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Source link: http://archive.mises.org/8039/interview-with-peter-schiff/

Interview with Peter Schiff

April 21, 2008 by

Below is a recent exchange I had with Peter Schiff. Mr. Schiff is the president of Euro Pacific Capital and a frequent commentator on financial news networks such as CNBC and FBN. In addition, he has written numerous articles for various trade publications and has been quoted extensively by mass media outlets. He is also the author of the critically acclaimed: “Crash Proof: How to Profit from the Coming Economic Collapse.”

Tim: You promote various Austrian authors on your website and quote some of their theories (ABCT, Broken Window), what got you interested in this school of thought?

Peter: I was introduced to the Austrian school early on by my father. According to my dad saying Austrian economics makes as much sense as saying Chinese physics. Austrian economics is economics, period!

Tim: What do you think the Austrian school contributes the most to financial planning?

Peter: My investment advice is rooted in my understanding of economics. It is that understanding that allowed me to accurately forecast the trends of the last decade, and to have positioned my clients in advance to both protect their purchasing power and profit from what has already played out.

Tim: Writers such as Bob Murphy had given you a hard time on what seemed to be your anti-trade deficit views, though Murphy has since admitted that you are right in your assessment of our current mess. Do you think a trade deficit is always bad for a country?

Peter: No. Trade deficits are OK under certain circumstance. 1. An emerging nation imports capital goods necessary to enhance its productivity. 2. A developed nation, with a current account surplus, uses some of its investment income to finance the purchases of additional consumer goods from abroad.

The problem with our deficit is that we import consumer goods we can not afford to pay for with either exports or foreign earnings. As such we accumulate external liabilities that we will never be able to repay and our nation’s future productive capacity continues to deteriorate. We are de-industrializing and are condemning ourselves and future generations to falling standards of living.

Tim: Can you elaborate more on the manner in which America is de-industrializing?

Peter: More Americans now work for government than in manufacturing. Most other Americans are employed in retailing, financial and other professional services, healthcare, and education. What we used to produce ourselves we now import. We “pay” for those imports with IOUs (dollars) yet we lack the industrial capacity to ever redeem them with genuine goods.

Tim: Is the Fed deflating or inflating right now?

Peter: Inflating.

Tim: How do you know the Fed is inflating?

Peter: It’s obvious. Plus they even admit as much, though they refer to it as “adding liquidity” a politically palatable euphemism for creating inflation.

Tim: Who is ultimately financing the emergency loans to various financial institutions?

Peter: Anyone with U.S. dollar denominated savings, investments, pensions, insurance policies, wages, or other dollar based assets or income streams.

Tim: How are booms and busts caused?

Peter: They are caused by the Fed setting interest rates too low. The false economic signals that are sent result in an artificial boom characterized by malinvestments that must ultimately be liquidated in the inevitable bust. This pattern, labeled the business cycle, is not an inherent flaw in capitalism, but in central government planning and price fixing.

Tim: How would you characterize the proposed restructuring plan from Paulson?

Peter: A national disgrace.

Tim: Would you characterize the Paulson plan as cartelization, nationalization, reregulation or all of the above?

Peter: Fascism.

Tim: Will these moves prevent booms and busts from occurring in the future?

Peter: Absolutely not.

Tim: Why won’t this plan create the stability or growth that central planners want?

Peter: Central planning never works.

Tim: Isn’t the stimulus package supposed to prevent or stymie the effects of a recession?

Peter: That may be the intention but it will not be the result. Since our problems stem from too much borrowing by consumers, more of the same will only exacerbate our predicament.

Tim: After nearly a century of managing the expansion of credit, interest rates, and the monetary supply do you think the Fed should be allowed to continue its role as a central planner?

Peter: No, there should be no central planning at all. The market needs to set prices, including interest rates and allocate resources. If it were up to me we would abolish the Fed and return to the gold standard. Absent that, the Fed should be completely removed from the political sphere, its dual mandate replaced by a single mission to provide the nation with sound money. This does not mean stable prices, but rather gradually falling consumer prices that are the natural bounty of capitalism.

Tim: Over the past several weeks Congressman Barney Frank has proposed a large bailout for mortgage holders. Should the government get involved with the current housing crunch with relief aid?

Peter: Absolutely not.

Tim: Who wins and loses when real-estate prices decline?

Peter: Losers. 1. Homeowners looking to sell houses and downsize, or those who confused homeownership with an investment. 2. Real estate professionals who make money based on high turn-over, inflated commissions based on high home vales, and peddle the illusion that buying a home constitutes making an investment. 3. Lenders who extended too much credit based on inflated home values and investors who purchased those securitized loans 4. Everyone with U.S dollars as the Fed tries to prevent home prices from falling and bail out irresponsible borrowers and lenders by creating more inflation. 5. Government as it collects excess taxes based on inflated home prices and frequent turnover.

Winners. 1. Anyone who wants to buy a home. 2. Society in general as homeownership becomes more affordable, thus enabling homeowners to accumulated legitimate savings that finances real capital formation and leads to rising living standards for us all.

Tim: In what way have GSEs such as Fannie Mae contributed to the mortgage crunch?

Peter: By guaranteeing mortgages against default they created the moral hazard that allowed risky loans to be originated and securitized, which provided the initial air that inflated the housing bubble.

Tim: Various numbers are thrown around regarding personal debt, savings, equity and consumption. What sources do you consider valid metrics to analyze the solvency of both enterprises and individuals?

Peter: For companies, profits, balance sheets, and dividend yield.

For individuals, income producing financial assets net of debt, not counting primary or other non-investment residences.

For nations, savings rates, industrial production, infrastructure, and balance of payments.

Tim: Are you familiar with the True Money Supply aggregate devised by Murray Rothbard and Joe Salerno?

Peter: Yes.

Tim: Do you think it is a better measurement of what policy the Fed is attempting to implement?

Peter: It certainly appears to be.

Tim: What do you think of alternative metrics such as John Williams’ ShadowStats?

Peter: Empirically that seem to be far more accurate then those provided by the government.

Tim: Several years ago you wrote a fable about 5 Asians and 1 American stuck on an island; how the 5 Asians produce wealth and capital and the American merely sends them IOUs (T-bills) in exchange for their goods. Do you believe this is still an accurate assessment of the situation?

Peter: Absolutely.

Tim: How much longer do you believe this will be tolerated? When do you think the various Asian decision makers will turn off the spigot?

Peter: Not much. Signs of stress are evident all around us. Global inflation is spiraling out of control as foreign central banks try to maintain the dollar’s value relative to their own currencies and the coffers of sovereign wealth funds bulge with surplus dollars.

Tim: In what way are foreign entities such as the central banks of China and Japan propping up the dollar?

Peter: They are directly intervening in the foreign exchange markets by buying dollars. They are also talking up the dollar and declaring their intentions neither to abandon it as the reserve currency, abolish their pegs, nor price key commodities, such as oil, in another currency. However in the end they will stop throwing good money after bad and abandon their support for the dollar.

Tim: Individuals like Jim Rogers are also bullish on overseas markets such as Northeast Asia. What makes these segments more desirable than investing domestically? Aren’t the Asian central banks inflating too?

Peter: Yes, but only to prop up the dollar. Once they come to their senses they will stop inflating. In the meantime they have viable economies that are well positioned to flourish once they bite the bullet on the dollar.

Tim: Are sovereign wealth funds doing a disservice to their shareholders by investing in failing banks? Are they solvent enough to ‘save the day’?

Peter: Of course, but they are doing a greater disservice to their citizens by having these funds in the first place. They should cease accumulating dollars, liquidate these funds, and return the proceeds to their respective citizens to invest or spend the money as they please.

Tim: Last year you wrote a highly acclaimed book Crash Proof: How to Profit From the Coming Economic Collapse. How would you advise the average American to simply protect his wealth and financial security in face of a potential world financial crisis?

Peter: It is not a world financial crisis but American financial crises. For the rest of the word, we could be headed for the greatest economic boom of our lifetimes. My advice to Americans is to get in on it. Divest yourselves of depreciating U.S. dollars and refuse to be a patsy in “bail out Ben” Bernanke’s helicopter drop. You can accomplish both by investing in high yielding foreign stocks, precious metals, and commodities.

Tim: In Crash Proof you mention in passing the (then) new gold and silver ETFs. Since that time those ETFs have grown dramatically, and a spate of new ETFs providing exposure to other commodities, foreign markets and currencies. In light of this, do you still believe it is essential for American investors to open accounts to trade securities overseas, or is it now possible to have sufficient hedges against hyperinflation without leaving the American exchanges?

Peter: Yes, it is easier to gain some protection through domestically listed securities, but the best most well balanced, protection can still only be found abroad.

Tim: Some people say that if you are always predicting a crash, eventually you will be right. What’s your response to that type of objection?

Peter: Not true. While it is true that I have been predicting an economic collapse in the U.S for many years, if the underlying economic fundamentals of our economy were in fact sound, then such a collapse would never occur. It is only because my observations regarding the false nature of our prosperity were correct all along that my analysis is finally being vindicated.

Tim: As governments invest in and mandate the use of biofuels, do you believe this contributes to driving up food prices?

Peter: Yes.

Tim: Do you believe that the federal subsidies of corn to produce ethanol will create the unintended consequences of long lasting agflation? For instance, do you think it is the driving factor behind the dramatic increases of certain commodities (Rough Rice up over 100% in 12 months) or if its simply another consequence of the debasement of the dollar.

Peter: There is no such thing as agflation. Rising commodity prices, or increases in any prices, do not cause inflation. Inflation is what causes prices to rise. Of course, in market economies, prices for individual goods and services rise and fall based on changes in supply and demand, but it is only through inflation, that prices rise in aggregate. If there is additional demand for corn to produce ethanol, all else being equal its price might rise. However, such prices increases are not inflationary.

Tim: Will funding multi-trillion dollar liabilities such as social security and Medicare eventually become a politically charged issue for the tax-free status of a 401(K) or Roth IRA twenty years from now?

Peter: These obligations are impossible to fund. They will be repudiated, either honestly or more likely through inflation.

Tim: In terms of welfare liabilities, what structural problems exist that make them unfundable?

Peter: We are simply too broke to afford them.

Tim: Do you think a 401k or IRA are of practical value in a hyperinflationary environment?

Peter: In such an environment they will be practically worthless.

Tim: When you have analysts suggesting that the destruction caused by natural disasters and the destruction caused by wars are good for an economy what keeps you from taking off your mic and calling it a day?

Peter: I am driven by the fact that my words will resonate with some viewers who will ultimately seek me out for investment advice. I realize that I can not save everyone, but I will do my best to extend my hand to those with the good sense to reach for it themselves.

Tim: Do you believe that it is fair for your colleagues and peers to characterize you as Dr. Doom? Would you counter by saying they are wearing rose-tinted glasses?

Peter: I suppose it is fair as doom which is exactly what I have been predicting. Our phony economy, built on the flimsy foundation of consumer credit and perpetual trade deficits, is in fact doomed. However, I am very bullish on the global economy and in fact remain hopeful that one day a legitimate U.S. economy will one day rise to replace the bubble economy now deflating.

Tim: For those of us that have watched you discuss these issues on CNBC and FBN, why do you think most financial commentators tend to overlook or downplay the role the Fed has in subsidizing malinvestment or causing business cycles?

Peter: They simply do not understand it.

Tim: Investment manager Mike Norman recently suggested that the free-market contributed to and caused the Great Depression. Is he right?

Peter: No, he could not be more wrong.

Tim: Are there any sectors of the US economy you feel are particularly well positioned to remain competitive in the global economy during a sustained domestic bear market?

Peter: Not sure, as there is no way to know what types of onerous regulations or confiscatory taxes might be imposed by desperate politicians looking for scapegoats.

Tim: What is your long-term, 20 year outlook on the health and durability of the American economy as a whole? Will the combination of new regulations, welfare liabilities and inflationary pressure create a prolonged recession similar to what Japan has undergone since the early ’90s?

Peter: I am not sure. The road ahead will be filled with many potholes and include some important forks. Since I do not for sure which ones we will follow, I prefer to invest abroad until our path is more certain. As it stands now, we are headed to a hyperinflationary depression. I hope we will choose a different path before we actually get there.

Tim: So are you forecasting a long-term economic recession, somewhat independent of the business cycle, or a change in the overall trend of the wealth and living standard of the country?

Peter: More the latter. We need to rebuild the foundation of our economy from one of borrow and consume to one of save and produce. Politicians and central bankers will resist this transformation and make the process that much more difficult and painful for all Americans.

Tim: How would you describe a legitimate economy?

Peter: A nation that produces more then it consumes and saves more than its capital stock and infrastructure depreciates.

Tim: If you were granted 3 legislative wishes from the financial genie what institutions or laws would you change, add or abolish?

Peter: I only need one. Abolish all government spending, agencies, departments, programs, and taxes not authorized by the constitution.

Tim: What other key resources do you recommend investors educate themselves with?

Peter: Read my book Crash Proof: How to Profit from the Coming Economic Collapse, as well as many others recommended on my web site. However, the most important thing to do is not allow the knowledge to go to waste. Make sure to protect your wealth and try to encourage others to do likewise. My brokers and I are ready to help.

[Ed. Note: be sure to read the interviews published in the Austrian Economics Newsletter. And be sure to ask Art Laffer for a penny.]

{ 49 comments }

Johnny April 21, 2008 at 12:49 pm

This is the first time I’ve heard Schiff say explicitly that we are headed for an inflationary depression. He often talks about inflation and “economic collapse”, but I’ve never heard him actually call it that before. He joins John Williams of ShadowStats in this prediction.

Other than that, this was a weak interview. Schiff’s answers are very short, and the interviewer jumps from topic to topic. I didn’t learn anything I didn’t already know (except for the inflationary depression part). This was preaching to the choir.

I would have liked to hear from from Schiff about TMS as well as the question of derivatives.

Johnny April 21, 2008 at 12:57 pm

from from Schiff = more from Schiff

Tim Swanson April 21, 2008 at 2:04 pm

Johnny, thanks for the comments.

In our defense we are both busy people with a full-plate to digest every day.

I also think this serves as a good model for future interviews (it sets a slightly different tone than the one I had with Gene Callahan a couple years ago).

Furthermore, the points may seem lukewarm due to the fact that this website is one-stop portal to the contrarian views that individuals like Mr. Schiff have. To the mainstream grain, they are arguably very profound.

And regarding derivatives, by using the Amazon Search-Inside-the-Book feature there are at least five instances of when this term was used in Crash Proof.

Perhaps a future followup interview could help clarify these issues.

See also his op-eds at:
Financial Sense

Be sure to also check out his other interviews maintained at Youtube.

Crow April 21, 2008 at 2:30 pm

Peter Schiff says the Fed is inflating. Gary North says the Fed is deflating. I’m confused.

Johnny April 21, 2008 at 3:33 pm

Crow, I’m wondering the same thing. Gary has been harping about this in his LRC articles. It would have been nice to get some clarification from Peter. We all know that the Fed is “injecting liquidity”, but the real question is whether this inflation can overcome the deflation that’s happening (e.g. housing) to create a net inflationary (or hyperinflationary) effect.

Tim, thanks for your point about derivatives, but I still think that 5 quick mentions of the word in Crash Proof (a book I own) isn’t really sufficient. There’s over $500 trillion in notional value out there, and it will have a profound effect on what happens. Indeed, Bernanke said that he rescued Bear Stearns because he believed its fall could have led to a complete collapse of the banking system, largely due to derivatives.

If you are able to do another interview with him, it would be great if you could address these issues. Thanks!

Libertas est Veritas April 21, 2008 at 4:19 pm

Interesting interview, even if the answers were mainly predictable. I for one would enjoy seeing this kind of interviews in the future, assuming the persons being interviewed are a bit more varied (to avoid the ‘preaching to the choir’ effect). And less questions with more in-depth answers would be very nice.

JS April 21, 2008 at 5:00 pm

In Johnny’s comment: “We all know that the Fed is “injecting liquidity”, but the real question is whether this inflation can overcome the deflation that’s happening (e.g. housing) to create a net inflationary (or hyperinflationary) effect.”

One of the unfortunate things that has happened is the meanings of the word inflation and deflation have been confused as Mr. Schiff mentions in this interview. The housing market is not in “deflation”. The prices are lowering, but lower prices in a single thing is not deflation–it’s just lower prices which can be caused by various things.

Inflation and deflation refer to the change in value of the currency which results in an apparent aggregate change in prices because a given monetary unit’s purchasing power has changed. To demonstrate this, if you looked at aggregate prices in terms of silver or gold (or some other relatively stable value) instead of dollars, you would find that prices are not necessarily going up at all, so it’s the dollar that is changing, not the value of the goods.

The current lowering housing prices are the natural corrective process because the absurdly high prices caused by artificially low interest rates and other factors. So… to me, it’s not so much that housing prices are going down over long term, they’re just coming back down to reasonable levels.

Scott R April 21, 2008 at 5:06 pm

I’m familiar with Schiff and the theme of his book, so there were no surprises in this interview. I hadn’t gotten around to buying/reading his book yet, partially because of comments I read on Amazon suggesting that the main “advice” given was to seek out his services. He seemed to pepper this interview with that quite a bit as well. I’ll still likely buy the book though, if only to serve to better educate me. I’ve been a supporter of Ron Paul’s for about a year now but am still new to this financial stuff. I’ve been playing the role of the “typical American” (a lot of debt, not much savings). So here’s what I’m hoping someone can help me with…

What are the easiest methods for benefitting from the coming crisis? Schiff indicates that 401k’s could be worthless, but investing in my company’s 401k is “easy” for me and I thought that I could typically choose from foreign funds, so wouldn’t that be worthwhile? If not, what is the easiest way for me to go about investing in (to use Schiff’s words from this interview) “high yielding foreign stocks, precious metals, and commodities”?

Alan April 21, 2008 at 5:28 pm

This article (and others like it) would read nicely in the Chicago Tribune or other newspapers around the nation. Direct Q & A interviews in local media would also serve Americans very well.

“Start spreading the news, I’m leaving today I want to be a part of it- New York New York”. Schiff’s straight talk is good news.

happylee April 21, 2008 at 6:18 pm

Anyone know how the general liability insurance companies are holding up? I can only imagine what happens if a real insurance company familiar to average joes starts faltering..

Race to the Bottom April 21, 2008 at 7:04 pm

I did not understand his comment re ira and 401
“Tim: Do you think a 401k or IRA are of practical value in a hyperinflationary environment?
Peter: In such an environment they will be practically worthless. ”

Either of those can be directed to investing in high yielding foreign stocks, precious metals, and commodities. Therefore what is the problem?

Unless he is proposing money leaving the US and any future gains being uncounted, I don’t see his point.

I have read his book and have restructured my investments close to his likings, just this one I don’t understand.

DS April 21, 2008 at 7:06 pm

Fundamentally I think Schiff has it right, EXCEPT I can’t figure out how all of his analysis brings him to the conclusion that the rest of the world will be fine and that only the Fed is screwed up. The Chinese and Japanese central banks have been inflating in lock-step with the Fed and even the ECB has been more conservatively run only in comparison. I think China is a house of cards as well and in the event of a catastrophe in the US they will come down with us. When he talked about the unfunded liabilities of America’s welfare system he seems to forget that those in Europe and Japan are even worse.

I’m failing to see how these countries who have benefitted in a co-dependent relationship with the Fed’s monetray excesses will be spared either.

Race to the Bottom April 21, 2008 at 7:07 pm

I did not understand his comment re ira and 401
“Tim: Do you think a 401k or IRA are of practical value in a hyperinflationary environment?
Peter: In such an environment they will be practically worthless. ”

Either of those can be directed to investing in high yielding foreign stocks, precious metals, and commodities. Therefore what is the problem?

Unless he is proposing money leaving the US and any future gains being uncounted, I don’t see his point.

I have read his book and have restructured my investments close to his likings, just this one I don’t understand.

tim April 21, 2008 at 7:57 pm

I’m so stressed, Trying to sort out the B.S. from the facts. I’m a contractor sitting on three houses right now. I did everything by the book to build some wealth and security for my family. Everything in building is relative. My costs were in balance with my profit, But now my profit with value losses as much as 25% or more has robbed me not only of a living, but has brought me to financial disaster.
Peter says “we need to become a nation that makes things again” well let me tell you I have never stopped! To me these bubbles are nothing more than legal stealing from government and big business.
I do agree, A crash is near. The backs of my fellow Americans are broken. We do not ask for much, A little respect and a right to be left alone to make a living with out government interference or market manipulation from the ones that make their money from thin air, making bubbles because they do not know how to make or produce anything.

Dick April 21, 2008 at 11:00 pm

Blessings to you Tim for trying to do more for your family than just making a living. Since you designed and built for your family’s well being and not for greed or to pull one over on someone, you will be rewarded eventually if you can hold on. Unfortunately we have not begun to see the worst that will be dished out to us so we do need to pull back, live minimally, prepare for disaster and pray that we will be ok thru the next three years. There are houses still being sold to people that do not need financing or need minimal financing – do not be overly discouraged yet. We need Dr. Paul in the Whitehouse more than ever right now. so, do what you can in your area to that end. As for your homes, target market them, write good commentary on them explaining your craftsmanship, quality materials etc and make your own sales package. Real estate has slowed down greatly but things are still being sold in most areas. As a former Realtor and businessman I’d be glad to offer suggestions to you that you might not yet have tried if you email me at dick@seventhheavenranch.net. Never give up hope and never talk in the negative. Create your own world by what you say and write and focus on positive statements througout your life. Best wishes for a successful sale of all your properties!

Adam April 22, 2008 at 10:53 am

To those who want clarification on whether or not the fed is inflating…

they clearly are. it doesnt matter what the aggregate money base says over a few months. what matters is what happened over time which is clearly inflationary. what also matters is what assets stand behind that base. currently default free reasonably liquid assets have been largely replaced with assets of questionable liquidity and ability to redeem within the last 6 months. in addition, if you see where the market has been trying to move interest rates and the money supply, you’ll notice the fed has been waging war against this. if you read the fed’s open market report for 07 you’ll clearly see they admit to needing to combat extensive market presurres for high overnight rates. the only way the market can be combatted is with inflationary pressures, whether by increase of the physical supply or a debasement of the fed’s assets.

lastly, dont forget the demand for money which is influenced by all the above. inflation is when supply outweighs demand, so you cant just look at bank reserves or a money aggregate to know whether there is inflation.

Curt Howland April 22, 2008 at 11:28 am

“Peter: Fascism.”

Wahoo! And the TV anchors let him speak at all???

One Against Many April 22, 2008 at 11:35 am

To Race to Bottom:

I agree with what you are saying in regards to 401k and IRAs in that they are not in and of themselves bad vehicles.

I think Schiff’s comments were generalizations that refelct the fact that for many US investors a 401k or IRA simply funnels money out of their paycheck into a mutual fund of American stocks on a regular basis with an employee match.

I suspect that many people who contribute to an IRA or a 401k have little practical knowledge about the stock market or even what is an appropriate valuation for shares of publicly traded companies; they simply invest for their retirement. I know the bulk of those at my company do this and in the event of a major stock market correction they may be in for a rude awakening if they see what is essentially to them their retirement savings drastically reduced.

Some people believe that in an atmosphere of hyperinflation stocks are a mildly effective hedge against inflation. The problem with this paradigm in my opinion is that stock valuations are way out of wack in an atmosphere of hyperinflation and the actual value of may be completely distorted.

Curt Howland April 22, 2008 at 12:19 pm

Scott R., it’s not easy, so you’re asking the wrong question.

Get out of dollar-denominated accounts. Don’t hold dollars. Buy commodities, invest in commodities if possible.

Is that easy for you? It’s not easy for me.

Jema April 22, 2008 at 3:40 pm

Invest in commodities, agriculture. Make sure to have a storage of food and water that can sustain the entire family for months. When the US turns into a present day Zimbabwe– costs 5 million for one egg– it will be better to be prepared than to wait for assistance. I agree with DS… Europe and other countries have their Central Banks as well. I don’t see the safety in investing in their currencies, unless initially one would profit tremendously when the Dollar first crashes?

jman April 23, 2008 at 12:14 am

The inflation question is not so simple, I believe. Yes, the Fed is attempting to inflate, but this will only be successful if banks continue to expand credit (loans). If they pull back, the Fed won’t be able to affectively inflate unless Bernanke sidesteps the banks and pushes money directly to businesses and consumers.

tc April 23, 2008 at 9:28 am

Inflation v deflation. Home prices and other domestic assets are deflating because the Fed can not force banks to lend and banks will not given their mangled capital base. Inflation is taking place in global commodities as the value of the dollar plummets. Oil, food, gold, etc. The Fed is inflating in the sense they are creating more money and attempting to allow banks to increase credit, but banks are too wounded to respond. I would not argue that the Fed is deflating – domestic asset deflation is a result of reduced credit availability, which is a result of the massive losses taken by the banks…

Thomas April 24, 2008 at 8:26 am

How you guys can think Schiff has much credibility, I don’t know.

1. On Northeast Asia: “they have viable economies that are well positioned to flourish once they bite the bullet on the dollar” – not definitely true. Theirs are export-led economies exporting to the US and cannot therefore decouple. Their economies are tied to the US, on which he’s superbearish. Furthermore, other things being equal export strength is not proven once they revalue their currencies.

2. On Sovereign Wealth Funds: “They should cease accumulating dollars, liquidate these funds, and return the proceeds to their respective citizens to invest or spend the money as they please.” – definitely false. Hasn’t he heard of Dutch disease? The actions he proposes will destroy their economies.

3. On Inflation: “Rising commodity prices, or increases in any prices, do not cause inflation. Inflation is what causes prices to rise.” – heinous tautology; especially heinous since more or less the whole crux of his argument is based on inflation and its effects.

The last statement in particular shows his reasoning to be entirely specious, and while I agree (though less vehemently) with many of his opinions, his reasoning leaves much to be desired; alternatively, a few mistaken opinions detract from otherwise sensibly-reached conclusions.

Inquisitor April 24, 2008 at 10:46 am

Actually, his statement re inflation is correct. The inflation of what? Why the money supply of course. It is symptomatic that prices shall increase following inflation, ceteris paribus.

jrsviking June 24, 2008 at 10:15 pm

This is a global fiat money problem, and that’s what makes this particular “correction” such a doozy. The only place to hide will be in precious metals and commodities.

Having said that, Peter speaks the truth plainly for all to hear. Anyone who can’t understand him deserves what they’re going to get, as Mencken would say, “good and hard”.

Walter Belhaven July 1, 2008 at 8:32 pm

I find Peter’s thesis to be compelling, and I enjoyed reading his book. But I’m confused by one aspect of his “high yielding foreign equity” investment strategy. If the central bank of “Country X” is increasing its money supply by some rate, say, 4%/yr, then won’t an equity in Country X need to rise in price by at least 4%/yr in order for one to maintain one’s “wealth” (purchasing power) in real terms, at least for that particular portion of one’s portfolio? If so, is Peter saying that his firm is adept at doing exactly that? — namely, in identify foreign equities that, between their dividend (yield) and their strong fundamentals are expected to provide a net return high enough to overcome that 4%/yr of my example? After taxes, one would hope. Otherwise, I don’t see how one gets ahead doing this, although I do see how one might be “less behind” by not going down with the sinking US Dollar ship.

Jack August 23, 2008 at 7:24 pm

I went hook line and sinker for Schiff’s ‘ high yielding foreign equity investment strategy ‘ signed up and in 6 months have lost heavily (34.26%), amazingly 10 out of the 12 investments he made are substantial losers. From what I can garner my experience is not unique, yet you’d never guess from watching his pompous performances of late just how inept this self anointed guru is.

me October 15, 2008 at 7:55 pm

I think the questions and answers are straight up. They leave no room for ambiguity. This type of information is valuable against a backdrop of ad lib, ad nauseum, pseudo intellectual wank wank.

I applaud this interview. If a reader wants more, you can’t swing a dead cat without hitting it. There’s this thing called google. Try it. You might like it.

As for the guy who lost his butt with Schiff investment recommendations. That’s your own fault. Timing is everything. You probably bought gold at it’s peak. Or some such. Ultimately there is no one who can do your thinking for you.

Chuck Baldwin 08 November 2, 2008 at 8:50 pm

All I have to say is this, do not invest in China. Lack of human rights and communist government with no freedom of speech. And lets not forget the removal of their biggest customer will put them in a deep recession. However many people because of the above reasons may go into rebellion since capitalism only works with freedom.

Chuck Baldwin 08 November 2, 2008 at 8:53 pm

Jack you have to wait sometimes and of course timing matters.

Niknak November 28, 2008 at 5:11 pm

To Thomas…

1. The US will be doing Asia a massive favour if it stops importing their goods because it has no money to pay for them.

2. Spiralling debt and printing money is what will destroy the US economy and devalue the dollar.

3. His point is price rises are the result of inflation not the cause of it.

John November 30, 2008 at 5:55 am

The gentlemen who say timing is everything are mistaken. It is time in the market, not timing. Thus, money should be drip-fed into stocks e.g. £100 a month for 12 months, not £1,200 in one go

cris December 13, 2008 at 1:13 pm

Seems like he’s been right on so far. I don’t know anything about economics but what he says agrees with what I observe in daily living.

Dave2112 December 13, 2008 at 9:03 pm

As a Canadian I’m scared as hell right now. Our main trading partner is the U.S. The last time I looked we still make things here but are not immune to the greed of the Americans and the effect that it has had on our economy. I remember the recession of the early nineties(caused again by your FED) and one of our political leaders tried to spend his way out of it and failed dismally. He was shown the door ‘before’ the elections. Mr. Schiff is absolutely correct about saving, not spending and America has yet to see the bottom of this. I really truly hope you guys listen to him as we here in Canada are depending on the intelligent American public to challenge their leaders and make the necessary changes needed.

newson December 14, 2008 at 1:12 am

schiff as dr doom? that title rightly belongs to a real analyst (not a book salesman), dr marc faber.
http://www.gloomboomdoom.com

someone else who at least has correctly understood the austrian insights (ok, he got inflation right) is steve saville (check him out @ safehaven.com).

apart from being unfashionably bearish when others were bullish (all credit to him, but stephan roach @ morgan stanley was bearish for years for the wrong reasons), schiff’s got some very kooky ideas about investing and economics, as preceding bloggers have pointed out.

warren buffett and george soros are proof that you can be hopelessly wrong in economics and still make out like kings as investors/punters.

Jan December 20, 2008 at 4:12 pm

I just learned about Peter Shiff today, and am finishing on a gluttonous rampage through YouTube and the Internet on this guy.

Everything he says about the US economy seems to be right. Although I am not an economist, I have had the same predictions and am finding confirmations in what he is saying.

However, my take on this guy gets very sceptical as soon as he gets to his sales pitch, which he inevitably does in almost any interview (it’s annoying).

His pitch is that he can help invest money in such a way as not to lose on this collapse of the US economy. I must say that having seen what was coming, I still found it hard to invest for profit (I have only been able to limit my loss).

The only viable investment strategy in Poland (where I live) that I could come up with was a short sell; and this is an economy that is doing extremely well in this part of the world.

To put it bluntly, Mr. Schiff has it right on the nose on what is wrong to do (stay in dollars), but he seems to have no clue on what is the right thing to do, because “not dollars” isn’t such a safe bet either. His “helping hand” pitch seems to me very arrogant and to hold no substancial benefit, except to himself.

I have been able to come up with only one positive net gain strategy, and that is to invest in products or services that make production or delivery of service more efficient. This, in essence, is what makes an economy grow. But to invest in this well, you need to intimately know who you entrust with your money.

His only advice to the people he is purporting to help through his brokerage is to invest in sound moneymaking businesses that are not in America. But then, why would you want to entrust an American with such a job?

newson December 20, 2008 at 6:12 pm

…see “jack” for a road-test of the schiff. something very wrong under the bonnet.

David Brown January 2, 2009 at 10:45 pm

Interestingly Peter Schiff only six months ago was advising investing in oil and other commodity stocks. According to Peter there was no “bubble” in commodity prices. Since then, of course, the drop in oil prices has been far more dramatic than the drop in real estate prices in even the worst hit areas of the U.S. Most other commodity prices including grains have followed suit. At the same time Peter was also proclaiming that he had never been wrong. Oh well, another crystal ball has been dropped and shattered into a thousand fragments.

David Brown January 2, 2009 at 10:59 pm

Peter Schiff correctly notes about the U.S “The problem with our deficit is that we import consumer goods we can not afford to pay for with either exports or foreign earnings. As such we accumulate external liabilities that we will never be able to repay and our nation’s future productive capacity continues to deteriorate. We are de-industrializing and are condemning ourselves and future generations to falling standards of living.”

A Martian visting a Walmart store, having been previously introduced only to the writings of one recent Earthian economist, Peter Schiff, would have to conclude as follows:

China has the most free enterprise, capitalist, Austrian school inspired economy in the World.

America has the most socialist, anti free market, Marxist inspired economy in the World.

Renton January 16, 2009 at 2:59 pm

Peter Schiff is awesome, we need him to win Chis Dodds senate seat in 2010.

Jackie January 30, 2009 at 9:05 am

We had our time in the sun. We apparently have become to comfortable and self absorbed to worry about our children. Shameful and sad

Robert Hillman February 28, 2009 at 11:54 am

we are in ontario
I am fourty two
they talk about going after your dreams
I want a hundred acer farm

so in about six hundred years
after i have worked for eight bucks an hour
and saved a dollar a month
we can get one then

I wonder how the children and i will be feeling then
I dont have a job
I dont have a truck
I do have people saying I am lazy
I do have people saying all single parents are welfare bums

I am up at five all summer long
running a market garden
that our local people wont even buy from
It makes me sick
and I hope they starve

Robert Hillman February 28, 2009 at 11:54 am

we are in ontario
I am fourty two
they talk about going after your dreams
I want a hundred acer farm

so in about six hundred years
after i have worked for eight bucks an hour
and saved a dollar a month
we can get one then

I wonder how the children and i will be feeling then
I dont have a job
I dont have a truck
I do have people saying I am lazy
I do have people saying all single parents are welfare bums

I am up at five all summer long
running a market garden
that our local people wont even buy from
It makes me sick
and I hope they starve

Mick Reiss March 7, 2009 at 4:25 pm

I’ve discussed the hyperinflation/deflation debate on my blog
http://mickanomics.blogspot.com/2009/03/hyperinflation-whay-hasnt-it-started.html I’d love to hear peoples comments.

SoYouThinkYouCanInvest April 10, 2009 at 6:14 pm

I have nothing against Schiff and I often agree with his investment opinions but I have a few problems with the way he argues at times. In his book he mentions how great his currency picks have performed (at the time) against the dollar in the prior 12 months. Since then, the dollar has trumped all of the currencies he mentioned. When pressed about it during media appearances he claims that (1) 12 months is too short of a time frame and (2) they are all fiat currencies so it doesn’t matter. That is dishonest dialogue.

For my full review of Schiff’s book please go to http://soyouthinkyoucaninvest.blogspot.com/2009/04/peter-schiff-little-book-of-bull-moves.html

Yakov April 26, 2009 at 1:08 am

SoYouThinkYouCanInvest:

I posted a comment on your blog post, but I thought I’d add my contribution here as well.

In what I’ve read of Schiff’s point of view, I don’t think he’s being disingenuous about currency inflation. His greater point is that the “recovery” of the dollar on that graph is artificial, being supported by foreign countries. They are all still working to prop up the dollar. He says, often enough, that if they give up on the dollar, we will see the inevitable dollar collapse.

In other words, when he says 12 months isn’t enough, he means that the rest of the world hasn’t given up on the dollar in the last 12 months ;-).

His perspective is largely influenced by his Austrian School views. He’s banking on the principles, ultimately. In a sense, he doesn’t need data for himself. He’s not an academic, he’s a real investor. Time will tell if he is right.

Rick June 12, 2009 at 12:10 am

I find it both encouraging and disappointing to see how many people agree with Schiff’s views on the economy as a “LONG TERM” investor but yet are so quick to judge based on short term results.

Losing 34%+ when the American market is losing much more than that?

Pointing to what was clearly and accurately predicted head fake in the dollar due to misguided attempts to prop it up as the world knee jerks to what they “thought” was a safe haven.

I’m glad I was able to catch on so late in hopes that someone picks up on this interview/article and replies back now that we’ve had some hindsight on Peter’s economic predictions.

Serge December 17, 2009 at 12:02 am

Peter talks a lot about importance of reducing government’s involvement in the marketplace in order for the US economy to recover; yet he praises the state of Chinese economy which, last time I checked, considered to be a command economy! Doesn’t Peter Shchiff contradict himself? Doesn’t this fact prove that the arguments for or against supremacy of one economic model vs. the other (e.g. Free Market vs. Command economy) is pure nonsense. I think the quality of management and leadership among the government officials is the key to success regardless of economic model.

chean2629 May 29, 2010 at 11:35 am

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