Gold, Dollar, Inflation, Fed & China

Posted by Peter Schiff

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(Peter Schiff will be speaking at the MoneyTalks Precious Metals conference October 23rd)

Peter Schiff is known for his justified criticism of the Federal Reserve and the disastrous policies they’ve enacted which is the destroying the economic life of the United States and its citizens, and ultimately affects nations around the world.

Although he sees a disaster coming if they don’t change course, there are things people can do to protect themselves against the addictive Federal Reserve policy of printing money, which is another way of saying inflating.

Today they’ve attempted to change the name to quantitative easing to make it sound like they’re doing something different. But it’s the same thing.

While Schiff sees hope, he doesn’t think the government and the Federal Reserve will do the right thing, and they’re going to keep on inflating. Which means they’re going to print money to acquire bonds. It’s only a matter of how much they’re going to buy, not whether or not they’re going to do it.

The result of all this will be gold prices and many other commodity prices continuing to rise, the U.S. dollar continuing to collapse, and inflation in other areas soaring.

Schiff says the government will attempt to hide the amount of inflation they’re creating, but the ongoing rate of unemployment will force them to continue to print money

, which will eventually reveal the monster they’ve created, as they acquire an enormous amount of bonds with each round of quantitative easing.

Another possible scenario, says Schiff, is he sees the possibility of Treasury yields being held back by the Federal Reserve. At that time corporate and municipal bonds would probably surge, which could woo the Fed into acquiring them too. If that happens, in Schiff’s view, he sees the potential complete collapse of the U.S. dollar.

Probably the best hedge against all of this happening, or even part of it happening, is to hold gold.

Schiff says he believes gold and the Dow will eventually move to a 1-to-1 relationship. He has no idea what that number will be, but if the Dow were to move to 10,000, he sees gold moving to $10,000. If the Dow is at 3,000, he sees gold at $3,000 an ounce, etc.

According to Schiff, he sees a correlation between the bear markets of 1930s and the 1970s. In 1932 said Schiff, an ounce of gold equaled the value of the Dow. The same happened in 1980 after the bear market of the 1970s.

When the Dow shrinks in value, it tends to line up with the price of an ounce of gold.

If we end up entering into a period of hyperinflation, all bets are off there as far as the value of the dollar, which could lost almost all its value, according to Schiff.

Besides gold, Schiff likes the agricultural sector, energy, commodities in general, and China.

Everyone should own at least some gold says Schiff.

Peter Schiff

Peter Schiff: In his 2007 book, Crash Proof, Schiff writes that the current United States economic policies are fundamentally unsound, and predicts that in the future the United States dollar will lose much of its value.

Schiff feels that the imbalance between the amount of goods the U.S. consumes and what it produces will eventually lead to problems for the U.S. economy. As a remedy Schiff favors increased personal savings and production which he says will stimulate economic growth. Schiff cites the U.S.’s low personal savings rate as one of the causes of the its transformation from the world’s largest creditor nation in the 1970s to the largest debtor nation in the year 2000. Schiff attributes the low savings rate to higher inflation and the artificially low interest rates set by the Federal Reserve.

In a 2002 interview with Southland Today, Schiff predicted that the economic downturn triggered by the bursting of the stock market bubble would lead to a bear market likely to last “another 5 to 10 years.” In November 2002, US stocks began a bull market uptrend which held steady for at least five years, until reversing course in 2008, when the Dow, NASDAQ, and S&P 500 began a decline to less than half of their peak 2008 values, followed in 2009 by the Dow climbing 61% from its low point over the following year. After interviewing Schiff in 2009, journalist and finance author Eric Tyson, referenced various Schiff predictions during the 2000s and stated that “On all of these counts, Schiff wasn’t just wrong but ended up being hugely wrong.” Schiff later released a video stating that, “When I gave that interview in 2002, I had no way of knowing how irresponsible the Fed was going to be … But I recognized that early: back in 2003 and 2004 I changed my forecast … if you look at what happened to the Dow in terms of gold [and not U.S. dollars], my forecast was extremely accurate.”

In an August 2006 interview he said: “The United States economy is like the Titanic and I am here with the lifeboat trying to get people to leave the ship… I see a real financial crisis coming for the United States.” On December 31, 2006 in debate on Fox News, Schiff forecast that “what’s going to happen in 2007” is that “real estate prices are going to come crashing back down to Earth”.

As part of these exchanges on Fox News and his repeated appearances on financial news network CNBC, Schiff had mentioned factors such as speculators and “the absence of lending standards” which are now seen by many to indeed be contributing factors to the housing crisis of 2007-2009. On December 13, 2007 in a Bloomberg interview on the show Open Exchange, Schiff further added that he felt that the crisis would extend to the credit card lending industry. Following this observation, it was soon reported on December 23, 2007 by the Associated Press that “The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP… At the same time, defaults — when lenders essentially give up hope of ever being repaid and write off the debt — rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.”

Since 2007, Schiff has stated many times that if the government doesn’t change course there will be hyperinflation in the US. Schiff is one of a minority of economists credited with accurately predicting the financial crisis of 2007–2010 while “nearly all [macroeconomists] failed to foresee the recession despite plenty of warning signs”. In his book Crash Proof, he described several aspects of the U.S. economy that would lead to a recession.