Introduction: Peter Schiff is one of the few non-biased investment advisors to have correctly called the current bear market before it began and to have positioned his clients accordingly. He has been quoted in many of the nation's leading newspapers, and appears regularly on CNBC, CNN, Fox News, Fox Business Network, and Bloomberg. 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. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.
Daily Bell: Thanks for sitting down with us. We are most grateful for all you have accomplished – and are yet to accomplish.
Peter Schiff: It is my pleasure.
Daily Bell: Are you going to run for Senate in Connecticut?
Peter Schiff: It is under serious consideration. I am working with some political consultants to evaluate the pros and cons. I expect to make an announcement one way or the other this summer.
Daily Bell: If you did run, could you win?
Peter Schiff: I don't know; that's what I trying to determine. I am not a politician, and there is a limit to how much of the political game I am willing or able to play. Hopefully, if the citizens of Connecticut are not ready to abandon capitalism and can embrace a candidate who represents a real change, then I think I have a chance.
Daily Bell: What do you think you could accomplish in Washington?
Peter Schiff: As a senator, you are just 1 in 100. A single senator can't make policy. But I hope that I would be in a position to influence the debate on America's economic future at a very critical time. The dollar has long benefitted from its reserve status, and that is a very simple reason why the U.S. has maintained its prosperity – even when our economy can no longer provide it. Ultimately, I believe that the world at large will move away from a dollar-based reserve system. That will pull the rug out from under our phony economy.
Daily Bell: Where do you think this central banking approach to economic development is headed? Do you think it will eventually succeed as a global force – generating a global central bank, etc?
Peter Schiff: I think that in the end, central bankers controlling fiat money will prove to be an unworkable and inherently flawed system. Despite the apparent distinction, central bankers are politicians who are more concerned about rosy economic statistics than they are about sound currency. This can only lead to devalued currencies, which sooner or later becomes a major issue. A global central bank would be a disaster.
Daily Bell: You were a fierce opponent of Alan Greenspan when he was Fed chairman.
Peter Schiff: I wrote a number of columns about Greenspan in the early 2000s. One of my main gripes was that Greenspan downplayed the amount of inflation that the central bank was injecting into the economy by printing more paper dollars than the economy could handle.
As an apologist for the current system, Greenspan often provided statements to Congress that tended to present the American economy dis-connected from the rest of the world. American monetary policy could work on its own and inflation was low because monetary policy was appropriate. He never mentioned that most of the money being printed was being stashed in Chinese vaults – effectively keeping price inflation at bay.
At the same he was keeping rates artificially low, thus injecting more money and credit into the economy than it could adequately make use of. By putting too much money and credit into the system, the Fed fueled "bubbles" in various parts of the economy. The distortion went right to businesses' bottom line. Fooled by easy money, businesses were apt to mis-allocate resources.
Daily Bell: Let's go back a little. Your father is well known for his courageous crusade against excessive American income taxes. Do you stay in touch with him? Is he okay?
Peter Schiff: I do stay in touch with him. He is currently four years into a 13-year sentence for tax evasion. He is incarcerated in a federal prison in Terre Haute, IN. He's 81 years old, and his health is not the greatest, but he's generally okay. Although he clearly would prefer to have freedom. It's a shame that the government would try so hard to paint him as a charlatan and a thief when he was essentially taking a principled stand against what he strongly believed to be the federal government's illegal collection of income taxes.
Daily Bell: You tend in your public speaking to concentrate more on the Federal Reserve than the income tax when it comes to identifying what is the most damaging financial and economic mechanism. Why do you think central banking is more of a menace than graduated income taxes? Or do you?
Peter Schiff: They are both damaging, and our economy would clearly be better off without them. However, relative to the recent financial crisis and the housing bubble, clearly the Fed was more to blame than the income tax.
Daily Bell: As a broker, you were prescient about the economic crisis. How come you don't get more credit?
Peter Schiff: Economics at the academic and policy level is still almost completely dominated by Keynesians who believe in government's ability to steward economic growth through fiscal and monetary policy. The fact that I predicted the current meltdown, and they did not, is seen by many to be nothing more than a "stopped clock" finally being right. Of course, this dismissal ignores the detailed accuracy of my forecasts and the performance of my investment choices over the decade preceding the crash.
I'm proud of my predictions, for instance, regarding the housing bubble and subsequent housing crunch. The housing collapse, however, is front-and-center everywhere you look in the business sections of newspapers and magazines. Denied and minimized throughout the 2000s, the proverbial chickens have come home to roost. What is both exasperating and astonishing is that very few predicted the aggressiveness of the problem or the seriousness of its unraveling. We got it right when others were either avoiding the issue or lacked the courage to confront it head on.
You know, until very recently, despite the unraveling of the US mortgage market, the official line remained upbeat. And today, there's a chorus about green shoots. There aren't any green shoots. Just as the current real estate market is no buying opportunity, or not unless you want to spend your life organizing renters and waiting up to a decade or longer for the housing market to recover.
The American mortgage market is in full-scale retreat, and that's an alarm we sounded over and over. We were correct then and we were correct about our analysis of the bailout as well.
Daily Bell: With all that has taken place, why is the Federal Reserve being rewarded with yet more regulatory power, given its track record?
Peter Schiff: Because more power concentrated in Washington serves the interests of government.
Daily Bell: Is it possible that the Fed is on its way out, given current resistance to it? Will something more menacing replace it, perhaps the IMF?
Peter Schiff: I do not know. Certainly if we simply turn over the printing press to Congress, the situation could be even worse. Reforming the Fed could be more practical than abolishing it. But the worst is not yet over if you are willing to face the true ramifications of the monetary and fiscal fallout. I do my own research, trust my own instincts and come to conclusions that accurately reflect the realities of the world we live in. That's why we were able to come to a conclusion in the early 2000s that the dollar was not nearly in as good shape as official rhetoric offered. We weren't reluctant to say it either – that the rhetoric surrounding America's economic situation and the investment opportunities it offered its citizens was growing more fanciful even as the situation grew more dire.
Daily Bell: Will we see a truly international non-dollar reserve currency in your lifetime?
Peter Schiff: Either we will see that, or the world will return to using gold as its primary reserve, as it did prior to World War II (or prior to 1971, as the dollar was backed by and redeemable in gold up until that time.)
Daily Bell: Could we perhaps see a reversion to a gold and silver market standard?
Peter Schiff: Absolutely. There's a great deal of inflation built into the system, and I would rather trust the evidence than government explanations. I would much rather look at the price of precious metals, especially gold, in order to analyze inflation in the U.S. and throughout the West.
You have to use free-market economics to figure these things out, and you have to understand the reality of inflation and also the incipient slow-growth or no-growth scenario that is catching up to the U.S. and to the West generally. The situation is analogous to the 1970s when the word "stagflation" was coined by free-market economists.
Until then, throughout the post-federal reserve era, it was thought that inflation and economic stagnation were mutually exclusive, that one could have either inflation or stagnation, but not both simultaneously. But that wasn't the case. With precious metals markets rising precipitously throughout the 2000s, and clients benefiting appropriately, it was increasingly obvious what the trends were and continue to be.
Daily Bell: If we did see such a standard, would it emerge as a free-banking standard?
Peter Schiff: Possibly.
Daily Bell: Where do you stand in the free-banking controversy? Do you see private (competition-based) fractional reserve banking as fraudulent, even criminal, or would you consider it to be an appropriate market evolution if it emerged out of a return to honest money?
Peter Schiff: No, I think it is fine as long as it exists without any government guarantees or government-insured deposits.
Daily Bell: Does gold remain undervalued? How about silver?
Peter Schiff: Both are undervalued.
Daily Bell: Are either (or both) manipulated?
Peter Schiff: I do not think there is an official policy to manipulate them, but clearly central banks should be buying, not selling, gold.
Daily Bell: Do the television pundits with whom you often argue really believe the things they say, or are they just trying to further their careers?
Peter Schiff: You will have to ask them, but my guess is they are sincere, just very wrong.
Daily Bell: You made someone a famous penny bet. Can you explain the bet and tell us whether you ever collected the penny?
Peter Schiff: In 2007, Art Laffer bet me a penny that the U.S. economy had never been in better shape and that no recession was coming. I took the other side. I am still waiting for my penny. Laffer on Bill Maher's show was confronted about the bet.
When I debated him initially, I was fairly unimpressed. What might concern those who believe in Adam's Smith's invisible hand – and that top officials should have a fairly clear understanding of free-market solutions – is the amount of ignorance about economic issues that Laffer apparently displays. It is especially discouraging, because Laffer was portrayed as a seminal economic thinker in the 1980s, someone whose "supply side" theories held massive sway over the multi-trillion dollar economies of both the United States and Britain.
Laffer, unfortunately, is not the only member of the financial establishment to make statements that, on further examination, are most questionable. Various individuals making various incorrect or even ludicrous statements in defense of the monetary and fiscal situation may be seen as amusing or concerning, but certainly when inaccurate statements come from the Federal Reserve itself, there is no doubt about the concern that ought to be felt.
To watch the debate between Peter and Art Laffer, click here now.
Daily Bell: Do the Wall Street professionals with whom you interact actually believe in Keynesianism, or it is just an economics of convenience?
Peter Schiff: The sad part is they probably do. They downplayed inflation and didn't believe there was a housing bubble. Even now, most investment professionals are looking for a turnaround. Yet it seems increasingly clear that the American economy, indeed the Western World, will continue to unravel and that other sectors not now apparent will come under sustained attack. Derivatives are most at risk here and there is nothing to say that this edifice is anymore healthy than the sub-prime mortgage sector. Wall Street itself issues plenty of assurances on that matter, but as has been amply illustrated, the assurances of those charged with sustaining confidence in the current fiat-money financial system are questionable at best.
Daily Bell: What are the most important – seminal — articles of yours that you would encourage everyone to read? Where can they be found?
Peter Schiff: There are many in the commentary archives on my website at www.europac.net. Also my two books: "Crash Proof" and "The Little Book of Bull Moves in Bear Markets."
Daily Bell: On behalf of all of our readers we thank you for sharing your views with us – and for providing us with such fine books and articles.
Peter Schiff: Thank you for having me.
Peter Schiff has been relentlessly correct. Peter Schiff's free-market perspective is delineated in his own words over an eight-year span. One can see over time that Peter's arguments have proven correct over time, while those he criticizes have not proven out.
Unfortunately, Peter's commentary gets nowhere near the "play" of those Wall Street and government pundits whose forecasts and opinions are evidently wrong on a regular basis. Fortunately, Peter's financial firm, Euro-Pacific Capital, is growing quickly, and the acumen of his free-market market forecasts is increasingly recognized (as history proves it).
As this above interview shows, his analysis of the American economy and the West's larger industrial marketplace, has been proven right in the real world – the only world that counts. What Peter points out, every week – with a perspective that must be as maddening as the tick-tock of a metronome to those of the Keynesian persuasion – is that all the explaining in the world will not compensate for free-market policies, nor, in the long term, provide a sound basis for investing.
Peter's perspective – and his uncomfortable yet accurate message – stems not only from an elitist monetary system he sees as flawed, but from those who defend the system without being honest about what is really going on. It is from this stance – one that has a moral as well as monetary element – that Peter writes.
Over the past eight years, Peter has successfully rebutted the official statements of former Federal Reserve Chairman Alan Greenspan and those of other officials inside and outside the Administration. He was also, notably, correct about the growing sub-prime crisis, a perspective that he began to present thematically years ago, way back when Wall Street and Main Street were still trumpeting the rise of housing as an irresistible force akin to the tech bubble of the 1990s. He was also correct in his calls on gold and oil.