Interview with Peter Schiff: Reflating the Bubble

Amid an "inflationary depression" in the U.S., Peter Schiff, president and chief global strategist of Euro Pacific Capital, sees opportunities in the maelstrom. Facing a massive redistribution of wealth, he advises investors to act quickly and "divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States." In this exclusive interview with The Gold Report, the widely-quoted expert on money, economic theory and international investing discusses what led up to our current "phony economy" and how investors can actually profit from the crisis.

The Gold Report: Peter, you were one of few people to predict financial crisis that the U.S. and the world is now in the midst of. At a recent conference, you called the conditions that we’re facing “an inflationary depression.” Can you describe what you mean by that?

Peter Schiff: Well, basically, that is the condition that the government is creating here in the United States, and an inflationary depression is going to be a protracted period of economic decline accompanied by rapid increases in consumer prices. So, it’s going to be something like the stagflation of the 1970s, only much more stagnation, or outright contraction of the economy, with the cost of living increasing even more rapidly than it did then.

TGR: As we look at some of the things that Obama’s trying to put into place, is there anything the government could do now to avoid this?

PS: There’s nothing the government can do to avoid some serious short-term pain. The country is in a lot of trouble because of all of the monetary mismanagement of the past, the reckless government spending and the money creation that led to the phony economy.

We’ve spent a long time squandering wealth in this country. We’ve borrowed a lot of money and foolishly used it to consume. We’ve allowed our industrial base to disintegrate, and it’s going to be difficult to rebuild a viable economy. But we’re never going to rebuild one if the government stands in the way. What the government is doing now with their polices is trying to reflate the bubble; they’re trying to get Americans to borrow and spend even more money when we’re broke from the money that we shouldn’t have borrowed and spent in the first place. And the government is trying to get itself bigger. The government is trying to grow its size at a time when it needs to contract because we’re really too broke to afford a bloated government.

It was bad in the past—it was making us less competitive, but at least we could afford it; now we clearly can’t. So, we need less government. We need sound monetary policy. We need higher interest rates. We need to allow businesses to fail. We need to allow companies to go out of business or bankrupt. We need to allow foreclosures to take place. We need to allow people to lose certain jobs. We can’t try and interfere with that. And to the extent that we do, we’re going to create this depression; and if we keep printing money, we’re going to have massive inflation on top of it.

TGR: In your talks, you've said that printing money will cause massive inflation and the collapse of the U.S. dollar. Can you speak to that?

PS: People think you just create money and use it to spend. But when you create money you don’t create purchasing power. So, what happens is you have to pay more money; you create inflation. The way you get increased purchasing power is through increased production, and simply printing money doesn’t cause factories to appear. It doesn’t cause consumer goods to appear.

In order to have real increased consumption, we need to produce more, which means we need more savings and investment—and the government is discouraging that with its policy, not promoting it.

TGR: Will the government bailouts help increase production and ultimately purchasing power?

PS: No, no, the bailouts are destructive to the economy because the government is bailing out industries and companies that should be failing. They’re keeping nonproductive companies in business, which ultimately undermines the competitiveness and the productivity of our economy.

Bankruptcy is like when a body has an infection. It fights it off, and that’s what the free market is doing by trying to kill off noncompetitive companies. Bankruptcy is a positive force in an economy. Maybe it’s not positive for the entity going bankrupt, but it is positive for the economy as a whole because it’s purging from the body of the economy nonviable companies that are squandering our resources.

We need companies to fail so that more prosperous companies can succeed. By keeping certain businesses around, the government is preventing others from coming into existence that would have been more productive.

TGR: So, if the government would step back and let the free market systems work, how much sooner would they be able to make the turnaround, rather than having the government do it?

PS: We’re not going to turn around at all as a result of what the government is doing. We'd turn around a lot sooner if they would let free market systems work, but it wouldn’t be instantaneous. We’ve got to dismantle the phony economy before we can rebuild the viable economy. We’re going to have this transitionary pain. We have to get over all the damage that has already been done in response to the government and bad monetary fiscal policy. We had a bubble economy; we had an economy based on Americans spending money they didn’t have and buying products they couldn’t afford or that they didn’t make. We had an economy built on debt, consumer debt, and financial engineering, and our companies were generating profits from accounting rather than from production. And the whole thing was phony; the prosperity was phony. We need to address those problems, and get back on the road to economic viability.

TGR: Is this a U.S. phenomenon or is this worldwide?

PS: Well, it exists to lesser degrees in other countries, and certainly other countries are affected because they’re producing the goods that we’re consuming and they’re lending us the money to pay for it and, ultimately, we can’t pay them back. And so their economies are going to suffer as a result of all the wealth that has been squandered and all the resources that have been wasted on production for American consumers because we can’t afford to pay.

TGR: The government is printing money. What is going to be the impact of all that money coming into the economy?

PS: Well, it’s going to force up prices. Eventually real estate prices will start to rise, stock prices will start to rise; but Americans aren’t going to be richer because the cost of living is going to rise a lot faster. The price of food and the price of energy are going to rise much faster than the price of stocks or real estate.

TGR: Do you see a pending collapse in the U.S. dollar?

PS: I do see a collapse in the dollar. The dollar is already been losing value, but I think it’s going to lose a lot more.

TGR: What should investors be looking at as a safe haven for the money that they have now?

PS: Well, they should be looking at the traditional safe havens like gold and silver; they should also be looking at other commodities and at investments outside the United States. There are a lot of opportunities around the world. There are a lot of stocks that are extremely inexpensive, in my opinion, particularly in the Asian markets and the natural resource space.

There are a lot of stocks trading at valuations I have never seen; there’s a lot of pessimism built into the global markets right now, and there are fire sale prices. The world has overreacted to our problems and the way our problems have affected their economies. And in this market environment of de-leveraging and asset liquidation, prudent investors who do have cash can find tremendous bargains around the world. They can preserve their wealth and actually profit from what’s going on.

TGR: Can you share with us some sectors people might consider?

PS: In general, the productive sectors of the economy have companies that are manufacturing products and have good balance sheets, companies that operate within a resource sector that has tremendous reserves—whether it’s mining reserves or energy reserves—or companies that operate in various forms of agriculture. There are great opportunities there. Stocks are trading for very low, single-digit multiples off of depressed earnings. And you have a lot of companies offering dividend yields north of 10%, and these are real dividends paid from earnings. But, as an investor, you have to do your homework to find them. Bond rates are so low we can get incredible yields on equities, and this is a great opportunity, especially if those yields are going to be paid to us in currencies that I expect to strengthen significantly against the U.S. dollar.

TGR: What countries and currencies do you see emerging first from the recession?

PS: Well, ultimately, a lot of the currencies that are currently pegged to the U.S. dollar will be very strong, a lot of the Asian currencies. We already see a lot of the resource currencies starting to move back. We have seen rather substantial strength in the Australian and the New Zealand dollars in the past few weeks. I do think you’re going to see strength also in the Euro, as the Euro seems to be a good alternative to the dollar as far as a reserve-type currency. And the Europeans’ monetary policy is not nearly as bad as ours, so more of that type money will be attracted to the Euro and will probably benefit other Euro-zone type currencies—Scandinavian currencies, the Swiss Franc—those currencies will benefit, as well.

TGR: China and Russia and some other OPEC nations are calling for the IMF to come in with an international currency. I think they’re calling it special drawing rights.

PS: Yes, China was talking about trying to look for alternative reserve currencies to the dollar, and they’re floating a balloon of special drawing rights issued by the IMF. I don’t think that’s a good idea. Ultimately, China does indeed need to convince the world to look for another standard. China needs to find another reserve on its own and it can do that. The Chinese should start divesting U.S. dollars now. They can choose any currency they want as their reserve currency. When they do start divesting dollars it will impact the value of the dollar.

TGR: Will we see a return to a gold standard?

PS: Currencies need to have value and paper is not value. No fiat currency in history has ever survived. Everyone says this one is going fine but we’ve only been off the gold standard since 1971—it’s too soon to tell, but it’s sure not looking good.

TGR: Will you see a return to the gold standard in your lifetime?

PS: Yes, I will—it has to happen.

TGR: What investment advice do you have for our readers?

PS: Investors need to act quickly and take charge of their financial destiny. We’re facing the largest redistribution of wealth through inflation.

The hardest hit will be the savers and investors who will see their savings wiped out if they are kept in U.S. dollars. Dollars will be stolen from the savers to pay for these huge government-spending policies—for health care, education and the bailout.

I would divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States, and focus on companies that own real things that have a demand.

Peter Schiff is President & Chief Global Strategist of Euro Pacific Capital in Darien, CT. Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A widely-quoted expert on money, economic theory, and international investing, Peter has appeared in the Wall Street Journal, New York Times, L.A. Times, Barron’s, Business Week, Time and Fortune. His broadcast credits include regular guest appearances on CNBC, Fox Business, CNN, MSNBC, and Fox News Channel. He also served as an economic advisor to the 2008 Ron Paul presidential campaign. His best-selling book, "Crash Proof: How to Profit from the Coming Economic Collapse" was published by Wiley & Sons in February of 2007. His second book, "The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down" was published by Wiley & Sons in October of 2008.

Comments

[Jim Hawthorne:]

Excellent, thought provoking article! Thank you!

Peter's opinions are always a valuable addition to the ongoing inflation/deflation debate here at SA.

We should note, however that the current contraction is both global and synchronized; and that both the US and China appear thus far to be coping far better than Europe, Asia (ex China), Latin America, or the CIS/Baltic region.

Peter's prediction may well be come true in the long term; it may just be a matter of timing. Short term we may very well experience a deflationary period where the forces of increased savings, reduced consumption and price declines stave off the inevitable inflationary run-up.

I would look far a well-tested bottoming process to end prior to jumping into any commodities save precious metals, which seem to do fine in both deflationary or inflationary periods!

Apr 24 05:33 AM

[capitalisth...:]

The way I see it commodities are a win win situation. If the US economy recovers commodities will do well because of increased demand. If the economy tanks b/c of inflation, then commodities will also do well. Divest yourself of dollars and dollar cost average into commodities.

Apr 24 05:43 AM

[User 353732:]

1. Sophisticated investors can certainly hedge against, indeed profit from ,inflation by putting money into energy commodities( US natural gas being, perhaps, the best bet and easy to understand), industrial metals, precious metals, agricultural commodities, land and warter rights. However, such investors are, at best, less than 5% of all investors
2. The typical retail American investor has neither the knowledge nor the confidence to invest in commodities and is deterred by the transactional and holding costs of putting a rather modest sum into such assets.
Having been betrayed by Wall Street , Americans are averse to equities and, very sadly, being herded into Federal, State and Muni debt, CDs, Money Market funds and plain cash: all terrible places to be during the coming high infaltion. The great betrayal by Wall Street could soon( 12 to 18 months from now?) be followed by the greater betrayal by the US Govt..
3. A few retail investors(about a million maybe) are investing in weapons and ammunition as a double hedge against inflation and potential social turmoil but again, they are a very small fraction of all retail investors
4. What happens when , having seen ther equity portfolios pillaged by Wall St excess, ordinary American investors next see their bond, CD and cash investments ravaged even more by Govt. excess? How will the sophisticated investor protect himself or herself and family from tens of millions of panicked, bitter and, therefore, vindictive and enraged fellow Americans? It is worth pondering. We need a hedge against inflation, certainly. What is the hedge against the unpredictability and irrationality that accompanies great social stress? The weapons and ammo. investors have one answer but it is surely neither a universal nor comforting one.

Apr 24 07:58 AM

[DONE_SONZ:]

TGR: In your talks, you've said that printing money will cause massive inflation and the collapse of the U.S. dollar. Can you speak to that?

PS: People think you just create money and use it to spend. But when you create money you don’t create purchasing power. So, what happens is you have to pay more money; you create inflation

Apr 24 08:03 AM

[OperaMan:]

It seems to me that the hole in this argument about inflation due to spending ignores the one key fact of why we are in this mess to begin with and that is the collapse of consumer buying power due to wage stagnation for at least the last decade.

Unless wage earners suddenly see a vast increase in their earnings from labor (where most of us get our money to spend) there will be no increase in spending to cause the increase in the velocity of money to drive prices up. Given the lack of well paying jobs in this country, such a large increase in real wages is, to say the least, unlikely.

Given the new realities of declining real wages, and the realities of the new frugality (driven by the unavailability of consumer credit and a real fear of not having sufficient savings to weather a continuing series of personal financial crisis), there will not be any major increases in consumer spending (except maybe for the gifted top 2% of wage earners) any time in the near future.

Apr 24 09:59 AM

[History Buf...:]

Freya,

The dollar peg for those currencies has worked to their advantage so far. When it no longer does (and it is absolutely clear that the US dollar is down for the count) those countries will decouple their currencies from the dollar and find something else to peg it to (perhaps the yuan/renminbi/whatever the Chinese call it?).


On Apr 24 07:55 AM Freya wrote:

> Yes, it is thought provoking and it will come to pass in some form
> eventually.
>
> I do have a real problem figuring out one of his statements though:
> The USDs collapse is a gimme but when asked what currencies he would
> be in he says " Well, ultimately, a lot of the currencies which are
> currently pegged to the dollar will be very strong, a lot of the
> Asian currencies."
>
> If the USD is going to collapse, how will buying currencies pegged
> to the USD go up? Especially since the USD is a basket of currencies
> to begin with.
>
> It just sounds very, very complicated.
>
> I figure that you should just go with the Resource rich nations and
> their currencies.

Apr 24 10:22 AM

[cameroni:]

Always insightful Peter. I agree in principle but would not be too quick to jump into Gold just yet. Last Octobers market correction brought gold down quite a few notches and although it recovered quickly I forsee a similar event taking place in the future. 750 gold is my buy target after the next correction which I feel is on the horizon near-term.

Cam

Apr 24 10:51 AM

[fireball:]

mr. schiff
thanx yet again. as the deniro character keeps saying in the movie "brazil". "we're all in this together." i find your ideas most helpful in this rising plague of socialism.

Apr 24 12:24 PM

[mavericks:]

Oh, now PS says stocks are going to rise! "Eventually real estate prices will start to rise, stock prices will start to rise; but Americans aren’t going to be richer because the cost of living is going to rise a lot faster."

Gee, thanks Peter...I thought stocks were going to fall off a cliff! What happened to that theory? Frankly, I put alot more faith in Bill Gross over at PIMCO. He said...and I think he's exactly right...as long as the Govt. doesn't pump in more capital than was lost by the private sector...inflation will not be a problem. Makes sense that the Govt. is just trying to fill in what was lost...and hopefully at a profit since they are now one of the largest holders of financial securities.

Peter Schiff will end up being wrong.

Apr 24 12:55 PM

[SmBlkBob:]

As an electrical contractor, I've seen business fall off a cliff. Yes, new construction is understandable but my service business is gone as well. All this tells me (plus the almost empty Home Depots) is consumers are not going to start spending anytime soon. The fact is, I've stopped spending as well and I see nothing that makes me want to run out and buy anything.

So where does that leave my investments? I was lucky, bailed out of the market in October 07 when my UBS advisor was VERY shaky on where things were heading. Just plain dumb luck on my part. But, my contractor friends and I were also seeing the down turn early 2007 so that helped make the decision.
The old rule of thumb I read sometime was look into how you are doing and what you're buying. Chances are others are doing the same. In mid 2007 I decided for the first time in years to NOT get a new truck and trade in the old one. Look how that has played out across the automotive industry.

Now I'm 25% in gold and the rest in commodities.
I don't care what country you're talking about, it's going to come back faster than the USA.
Oil, Natural Gas, Gold, Silver are all things that the world will need no matter what happens in the US.

Bob

Apr 24 01:37 PM

[Tony Daltorio:]

The hole in your argument is that you are US- focused only. It is possible for the US economy to stink for years, while places like China, Brazil, etc. boom. Their demand would push up prices for oil, food, etc.


On Apr 24 09:59 AM OperaMan wrote:

> It seems to me that the hole in this argument about inflation due
> to spending ignores the one key fact of why we are in this mess to
> begin with and that is the collapse of consumer buying power due
> to wage stagnation for at least the last decade.
>
> Unless wage earners suddenly see a vast increase in their earnings
> from labor (where most of us get our money to spend) there will be
> no increase in spending to cause the increase in the velocity of
> money to drive prices up. Given the lack of well paying jobs in this
> country, such a large increase in real wages is, to say the least,
> unlikely.
>
> Given the new realities of declining real wages, and the realities
> of the new frugality (driven by the unavailability of consumer credit
> and a real fear of not having sufficient savings to weather a continuing
> series of personal financial crisis), there will not be any major
> increases in consumer spending (except maybe for the gifted top 2%
> of wage earners) any time in the near future.

Apr 24 02:14 PM

[nmelendez:]

One question. If the dollar is going down, how are all those HUGE companies all over the world going to reinstate earnings? In renmbi? Be serious. All thats going to happen is countries will interchange currencies to buy goods at calculated rates. Example, Argentina buys yuans with the Argentinean peso and China buys pesos with yuan. They then trade their goods in local currencies. The IMF is about to get a rude awakening. No country wants it's currency regulated externally. Just ask Bernanke.

Apr 24 06:45 PM

[user396040:]

This is the argument Andrew Mellon made during the Hoover Administration - "liquidate everything." Theoretically, it has some merit. In the long run, it is possible that markets would clear at lower prices. But, as Harry Hopkins said - "people don't eat in the long run." In a democracy, there will always be a strong demand for government action to avert a depression. I think the Republicans missed the boat last Fall. They could have proposed a simple stimulus - everyone subtracts 10% from his 2008 taxes and every state gets a check in the amount of $1000 for every person counted in the last census.
Inflation is helpful at a time like this because it makes it easier for debtors to pay back their debts and it makes it easier to reduce real wages(just refrain from giving raises).
A strong dollar does not enable us to rebuild our industrial base; instead, it makes it impossible for US industry to compete with imports unless we go back to imposing high tariffs. The dollar is up a great deal against many of our key trading partners in the last year(Canada, Mexico, Brazil, UK). A lower dollar would give the industrial part of the economy a shot in the arm and automatically increases the dollar earnings of multinational companies.
In the long run, we will need a value added tax, a lower and simpler income tax, more money spent on education more effectively(people are by far our most important resource). We also desperately need some infrastructure upgrades. We need to reduce our dependence on oil imports. In the long run, these things - the intelligence and resourcefulness of our people, the quality of our infrastructure, our energy independence, and a tax system more oriented to taxing consumption rather than production - and not a strong dollar or the amount of gold buried in our back yards - are the things that will make us strong.

Apr 24 07:55 PM

[huskerbob:]

Good point that the average joe cannot increase spending: decreased velocity of the money supply. However, we will definitely see price inflation in necessary commodities such as oil because we are destroying the dollar's value. Our currency will devalue because it is criminally mismanaged.
At some point, spending will pick up again because the Fed will not let savers go unpunished! This has been stated in writing time and time again. Please read Bernanke and Greenspan on this subject. The only way to spur savers to spend is to make the idea of saving dollars seem ridiculous: devalue the currency.
The public pronouncements that they will act quickly to rein in inflation is counter to everything they are attempting to accomplish. Watch what they do, not what they say.


On Apr 24 09:59 AM OperaMan wrote:

> It seems to me that the hole in this argument about inflation due
> to spending ignores the one key fact of why we are in this mess to
> begin with and that is the collapse of consumer buying power due
> to wage stagnation for at least the last decade.
>
> Unless wage earners suddenly see a vast increase in their earnings
> from labor (where most of us get our money to spend) there will be
> no increase in spending to cause the increase in the velocity of
> money to drive prices up. Given the lack of well paying jobs in
> this country, such a large increase in real wages is, to say the
> least, unlikely.
>
> Given the new realities of declining real wages, and the realities
> of the new frugality (driven by the unavailability of consumer credit
> and a real fear of not having sufficient savings to weather a continuing
> series of personal financial crisis), there will not be any major
> increases in consumer spending (except maybe for the gifted top 2%
> of wage earners) any time in the near future.

Apr 25 03:22 PM

[ejhickey:]

A "suck cinct" opinion.


On Apr 24 02:11 PM $OMALIA wrote:

> B/S=big S

Apr 26 01:08 PM

[Sanjeev Sharma:]

Everything Peter said would have looked correct provided:

- The dollar had not gone up in the last one year compared to other currencies.

- Gold had not started faltering from its peak in the last six months.

- US had faced inflation instead of deflation in the last one year.

Apr 26 01:38 PM

[yellowhoard:]

I don't think Peter is looking at his rear view mirror.


On Apr 26 01:38 PM Sanjeev Sharma wrote:

> Everything Peter said would have looked correct provided:
>
> - The dollar had not gone up in the last one year compared to other
> currencies.
>
> - Gold had not started faltering from its peak in the last six months.
>
>
> - US had faced inflation instead of deflation in the last one year.
>
>

Apr 27 09:57 AM

[Discourteous:]

What is the *best* (ie, most effective) way to invest in commodities? Oil, for example: should one buy oil stocks (BP, XOM, E, etc.) or oil ETFs (USO, DBO, etc.) or oil trusts (PVX, BTE, etc.)?

On Apr 24 07:58 AM User 353732 wrote:

> 2. The typical retail American investor has neither the knowledge
> nor the confidence to invest in commodities and is deterred by the
> transactional and holding costs of putting a rather modest sum into
> such assets.

Apr 27 10:35 AM

[asaf123:]

Most agree that inflation will be a problem when economic activity picks up.

NY Fed response to inflationary pressures is to sell US Treasuries to "sop up" extra money, while simultanously increasing yields/interest rates.

However, this time around, it is unclear if there will be demand for US Treasuries. It is not a question of whether foreign buyers (Japan, China) of US Treasury are unwilling (for whatever political or risk mgt. reasons), they may simply be unable to buy US Treasuries. As global trade falls, and US imports contracts, China and Japan will not have the same current account surplus that they have needed to put away somewhere safe (US Treasury) during the days of massive US trade deficits.

Apr 27 10:41 AM

[optionsgirl:]

Check out DIG, check out UNG, check out XOM, COP, CHK, KWK. Check out Devon Energy.
For other commodities investments that trade as equities, check out DBA, DBC, and companies like MOS.
For Biofuels exposure check out SYNM and TSN (Tyson foods).
That should keep you busy for awhile.
The MLPs pay good dividends. There are plenty of articles right here on Seeking Alpha about them. Time to do a little legwork! Best of luck.

On Apr 27 10:35 AM Discourteous wrote:

> What is the *best* (ie, most effective) way to invest in commodities?
> Oil, for example: should one buy oil stocks (BP, XOM, E, etc.) or
> oil ETFs (USO, DBO, etc.) or oil trusts (PVX, BTE, etc.)?
>
> On Apr 24 07:58 AM User 353732 wrote:

Apr 27 01:32 PM

[utilitus:]

Exerpt from Bill Gross' current PIMCO 'Investment Outlook':

"The Dollar – As the center of structured finance and the shadow banking system, the dollar was bolstered as it sold paper to the rest of the world. To date, its recent strength seems counterintuitive. Weakness may more accurately describe its future."

On Apr 24 12:55 PM mavericks wrote:

> Oh, now PS says stocks are going to rise! "Eventually real estate
> prices will start to rise, stock prices will start to rise; but Americans
> aren’t going to be richer because the cost of living is going to
> rise a lot faster."
>
> Gee, thanks Peter...I thought stocks were going to fall off a cliff!
> What happened to that theory? Frankly, I put alot more faith in Bill
> Gross over at PIMCO. He said...and I think he's exactly right...as
> long as the Govt. doesn't pump in more capital than was lost by the
> private sector...inflation will not be a problem. Makes sense that
> the Govt. is just trying to fill in what was lost...and hopefully
> at a profit since they are now one of the largest holders of financial
> securities.
>
> Peter Schiff will end up being wrong.

Apr 27 02:14 PM

[somecatchyp...:]

Here is quote from Nouriel Roubini in a recent interview with Newsweek. His statements describe what's happening, as it's happening. It's a long, slow process that will take years, possibly decades to unfold. I seriously doubt that we'll see the kind of abrupt, chaotic decline in the dollar that Peter Schiff predicts.

Q. Do you worry about China getting tired of holding our bonds?
A. In the short run, China has no option but to accumulate more reserves and dollar reserves. Why? Because if they stop doing that, their currency would appreciate sharply while their exports are plunging. So in the short run, they are going to keep on accumulating. But I have seen a huge number of new initiatives in the last month that suggest [the Chinese] are pushing for the yuan to become an international currency and a reserve currency. They are doing bilateral deals with countries like Argentina and half a dozen others in yuan, not in dollars.

They are moving away from the dollar?
Yes, slowly they will. First they have to establish their own currency as an international currency. That will take years, but already in a month they have done more than in the last 10 years.

www.newsweek.com/id/19...

Apr 27 03:44 PM

[Mike Stathis:]

Maybe the guy should have asked the question, how is it that the "chief investment strategist" of a brokerage firm can have a clue what's really going on if he is spending most of his time selling snake oil on TV and other marketing activities. That's okay, I already know the answer.

As the facts show, Schiff got too many things wrong. When oil was nearing $150, prices would not come down. He said China wouldn't get hit. etc.

In fact, Peter's rendition of this mess is not only one-dimensional, but lacks the comprehensiveness required to provide real value. Perhaps that is why his clients did so poorly last year. It's sad to see so many sheep out there.

Schiff isn't taken seriously by leading investors. I know this because I advise them. He is the "expert" for the sheep who go to CNBC and FBN for financial advice.

Anyone who has read my book (which was released before Schiff's) knows who the real expert is who truly predicted things.

Apr 27 04:49 PM

[Mike Stathis:]

Commenter "yellowhoard" knows the real deal. I find it amazing how the commenters are quoting guys like Roubini and Gross without realizing these guys are lost in the woods. Sure, for naive investors they may seem like they are ahead of the curve, but truly sophisticated investors don't pay attention to them. You all believe they should be listened to because the media has told you that you should. That's how they media makes money - more audience = higher ad revenues.

It's shocking how green people remain, even after the 2 biggest bubble implosions on earth in less than 10 years.

Here's the important rule you will ever learn so write it down: you will never receive any truly valuable investment guidance from a single person who is a "friend" of the mainstream media. The media would never allow such an expert to provide sufficient value to help you because they work for Wall Street.

Apr 27 04:57 PM

[mkreisel:]

It looks like Mr Schiff needs a bailout from the Fed! How ironic!

If the Fed doesn't print and US Dollar Index goes above 100, this man will be wiped out.

Apr 27 05:11 PM

[Anandakos:]

Because they will "un-peg"! It's already happening. Most of the Gulf states are beginning to peg to a basket of the dollar, yen, and Euro, because they sell to all three. By pegging their currencies to a basket they can sell oil in any of the three currencies and "convert" it to their own with limited currency risk.

On Apr 24 07:55 AM Freya wrote:

> Yes, it is thought provoking and it will come to pass in some form
> eventually.
>
> I do have a real problem figuring out one of his statements though:
> The USDs collapse is a gimme but when asked what currencies he would
> be in he says " Well, ultimately, a lot of the currencies which are
> currently pegged to the dollar will be very strong, a lot of the
> Asian currencies."
>
> If the USD is going to collapse, how will buying currencies pegged
> to the USD go up? Especially since the USD is a basket of currencies
> to begin with.
>
> It just sounds very, very complicated.
>
> I figure that you should just go with the Resource rich nations and
> their currencies.

Apr 27 10:56 PM

[Anandakos:]

Utilitus,

I agree that what you stated seems sound, but it's not really.

Securities are not "money". Depending on a specific security's liquidity it can be exchanged more or less readily for money. But by so doing the money supply is unchanged. The person who formerly had the security now has the money that the person who now has the security used to have. (Confusing syntax, I know). Net change in money supply: zero.

The fact that securities held by people which have lost value can now be traded for fewer dollars does not reduce the money supply. If anything it actually increases it! What has changed is the VELOCITY of money. That has given us the appearance of deflation.

So flooding the money pool with dollars created to buy previously non-existent government bonds does increase the money supply and will eventually lead to inflation when velocity returns to a more normal rate. We can hope that the inflation is largely limited to the price of assets as it was during the first seven years of this decade. But don't bet on it; the Fed has lost 25 years of credibility in the past few months.


On Apr 27 02:14 PM utilitus wrote:

> Exerpt from Bill Gross' current PIMCO 'Investment Outlook':
>
> "The Dollar – As the center of structured finance and the shadow
> banking system, the dollar was bolstered as it sold paper to the
> rest of the world. To date, its recent strength seems counterintuitive.
> Weakness may more accurately describe its future."
>
> On Apr 24 12:55 PM mavericks wrote:

Apr 27 11:08 PM

[Anandakos:]

396040.

Very well said. Those are exactly the basis of our economic success.

On Apr 24 07:55 PM user396040 wrote:

> This is the argument Andrew Mellon made during the Hoover Administration
> - "liquidate everything." Theoretically, it has some merit. In
> the long run, it is possible that markets would clear at lower prices.
> But, as Harry Hopkins said - "people don't eat in the long run."
> In a democracy, there will always be a strong demand for government
> action to avert a depression. I think the Republicans missed the
> boat last Fall. They could have proposed a simple stimulus - everyone
> subtracts 10% from his 2008 taxes and every state gets a check in
> the amount of $1000 for every person counted in the last census.
>
> Inflation is helpful at a time like this because it makes it easier
> for debtors to pay back their debts and it makes it easier to reduce
> real wages(just refrain from giving raises).
> A strong dollar does not enable us to rebuild our industrial base;
> instead, it makes it impossible for US industry to compete with imports
> unless we go back to imposing high tariffs. The dollar is up a great
> deal against many of our key trading partners in the last year(Canada,
> Mexico, Brazil, UK). A lower dollar would give the industrial part
> of the economy a shot in the arm and automatically increases the
> dollar earnings of multinational companies.
> In the long run, we will need a value added tax, a lower and simpler
> income tax, more money spent on education more effectively(people
> are by far our most important resource). We also desperately need
> some infrastructure upgrades. We need to reduce our dependence on
> oil imports. In the long run, these things - the intelligence and
> resourcefulness of our people, the quality of our infrastructure,
> our energy independence, and a tax system more oriented to taxing
> consumption rather than production - and not a strong dollar or
> the amount of gold buried in our back yards - are the things that
> will make us strong.

Apr 27 11:12 PM

[Neilich:]

Where is the inflation??

Schiff is great, but he doesn't talk much about the mechanisms for the coming inflation and why we aren't already suffering from it.

Prices are a function of money supply AND the speed of circulation.

i.e. lots of blood, being pumped round your body very very fast will give you a heart attack.

Right now - people don't want to spend. All the money being produced isn't actually going into circulation (being spent) BUT it does exist.

I think of it as a spring being wound up. As soon as confidence returns and the money starts to be spent - Wham - the spring is released - all the money comes out to play and the prices shoot up. Not least because there has been a dramatic contraction in global supply and de-mothballing factories is expensive.

Apr 28 04:55 AM

[utilitus:]

Anandakos,

I appreciate your advice, but my point was to document what I took to be a factual error by brother maverics. See above.

My personal view is that the general course of US federal budgets and degree of public and private indebtedness will require a debasement of the US$ "by any means neccesary", as a matter of policy, in the context of an over-all declining empirium based on an unaffordable military establishment and a withering comparative advantage in finanace previously provided by a relative lack of corruption, broadly conceived. Americans get the politicians and businessmen they deserve, kinda by definition. That's a 'downward spiral' with 'velocity', to an ultimate status as a normal modern nation (once the 'red neck' is bred out of them as the right wing perishes from the recessive genes inbreeding accumulates. C'est la vie.)

p.s. I drive a Black Helecoptor - yes, they're still in business.

On Apr 27 11:08 PM Anandakos wrote:
> Utilitus,
>
> I agree that what you stated seems sound, but it's not really. <br/>
>
> Securities are not "money". Depending on a specific security's liquidity
> it can be exchanged more or less readily for money. But by so doing
> the money supply is unchanged. The person who formerly had the security
> now has the money that the person who now has the security used to
> have. (Confusing syntax, I know). Net change in money supply: zero.
>
>
> The fact that securities held by people which have lost value can
> now be traded for fewer dollars does not reduce the money supply.
> If anything it actually increases it! What has changed is the VELOCITY
> of money. That has given us the appearance of deflation.
>
> So flooding the money pool with dollars created to buy previously
> non-existent government bonds does increase the money supply and
> will eventually lead to inflation when velocity returns to a more
> normal rate. We can hope that the inflation is largely limited to
> the price of assets as it was during the first seven years of this
> decade. But don't bet on it; the Fed has lost 25 years of credibility
> in the past few months.

Apr 28 10:17 AM

[Freya:]

Yes, it is thought provoking and it will come to pass in some form eventually.

I do have a real problem figuring out one of his statements though: The USDs collapse is a gimme but when asked what currencies he would be in he says " Well, ultimately, a lot of the currencies which are currently pegged to the dollar will be very strong, a lot of the Asian currencies."

If the USD is going to collapse, how will buying currencies pegged to the USD go up? Especially since the USD is a basket of currencies to begin with.

It just sounds very, very complicated.

I figure that you should just go with the Resource rich nations and their currencies.

Apr 24 07:55 AM