Peter Schiff

By JOHN NORTH

LAS VEGAS, Nev. — The United States will suffer an economic collapse this year, or in 2012 “at the latest,” Peter Schiff said during a luncheon speech on July 16 during FreedomFest 2011 at Bally’s hotel-casino.

Regarding the impending economic apocalypse, Schiff said. “It’s like the last nail in the coffin.”

He said the collapse is the easily predictable result of unsound economic policies espoused by President Barack Obama’s administration and mismanagement by the Fed.

Schiff’s specially ticketed talk, titled “Why the Dollar Is Doomed: What’s the Next Crisis?” attracted more than 200 people.

FreedomFest, a three-day conference that drew an estimated 2,400 liberty-minded people, also featured major addresses by GOP presidential candidate Herman Cain, U.S. Sen. Rand Paul, R-Ky., John Mackey, Wayne Allyn Root and Steve Forbes.

Schiff is chief executive officer and chief global strategist for Euro Pacific Capital Inc., a broker-dealer based in Westport, Conn.; and CEO of Euro Pacific Precious Metals, LLC, a gold and silver dealer based in New York City. He also is an author and a financial commentator.

He “is known for his bearish views on the dollar and dollar denominated assets, while bullish on investment in tangible assets as well as foreign stocks and currencies,” according to Wikipedia.

Schiff began his address by noting, “Last year, I ran for the Senate (in Connecticut) and spoke a lot about that” at FreedomFest. While he lost in his bid for the seat, he said he learned a lot.

“The (Obama) administration is blaming capitalism as causing this problem” of a weak U.S. economy, Schiff said. “I ask: ‘If they don’t understand the problem, how are they going to solve it?’

“I said any economic recovery is an illusion” right now. “We were just spending more money” for any brief uptick, he said.

“We were on the verge of a very, very big and necessary recession in 2008 and 2009. Because we didn’t address it, things got worse, rather than better.

“In 2001-2002, we had a serious bursting of the stock market bubble of the (President Bill) Clinton years ... We got a housing bubble, with Americans on a spending binge.”

He added, “If anyone thinks the government stimulus is a good idea ... well, they’d have to think the housing bubble is a good idea,” Schiff said.

Even liberal thinkers such as economists Paul Krugman and Robert Reich, “understand that the average American basically is broke,” he said.

Schiff asked, “How are they going out to spend? I mean, the average American has no savings with which to spend ... The jobs come from savings ... We get to enjoy the fruits of our labor.”

Regarding the liberal school of economics that is influencing President Barack Obama’s policies, Schiff noted, “The Keynesians say we need to spend more ... We need to spend more like we need a hole in our heads.”

Rhetorically, he asked, “Where does the government get its money? From the people. They  say, ‘From (Fed Chairman) Ben Bernanke.’ People are actually poor for all that spending, with higher prices for good gasoline.”

He said the reckless spending pattern is why “the dollar hit an all-time low this week (in mid-July) and gold hit an all-time high. You need $1.21 (in U.S. money) to buy a Swiss franc. In 1991, when we went off the gold standard, a Swiss franc cost 23 cents (in U.S. funds).

“Despite all that’s going on with Europe, the Euro’s gaining,” Schiff said. “But the dollar’s doing worse than the Euro.”

When questioned by U.S. Rep. Ron Paul, R-Texas, a few days before Schiff’s talk in July, “Ben Bernanke said gold isn’t money,.” To Bernanke’s response, Paul asked, ”’If that is so, why don’t central banks around the world hold diamonds rather than gold?’ Bernanke said, ‘It’s tradition.’” Schiff recounted that Paul then asserted, “‘It’s tradition because it’s money.’”

Next, Paul asked Bernanke to explain why he thinks people are buying gold, to which the Fed chairman replied that people “are worried about political uncertainty.”

From his own perspective, Schiff said, “It has nothing to do with uncertainty. I’m buying out of certainty —  I’m certain Bernanke’s reckless policies will continue ... I don’t think he’s as important as he thinks.”

Regarding Bernanke, Schiff said, “I think he’s a liar because he’s so nervous ... Everybody’s been talking about the Fed’s economic strategy ... Who’s going to buy those worthless mortgages?”

He accused the U.S. government and the Fed of being “addicted to stimulating the economy.” However, once one starts the stimulation process, it is hard to end it. “If we stop the quantitative easing, we’re going to have a big recession,” Schiff said.

“The economy they’re trying to keep alive refuses to die,” despite the bad policies being pracited. “It’s like Frankenstein’s monster.” With the government’s continuing quantitative easing efforts, “it’s like we’re trying to sober up a drunk by giving him more alcohol.

Schiff also said Greece, Spain, Portugal and Italy exemplify the spread of the sovereign debt crisis. “The subprime is just the tip of the iceberg ... All of the morgages have the disease, it just shows up first in subprime ... We’ve got all the problems of Greece in, they just haven’t manifested yet” in the U.S.
“We’re actually paying less in interest payments today with twice the debt, as we did 10 years ago.

That’s why the Fed keeps interest rates low. The cost of keeping rates low is inflation.”

Schiff said the dollar’s exchange rate, “if it collapses, won’t affect domestic inflation.”

In yet another swipe at Bernanke, he said, “I don’t think Ben Bernanke is qualified to be a bank teller, much less chairman of the Fed ... The dollar’s purchasing power at home affects its value overseas. But look, if low interest rates would solve the problem, we’d have no problem.”

As for his solution to America’s economic problems, Schiff said, “In order to rebalance our economy, just get (the government and the Fed) out of the way and let the economy do its thing ... Interest rates need to go up, then we’ll have more savers, jobs and capital spending.” Instead, with Keynesian policies holding sway, “housing prices have reached new lows since any time in the (economic) decline.”

U.S. policies are so wacky, he said, “It takes a bank a year or two to get you out of your house, if you stop paying on your mortgage. So you can stay that long rent-free.

“The debt ceiling came in in 1917, when we let the Fed” take over as America’s central bank and Congress “decided to put in a debt ceiling. We’ve raised it all the time” ever since. “Pretty soon, the only thing we’ll be able to do is pay interest on the national debt ... When interest rates go up, we (the U.S.) will go into default anyway.”

He added, “Actually, default is better. The worst thing is inflation — everybody loses who holds dollars. You get hyperinflation, which is worse than anything.

“The one ray of hope is, capitalism is a very dynamic thing. If we could have sound money and a constitutional government,” the private sector would rebound.

He also said if current trends continue much longer, “it might take a violent” revolution to restore the U.S. as a constitutional republic and land of opportunity.

“Our grandkids, they’re not going to stay here” and pay the taxes that will be required to cover the debt that is being accrued. “They’ll leave” for nations where there is more opportunity, Schiff predicted.

With a note of pride, he said, “My ancestors came here for freedom and opportunity ... The whole world is changing and much of it is embracing capitalism, just as the United States” — to its detriment — is going in the opposite direction, Schiff said.