Peter Schiff is a businessman and author that was known by many as “Dr. Doom” before he became widely credited with foretelling the U.S. economic crisis years before it occurred. During a phone interview, The Daily Caller picked his brain about the current economic crisis, the impending crash, and what Americans can do to protect themselves.
The Republicans have caved on raising the debt ceiling, as you predicted in your interview on CNBC on Oct. 11. Why do you think they did, and what steps do you think should be taken to pay our bills?
I don’t think Republicans have the fortitude to bring about the painful process of correcting the mistakes we’ve made. If we don’t raise the debt ceiling, we have to deal with the fact that we’re broke. We will have to make serious cuts. If we don’t raise the debt ceiling, we’d have to meaningfully reduce the size of government. Republicans aren’t willing to vote for it. They always campaign in favor of a balanced budget amendment, and that means the budget has to balance.
By not raising the debt ceiling, it means we’re forced to balance the budget. Republicans don’t want to cause it because it means disappointing somebody. Telling somebody they’re not going to get government benefits is not default. People that pay the Social Security tax think they’re being promised something, but it’s not a choice. They’re not getting their own money back. What the government does is it takes from the younger generation. None of it gets invested, and it’s already spent.
Republicans shouldn’t have dug in if they weren’t willing to take it all the way. Obama knew they would cave since the media put it all on the Republicans. Even though Obama said, “It’s my way or default,” it was still the Republicans’ fault. They lost the PR campaign. It shouldn’t have been about Obamacare. It should have been about the budget. Obamacare would have died if the debt ceiling was not raised. If you vote to raise the debt ceiling you’re voting to increase government. Whatever the crisis, the real one will be much worse because we did raise the debt ceiling.
When creditors decide to not play the game, how do we pay back bond holders? Where do we get money to pay them back? We’re saying to the world, “As long as the world keeps loaning us money, we won’t default.” The debt ceiling is not a ceiling. We should just call it the debt sky! People voting to raise it wouldn’t vote to eliminate it. The ultimate hypocrisy and example of this is our president and his statements in 2006. He made all these claims that increasing the debt ceiling was leadership failure, yet who created this phony crisis about the debt ceiling needing to be raised?
If the debt ceiling is all a manufactured crisis, how can the GOP get the message to the people that we are not putting the full faith and credit of the U.S. at risk?
They lost the media battle. There’s definite media bias, but again they shouldn’t have had the fight unless they weren’t willing to raise the debt ceiling under ANY circumstances. If Republicans had dug in, they’d have to reduce spending by about a trillion dollars a year. Many departments, such as Energy and Education, would have to be eliminated. If they were not willing to do that, they should have just given the Democrats everything they wanted so their fingerprints would be all over it.
You make pretty bold predictions in your book “The Real Crash.” What are some specific world events we should look for that would initiate some of the changes that you’re predicting?
You gotta follow the foreign exchange market, the value of the dollar vs. foreign currencies. The Federal Reserve keeps buying bonds to keep interest rates from rising. We have no choice but to default if creditors want their money back. If interest rates go up, we can’t afford that. That is why the Fed feels that it has to keep interest rates down at all costs. So the Federal Reserve prints more money to buy up bonds. That puts pressure on the dollar. Foreign central banks than buy those dollars to prevent their currencies form rising, which imposes costs on their own population, as they are forced to absorb our inflation.
There will be big spikes in commodity prices, like energy and food. Ultimately, we will be forced to make even bigger cuts than the ones we would have made now had the debt ceiling not been raised. Then we’ll be Greece, essentially. If we refuse, and keep spending, and the Fed prints even more money to buy the bonds no one else will buy, we’ll destroy the dollar and then we’ll be Weimar Germany. When the dollar collapses, what does that mean? Hyperinflation means you will have nothing. Your life savings will be worth nothing. We’re celebrating solving the debt ceiling, but we’ve only kicked the can down the road and removed the barrier between us and fiscal responsibility.
How do you feel about Janet Yellen’s appointment as chairwoman to the Federal Reserve?
Well, I expected it. Not because she was the best choice, but because I knew she was the worst, and I was confident that Obama would make the worst possible choice. My confidence has been validated. She’s incompetent in terms of understanding economics. The left-wing media rewrites history and spins it to make it seem as if Yellen was warning about the housing bubble in 2005 and 2006 and her warning was unheeded. They paint her as having sounded the alarm. It’s completely made up.
Yellen was just as clueless as everyone else at the Federal Reserve up until 2008, and admitted it herself in 2010. I went back to speeches she made in 2005 and 2006 where she supposedly warned about crisis. Yellen only brought it up to say there was nothing to worry about. She said there was no housing bubble, and said housing prices would keep going up. If she was wrong, she said it wouldn’t be a big deal for the economy because housing was not a big part of economy.
I’ll be going into more depth about her speeches on my video blog tomorrow. You can watch me expose the truth about Yellen at www.YouTube.com/schiffreport. She’s incredibly ignorant about economics. She will go to the Fed with her Keynesian perspective, and will be 100 percent sure she knows what she’s doing. She’ll just expand Bernanke’s policies and compound our problems.
Is it better to invest in gold or liquor?
Well if you have gold, you’ll be able to buy all the liquor you want. But you should have some liquor stored because everything will get more expensive, and some things will be scarce or only available on black markets. Plus, of course, some liquors improve with age, so why not store it?
What is the future of gold? And why is silver so undervalued?
Both are undervalued because no one understands them. Gold’s future is bright, just like its past. Its value won’t end anytime soon. A lot of people have forgotten it’s money, and that paper is just a substitute. We can’t just have fiat currency. That’s why we have so many problems.
Where do you see the future of bitcoin going in the long and short term?
I don’t know. I don’t think anyone really knows. A lot of people are betting on bitcoin, but there’s risk in those bets. Is this type of digital currency going to catch on? If it does, there’s no guarantee bitcoin will be the leader just because it got there first. Is it MySpace or Facebook? Is it Yahoo or Google? What if it’s Ask Jeeves? I don’t know, but one of the reasons bitcoin is in demand is its anonymity without government regulation. The harder the government makes it to use our currency, the more appealing bitcoin becomes. But as the government cracks down on bitcoin, it’s going to have all the same rules and regulations as currencies.
Why would you want bitcoin when it’s got government intrusion? Another of its appeals is that its amount is limited, but what if people don’t want them anymore? I can use dollars to pay my income taxes. We will always use dollars to pay taxes. You can’t pay taxes with bitcoin, and unlike gold, they have no intrinsic value. Yes, you can trade them for things of value today, but who knows about tomorrow? It’s risky for someone to take a lot of money and have it sit in bitcoin. What if they go to $5 again when you bought them at $120? A lot of volatility makes it risky. I don’t know how it’ll shake out.
A better approach is what I am doing with my offshore bank, Euro Pacific Bank, Ltd. I’m offering gold- and silver-backed debit cards. Anyone that takes Visa/Mastercard will take your gold and silver (though in most cases the gold and silver are sold, and merchants are paid the currency the charges are invoiced in). You can store savings in real money, and you don’t have to worry about inflation eroding its value. There are reporting requirements, but at least with gold debit card you have real gold in your account.
Ultimately, if there is a currency being used it needs intrinsic value to separate it from fiat. Gold is scarce, but it also has value because you can use it. It’s in our cell phones, and we make it into jewelry. What can you do with a bitcoin? I don’t own them personally. If I did, I’d sell a number of them.
What can the average debt ridden American do to protect himself or herself?
If you’re debt-ridden, you have nothing to lose but your debt. The people who need to protect themselves are the ones with savings. Those are the people that I am trying to help at my brokerage firm, Euro Pacific Capital, Inc, and at Euro Pacific Precious Metals. It’s hard to imagine what the country will look like when the dollar crashes. But one thing is certain; it will bear little resemblance to the America we know today. So rather than pay off your debts, get gold, silver, foreign assets, and buy up things that will have value after the dollar crashes.
Peter Schiff has a radio show that airs live for free every weekday from 10 a.m. to noon ET on schiffradio.com, and his YouTube channel is youtube.com/schiffreport.