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By Garrett Baldwin

High volatility… European uncertainty… Long-term prospects looking difficult for the dollar… The Feds are throwing ideas at the wall and hoping something sticks. Investors, meanwhile, remain nervous. That’s why we are always reaching out to the most well-known figures in finance to get their take on current events and the markets.

In the most recent segment of our Interview Series, we sat down with Peter Schiff. The CEO and Chief Global Strategist of Euro Pacific Capital and Euro Pacific Precious Metals, Peter is the coauthor of a new report, Peter Schiff and Axel Merk’s Five Favorite Currencies for the Next Five Years (available for free below).

An outspoken critic of the Federal Reserve and government intervention, Peter is well versed in the Austrian School of economics and perhaps best known for his early predictions of the housing crisis. On October 11, we sat down with him to discuss his concerns about government regulation, the Occupy Wall Street movement, and his outlook on the dollar and other currencies in the coming years.

Investment U: Thank you, Peter, for your time. We’ll jump right in. Tell us, what do you see for the dollar in 2012 and beyond?

Peter Schiff: I think the dollar is headed lower. In the short run, or recently, we’ve had a rally in the dollar from the lows because people are more concerned about problems in the Eurozone than they are about problems in America. Even though the American problems are more immediate and more overwhelming than the European problems.

At least temporarily, we’ve benefited from the perception of safety, even if that perception is at odds with reality. And the world has been focusing on the growth story not being as robust as many had first thought. Therefore, people are taking off the bets that they’ve made for a strong economy, whether it’s betting on stocks, commodities, metals, or oil. And taking down those bets is premature, because the commodity story was not simply about growth. It was about inflation. The inflation story is getting bigger and bigger as economies like the U.S. try to create inflation to create growth. They’re not going to get the growth, but they will get the inflation.

But there is a growth story that is still not fully appreciated in the emerging markets. There, the growth is real and will continue. And so you’re going to see growth in the emerging markets and inflation, which is a good environment for commodities and precious metals, and a bad environment for the dollar.

Investment U: In your report, Five Favorite Currencies for the Next Five Years, you say that if you had the choice between euros and dollars, “I’d take euros every day.” Has that sentiment changed at all given the uncertainties in Greece and Brussels?

Schiff: No. If those were the only two choices, I would pick the euro. But fortunately, those are not the only two choices. And I don’t own the euro. I own other currencies that I think are in better positions than both the euro and the dollar. But in the beauty contest between the euro and the dollar, the euro is less ugly.

Investment U: In the same report, which you coauthored with Axel Merk [the Founder of Merk Investments], you say that there is a great opportunity to own a North American currency, it’s just not the U.S. dollar.

It’s the Canadian dollar. What is it about Canada that makes its currency a favorable investment?

Schiff: The fundamentals are much better in Canada than they are here. They have a positive balance of trade. They have a lot of natural resources, particularly energy and mining related, which are going to be more valuable. They’re in a position to dramatically increase their exports to emerging markets, particularly to countries like China. So I see Canada benefiting from these emerging markets growing and prospering.

Certainly, Canada will [also] be the beneficiary of a lot of talent that leaves America. For a lot of Americans who are looking for opportunities abroad — or are trying to escape high taxes and high regulations and lack of opportunity in America — an easy place to find them is Canada.

And they might benefit from a brain-drain from the United States. Some of the more hardworking, entrepreneurial, more motivated people, instead of going to Canada to flee the draft, they go up to Canada to flee big government and taxes, regulation and inflation.

That will work to Canada’s advantage.

Investment U: In a recent interview with Yahoo!, you said, the reason we can’t grow the economy is because “government is in the way. There are no jobs because there is no recovery.”

So, two important questions come from this. One, how are jobs created? And what needs to be done in order to stifle unemployment?

Schiff: Jobs are created by businessmen, by entrepreneurs trying to make money for themselves. And in trying to make money, they discover that they can make even more money if they hire people. In fact, businessmen generally have what their employees lack, which is capital. And labor is most productive when it is combined with capital.

And most people don’t have their own capital, and so they can earn more money by selling their labor to people who do have capital. So, the answer to your question as far as where jobs come from, they come from profits, capital, and the motivation and the ability to generate a profit.

Businessmen combine their capital with somebody else’s labor to generate a profit. If you want more jobs, you need more capital. You need more profits. You need more entrepreneurs. Unfortunately, we’re not getting that. The government wants to raise taxes on the entrepreneurs, on the businessmen, depriving them of capital.

In the meantime, the government is borrowing all the capital and spending it on more government, where it’s guaranteeing student loans or mortgages. And so, money that should go into growing business is growing government instead, or propping up universities, banks, or whoever is the recipient of the government guarantee. The government is siphoning capital from where it needs to be to where it’s politically popular, and that is stifling job creation.

Of course, part of the problem is the regulations. In order to hire somebody, you have to make a profit. Nobody is going to hire somebody if they lose money in the process. But the government makes it more expensive to hire people because of all the rules and regulations attached to every hire. If you hire somebody in this country, there are all sorts of special taxes you have to pay specifically because you hired [that person]. That increases the cost of labor and it makes it less likely for businesses to hire.

In fact, I think today one of the goals of a lot of small businesses is to hire as few people as possible. If you can run a business and hire nobody, that’s what you’re going to do, because the government has made it so expensive and risky to hire. That is the wrong thing to do. We want to encourage job creation, not stifle it.

Investment U: Occupy Wall Street protesters have been in the news lately. Do you think they are targeting the right people in their protests?

Schiff: Well, I think they are right to be frustrated. They are right to be protesting what’s happening, but they’re expressing their anger in the wrong direction.

Wall Street is a symptom of what’s going on; the cause is Washington.

They shouldn’t be occupying Wall Street. They should be occupying Washington. They should be on Pennsylvania Avenue protesting Congress, the White House, the Federal Reserve. That’s the problem, not Wall Street. Because if there was no government, there would have been no bailouts. You can’t blame Wall Street for asking for a bailout.

After all, that’s what the March on Washington people want. They want the government to bail them out. But the problem isn’t that Wall Street asked for a bailout, the problem is that Washington gave it to them. Washington should have let the banks fail. That would have been capitalism. The irony of it is, the March on Washington movement is an anti-capitalist movement. They’re protesting capitalism, but what they’re really protesting is crony capitalism.

If we had capitalism, none of the banks would have been bailed out. In fact, if we had capitalism, none of the problems that caused the banks to fail and need the bailouts would have existed in the first place. Capitalism would have prevented all this stuff from happening. [We have] a lack of capitalism. [What we have is] crony capitalism. It’s government interference and meddling in the economy that prevents capitalism from working. And that’s what has caused all the problems, and what the protestors are protesting.

Investment U: Speaking of government intervention, what do you see will be the end result of the Fed’s Operation Twist?

Schiff: Well, it’s going to put the screws on the economy. It’s going to hurt quite a bit. It’s not going to grow the economy. In fact, if anything it’s going to further subject the banking sector to additional losses. That is the problem. Yes, they have temporarily brought down long-term rates, but that’s squeezing the spread that these banks are operating off of.

And so ultimately it weakens the banking sector, and it paves the way to QE3. All-out QE3 is coming, because, again, this didn’t work, but when they first announced it, the initial reaction was a drop in oil prices, a rise in the dollar. And this might create an environment in which the Fed can claim that there’s no inflation, that the danger is deflation. And it creates a smokescreen under which it can do what it wanted to do all along, which is just create more inflation, print more money, buy more government debt and stimulate.

Investment U: Do you think Treasuries are in a bubble?

Schiff: It’s all part of the overall government bubble. That’s where all the cheap credit is flowing these days. First, it went into the stock market. That bubble bust. Then it went into the real estate market. That bubble burst. And now it’s in government. Government is growing rapidly now. All this money is financing big government. But the bigger the government is, the weaker the economy is, because it’s crushing the economy. The productive sector has to support the non-productive government sector. And the more resources the government drains from the economy, the weaker the economy gets. That’s the source of our misery. That’s the source of this recession. It’s government sapping the life out of the economy, with regulations, taxation, money printing, micro-management.

What we need is a real dose of freedom, capitalism. We need to re-embrace the principles upon which the country was founded, and go back to sound money. And only then will we be able to start solving our problems.

Investment U: Do you foresee any trigger point in the treasury market where that bubble would burst?

Schiff: Oh, sure. What the trigger point is, I don’t know. There are a whole bunch of things that could go wrong. It’s a big bubble. There are a lot of pins. It’s going to find one eventually.

But I do believe that it will be very abrupt. I think when the dollar collapses, it will happen very rapidly. When the bond bubble bursts, the air is going to come gushing out. It’s not going to give a lot of people time to reverse their position.

And then we’re going to have the real crisis in America. That’s when we’re going to have to finally deal with reality. Right now, we’re able to postpone the pain because rates are still low. The government doesn’t have to make any cuts because it can keep borrowing. But what happens when it can’t keep borrowing? What happens when high interest rates prohibit that? Then it’s either got to slash government spending. It’s got to allow banks to fail and not bail them out, including the depositors. It has to level with people on Social Security and Medicare and let them know that they’re not going to get what’s been promised.

Or the government is going to try to solve everything with a printing press, in which case it’s the dollar that gets destroyed. It doesn’t just fall precipitously, it loses almost all of its value, and we have [massive] hyper-inflation, which would be the worst possible outcome. And I hope we avoid that. But that is the direction that we’re headed unless we make a sharp turn. But making that sharp turn is not going to be easy, and there is going to be a lot of short-term pain associated with doing the right thing.

Investment U: You’ve been very successful given your forecast of the mortgage crisis. My question is a little bit more challenging. How do you translate that forecast, that knowledge into gains?

Schiff: Well, we had people who, based on my recommendations, shorted the mortgages themselves in 2006. We helped set up a hedge fund that did just that. And so people were able to make a lot of money if they got into that fund or if they got into funds that were similar to the one that we had. Also, people were able to short the banks and short the mortgage lenders. And so there were people who were able to take that forecast and immediately profit from it if they timed it right.

Of course, I also recommended things like gold and silver, which didn’t pay off immediately. In 2008, gold prices went down, but they’re double what they were now – then. So people still made money on precious metals. And of course if they bought precious metals, years earlier, had they bought them in 2002, 2003, 2004, even though 2008 was a down year – or at least the second half was. They’ve more than recouped that.

So, people have been able to profit, certainly from the advice to get out of the dollar. The dollar is quite a bit lower than it was when I first started telling people to get rid of it based on these forecasts. Even though it’s higher than it was a month ago, it’s much lower than it was years ago. And the dollar will continue to fall.

So, for people to understand the forecast, the correct investment strategy becomes obvious. You never know how it’s going to fare in the short run, month to month, quarter to quarter. It’s difficult to figure out when the dollar will rise or fall, or when stocks will rise or fall. But overall, if you understand the big picture, then understanding the long-term trends becomes a lot easier. And it’s a lot easier for people to profit if they understand them.

There are certainly people who can come in at a bad time and end up losing money following these strategies. It’s because they don’t necessarily understand them, and so they don’t have the courage or the conviction to ride out the times when the markets might be moving against them.

Investment U: What do you say to the charge that if you’re bullish or bearish long enough, that eventually you’ll be right?

Schiff: Well, I don’t necessarily agree with that. It depends on what it is. When it comes to inflation, if you don’t adjust for inflation – prices are rising every year. And so I suppose if you’re bullish on something in nominal terms and you wait long enough, the price is going to go up in depreciated currency. But what it is going to do in terms of real money? That’s a different story. A lot of people will try to discredit me by saying, “Well, Peter Schiff is a stopped clock. He’s been bearish for years.” I have been bearish for years, and I’ve been correct to have been bearish.

Now, being bearish didn’t necessarily mean I’ve said stock prices would always go down. In fact, I’ve said stock prices would probably go up. But that’s because you’re measuring them in a currency that’s going down even faster. What I’ve been saying for years is that stocks would lose value in terms of gold. And they have. For 10 years, the stock market has lost considerable value expressed in gold. So, I think to have been bearish of stocks in terms of gold over the last decade has been the right thing to do.

Yes, I was bearish about the real estate market in 2002, 2003 and 2004, because I understood it was a bubble. Just because it took a while for the bubble to burst didn’t mean I was wrong by pointing out the bubble as early as I did. It simply validated my understanding. I knew it for what it was the minute I saw it. And of course, by 2005 I saw the enormity of the bubble, and that’s when I really began forecasting a complete collapse of our banking system when the bubble burst, because I knew the damage that would be done to our financial institutions that had all this real estate as collateral for all these loans. When real estate prices dropped to the degree that I believed they would drop, that these banks would all be insolvent and that it would usher in this massive collapse.

I have been pointing these out for a long time. It doesn’t make me a stopped clock. It just means I understand the fundamentals.

Investment U: Thank you again for your time, Peter.

That concludes our conversation with Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital and Euro Pacific Precious Metals. To access the report Peter Schiff’s and Axel Merk’s Five Favorite Currencies for the Next Five Years, Click Here Now.

Source: Interview With Peter Schiff: Prepare For QE3 With Foreign Currencies