Peter Schiff: 'I Know That We're Headed For This Huge Collapse'

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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