make it easier for everybody to get jobs."
Schiff said that while some people argue people who are unemployed
are looking for "the perfect job," many people are not working because
they have an alternative to working in extended unemployment.
"I think people who are collecting unemployment in many cases already
have the perfect job," he said. "They get paid for doing nothing, and
they don't want to quit that job."
That mentality is understandable, Schiff said, as people want to retire eventually, which is part of human nature.
"Unfortunately a lot of people in government don't understand human
nature, don't understand the unintended consequences of their
well-meaning legislation," he said. The presidential election
Schiff said capitalism will come under fire during the presidential election, especially when the crash he foresees occurs.
"Guys like Obama are just waiting to blame this thing on capitalism,"
he said. "Obama likes it I think when he sees failure in the
economy—not that he's rooting for it—but what it does is it ratifies his
own perceptions that capitalism doesn't work, that freedom is not a
good idea, that what we really need is more government control and
government regulation, because in his heart he's a socialist.
"He doesn't really feel that capitalism is the way to go," he said.
"He is looking for an opportunity to recreate and redesign America in
this socialist Utopian fantasy that resides in his mind, and he's just
arrogant enough to think he can do it."
Schiff said that while presumptive Republican nominee Mitt Romney
might not understand the economy as well as U.S. Rep. Ron Paul
(R-Texas), he's a believer in capitalism and can learn on the job.
"It frightens me to have [Obama] at the helm when the ship hits the
iceberg," he said. "I think we've got a chance with Romney. We don't
have a chance at all with Obama."
And the good news about America's struggling economy?
"The only good news about the bad news for the economy is the worse
the economy gets, the worse the chances of Obama's reelection get, which
I guess is the only silver lining in a very, very dark cloud."
U.S. financial affairs have fallen into extreme disrepair, says Peter Schiff, CEO of Euro Pacific Capital.
"We're already bankrupt,” he tells Yahoo. “It’s better to acknowledge that than to pretend we're not."
The fact that our country is “so broke” has led the Federal Reserve to
push interest rates to record lows, Schiff says. The 10-year Treasury
yield hit a new trough of 1.61 percent Wednesday.
“If interest rates were allowed to rise, the federal government would have no choice but to restructure debt,” he says.
“A lot of our banks would fail. We’d have a bigger drop in our real estate mark. We’d be right back in recession.”
But the Fed’s insistence on keeping interest rates near zero is
“creating even bigger problems,” Schiff says. Monetary policy is making
us save too little, invest too little, produce too little, borrow too
much, and spend too much.
"We can't have real economic growth until interest rates go up," he says.
"If we admit we're bankrupt and at least restructure, we can start
repairing the damage and preparing the economy for real growth."
Schiff will undoubtedly be pleased to learn that New York Fed President
William Dudley and Dallas Fed President Richard Fisher recommended
against further easing Wednesday.
"My argument has been that we have done enough, in fact, we've done too
much," Fisher told reporters, according to Reuters. “I don't see what we
would accomplish with further accommodation."
