Crash Proof | Peter Schiff | Talks at Google

Peter Schiff was right that was the name of the YouTube video that has been viewed nearly 1.3 million times since the market mayhem last September and that video is only one of many excerpts from mr. Schiff the view totals for mr. Schiff on YouTube are therefore clearly higher much higher than 1.3 million so what has been the source of this massive public interest for years Peter Schiff has been appearing on radio and television on CNBC CNN Fox News Fox Business Network Bloomberg and many other networks and in these appearances he continually expresses a message critical of America's economy based on borrowing and spending rather than on saving in production his message is equally critical of the political policies that led to that kind of economy as you can see in the YouTube video Schiff was often derided dismissed or ridiculed about these views until his predictions started one by one to come true Schiff a licensed broker with more than 20 years of experience is the head of Euro Pacific Capital Wiley & Sons published his best-selling book crash proof had a profit from the coming economic collapse in 2007 his new book which some of you have now the little book of bull moves in bear markets how to keep your portfolio up when the market is down came out with the same publisher this past fall the new book has pursued a similar course to the top of bestseller charts ladies and gentlemen please join me in welcoming a man with a penetrating and controversial message about the state of the world today Peter Schiff this is this is the book if you haven't seen it crash proof I'm actually in the process of revising the book now and crash-proof 2.0 is going to be coming out I think in October but the change we drop the coming from the title so instead of how to profit from the coming economic collapse it's going to be how to profit from the economic collapse because it's obviously no longer coming it's here but you know the real thing is the economic collapse that I envisioned in this book is just getting started I mean it's not over a lot of people think that this is it that this is what I was predicting this isn't what I was predicting this is basically the start the premise of this book was that we were living in a bubble economy we had a phony economy that was based on spending borrowed money we were borrowing money from the world because the world saved and we didn't and then we use that borrowed money to buy products that they produced we also use the money to build houses and remodel houses and Wall Street used the money for all sorts of speculations but the bottom line is we weren't being productive we were living in an illusion and as we spent money and we kept you know counting that spending in our GDP we diluted ourselves into thinking we had economic growth because an economist pointed to an expanding GDP meanwhile we ignored the fact that that growth was increasingly comprised of spending money and we ignored the fact that we were going into debt to spend that money and no one seemed to care about all the liabilities that we were accumulating because they were blinded by real estate equity or stock market valuations and people thought well the debt is manageable we just look at all these assets well the assets were an illusion there wasn't any real value there our stocks were not being valued based on the dividends they paid our real estate wasn't being valued based on the rents it threw off so we had no real income on the assets to service the debts the only way we can service the debts is if we could sell the assets but the minute we try to sell the assets the price implodes and the problem with the debt is the debt doesn't go away when the asset prices go down that doesn't go down the debts still there until we default on it meanwhile the debt has to be serviced we have to pay interest in our debt we're not getting income on the assets but we have to pay our creditors interest on the debt and the problem was and I certainly saw that when I was writing the book that a lot of the debt was floating rate a lot of the mortgage debt had teaser rates where initially for the first few years you get a low payment but then what happens after the teaser rate expires you know you have to make much higher payment so we were judging the manageability of the debt based on the teaser rates we weren't factoring in what happens I mean everybody knows a lot of times you can subscribe to cable television and they'll give you you know three months free but obviously at some point you know the real rate kicks in well we were trying to base our ability to handle our debts based on the fact that we can afford the teaser rates so I knew that there was going to be a major collapse coming but what's really happened is the bubble has been pricked we simply found a pin that I knew is out there and I described the pin as the bursting of the housing bubble I thought that was the most likely event that would set the the the the events in motion for the economic collapse because that would expose the fallacy of the of the economy but the real crash and in the economic collapse that I envisioned was going to be how the government was going to respond to the developing crisis what my fear was is that the bubble would burst the real estate market would burst debts would be exposed a banks would fail lenders would would go broke the economy would go into a severe recession a lot of Americans would lose their jobs the fact is you know a lot of jobs were the direct result of the excess spending that went along with the real estate boom when Americans had home equity they felt rich and so they went out and they bought stuff and when Americans were using their teaser rates they took the difference between what the rate would normally be and their subsidized rate and they went out and spent the money and of course a lot of Americans were able to extract home equity and they were able to spend that money so you had a phony economy based on everybody spending money they really didn't have and I knew that when the spending stopped the economy would contract and all the jobs that were associated with that all the cars that we bought that we couldn't afford and the houses that we were modeling all the you know all the credit cards all these all these jobs would have to go away because they really weren't viable to begin with so I thought this process would begin now what we have to understand is the recession right this unwinding of this credit bubble is the cure right the disease was the fact that we were borrowing and spending all the money in the first place that was the problem this is the solution it's it's it's painful it's not it's not fun when you have to correct the imbalances you know coming off of a hanger if you're all drunk and now you're hungover that process isn't fun but that's what happens when you're going to get normal and you know we were all drugged up on cheap credit we did a lot of crazy things right at George Bush pointed out that Wall Street got drunk and yeah they were drunk you know Main Street was drunk the whole country was drunk but they were drunk on the cheap money supplied by the Fed I mean the Fed was the bartender the Fed liquored everybody up and so we did a lot of stupid things you know Wall Street did a lot of things that they never would have done if they were sober same thing with with with Main Street you know the government came in and made risk-taking riskless they took the risk out of risk-taking it was just profits the money was cheap it was easy to speculate it were one-way bets and if your bets went wrong don't worry the Fed had your back Greenspan put too-big-to-fail all sorts of moral hazards you know don't you know lend money to people to buy houses doesn't matter if they can't pay Fannie and Freddie are guaranteeing a debt they're backed by the government don't worry so we had we had the bubble and it's burst but what I predicted that the real economic crisis would be because of what the government was going to do to reflate the bubble and this is where I see the lion's share of the problems and they're still in our future and in fact the government is even surprising me with what it's able to do when I first wrote this book and I was trying to think of all the ways that government we try to artificially stimulate the economy I didn't even I couldn't even come up with all the stuff that they've actually done they've actually surprised me by what they've done and therefore I think the collapse could be even worse I mean when I wrote the book hyperinflation was kind of the worst case scenario I didn't think it was the most likely scenario I thought it was a possibility I thought it was remote but I thought there was a good chance of it and I and I wrote about it now I think that hyperinflation might be the most likely scenario it doesn't mean it's 100% guaranteed but it's likely because the problem is that I in the way I wrote in the book so we'd have this bubble economy it would burst and then the government would try to blow it back up the government would try to put air back into the bubble because that's the way we always have reacted in the past that's the way Greenspan ran the Fed every time the economy started to contract they they intervene they increase money supply they slashed interest rates they stimulated the economy and so we never really got a full recession we never really got to correct the imbalances of the boom because we simply piled on more imbalances and we kept sweeping the problems under the rug kicking the can down the road but I saw that this latest bubble that the Fed had created was going to be so huge and so enormous that there was no way to stimulate our way out of it you know when um when George Bush w George WF came into office he came into a situation similar just not as bad as as Barack Obama he inherited the bursting of the Nasdaq bubble and he inherited a recession and you know the recession would have been compounded by September 11th so we should have had a pretty severe recession we had to deal with the terrorist attacks we had to deal with that loss we had to deal with the cost of the war on terror and of securing our borders and we had a deal with the bursting of the Nasdaq bubble where you know a lot of malinvestments were made a lot of companies were started in the 1990s it never should have been started a lot of people were employed at companies that couldn't make profits and therefore those companies needed to go bankrupt and therefore those people needed to lose their jobs a lot of people made investment decisions made spending decisions based on stock options that really didn't pan out but people thought that they they would so we made a lot of foolish choices and again the reason that we were so foolish is because the Fed was too easy during the 1990s Greenspan blew up the stock market bubble it's because of the Greenspan fed that the Nasdaq went to 5,000 that we made all these foolish investments in the first place but when that bubble burst and George Bush came in we should have had a very severe recession but we didn't because the Fed did what it always does Greenspan did what he had done in the past they slashed interest rates down to 1% now there's zero but they went down to one and what did Bush do stimulus right he cut spending and I mean he increased government spending and cut taxes and ran up the deficit ran it up from you know the small surplus that we had on paper up to what four or five hundred billion three hundred billion dollar deficits but that was a standard Keynesian remedy stimulate the economy prime the pump and the recession was very narrow we barely had a recession we had two quarters maybe of negative growth but in that recession we had record car sales and record home sales and of course now we're suffering from that because people were buying homes they shouldn't have bought they borrowed money they couldn't repay we bought too many cars during that recession we should have bought all those cars we can't we couldn't afford them but we artificially pumped up the economy and we got the housing bubble now that that bubble is burst and we have trillions and trillions of dollars of additional debt that we wouldn't have had if we had had a more severe recession in 2001 2002 now we have to deal with the consequences of the Greenspan Bush stimulus packages and the the Bernanke Obama package is even worse now I said we got interest rates at zero look at all the damage we did with 1% how much more are we doing at zero and the Obama budget deficits I mean they dwarfed anything that that Bush had I mean it's ironic that Obama is now trying to criticize Bush for running up the deficit as he's running it up through the roof two trillion dollars in his first term and he's saying well I'm gonna cut it in half by my last year well even if he's right it's still going to be a trillion when he cuts it in half and still more than twice the last budget deficit from from Bush but I don't even think he's going to succeed I think the deficit could be even bigger than two billion two trillion in his last term but so my point is that when that bubble burst that the government would do the same thing that Bush did and that's exactly what Obama's doing I mean he's doing nothing different from Bush I mean he he campaigned and he ran on a platform of change but he hasn't changed anything he's doing the same thing that Bush did only he's just doing it on a bigger scale he's making the same mistakes only is making them bigger and so we're not going to have a different result we're just going to have we're going to have a worse result and so my fear was that when the bubble would burst the steps that the government would take to try to reflate the bubble would ultimately destroy the dollar that the dollar would collapse and that would send inflation in the United States or consumer prices and interest rates straight up and that's what's coming and then what we're going to have is a recession right a very weak economy but at the same time we're going to have high inflation and high interest rates it's going to be kind of like the stagflation of the 1970s only much worse because it's not going to be stagnation it's going to be out outright contraction like we had in the 1930s but with inflation much higher than it was in the 1970s you know during the 1930s when we had the Great Depression which you know we're probably gonna have to come up with a new name for that at some point but we had that Great Depression consumer prices fell right the cost went down money became more valuable and we were on a gold standard back then so even though your stocks went down and maybe you lost a little money in the bank your cost of living went down in fact if you didn't have money in the stock market and you had and you didn't lose your job the the 1930s was a pretty prosperous time for you right because you know if you had a job things were cheaper you could buy acid you can buy houses cheaper cars cheaper appliances you know cost of living went down we were on a gold standard back then we don't have that discipline now you know in addition when when when the depression first started the government was small the federal government barely did anything and and therefore Roosevelt was able to increase the size of government because the government was already tiny that's not what the situation is today the government is already enormous and Barack Obama wants to make it even bigger and we're broke I mean we didn't have all this debt in the 1930s we had a sound economy we had a bubble the Federal Reserve blew up a bubble in the 1920s for the same reason they blew one up this time around monetary policy was too easy they kept interest rates too low and we had a stock market bubble the bubble burst and Herbert Hoover rather than allowing the recession to run its course which we had done in the past every time we had had a boom and bust and of course if you go back in history all the booms have their roots with a monetary expansion and then there's a contraction and there's a bust rather than allowing the market to function i Hoover decided that he was going to intervene that he knew better he was going to bail out companies he was going to stimulate the economy that might not have been the words they used but it was the same concepts he wasn't going to let the market reset prices the government was going to interfere the government was going to try to determine prices and try to determine wages they tried to prop prices up and prevent them from falling and keep companies in business that would have gone bankrupt and so Hoover were those interventionist policies very similar to the bush policies he created the Great Depression he got it started and then Roosevelt came in with the New Deal and and and and made the depression worse made it great and made it last all the way through the Second World War but the politicians today would have us believe that that Roosevelt saved the day that he that it was the free market policies of Hoover it was capitalism unbridled capitalism that created the depression and it was socialism in the form of the New Deal that got us out of it when of course nothing could be further from the truth there never would have been a Great Depression if we had relied on free market forces we created that ourselves that's exactly what we're doing now but the problem is we're doing it from a much more vulnerable position we no longer have the industrial economy that we had back then we're in debt or our industry is is basically gone and we still have some but we have nothing like what we used to have we have a nation built on spending borrowed money and we owe the world trillions and now you know we're we just had this g20 meeting and there was a lot of publicity coming up to it because you know we China's over there in other countries who are financing all of our stimulus plans and our bailouts you know they're the ones that are having to pick up the tab right they're the ones that we're asking to to pay for all this and I think they're they're not going to want to do it I mean we think we think we've got China over a barrel because you know we we Alma trillion dollars we think that they have no choice that they have to keep lending us money well they do have a choice especially when we're asking them to lend us trillions more it's pretty clear if the Chinese are worried about taking a loss on one trillion why do they want to compound their problem by owning two trillion or three trillion or four trillion which is what they're going to have to do because they're the ones with the surpluses they're the ones that are loaning us the money and you know hillary clinton was just over there a couple of weeks ago you know trying to convince the chinese that we're all in this together that they have to lend us this money so that we can spend it and so that their people can have jobs and this is all nonsense you know what good is it doing the chinese to have jobs when we get all their stuff i mean the whole point of jobs is so you can have stuff hillary clinton's is that the Chinese government should take money away from the Chinese citizens and send it to America so that we can buy the products that they produce so that they can keep their jobs well the Chinese just you know told us to take a hike the Chinese could let their citizens keep their money and now their citizens have the jobs and their stuff because they could buy it themselves you know so just having a job is no big deal I mean all the slaves had jobs you know but they didn't they didn't get to enjoy the fruits of their labor that's what made them slaves well that's what we're trying to do we're trying to enslave the Chinese and tell them you need to work so that we can consume products that's not the way it works we need to produce products so that we consume them and if we want the Chinese products we need to make something to trade we need to give them something of value we just can't keep running money off a printing press and say this is an even trade you give us all the products you make and we'll give you the money we print you know and the Chinese of course they can't spend that money on anything they just have to stockpile so I think I think this dynamic is coming to an end and we saw that recently where the Federal Reserve announced that they were going to be monetizing government debt they were going to be buying three three hundred billion in Treasuries and they're going to buy another seven hundred billion in in mortgage-backed securities and some more you know agency debt this is a sign that we can't sell our bonds because believe me the Fed wouldn't be doing this if they didn't have to if we can find foreign buyers we'd sell to them the fact that the Fed has to print money this shows that we're nearing the end of the game and you know one of the one of the announcers on CNBC when they first reported it she thought that this was like a big deal like this is you know AHA you know to the Chinese like if you don't want to buy our bonds it's no problem we'll print the money and buy them ourselves like like it's the same thing you know because when we get the Chinese to buy our bonds we export our inflation to China because China has to the Chinese central bank has to print up R and B and it uses the RMB to buy dollars and then it takes those dollars and buys our bonds so we don't get hit with any of the inflation the Chinese get hit with the inflation that's our big export we export our inflation to China but if the Fed prints the money and the Chinese are not involved then we get the inflation immediately because our money supply grows the Fed has to create money to buy those bonds but you know when governments create money what do they do I mean they don't create any purchasing power by printing money if that was true if you can create purchasing power by printing money nobody would need a job we just all have little printing presses you know so what happens when the government prints money is they they reallocate purchasing power from people who have money to people who get the new money right because all government is doing is debasing money they're they're redistributing the purchasing power that exists where new purchasing power comes from is production the only way we can buy more is if we make more if we just print more we can't buy anymore all that means is we have to pay more for what we do buy and that's what's going to happen you know people make the the assumption that the problem is a lack of money we don't have enough money and if we just had more money we can go spend it no it's not that we don't have the money we don't have this stuff you know they used to make that same argument in the Soviet Union years ago they would say they would say that Americans I remember watching Vladimir Putin I think he was on like one of these interview shows uh you know when the odd not not oh who was a guy before Oprah Winfrey the white-haired guy Phil Donahue he was on a Phil Donahue show I remember watching us and he basically said he tried to describe the difference between the American economy the Russian economy and he said in America you have all kind you have all this stuff you have it you have products on the shelves but nobody has any money to buy in Russia we have a different problem everybody has money but there's nothing on the shelves and somehow he thought that our problem was worse he thought that eventually there'd be stuff there well the fact is having money means nothing anybody can run you know money off a printing press you need stuff so the reason Americans can't buy isn't because we don't have enough paper it's because we don't have enough stop we need to do s'more in order to consume more printing isn't going to do anything but people don't think that they think well you know if we could just have money we can go buy stuff and again they think that the reason that the economy is in trouble is because people stop buying because people stop borrowing because people can't go out and borrow more money that's not why we're in trouble we're in trouble because we borrowed all the money in the first place because we spent all the money in the first place that's why we're in trouble the fact that we're broke and now we can't spend any more money shouldn't surprise anybody that's what happens when you when you don't save your money and you spend it all you're broke but if you look at what you know what the stimulus plan is right what is the stimulus what the whole basis of the stimulus is to get Americans spending but we're broke how we supposed to spend well the government's idea is well if American citizens are too broke to spend well we'll just spend for them but where does the government get the money if not from the people so if we're broke we can't afford all this extra government this spending was the problem look at the new plan they just passed for automobiles they just passed this the other day to give you a tax break if you go buy a new car why why the hell would they want us to buy new cars I mean we're broke you got an American they can barely afford his mortgage he's got credit card debt and Barack Obama wants them going out and buying a new car and taking on even more debt I mean how can anybody look around at the United States and say the problem in the United States economy is that we don't have enough cars I mean we've got cars all over the place we've got too many cars we've got two or three cars per household we don't need new cars right we need to make cars we need to manufacture cars we need to export cars but we really don't need to buy more cars especially if we can't afford it well why should we be going into debt to buy cars if if we're in a problem right now because we have too much debt how does this stimulus make the problem better it makes it worse because when we finish spending all the stimulus money now we've got the same problems but we got more debt right the solution is that we stop spending we have to start saving no people say but no no we can't say they talk about this paradox of thrift that if people start saying then the recession is going to get worse well maybe it will get worse but the recession is to cure remember we need to stop spending we need we need to save our money if it means that the phony economy collapses and that what that's what has to happen we can't keep spending just to perpetuate that phony economy we can't keep telling people they have to buy new cars just so people can have jobs working in car showrooms obviously they shouldn't be there maybe a lot of these car dealerships or need to be closed down you know bankruptcy is not a bad thing bankruptcy is a perfectly healthy thing for the market to do you know just like if you're if you're sick you have an infection in your body the the body fights it off you know it doesn't help the infection the infection wants to grow but it's hurting the body and the body's going to attack it well when you have a corporation that's losing money that's operating at a loss that's like an infection on a healthy economy we need to get rid of it we need to cleanse it through the bankruptcy system because what that company is doing is they're they're combining resources and squandering them they're operating at a loss the idea is to make a profit that's how society grows by effectively inefficiently organizing resources which are land labor and capital so if a company is making a loss we want to get rid of it what does the US government want to do when a company is losing money they want to subsidize it they want to keep it in business that doesn't make any sense at all because again the governor doesn't have any money if the government's going to keep one company in business how they going to do that they got to divert resources from another company there's just an article today in the newspaper about how Berkshire Hathaway which stalls a Triple A rating is paying more to borrow money than Citigroup or then Fannie Mae why well because the government is subsidizing these companies so now it's more expensive for other people and probably a lot of other people can't get credit at all because that credit is being diverted from the government to other companies that should be going bankrupt it shouldn't that shouldn't even that shouldn't even exist but they have us believe that no no we have to prop these companies up the companies have to fail that's all part of the solution is it's part of the cure sure it's you know you when a company goes bankrupt you can see all the people that lose their jobs but when you prop them up it's difficult to make the connection between somebody else that lost their job so this company can be propped up you know why do we want the government you know making these decisions you know here you have there's a big public uproar now because of the the money that was given to in bonuses to AIG employees about 150 million dollars meanwhile we gave them 150 billion one hundred and seventy five billion nobody complained about that but the whole idea is if we hadn't bailed AIG out this wouldn't even be an issue because these people would be out of work we would they wouldn't be getting bonuses there'd be built there'd be no money to be paid people are talking about these contracts there would be no contracts the company would be in bankruptcy but first the government gives them all the money and now we're upset at what they do with it what do we expect right I mean it's like you know if you give your your teenage kid you know car keys and alcohol and then he crashes the car now you're gonna what do you what'd do you expect is going to happen you don't think these guys are going to pay out some of the money that they got to themselves and bonuses the south what do you think they're going to do with it but if we if we were concerned we shouldn't given the money in the first place you know it but according to the government it's always two wrongs make a right they do one thing wrong and now they have to do something else wrong they try to pass this tax to tax the bonuses at ninety percent net you know corrects creates a terrible precedence of illegal taxing power for the government that usurp that use certain more power but what's happening so in addition to the stimulus plans and the bailouts which are all interfering right nor to cure our economy certain companies need to go bankrupt so that other companies can form people have to lose jobs they can get other jobs and we have to stop spending so we can start saving if we're going to have factories if we're going to produce stuff we need capital capital comes from savings and under consumption so what is the government doing they're interfering with that process they're building roadblocks they're preventing the Cure from working and they're making sure the disease get worse but at the same time they're socializing the economy they're blaming the problems on capitalism and they're coming up with big government solutions to problems that were created by government but now we're making our economy even less efficient if the government is now running the banking industry they're running the the automobile industry they're running the insurance industries they're running all these industries they're micromanaging right it's central government planning it's not going to work we can't allocate resources based on politicians trying to get elected or trying to get votes we need in we need resources allocated by entrepreneurs trying to make a profit you know we need we need to be led by the invisible hand of the market not not the clumsy hand of the state I mean look I mean there was just in the news that I think the post office reported losses of seven or eight billion dollars and they want it they want to eliminate Saturday mail delivery I mean the government I mean the post office has been around for I don't know how many hundred years or whatever plus years and they still can't make a profit the government can't even deliver the mail and make a profit and how are they gonna run AIG or any of these industries I mean it is it's lunacy and here you have Barack Obama you know he's talking about the businesses of the future there's certain industries that he wants to fund right how does he know how does he know what industries to fund I mean if he was that smart if he was such a great entrepreneur that he knew exactly what would work why is it he why wasn't he a billionaire why is he in politics why did he go into government if he knows exactly what products industry should be making if he can predict in advance you know no I mean you think do you think you know if the government tried to come up with Google that somebody in the government would have said you know we need Google and and and and we would have had it or search engine you know I mean none of the innovations come from a government decree the government doesn't know anything and there's no checks and balances if the government is wrong right if a private if a private entrepreneur makes a mistake he goes bankrupt the losses are cut if he if he if he if he bets wrong he loses if the government bets wrong they just get bigger they just appropriate more money it's a bottomless pit because they either get it from the taxpayers or they run it off a printing press so when private industry makes a mistake its corrected and it goes away as government's make mistakes they get bigger and bigger and bigger make more and more and more because as they run out of money to just ask for more and so you get rewarded for making mistakes in the mean time that's exactly what we're doing by subsidizing companies that should be failing right we've got a reverse Darwinism we've got survival of the un-- fittest you know the companies that are that people that have made terrible mistakes are being rewarded and other people are being punished or taxed you know I you know I own a small brokerage firm Euro Pacific Capital I don't have any debt I don't have any toxic assets on my balance sheet I didn't get all leveraged up I'm in perfect position as well as a lot of other small companies that had the good sense not to drink the feds alcohol that acted responsibly why aren't we able to come in and pick up the pieces why can't we hire a lot of these Wall Street guys away from the firms who made all the mistakes well one of the reasons that we can't is because the government is now subsidizing those companies so they can pay these big retention bonuses to keep their people why let the companies fail do you think there wouldn't be any investment banking if Goldman or Morgan went out of business you think there'd be no brokerage you think we need these gigantic companies we need them like a hole in the head you know let them fail you know the government is making this big deal companies are too big to fail oh they're not I mean if they're that big and they're that dumb you know let them go out of business I mean they say oh the consequences are so horrific how do we know let's see you know that they're trying to blame this entire collapse on the fact that they let Lehman Brothers fail and I find that hard to believe because look at all the companies we didn't let fail look at all the companies we bailed out maybe it's because of those bailouts maybe letting Lehman Brothers fail was the one thing we did right but of course that's the one thing that they don't want to repeat customer the government wants to get bigger you know they don't want to waste this crisis you know they the Obama administration sees an opportunity to get bigger to say the government is going to ride to the rescue and save the economy and that's the problem we can't afford that rescue because when they come to the rescue of the economy what are they doing they're going to impede the recovery they're going to make us less productive and they're going to make the problems worse and that's the self-perpetuating spy the more the government intervenes the worse the economy gets the more their call bonds to solve the problem when the bigger they get you know it's like throwing gasoline on a fire every time you throw gasoline the fire gets bigger but you can't you know you don't make the connection between the gasoline and the bigger fire so you keep reaching for more gasoline every time the fire gets bigger and it gets get you know then you get a raging inferno but unfortunately that's the only way the government knows how to put out a fire is by pouring on gasoline what we got to do is stop unfortunately there's only one real solution to the problem and it's the one solution that we're not going to we're not going to adopt and that's let the market function let the recession run its course let companies go bankrupt let Americans stop spending let them start saving take the recession and deal with the consequences right now the one thing the government could do if it really wanted to help would be to shrink because the government is a burden on the economy we have to produce enough to support the government the government doesn't produce anything so we have to be productive enough to support them and if you know in good times maybe you can afford a lot of government it's it does damage but maybe you can afford it we certainly can't afford it now so we need smaller government we need the government to contract you know to stop spending money on the military to spend less domestically to actually abolish entire departments you know to shrink and if it shrinks enough it could deliver real tax cuts to the American people which we probably need I think we desperately need but we can't pretend to give people tax cuts if we just cut their taxes but the government keeps right on spending then the cost of government is still there because the cost of government is not what it taxes but what it spends and if it doesn't take us from us in taxation it's going to take us through inflation right this is going to print money and if we print money and spend it we're not getting all that government for free the government is robbing us of our savings it's robbing us of our investments it's robbing us of our wages it's stealing the purchasing power out from under us and then giving it back selectively and we're all getting poorer so the consequence of what the government is doing as I said I think is going to be the real economic collapse I think what's going to happen over the next several years is the foreigners who have been lending us money who have been buying up our debt are going to stop doing it and more and more of our debts going to be monetized and as that starts to happen prices are really going to start to rise in the short run we haven't seen consumer prices rising that much why haven't they risen well we've had forces that have been pushing them down we've had bankruptcies we've had people you know going out of business sales liquidation deleveraging all these things have been suppressing prices at the same time the government inflation which is the creation of money has been pushing prices up it's like if somebody is you know eating a hard high carb diet but they're constantly exercising they don't gain any weight they kind of have two forces that are working in equilibrium well if they stop exercising and keep eating well then they're going to get fat and the same thing is going to happen in the u.s. the forces that are pushing prices down are temporary eventually the companies that are going out of business they're out of business eventually the companies that had excellent inventory and they slashed prices to get rid of it the inventory is God the deleveraging is going to run its course the dollar is going to stop strengthening and start falling lose the strengthening dollar that temporarily kept our prices down where the dollar resumes its descent that will be pushing upward pressure on prices so prices are going to start to rise as prices start to rise I don't know if the government's going to pick it up at @cp I guess the CPI is so manipulated but people are going to start to notice it and as prices start to rise lenders want higher interest rates because now they're afraid of inflation I mean over the last six months people have been people have been afraid of owning assets they've wanted safety they wanted to they're risk adverse then moving to the perceived safety of cash but once they realize that there's no safety in cash particularly particularly the dollar once they realize that the dollar is being inflated they're not going to want cash they're going to want to get out of cash they're going to want stuff and if they're going to want cash they're going to want to be paid a very high rate of interest to hold that cash you know in 1980 when Volker first came in and we tried to clean up the mess of the Great Society and you know Nixon and Jimmy Carter he had to put interest rates up to 20% to convince people to hold on to our bonds you know it's not like you know well when Volcker came in and he tried to figure out you know what would be a good interest rate for everybody you know what would help out the economy and he picked 20% you know he did that because he had to he had to convince creditors to hold on to this debt because they knew how high inflation was and he had to be serious but so the same thing is going to happen our creditors are going to want more and more interest but we're not going to pay it we are so leveraged up at this point Americans are so deeply indebted and the government itself we've got an 11 trillion dollar national debt right now we didn't have that in 1980 and of course the national debt is financed with t-bills a third of the national debt comes during the next year back in 1980 the national debt was all 30-year government bonds so when interest rates went up to 20% it only affected the money the government borrowed that year and a small amount of debt that was maturing but today if interest rates went up to 10% or more it would infect the entire national debt well we're we going to get the money to make interest payments on this national debt it's just a gigantic adjustable rate mortgage it's the same as individuals we're on the teaser rate right now we got a teaser rate when that teaser rate expires and it resets we've got a default just like Americans you know we're going to need we're going to need to modify the debtor get get a get an interest rate reduction or to cram down or something but the US government is probably not going to have the integrity to default in an honest manner so as the world doesn't want to buy the debt or Americans don't want to buy the debt because the interest isn't high enough to offset for the lost purchasing power then the monetization really begins to kick in because more and more of the debt is bought by the Treasury and of course the more the more of our debt the Treasury buys the less it's worth because every time the every time the Fed buys our debt it prints the my to do it and therefore if you don't sell you're going to take a loss so it creates a self-perpetuating spiral whereas the trip Fed is printing mine by bonds everybody wants to sell their bonds to the Fed because no one wants to be left holding a bat and so you get this spiral and then prices are going to start to run out of control and I think what's going to happen sometime before the end of the of the Obama term is that we're going to have price controls in this country we have price controls on food products we're gonna have price controls on energy and what's that going to do that's going to create shortages it's going to create long lines that's going to create black markets that's going to create a whole new class of criminals because obviously if you if you deal in the black market you're a criminal the government going to use surp all sorts of new powers we're probably going to have exchange controls a lot of bad things are going to happen a lot of more more power is going to be grabbed by the government as it does more and more damage so anybody who thinks that this is the economic collapse no I mean this is the overture we're still have the Opera anyway okay let me let me stop now and take questions are there any questions yeah six the more in a recession now and he seemed so positive about everything and it just seemed so sort of um well counterproductive well quick Kramer's clueless he doesn't he doesn't he he doesn't know anything about economics I mean you know he doesn't understand I mean he thinks it's all about pretty money he thinks that the Fed the Fed can say today he's got kids he's saying in Bernanke we trust he thinks that what Bernanke is doing is going to work well why didn't it work in Zimbabwe then we're doing the same thing any other questions so what's your advice for the few of us who are responsible and have zero debt so that we don't get killed by the inflation yeah well you're the patsies in this whole thing I mean people who people who did the right thing who saved their money you're going to be asked to fund all the stimulus you're going to be stuck with the bill because it's your savings that are gonna get inflated away and that was the whole premise of the investment advice of my book to understand that the riskiest asset to own is US currency or u.s. dollar denominated assets because your interests are going to be sacrificed because the creditors are in the minority the debtors have all the votes in fact a lot of the creditors don't have any vote they're not even American so obviously it's the creditors who are going to be sacrificed especially since the US government is the biggest debtor of us all and so inflation is their only solution and inflation is the enemy of anybody who has Treasuries or muni bonds or bank accounts and so forget about the fact that the government says well don't worry you know your accounts are insured by the FDIC the insurance is meaningless all they insure to do is give you your money but they don't ensure that your money is going to have any value in fact they practically insure that it won't have any value if they have to print all the money to make good all these promises it won't have value so the solution unfortunately is you've got to get out of the dollar and that further undermines our economy we need Americans to save their money in the US so they can be invested in the US but unfortunately the policies that we're pursuing are destructive to savings they discourage savings and they forced savers to flee but that's what we have to do because otherwise your savings will get wiped out so you need to invest abroad you don't foreign currencies foreign stocks precious metals and hopefully one day when this insanity stops and we can finally begin to address these problems you can bring that money back and help invest in building the economy the future there's a group of people out there that agree with your overall diagnostic but they question your prediction of hyperinflation their argument is that the credit destruction that's happening right now is so large that doesn't matter how much money the government print it's still a drop in the bucket and they mention as an example the case of Japan in the 80s where they run very large deficits it failed as a policy but they never saw hyperinflation yeah it was fun to them well they did yeah they didn't run him to the size that we're going to but the difference between Japan the United States is Japan was a very productive economy Japan had a high savings rate and they were the world's largest trade surplus so the Japanese were very competitive they had a bubble had the government not interfered prices consumer prices based on how efficient the Japanese economy was we would have seen a rather substantial decline in consumer prices over that decade the fact that that did not happen was a result of all the inflation that the the Bank of Japan created but just because you know prices didn't drop by five percent a year instead they were flat that doesn't mean there was an inflation the inflation was the difference between the decline and prices being flat so Japanese citizens were still robbed at the benefit of lower prices the government still interfered with the economic rebalancing that was going to take place you know the Japanese had a bubble in stocks and real estate for the same reason that we had a bubble in the 80s they kept their interest rates too low and you know why they did that to prop up the dollar to keep the dollar from falling they kept their rates low to make a yen less attractive they wanted to maintain the American market for their exports they're making the same mistake that the Chinese have been making they're trying to preserve a market that's not worth preserving because we can't pay for anything it's a perpetual vendor financing and if you have to give your customers money to buy your product then you need new customers and to say that just because credit is being destroyed you can't have hyperinflation that's just not true you know you have to also look at the velocity of money you have to look at all the dollars around the world and as our economy starts to contract people aren't going to want to own our money and they're in there and they're not going to want to hold it if people are willing to store money and not spend it then prices won't start the spire but the middle of our credit is a minute the Chinese and the Japanese and the Saudis want out of their dollars want to start spending their dollars prices have to go through the roof because the money is coming back to our shores bidding up prices and then the government has to print even more money to deal with the consequences it has nothing to do with the fact that a loan has gone bad I mean just because I mean if I loan somebody money and they don't pay me back the money is it nest it as a creditor but the money somebody you know the debtors still ended up spending the money I mean if you could simply that argument is we don't have to worry about losing about bad loans because if we ever make a bad loan the government can just print the money and pay it off and it's like no damage has been done but a lot of damage has been done and that new money that's printed is not creating any purchasing power there's production associated with it so all it can do is create inflation hi I have a question for mountain dew is oil or risky money to own since we are the biggest consumers and loss of our purchasing power means low demand well I think oil prices are going to go a lot higher and I think ultimately as the dollar collapses Americans are going to consume a lot less oil there's no question about that we're going to demand a lot less but the world is going to demand a lot more because as the dollar loses value other currencies are gaining value so as oil is becoming more expensive for Americans it's becoming cheaper for somebody else and so as we reduce our consumption as we get priced out of the market others consume more as they get priced in so that's what's going to happen so just because we consume less doesn't mean the prices are going to drop on the contrary I think prices are going to go up I think they're gonna go up spectacularly I think oil prices are gonna be a lot higher by the time Obama leaves office than they were at the peak before he came into office just thanks very much for coming in mr. Schiff it was really interesting hearing you talk one thing you mentioned was the fact that when we bailed out Lehman Brothers you thought that was a action when we didn't bail out Lehman Brothers you thought that was something that we should try more of that in fact right after that we did a lot of bailouts and that potentially caused a detrimental effect well we also we also bailed out bear before liens I mean we you know we and we took a lot of bad debt off of off of bears books right and put it on the Fed so one thing we did see right after the bailout of Lehman where Lehman went to bankruptcy was a real spike in the rate that banks used to lend to each other basically banks became very very afraid to do any sort of lending at all and the credit market overall freezed up and the only time when we saw that go away was when we did see more governmental intervention since then when we started bailing out companies that put a bandaid on the on the problem but the problem is still getting worse I mean we want we want credit to be allocated efficiently we don't want government coming in and saying don't worry about lending money because if it's a bad debt we'll pay you off because credit needs to be allocated based on free-market principles and if I'm afraid to lend somebody money then there's probably a good reason for that maybe they can't pay me back maybe that individual of that entity shouldn't be able to borrow money when the government comes in and says we guarantee their debt now non credit worthy institutions are able to get credit and now somebody else who's not getting a government guarantee is denied credit because credit is scarce credit flows from savings there's not an unlimited supply of it sorry let me just my question I guess is do you think that banks who do the lending are intelligent enough to be able to distinguish between the entrepreneurs you do want to be able to be creative and invest in them and take the risk on them but still you know be able to be risk averse with when it comes to well that's a look I think the banks are going to be better judges of lending money than the government the government is guaranteeing debt for political reasons I mean we one of the reasons that the banks of course we're so reckless with their money is because of the FDIC I mean we set up a situation of moral hazard where we basically told American citizens just put your money in any bank and who cares what they do with your money because if they lose it on stupid loans the FDIC will bail you out there for the bankers know that they're not competing based on how safe our institution is they're competing on you know what kind of yield they can pay and so they're they're prone to risk-taking but there's enough if the government would really make you know let people know look the FDIC limit is only a hundred thousand to if you have a lot more than that then you're on your own I mean the banks are still going to have to worry about large deposits but we need the lenders of money to to determine creditworthiness and determine who they want to let to lend to and on what terms they want to offer that credit because that's the only way we can judge it you know people that are riskier riskier borrowers either won't get credit or will have to pay a higher price for it yeah thanks for much but I know that obviously not bailing companies out and letting them fail yeah there's a lot of problem I mean there's a lot of immediate pain that's why the government is doing the bailouts but my point is not that there's no pain and there's no consequences it's just that we're better off dealing with those consequences now taking the pain now rather than postponing it and making it worse you know it's like ripping off a band-aid you know you could just rip it off and or you could peel it off slowly and generally it's just rip it you're better off hi um two questions one given you know you're concerned with the size of the federal government do you think there is any sort of political movement that is capable of taking power and doing the right thing first or n do you think the you know the political environment and just the overall political process in Washington is even capable of reversing it whether or not the people in power you know have the right intentions and too quickly the government's plan to buy up the toxic assets by lending money to private investors there seems to be a lot of backlash against it you know when you win lose the taxpayers lose um you know and without knowing too much about what sort of investments you do you know do you have any interest in that or you know is that yeah I I mean I wouldn't be interest interested in buying any of those toxic assets I'm sure that even with free money well no it's not free you still have to put something up and I think that money is going to be lost I think Wall Street's going to make out on this deal because they're going to get management fees they're going to manage this pools of money some of it is government money and some of it might be their clients money but Wall Street doesn't generally do a pretty good job with their clients money but I don't know if they're going to put their own funds there I mean I think they're smart enough to realize that they're likely to overpay for these assets assuming that they that they're able to pay them and of course now they just made the assets more expensive because now the government is saying you don't have to mark your your your toxic assets to market anymore you can just pretend that they're worth more than they are so I mean did it you know and this whole thing about saying that you know they're trying to claim that if a mortgage is current then we should value it based on its cash flow and not take a realistic view of how likely that cash flow is in the future I mean if somebody is if there's a mortgage now that's current and the mortgage is $500,000 and the condo is worth 300,000 why shall I assume that that mortgage is going to be paid off there's a good chance that the person making the mortgage is going to wake up one day and say why am I wasting all this money either they're going to lose their job or their your teaser rates going to reset or they're just going to come to the reality so wait a minute why am i sending this you know $3,000 a month mortgage payment in when I can rent the house next door for 1500 months what's the point I mean so right now people are realistically assessing I mean obviously to say that these mortgages are illiquid they're not illiquid they it's not liquidity they lacked its value I mean to say there's no buyers sure there's buyers at a certain price I mean it's it's a bond a mortgage is like a bond and people could say look here's a mortgage here's the cash flow I mean here's a pool of them what do you want to pay I mean they're people with savings it's not that there's nobody that wants to buy the reason that people don't want to pay high prices is because they're not they're not stupid they know that they're not they're not worth that so this whole thing is an illusion but as far as you know your initial question on the politics I don't think there's any political will right now as long as the Chinese and the Japanese will keep lending us money then and supporting the growth of our government then there's no reason for us to have to deal with any difficult choices what we need is for the rest of the world to cut us off so now we have to deal with the consequences that now maybe there will be some political will when the only solute winning choices are between hyperinflation or cutting government then maybe we'll do the right thing maybe when our back is to the wall I mean there certainly are enough people that that know the truth the problem is there's a lot of people get a check for the government but I guess when they realize that those checks aren't going to buy anything it's like sure I can keep giving you your Social Security checks but it's not what good good is it if there's nothing if it's no there's no value there and I know at least we got the internet now at least we have a way to get alternate ideas out to people we don't have to rely on filtering them through the major media outlets that we can go direct to the people people can find out alternative information and pass it along I know there are a lot of young people that you know follow me I mean obviously they're not you know investors so they're not following me because of you know they want to be clients they're obviously listening to what I'm saying from a political point of view from an economic point of view I get I get emails every day from high school kids not only in America but all around the world who are following me college kids young adults so I know there are people out there better that are getting this information look at all the support Ron Paul had from young people so I mean there's hope thank you the from the talk that you just gave I think one of your primary concern is the hyperinflation so that said isn't a having a least controlled rate of hyperinflation actually good for the economy as a whole I mean our stock market reset so there are a more fair value now so the same goes with the real estate market what didn't really happen is in general the markets operating cost many the entire I guess a collection of the companies which also includes a salaries as well so having a inflation we said that that the value of those operating costs wouldn't that be make that they can in general more compared in the whole with that we want to move away from government's trying to determine an inflation rate and make sure that we have it or manage the best thing to do is have real money to have money with intrinsic value that have gold as money and just allow prices to adjust and under you know and let the market set interest rates not not the government and when you have sound money when you have real money as opposed to a government created money the natural tendency of prices we know from history is to fall a prices decline a little bit every year and that's how you know society becomes wealthier because our money gains value we gain purchasing power I mean you can see that you know certainly in the high-tech area you can see what happens to cellphones and plasma TVs and laptop computers digital cameras all these prices are falling that's what happens in a free market it would happen with other things it would happen with education it would happen with healthcare it would happen with food it would happen with energy it would happen with all these products if the government stopped creating inflation it's just that there's so much efficiencies and productivities in the technology area that prices are falling despite all that inflation but and and you know the government always tries to make the argument that we need inflation if we have falling prices that nobody will buy anything that the economies will grind to a halt that businesses can't make a profit that's all nonsense you think people don't buy cellphones the people not by plasma TVs everybody knows when you buy a plasma TV if you just wait six months or a year you'll get a cheaper but people don't wait they buy it when they want it now there are some people who didn't buy them when they were ten thousand dollars apiece because they were too much money so they waited until they can afford it but as companies gain economies of scale they get more efficient prices fall and people buy more things plus even though the plasma TVs are not $10,000 apiece anymore I bet that companies are making a lot more money selling plasma TVs at $1,000 than when they were selling with 10,000 because they're selling more of them and that's what counts for profitability you know it's you know you can multiply it with volume so that the argument that governments need to protect us from falling prices that we need inflation is all nonsense it's all self-serving the government needs inflation not not us and the reason the government needs inflation is because that means they can play Santa Claus that means they can print money and spend it that means they don't have to tax us for all the government programs they can pretend that there's no cost and the government has a lot of debt the government wants to wipe out its debt so the government wants inflation and it finds a way to justify it so it can cram it down our throats so I was just hoping maybe you could give some advice to the people in this room who care about their you know finances looking forward where would you put your money if you had a horizon you mentioned precious metals we know gold is anti-inflationary and tips maybe in bonds but any suggestions you know for the people in this room and say where can I put my money so it's not two sitting in an interview if you want to make more traditional investments I think you know foreign stocks are the best place to go I think valuations and many stocks around the world are extremely low right now I mean not here in America but in other parts of the world you can buy assets really at fire sale prices you can get tremendous dividend yields I think you really want to invest for the future and look at what's happening right now is really a changing of the economic guard I think you know the Asian economies you know is China in particular this is the future this is where all the productivity is this is where everything is being made this is where all the surpluses are being accumulated the this area of the world is going to grow and there's going to be a major transition of wealth and purchasing power away from America to to the Asian economies and it's going to happen from a realignment of exchange rates and a revaluation of assets and you want to position your personal investments to be on the winning you know end of that transformation so you can use your plenty of great stocks you can buy in Singapore you can buy in Hong Kong combined Japan that really feed into the Chinese economy that are going to benefit from the added wealth and added purchasing power of the Chinese as they go more from exporting their production to consuming their production themselves and trading more with nations that can actually afford to buy their products instead of countries where they have to lend them the money and to the extent that the Chinese keep more of their savings themselves they have more savings to invest productively they can build even more factories they can be even more productive when they take their savings and just give them the US and we squandered on consumption it's not doing them any good so you want to be in a position that your that your investments will reflect that and that you can benefit for that and on the precious metal side yeah you just want to buy likes I think Silver's look really really good here it's around thirteen fourteen dollars an ounce you know got as high as twenty dollars an ounce last year I think it's going a lot higher gold I mean once gold breaks through a thousand I think it's going a lot higher and you know when the Chinese or the Russians are talking about trying to find an alternative to the dollar they're talking about maybe using these Special Drawing rights from the IMF that's not going to fly that's not going to help ultimately the real solution is gold and that's ultimately what's going to happen I mean the only reason that the dollar is the reserve currency was because when it became the reserve currency not only was it backed by gold but it was redeemable in gold on demand if it wasn't for that feature it never would have been accepted as the reserve currency the reason currencies have reserves is so they have value you have to back your currency with something backing it by the dollar is like backing it with nothing because there's nothing backing the dollar so I think what's going to happen is the world's going to realize the real fault of the problems and the reason we have all these imbalances is because we have no money we're on this phony system this funny fiat system that doesn't work that creates the imbalances that creates the booms and bust we need real money we need to deep politicize money and we need gold and I think that's going to happen and when nations start to react Yuma late gold when central banks become buyers of gold and not sellers of gold prices Norway up but thank you very much mr. chef we appreciate it

Channel: Talks at Google

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Length: 64min 17sec (3857 seconds)

Published: Wed May 06 2009