Peter Schiff, Euro Pacific Capital’s CEO and Chief Global Strategist, talks about what motivates him to work hard, and why he feels the U.S. government needs to be blamed for what he believes is a pending economic disaster. He also weighs in on what he expects will be a surprise move this year by the U.S. Federal Reserve, why he’s convinced the gold price suppression is doomed to fail, and how the small retail investor can benefit.
Interview transcription
Mark Thorburn: Welcome, Peter. You’ve been successful throughout your
career. What motivates you to work hard these days?
Peter Schiff: In theory, I could retire right now. I mean, I could just
live off of what I’ve earned, but . . . And I’m also spending a lot of
my time though just trying to get a message out there, get my
perspective heard. A lot of my time, quite frankly right now, is devoted
to activities that aren’t necessarily making money. Now, it’s possible
that I could start making money in the future from the things that I’m
doing on my radio show, for example. But right now, it takes a lot of
time, and there’s no real financial upside, at least so far. At least,
the money that I earn in my other businesses, my asset management
businesses, my US broker dealer, my Canadian broker dealer, my asset
management company, my offshore bank, my precious metals company, these
companies do make money, and they give me the opportunity to spend time
on things like my radio show, which right now, costs money.
But I am trying to get a message out there, get a perspective out there,
because the dialogue, you know, the understanding that permeates our
culture today, particularly at our institutions, central banks, Wall
Street, academia, I’ve never heard so much complete nonsense, so many
people, so many otherwise smart people, believing in such complete
nonsense when it comes to economics. And so, I want to do my best to try
to educate the public, especially, you know . . . I know that we’re
headed for this huge collapse, and I don’t want it to be blamed on
Capitalism or the free markets. I need government to be blamed for
what’s going to happen, and so I want to get this information out there
in advance so that I have a little bit more credibility when I talk
about it, and so the free markets have more credibility when free market
advocates like myself accurately diagnose the problems.
Mark Thorburn: You’ve been an outspoken critic of the U.S. Federal
Reserve. If you don’t believe the Fed. will continue to taper and raise
interest rates in 2015, what do you think their next move will be,
seeing they’re printing more money isn’t creating the economic growth it
desires?
Peter Schiff: Well, they’ll just print more. I mean, that’s been the
problem. The Fed. doesn’t learn from its mistakes, which is unfortunate
because, you know, it makes so many mistakes. But I think that the
Federal Reserve is going to taper the taper and eventually reverse it
before it manages to get down to zero. You know, right now, we have a
first quarter GDP that even by the government’s initial estimates was
flat. But I think when they come up with the revisions, we’re going to
see that the U.S. economy contracted in the first quarter. And of
course, I think the size of the contraction is a lot larger than what
the government will acknowledge, because I believe we’re understating
the true rate of inflation.
But apart from that, we’re going to have a contraction in the first
quarter. Now, Janet Yellen, and pretty much everybody else, seems to
believe that that phenomena is strictly the result of the weather. We
had a colder-than-normal winter with more snowfall than normal, and
theoretically, that’s why the economy contracted. If it wasn’t for the
cold weather, then we would have had 3% or more GDP growth. Now, I don’t
believe that for a second. I’m not even sure if the Fed. believes that,
but that’s what they’re saying. But I think what’s going to happen is as
we get more data from the second quarter, and that data continues to
disappoint both Wall Street and the Fed., at some point, Janet Yellen,
whether it’s going to be towards the end of the spring or early in the
summer, as we start to get more of the spring data, Janet Yellen is
going to have to change her tune and come up with an excuse as to why
the economy needs more stimulus, why she cannot continue the taper, why
first they have to pause and then ultimately, I think they’re going to
rev the QE back up. I think ultimately, Yellen is going to be back above
$85 billion a month.
I think we’re going to be at a higher level of QE than where we were
when the Fed first began to taper. Another reason I think that’s going
to happen is because if the Fed continues to remove the punchbowl and
ultimately does no QE, we’ll be in a bare market in stocks. I mean,
there’s no question that the stock market will be considerably lower.
The downturn in housing that has already begun will accelerate, and
we’ll be back in a deep recession. The only reason the Fed felt
confident to begin the taper process in the first place was because they
believed their recovery had been created, built on the foundation of the
wealth effect from the stock market and the real estate market. Well, if
it’s a recovery based on stock market wealth and real estate wealth, if
the wealth effect works in reverse because the Fed stops propping up the
markets, then we’re right back in recession. And of course, how does the
Fed fight recession? Well, more stimulus. So, you know, you can’t create
a recovery based on stimulus, and then take the stimulus away and expect
the recovery to continue. It can’t continue without the stimulus. It’s
like me living off of life support. You pull the plugs, you die. They
build an economy, of QE by QE, and you know, it lives by QE, and it dies
by QE.
Mark Thorburn: I know you really like gold. There’s been a lot of
speculation that the gold price is being suppressed. If this is true,
then what’s to stop the suppression from continuing well into the
future? Can’t the U.S. and its allies use political pressure to force
other countries to sell their gold to meet Asian demand?
Peter Schiff: Well, eventually the other countries will run out of gold.
There is a limit, you know, to the extent that there is a concerted
effort to suppress the price of gold. It will not last. I mean,
obviously the price of gold has risen over the last decade. Gold was
under $300 an ounce. Yes, you know, it’s down from its highs, but it’s
not down to $300 or lower. So, the price has risen, even if there were
forces that were trying to prevent it from happening. It happened
anyway. You know, the government can slow things down, but it can’t stop
it, you know. If the central banks are going to keep creating inflation
. . . The ECB came out today and said that the strong euro is a concern
because it might mean that they don’t have enough inflation. Japan is
trying to create inflation. America is trying to create inflation.
We have a situation now where all the world’s central banks have
embraced inflation. Inflation is no longer an enemy to be fought. Right?
But it’s a comrade, you know, to be coveted, you know. We embrace it.
Inflation is our best friend. We need inflation in order to have
economic growth. That is the mantra of the day. According to central
bankers, the worst thing that can happen to an economy is that prices
don’t go up, that the cost of living doesn’t increase, or worst yet,
that you can actually buy stuff for less money than the year before.
That would be, you know, the equivalent of, you know, economic poison.
It’s like, you know, a tornado or a hurricane destroying your economy if
the cost of living were to go down. So, central bankers want to do
whatever they can to make sure that the cost of living goes up and that
money loses value every year. Well, that is a perfect environment for
gold. There’s never been an environment that is so conducive to owning
gold as the one that exists today. You also have the central banks
around the world that are loaded up with dollars or Euros or yen, when
the central banks that create those currencies have guaranteed that
anybody holding those currencies is going to lose purchasing power.
So, not only do individuals need gold to protect their wealth, central
banks need gold to protect the value of their reserves. So, I think
you’re going to see an overwhelming demand for gold, and there’s no way
to suppress it indefinitely, unless the central bankers are willing to
dramatically raise interest rates, sell government bonds, and allow
their economies to implode, allow stock markets to crash and real estate
markets to crash and force U.S. . . . and force governments to default
on their sovereign debt. Unless the central banks are willing to do all
those things, gold’s only got one direction to go, and that’s up.
Mark Thorburn: If you were forced to buy just one precious metal right
now, what would it be? And why?
Peter Schiff: Well, I don’t know. I mean, you’re never forced to buy
just one. Gold is easier to store, you know. You can concentrate a lot
of your wealth in a small area. So, if I could only buy one, I guess I
would just buy gold. But I do think that silver potentially has more
upside. So, depending on how much money you have. If you only have a
small amount of money, if you’ve got $5000 or $10,000, then you might
want to just go all in on silver.
Mark Thorburn: Do you think the U.S. dollar will stop being the world’s
reserve currency some time during the next decade? And if so, what do
you think its replacement would be?
Peter Schiff: Yeah. I mean, it’s certainly a possibility that it will
cease to be the reserve currency within the next 10 years. I mean, it’s
probably a pretty strong possibility. I don’t know exactly what kind of
probability number to assign it, but I do think it’s going to happen. As
far as what will replace the dollar, I hope nothing replaces the dollar.
I don’t think there’s any currencies right now that deserve to replace
the dollar, and I don’t know that there’s any currency that will instill
the type of confidence that would be required to be a reserve currency.
Remember, the only reason the dollar became the reserve currency was
because it was convertible to gold, and there are no other currencies
today that are convertible to gold. Also, we enjoy a positive balance of
payments. We were a net creditor nation on a scale that no other country
can match today.
So, there’s no country that has really the economic might that America
had at the time that the dollar became the reserve currency. So, I don’t
know that another currency is going to replace it. But, you know, could
the euro do it? I mean, maybe. I mean, temporarily or certainly
regionally. It could act as a reserve, but a lot of that might depend on
what the ECB does. But I think that what is more likely is that gold
will rise in importance as a reserve asset, that more central banks will
be looking to expand their gold reserves. Because remember, the whole
idea behind the dollar as a reserve was the dollar was as good as gold,
because it was backed by gold and redeemable in gold. So, when central
banks held dollars, they, in effect, held gold.
But now, the dollar is redeemable in nothing. So, by holding dollars,
you hold nothing. So, I think that since you can’t hold gold indirectly
anymore by holding the dollar, more and more central banks will have to
just own gold directly and cut out the middleman. I think that’s what
they’re going to do. Now, people are speculating maybe the Chinese will
back their currency by gold. And if so, then maybe the Chinese RNB could
service a reserve currency. Maybe if they do back it by gold by then and
have it free floating, it’s possible that the Chinese could create a
situation where their currency could be a reserve currency. But they
have a lot of gold to buy, and I’m not sure how much they bought. We
know they’ve been buying a lot of gold, and I think the longer the price
of gold is suppressed, the more gold the Chinese are going to own.
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