Interview with Peter Schiff

This segment was taped at the American Stock Exchange, which offers trading across a full range of equities, options and exchange-traded funds.

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everyone, I’m Mike Norman, Founder of the Economic Contrarian Update and anchor of the HardAssetsInvestor.com video series. Here with me today is Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse.

Peter, we’re going to do something a little bit different today: You and I are going to have a debate. I know you have been a very big proponent, indeed in your book, telling investors how to protect themselves against an economic collapse. One of the main things you talk about is gold.

However, I will say to you people who looked at gold the last time we had strong inflation, back in the 1970s, had they purchased gold then in real terms, they’re really down a bunch of money. They have not recovered anything. So how can you go out there talking about gold?

Peter Schiff, author, Crash Proof: How to Profit from the Coming Economic Collapse (Schiff): Well, it depends. The people that were out in front that bought gold in the late-1960s/early-1970s made a lot of money. People who understood the problems in the late-1990s and bought gold then have made a tremendous amount of money, and I still think there are huge gains to come for people who are in now.

Norman: Well, Peter, people couldn’t buy gold in the 1960s. It was not until 1973 that Americans were again allowed to buy gold, and even when you look at that period in time, it wasn’t obvious there was a big inflation until late in the 1970s. Had you bought gold as a protection, as a hedge, again, you’d be down 50% on your money.

Schiff: No, it was obvious to people who understood what caused inflation. [While] it was illegal for Americans to buy gold during the 1960s, they could’ve bought silver very easily. All they had to do was take the quarters and dimes that were in circulation and hold on to them, and $1,000 worth of U.S. coins in 1969 and 1970 were worth $40,000 by 1980. People made 40 times their money just on the change in their pockets, as opposed to holding government paper money.

Norman: Well Peter, you know that gold was held down at an artificial price for 50 years, so there was a natural pent-up demand in there. It had to catch up to a certain level, which it did. But once it did, the performance has not been astounding; it has in fact not protected anyone against inflation.

Schiff: Well, I think if you look back since we went off the gold standard in 1971 or 1972, the average compounded annual return for gold since that day is close to 10%. So it actually hasn’t done that bad. I think it’s going to do a lot better in the next few years.

Norman: Actually, for stocks, the annual compounded rate of return is over 10%, and on an inflation-adjusted basis, stocks outperform. Look, from 1980, the Dow Jones Industrial Average on an inflation-adjusted basis is up over 600% and gold is down 50%.

Schiff: Right, but I’m not comparing gold to stocks. Let’s compare gold to the dollar. What’s a better source of stored value? Whereas if you don’t want to be in stocks, where are you better off? Being in a paper currency that’s being inflated to death or being in something scarce and real like gold? If you compare the return on gold to the return on dollars, gold wins.

Norman: The fact is, gold is a commodity, Peter. It does not pay you any dividends; it does not pay you any interest; and indeed, with all commodities, the historical returns when adjusted for inflation have been very, very poor. You tell people to own commodities. Indeed, I will not argue that in the last six years or five years it’s been a good place. But five years from a historical standpoint, and as an investor, that’s a small slice of time.

Schiff: Well, it’s not my intention to stay in commodities for the next 20 years. At some point I’m going to look for an opportunity to buy financial assets cheap. But gold is just not a commodity; gold is money. I think more and more people around the world are going to lose confidence in fiat currencies, not just the dollar, but other currencies, and they’re going to want to store their savings in something tangible, and people are going to rediscover gold. And when they do, it will trade to several thousand dollars an ounce.

Norman: When you say gold is money, Peter, we don’t actually go and use gold to purchase things. You don’t go to the supermarket with a bunch of gold coins, and indeed, even in some of these countries where gold traditionally has been money - like India - they’re moving more to a credit-based money the same as what we have here in the United States.

Schiff: Our whole credit-based economy is imploding around us. We need the discipline of gold. We just can’t keep printing money; that’s how we got into this mess. We have a giant credit bubble that has now burst. Americans have been borrowing and spending money they didn’t have; we’ve been buying products we didn’t make. This whole thing is collapsing and it’s going to show the fallacy of the central banker and why we need the discipline of gold.

Norman: Peter, you know very well that in 1930, after the stock market crashed in 1929, the Feds’ hands were tied. It was not able to loosen up monetary policy precisely because it was concerned about an outflow of gold. We were on a gold standard and that constrained us; that kept us from turning the economy around. We don’t have that problem anymore.

Schiff: Mike, you’ve got it wrong. What kept us from turning the economy around was all the Hoover and Roosevelt interference in a free market, like our [Fed] governor [Ben Bernanke] is doing now. If we had Ben Bernanke at the Fed in 1929, we would have had something worse than the Great Depression; we would have had hyperinflation and America would have turned into Argentina.

Norman: Hoover interference? Many people say that Hoover did nothing. In fact, his Treasury secretary, Andrew Mellon, at the time said, liquidate the farmers, liquidate the businessmen, liquidate this, liquidate that. It was the recipe of disaster. In fact, what’s interesting is that now a lot of people say, let the market solve everything. You talk about an implosion … I think that’s what would bring on an implosion.

Schiff: Well, we have to have an implosion, but the government created the problem. It was the funny money; it was Alan Greenspan and now Ben Bernanke setting interest rates below the rate that the free market would put them. That created the bubble in the economy. It’s now burst. We need a recession to purge all of these imbalances. Unfortunately the government is not letting it happen and they’re going to make this situation much, much worse.

Norman: Ah, the idea of the cleansing recession. Yes, I’ve heard that one before. All right, Peter, we’re going to have to follow it. I know so far you’ve been very correct in your view on gold, as well as the dollar and other commodities. We’ll come back and visit some of these other topics later. This is Mike Norman. We’ll be back.

Be sure to check Part II of our interview with Peter Schiff next week.

Comments

[ussmls7]

Americans were at the mercy of the Goverment lies back then, as with today. When the GMen change the rules to suit there means, the playing field becomes one sided. Peter is right, My Grand Father & Father live through it, and their land is now owned by the Goverment. Thr Federal Reserve is , and will never be a legal part of this Nation.

[ussmls7]

I forgot to add, these guys on Fox Biz, cut Peter off while he is giving proof to his findings, they have call many bottoms, only to have to eat their words. Mike that means you!
Time is running short before we have more bubbles popping, got Gold/Silver.

[iman]

Mike Norman keeps using that same argument that gold is a bad investment. Its not an investment its a hedge against inflation, a way to protect your weath when the central banks are being irresponsable. You cant just buy it at anytime. Peter has never said you can just buy whenever and hold it forever.

Mike Norman doesnt even know the first thing about economics, we are in a recession and we need to let it happen, its part of the system when you have a fiat currency. Trying to postpone it will make it worse.

[WalterMorton]

Peter Schiff has been correct in his predictions with high accuracy and anyone interested in finance should at least study his ideas. Predicting the future and predicting how it will affect your personal investments are two different beasts however. Some of his investment ideas require a vast change from the way things work today, i.e. a "decoupling" between the USA economy (backed by devaluing dollars) and emerging economies (backed by hard assets or actual growth in production.) This decoupling has not yet happened, though it may in the next decade if the USA can't find a sound financial course. And even if decoupling occurred it's effect would be unclear. Today, the USA companies doing OK are the ones (Caterpillar, IBM) with large sales overseas. Overseas customers are happy to buy these products priced in cheap USA dollars. This trend may turn the USA into the "discount mall" for the rest of the globe, but discount malls often do a lot of business. If you've traveled to Asian factories in the last few years (I have) you know that broadly speaking the people in Japan, China, and South Korea are working harder, and longer hours, and more efficiently than any workforce I know of in America. This is partly a result of cultural values -- many Americans take for granted they deserve a slice of the "good life" and should not have to work more than a 40-hour week to get a big fat reward. The Asian work ethic I witnessed was: "first you apprentice, then you work very hard, then you work even harder, then you pass on your craft, then you rest only when you are dead.” I may have deviated from direct commentary on Peter Schiff’s gold talk here – but his big-picture idea is how USA investors should position themselves in the global economy. The halcyon days when you could just buy stock in the top 5 USA-based companies (GM, Ford, Citigroup, Wal-Mart, Bank of America) and know you’d have a nice nest egg for retirement are over. Those companies are dinosaurs. In 20 years, those 5 will all be controlled by foreign sovereign wealth funds if they exist at all. Crazy talk? Not really, there are over 100 defunct USA auto manufacturers. (en.wikipedia.org/wiki/... ) In any case, if you want to know whether you should believe Schiff’s analysis I suggest you buy his book, read it, and come to your own conclusions.

[Mojito]

All I know is, I bought gold last summer at around $650/oz. I'm up very very VERY nicely, thank you. Stocks are crapola right now, and the systemic collapse is just beginning.

Good luck with your portfolio, Mike. Let me know when you're ready to sell whatever is actually sound in it for pennies on the (by then debased and defunct) dollar, I'll trade you a gold coin for the lot and you'll feel blessed to have found a buyer at all :)

[jigs]

I am not sure why Peter even entertains fools like Norman who are shameless disgusting pimps. Guys, he is the same guy who wanted you to buy Bear Stearns at over $70-80.

Peter, you have had enough publicity, so cut it out. Be classy. You are beginning to look more like Norman but on the other side. Stop biting at every bone they throw at you...