Creating Wealth #69 - Crash Proof - An Interview with Famous Doom-and-Gloomer
Jason is joined by Peter Schiff, author of Crash Proof and
a frequent guest on CNBC, to discuss the current global economic state.
Costa Mesa, CALIF. (March 2, 2009) During this program, Jason is
going to tell you some really exciting things that you probably havent
thought of before and a new slant on investing, fresh new approaches to
Americas best investment that will enable you to create more wealth
and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the
talk, but walks the walk. Hes been a successful investor for 20
years and currently owns properties in 11 states and 17 cities. This program
will help you follow in Jasons footsteps on the road to financial
freedom. You really can do it. And now, heres your host, Jason Hartman,
with the complete solution for real estate investors.
Welcome to another edition of Creating Wealth. This is Jason Hartman,
your host. Great to have you here today. Weve got kind of a special
show today where we have interviewed a very renowned guest, author and
commentator, Peter Schiff, of Euro Pacific Capital, and Peter is an interesting
guy. I would definitely classify him as a very bearish commentator. Hes
got a very negative outlook on the economy and whats going on. There
are many things where I agree with Peter completely. Hes got his
fans. Hes got his detractors, and most people, when it comes to
Peter Schiff, are on one side or the other. They either like him or they
think hes really, really way too doom and gloomy.
So lets kind of get into this. Let me make a couple comments before
we go to the interview. First of all, as you know, Im a big follower
of his work. I like it and agree with him on most things. However, just
in general, I want to talk for a moment about gold bugs. Have you heard
that expression, someone is a gold bug? Hes a gold bug. Shes
a gold bug. The gold bugs, I think, those are people that generally believe
buy gold. Some of them really think stock up on food; get a ranch with
a weapons cache in Montana type of thing. Some of these people really
believe theres a serious economic collapse coming.
And you know what? Were kind of experiencing a bit of an economic
upheaval right now. So the question is to what degree will this all occur.
None of us really know for sure. Some people think it will be really bad.
Some people think well be into a recovery here in the next six months
to a year. Probably the reality of the situation is that its somewhere
in between, somewhere in the middle because there are just so many unknown
factors and so many intervening circumstances that you just dont
know for sure. We cant predict the future, right?
I generally think that the gold bugs have a very good premise. I do agree
with them that we have a lot of monetary inflation coming and I do agree
we have some degree in some areas of asset deflation. Weve already
experienced some monetary deflation and asset deflation both, and I think
were going to see more. But the question is there are certain areas
in the economy where this is allocated, so we will see how that plays
out and talk about it on future shows of course.
So I believe with the gold bugs, I believe in their premise about inflation,
of course. Youve heard me talk about it a lot. However, generally
speaking, I dont really agree with their conclusion. The reason
is is that I said to someone the other day, someone who responded to one
of our emails that we sent out, they said buy gold because we were talking
about inflation and so forth. And I wrote them back and I said, you know,
I would think gold or other precious metals to be a great investment if
I could finance it for long-term financing, 30 years fixed, if the interest
on that financing were tax deductible, if I could then rent that gold
to somebody else, if I could have it generate a whole bunch of tax benefits.
That would be phenomenal.
The problem is gold, silver, platinum, palladium, all these precious
metals, none of them offer these opportunities. And youve heard
me say before that I believe that to qualify as an investment, something
has to be income producing and thats why I like income property
Now, of course, I dont like income properties in overpriced bubble
markets and I think we are going to see continuing deflation of real estate
prices in many areas, the Coastal areas, the Western U.S., the Northeastern
United States, and several other markets we will continue to see depreciation
in real estate prices there, in real dollars and in nominal dollars, both
of them. But I think there are other areas that have quite the opposite
trend, as youve heard me talk about.
The next issue I want to just comment on in this interview coming up
is the issue of immigration. Now, there is a rather small school of thought
of people who believe that immigration into the United States will dramatically
reduce in the future due to the U.S.s continuing inflationary problems
and other economic problems. And I agree that we may see some decline
However, the question is not will the U.S. increase its standard of living,
maintain its standard of living, or see a decline in standard of living,
which, by the way, for the record, I think we are going to see a decline
in the standard of living for many, many Americans. In fact, most Americans.
The ones who will not suffer that decline, in my opinion, are the ones
who follow my plan and so I wont go into that again, but thats
my general comment.
So its a question of relativity. Look, the U.S. for a long, long
time, for as far as I can see, I believe will be a far better country
than Mexico in which to live. So its not a question of how great
will the U.S. be. Its a question of how much better will it be than
its neighbor to the south and that will keep people coming in here.
Its not a question of how much better is it than many Middle Eastern
or Asian countries, where we also receive a lot of immigrants. Its
better than those. African countries, certainly the U.S. is much better
than almost every country in Africa in a place to live. So its a
question of relativity and we will see continuing population increases
due to mortality rates being reduced in the U.S., life spans increasing,
and continued immigration. Granted, that immigration may take a bit of
a downturn, which frankly, I wouldnt mind because I think its
getting a little too crowded. But I think the net numbers will be increased
in immigration and certainly population. The experts say in 31 years,
were going to add another 100 million people in the U.S. and theyre
taking all this into account of these immigration issues as well and birth
By the year 2050, they say well add 138 million people. Around the
world, when you look at the cost of building materials, construction materials,
were going to increase the worlds population by 2050 by 50
percent. I mean that has never happened in history, so I think well
see a lot more consumption.
My guest host, Dr. Mark MacVay, who kind of co-hosted the program with
me today, he had asked a question about debt, using debt as a strategy
to win in inflationary environments. And I just want to kind of explain
that because Peters thinking instantly was, as sort of a Wall Street
person, that debt was related to bonds. He thinks while youre investing
in debt, youre investing in bonds. We didnt mean it that way.
We meant youre getting a long-term, fixed-rate mortgage, so I think
that will become clear as the interview unfolds and you hear that.
But of course, remember inflation destroys the value of our savings, our
equity in real estate, our bonds, our stocks and thankfully, our debt.
So thats one of our great strategies is to use prudent, long-term,
high quality, investment-grade, fixed-rate debt, attached to very, very
cheap land thats almost free, and a structure where you have rising
prices for construction materials, both in the U.S. and around the world.
Also, Peter mentioned the issue of down payment where he thought this
was a good strategy, but only if you could buy the property with nothing
down or 5 percent down. Heck, if you put 20 percent down on a property,
guess what? Thats one-fifth of the amount youre going to put
down on gold, silver, any precious metal, stocks, bonds, mutual funds.
When you buy these things, in every normal way of buying them I
know there are a few different schemes out there, but were talking
about the common world here youre putting 100 percent down
on these. So again, I think even with 20 percent down, very, very good
opportunity we have.
And then talking about the consumer issue, I asked Peter about the issue
of China creating their own consumer base and the rest of the base creating
their own consumer base, and I do think we are seeing a large growing
middle class outside of the U.S. consuming resources. Good for us with
our investment philosophy definitely. But when asked about why is China
propping up the U.S. economy because a lot of people have said they buy
our Treasury bills, they keep their currency weak intentionally
many people have criticized them for doing that to make our dollar
in relation to it more valuable and keep our dollars stronger so we have
more buying power, and they increase their export business to the U.S.
The U.S. is their largest customer and while I believe that ultimately
in the future, they may want to sell off those Treasury bonds, which will
likely cause much higher interest rates here so again, lock in
those long-term, 30-year, fixed-rate mortgages, even if you have to put
10, 20, even 30 percent down, very, very good bet in an inflationary environment
and in an environment where we see interest rates increase. So thats
good for us as well. Theyre not going to walk away from their biggest
customer too easily. Of course, I think gradually the shift will be toward
creating their own customer base in other customers around the world.
And then the last comment I have on this interview, which is something
Ive been meaning to talk to you about more on the show, is the concept
of stock investing, and when I think Wall Street really, really became
a scam. A long time ago, before the mid-1980s or so, the focus with investors,
who were buying stocks, was simply this. Dividends, dividends, dividends.
The big blue chip stocks, a lot of people, especially older people would
buy those stocks and they would love the dividends that the stocks were
paying them. And the big question when investing in a stock used to be
how much does it pay, meaning what is the dividend that stock pays?
And what started to happen is you started to see these CEOs, the boards
of directors of these companies, the investment banks, the fund managers,
basically, these crooks, whether it be legalized criminal activity of
taking these huge management fees off the top. So they were skimming the
cream off the investment and the shareholders really didnt get a
very good deal of whats left over.
So what they had to do, I believe, is Wall Street had to divert the investors
attention from how much does it pay or is there a dividend to hey, gee,
the stock has a great story and its going to be a big run-up in
stock value. And thats when Wall Street really became a very lame
deal in my eyes because we moved away from prudent investing, where an
investment would produce income, cash flow, and our investments produce
income. Anything that qualifies as an investment in my book has got to
produce income. If it doesnt produce income, it is purely a speculation
or a gamble.
And so toward the end of the interview, we address this with Peter a
little bit and again, if it doesnt produce income, forget it. Stocks,
big speculative, well, you know whats happened to millions and millions
of people who have done speculative stock investment or speculative precious
metals investments. They havent done too well, at least historically.
There are a few exceptions, but by and large, its not good.
Anyway, its my real big pleasure to bring this interview to you
with Peter Schiff. Weve got a bunch of great guests coming up on
future shows, so listen in and after the interview, we will look forward
to seeing you on the next edition of Creating Wealth.
Its my pleasure to welcome Peter Schiff, the author of Crash Proof,
How to Profit from the Coming Economic Collapse. Peter, welcome to the
Thanks for having me.
Great to have you here. A lot of stuff going on in the news, obviously.
Tell us a little bit about the WaMu situation. Weve got the biggest
bank failure ever, I guess, on our hands now.
Yeah, Washington Mutual has basically collapsed. Over night, the Federal
government shut it down. Their deposits and I guess a number of the assets
were sold to J.P. Morgan, which I think now has become the biggest bank
in the United States as a result of this acquisition. But the events that
led to the failure, of course, of Washington Mutual will ultimately lead
to the failure of many lending institutions throughout the country and
thats because they simply loaned too much money to Americans who
cant afford to pay the money back.
Americans have been borrowing money for decades, but in the last five
or ten years, theyve certainly raised that to an art form. But they
borrowed a lot of money to buy houses, to overpay for houses that they
couldnt afford, to buy cars, to take vacations, to buy appliances,
to go to college, to do all sorts of things. They cant pay the money
back and so the banks that have been lending the money naturally are going
to go bankrupt because they cant collect.
I know. What an elementary concept. Its amazing that we didnt
see this coming. Well, a lot of people did, like you and many others,
but its just been so totally irresponsible, its incredible.
How many more bank failures do you think well see over the next
two years or so?
Oh, hundreds. I mean maybe thousands. Banks are going to fail and of course,
the government guarantees all deposits and the government doesnt
have any money, so they just have a printing press. And so what people
have to bear in mind is even if the FDIC insures you, that if you have
money in the bank, you will get it back. What they dont insure is
what that money will buy and its my fear that based on the types
of bailouts that are presently being discussed by Congress that when you
get your money back, it will have very little and maybe no value whatsoever.
I completely agree with you. Whats going on now in the credit crisis
has been called by Bill Bonner a war on bear markets, as if weve
got the war on terror; now weve got the war on bear markets. What
do you think about this?
Well, maybe even a war on recession. I mean the government is trying to
desperately stop this recession and its just like King Canute trying
to stop the tides. This recession is coming and theres no way the
governments going to stop it.
Yeah, exactly. So they prop it up, they put band-aids on it, and do you
think theyre making the long-term problem worse by doing that?
Of course. Of course, theyre making the long-term problem worse.
And I dont think the long-term is going to be decades or maybe even
years. I mean it could just be a matter of months is all theyre
buying us. But for politicians, when an election is six weeks away, if
you can push off the catastrophe by a few months, its worth doing.
What do you think this will create, Peter, in terms of if you had to make
an analogy between the coming American economy and comparing it, say,
to Japan or Argentina?
Well, its going to be much more similar to an Argentina. Japan is
a very different situation. Japan clearly had a bubble in their economy.
They had a bubble in houses and they had a bubble in stocks. Theres
no question about that and that bubble burst. But beneath the surface
of those bubbles was a healthy economy. The Japanese were manufacturing
and producing and exporting and saving, and so when the bubble burst,
it created problems, but it didnt destroy the fabric of their economy.
You contrast that to the United States. We had bigger bubbles than Japan
or as big, but the foundation of our economy was not nearly as sound because
beneath the surface was a lot of borrowing to consume, big trade deficits,
and big current account deficit. So we were borrowing all this money to
finance our bubbles, whereas the Japanese actually paid for their bubbles
themselves. And so the bursting of our bubble economy is going to be far
more problematic and far more painful for American citizens than the Japanese.
Now, one thing we do have in common is that Japanese politicians repeatedly
interfered with the free market and so exacerbated the economic downturn
in Japan. It would have been much less painful for the Japanese had the
government stayed out of it and allowed the free market to function. And
so were making those same mistakes, but were playing with
a much bigger fire than they were.
Yeah, I agree completely. Where do these $700 billion number come from
as we hear this bailout?
I think they came up with that number because it was less than a trillion.
But theyre pulling these numbers out of thin air. They dont
know what its going to cost. And in fact, $700 billion is more likely
the down payment. There are trillions and trillions of dollars of impaired
illiquid assets out there on the balance sheets of banks and insurance
companies all over the world, and Im sure they would blow through
that $700 billion very quickly.
Remember when Paulson came to Congress initially asking for that bazooka
to try to save Freddie and Fannie, and he swore that he would never use
it; please, please, please just give me this power, and Ill never
have to use it. I mean he used it the first chance he got.
And so theyre going to use it. Theyre saying were going
to do this slowly in installments and itll be a little bit at a
time. No way. Theyre going to blow through the whole thing and then
theyre going to be asking for more.
Boy, thats going to make the dollar increasingly more worthless
all the time. Mark, you had a question.
Yeah, Peter, Mark here. Im a client and a big fan of your writing.
Were starting to hear more and more about the looming crisis in
the derivatives market, but for the average American, they really have
a poor understanding of what that entails. Can you flesh that out a little
bit more for us?
Yeah, all the derivatives market has to do with the counter-party risk,
the other party to a derivative. The way a lot of people could understand
it, most of us have some type of insurance. We have fire insurance, we
have auto insurance, and when we get into an accident, we rely on the
insurance company to actually make good on the promise. Weve been
paying the premiums over the years and oh, okay, I had a car accident.
I put in my claim and you expect that claim to be paid.
Well, you have a counter-party risk there because what if the insurance
company doesnt pay your claim because theyre broke? Well,
this is what really derivatives are. Theyre like insurance products.
Theres credit default swaps or all sorts of things where somebody
agrees to pay off somebody else in the event that something happens. And
they collect income from that. They collect premiums.
But ultimately, what happens is you have so many different financial
entities out there insuring against things that they thought would never
happen, and so they didnt accurately price the insurance and they
dont have enough money to pay all the claims theyre going
to get. So it would be like in your local neighborhood, lets say
theres somebody that is writing fire insurance and theyre
charging a premium based on the fact that maybe one house out of 100 is
expected to burn down in any given year. Well, lets say all of a
sudden, theres just a raging fire and every house in the community
is burned down. Well, the insurance company cant possibly pay, so
they go bankrupt and now, all of a sudden, a lot of people who thought
they had homeowners insurance find out they had nothing because
the insurance companys gone.
Well, thats whats going to happen all over Wall Street. People
are going to find out, oh, I had some insurance against this company going
bankrupt, but then they realize that the counterparty just really cant
make good on that. Youve got trillions and trillions of dollars
of derivative instruments out there, where people assume that certain
risks are covered. But the reality is theyre not because theres
not enough to pay for all the claims.
So Peter, just outline the next couple of crises that are about to come
our way. I mean weve got the Alt A loan. Weve sort of gone
through a lot of the subprime. Weve got the Alt A, weve got
the Pay Option Arms, weve got derivatives.
Well, all these various crises have to do with Americans not being able
to pay their debts, which is obvious. Its showing up in the subprime
mortgages first and its creeping into other types of mortgages,
like the Alt As and now its going to be the Option Arms and
all sorts of gimmicks where Americans bit off more than they could chew
by relying on short-term financing tricks. Where for a few years they
could pay interest only, they could do a negative-Am, or they could have
a teaser rate, but then ultimately, the mortgages reset beyond their ability
to make the payments. And thats going to happen.
But were also going to see crises in the ability of Americans to
pay back other types of debt, like student loans, like automobile loans,
like credit card debt, because Americans are basically broke and they
have so much debt. Meanwhile, more and more of their incomes are going
towards basic necessities, like food and insurance and energy, and more
and more Americans are actually losing their jobs. Or if they still have
jobs, theyre not earning as much as they were. There are plenty
of people working as realtors, for example, on commission and obviously,
there commissions are a lot lower now than they used to be.
Yeah and many of them dont earn any money. They dont show
up on unemployment.
[Inaudible] they cant handle the payments that they thought they
were going to be able to handle because they assumed that their commissions
would always be going up. So as Americans start to default on their debt,
you have one financial crisis after another, as the lenders, who are holding
onto these instruments, have to write down their value because all these
assets are held. A lot of the credit card debt, and the auto debt, it
was all securitized and sold to Wall Street, just like mortgages.
Same thing with a lot of times you go into a department store and they
advertise that you can buy some products and you dont have to make
any interest or any payments until January 2009. All that paper is securitized
and somebody owns it on Wall Street somewhere. But all of a sudden, when
the American who bought that fancy stereo equipment or that bedroom set,
when January 2009 rolls around and they dont have the money to make
the payments because they were counting on extracting some home equity
or they were counting on a job that they dont have. Well, they cant
make the payments. And so all of a sudden, that paper loses value.
And then theres a Washington Mutual or a Bear Stearns or somebody
thats got that payment on their books. And in fact, there could
be some hedge fund that owns that paper, but theyve leveraged it
up ten times, so they own a million lets say they own $100
million of that paper with $10 million in equity. And so its just
a chain reaction, but you have a whole economy thats built on the
ability of Americans to continue to pay their debts. Well, we know they
cant do that.
Yeah, so Peter, two quick metrics I want to get from you: Your opinion
on the true unemployment rate and your opinion on the true rate of inflation.
Well, the rate of inflation is the degree to which money supply is growing
or the expansion of the money supply. Now, if we measure the effects of
inflation using consumer prices, which often is not a very good way to
do it, but as far as the public is concerned, we like to measure the effects
of inflation by its effect on the prices of things that we buy. And up
until the late 1990s, the CPI was a relatively good measure. We tinkered
with it a little bit in the 80s, but we really screwed it up in
the 90s when we gave the government the ability to subjectively
alter the components of the CPI.
So rather than just looking at a fixed basket like we used to, the government
is able to adjust the basket. Theyre able to include and exclude
certain items. Theyre able to heavily weight items where the price
went down and underweight items where the price went up. Theyre
allowed to substitute one product for another based on consumer preferences
and the way they might respond to changing prices. Theyre also now
able to adjust prices for changes in quality that they perceive, so if
the price goes up, they can subjectively say the price went down because
we think its better than the old model.
And so because of all this tinkering around, I think the index has lost
all meaning and I think the reason theyre tinkering with it is because
theyre trying to keep the index low. So my guess, and if you look
at the work of John Williams And Shadow Government Statistics, and just
anecdotally, just by looking around at the things that I buy, I would
guess that the consumer prices are probably rising around 10 percent a
year, maybe higher at this point. And so the governments said numbers
are a complete sham.
And I think, too, when you think about it, if inflation is really running
at about 10 percent a year, then the economy is in a recession right now
because the government, when they report the economy growing at 2 or 3
They dont adjust for inflation.
-- its because theyre using a phony GDP deflator to adjust
the nominal increase in GDP for what the government claims is inflation.
And to me that makes a lot more sense because it feels like a recession.
The average American is convinced were in a recession, yet the media
wants us to believe that theres some kind of disconnect between
the public and reality. But the real disconnect is between the government
numbers and reality. Were in a recession and its getting a
Couldnt agree more.
As far as unemployment, I think thats the same thing and I think
this bears to doubt that the government has constantly changed the definition
of who is considered unemployed, and so as they change, they basically
make it harder to qualify as unemployed. So today, a lot of people are
unemployed who would have been counted as unemployed 10 or 20 years ago,
but who are not counted that way today. And so thats one of the
reasons that the unemployment rate is still so low because if youre
unemployed and youre not actively looking for a job, if youre
discouraged, then you are not considered unemployed.
Or if youre an independent contractor.
If you lost your job as an engineer and while youre looking for
another similar job, you take a part time job at McDonalds, youre
not considered unemployed. If you happen to open up your own online store
on eBay while youre looking for a job and on your online store,
youre selling off your furniture because youre so broke, all
of a sudden youre not unemployed. Youre an entrepreneur on
eBay. Youre a small business owner.
And of course, a lot of Americans now work as independent contractors
because the labor laws are so onerous in many cases, employers dont
want to hire people, so a lot of people are forced into an independent
contractor status. Well, independent contractors can never be unemployed
because theyre never employed.
And lets say youre a realtor and you used to work and used
to make $50,000.00 a year and now youre making $5,000.00 a year
because youre not selling any real estate. I mean youre basically
not employed anymore, but youre not counted as unemployed. Youre
seriously under-employed. So theres all sorts of things in there
that skew the numbers.
Yeah, I completely agree.
I would guess the unemployment rate is probably about 10 percent as well.
Good point. I completely agree with you, Peter. Ive employed in
my old real estate company many independent contractors and they dont
hit the rolls, but I know theyre not making any money. I signed
their checks, so its definitely true. Peter, youre bullish
on commodities. What do you think will happen to the price of building
materials, like lumber, glass, copper, wire, all the petroleum products
that go into a house, etc?
Look, obviously, theyre going to be depressed for some time relative
to other commodities. The ones that are because home building is
certainly going to slow down in the United States. Theres no question
about that. But over time, home building is going to pick up dramatically
outside the United States, particularly in Asia. So to the extent that
those building materials are transportable, I think ultimately the prices
are going to rise because of the much higher construction abroad.
But certainly, in America, were not going to be building homes
for a couple of generations. Weve got more homes than we know what
to do with. But ultimately, I think it will mean that homes at some point
will be selling for way below their replacement cost. The land will be
free and the structures will be selling for less than it costs to replace
Yes, so how deep do you think the inventory hangover problem is?
Well, I think its huge. I mean I think its bigger than the
government admits because I know for a fact that a lot of the homes that
are actually on the market are not even being counted because lets
say when a home builder sells a home, and then the person who bought the
home decides not to follow through and they walk away, that home is not
even considered in the inventory, but its there.
I also think theres a lot of people who would like to have their
house on the market, but theyre not on the market because they know
they wont sell. But theres a lot of people who want to sell
their homes, but they just dont want to list them because they dont
want them to sit on the market and have the stigma, so theyre waiting
for an upturn in the market and then they want to list their prices. So
I think theres a lot of hidden inventory that will hit the market.
And I also think that theres going to be a lot of properties coming
on the market ultimately because I think theres going to be in this
recession, I think, a lot of people are going to a lot of households
are going to be destroyed. I think you have a lot of homes right now occupied
by single people in their 20s. I think thats going to change.
I think more people are going to move in with roommates. I think more
children will move back in with their parents. I think more elderly parents
will move back in with their grown children. And so I think the supply
of housing for sale and for rent is going to continue to increase, depressing
So just out of curiosity, when you look at that number, the population
numbers coming at housing are pretty darn good. I mean 31 years, another
100 million people. Its growing fast, but I know weve got
a huge inventory out there.
How do we know that the immigration trends arent going to reverse?
How do we know that we arent going to raise taxes so onerously to
try to you know, that were going to have people fleeing the
country? So I would just assume a lot of immigrants are going to be coming
here. They might be going the other way.
Yeah, thats an interesting point and a lot of people have talked
about that. My theory is, though, that the relative difference is really
the issue. This will still be a better place to live than Mexico for a
long time coming.
Well, we dont know that. We dont know what kind of laws are
coming down the pipe, what kind of draconian, martial law. I mean who
knows? I have a feeling that whats going to happen here is that
as they continue to create money to try to stop this recession from happening,
theyre going to let loose massive inflation. Ultimately, I think
the government is going to impose price controls on food products, price
controls on energy, and its not going to be a very fun place to
live when you have to wait in a long line to try to buy a loaf of bread.
Peter, speaking of the draconian laws, in 1933, the government outlawed
the private ownership of gold. Recently, albeit temporarily, outlawed
short selling. How far away or how seriously should we take the potential
confiscation of gold in the United States?
Oh, very seriously. I wouldnt put anything past them. Look, they
just bought up AIG. They can buy anything. Thats why with my clients
at Euro Pacific Capital, not only do I recommend that they buy gold, but
I buy it for them and have it stored in Australia through this Perth Mint
program because I think its not just important to have gold, but
that you have it out of the country. I was just watching on CNBC, Mark
Faber today saying the same thing, that youve got to own your gold,
but you have to own it offshore because you have to own it in a place
where the U.S. government cant seize it.
Shorting stocks has been temporarily outlawed, like we just mentioned.
What do you think in addition to acquiring certain assets around the globe,
what do you think of the value of holding long-term, fixed-rate debt in
a soon-to-be hyperinflationary environment?
Well, youd have to be a complete moron to have any U.S. government
bonds, any bonds denominated in U.S. dollars, whether issued by the U.S.
government or by state municipalities or corporations. But thats
going to be wiped out. I mean thats just all these bailouts,
everybody in Congress, theyre all talking about the taxpayer, the
taxpayer, lets protect the taxpayer. Its not the taxpayer.
Were not going to pay for this through our taxes. Nobody is talking
about raising taxes. This is going to affect us as wage earners. Its
going to affect us as savers and investors because the value of what were
earning and the value of what were saving is going to be the base
to fund all these bailouts.
And so the people who are going to lose the most are the people who have
the most amount of savings and investments, and these are the people who
are buying bonds. The elderly people on fixed incomes, theyre the
ones that need to take action. I mean thats what my firm, Euro Pacific
Capital, is all about. Its trying to get those individuals to understand
that their savings are in jeopardy, that their investments are at risk
right now, if theyre denominated in U.S. currency, especially if
theyre in bonds. And they need to take action now to change the
portfolio so that the portfolio is not dollars, so if you own bonds, you
own obligations of Singapore or Switzerland. Not the United States. You
get them in currencies that arent being debased.
Yeah, good point. So Peter, we were taking that, though youre
talking the question of being the bondholder, which we definitely think
bonds are a terrible deal and we definitely see the devaluation of the
dollar a lot further. What were talking about is when you buy properties
on really cheap land, where like you said, the land is free, you buy at
or below the cost of construction, and you turn around and you lock up
a long-term, 30-year, fixed-rate mortgage. I mean in a hyperinflationary
Yeah, in a hyperinflationary environment, that strategy will work. Now,
if you have to put a down payment, then the bigger the down payment, the
more I would question it because potentially, if you have to put 20 percent
down, if you just simply put that 20 percent in gold, the gold would probably
go up enough so that in a few years, you could buy that property without
a mortgage anyway. But if you can do it with nothing down or very, very
little down, you can lock up money for 30 years at 6 percent, and you
actually can buy a place thats not in a bubble market, then yeah,
its probably not a bad thing to do because youll end up owing
the money for free.
But where youre making your money is not as a property holder. Youre
making your money as a debtor, having your debts wiped out.
Couldnt agree more.
The value of U.S. property is going to go down in real terms, so I certainly
wouldnt buy any property for cash right now. But if I could leverage
it up good I would still avoid markets like California, which have
a long way to go, but maybe if youre in Des Moines, Iowa, or some
little town in North Dakota where real estate prices are reasonable, if
you could buy a property and lock up a $500.00 mortgage payment, then
in five or ten years, your mortgage payment could be the same as what
it would cost you for a tank of gas.
Yeah, what do you think about as we see the dollar collapse, what do you
think about the possible introduction of a new currency like the amero?
I dont think were going to be able to pull it off. The amero,
which would include the peso and the Canadian dollar, merge into our collapsed
currency. But I dont know that were going to have a new currency.
I mean we might continue to have the dollar. Its just that the dollar
will be at a much lower exchange rate. The only thing that would change
would be if we were to back the dollar by gold again and that would be
a positive change. If we just say okay, we used to use the dollar and
now were going to use the dollar II or whatever were going
to call it, I mean if its basically backed by nothing, its
no different than the dollar that theyre replacing.
Peter, let me ask you. In some of your writings, you talked about the
global economy eventually decoupling from the United States, but given
all these credit derivatives and given how everything seems to be cross-collateralized
throughout the globe, if and when, how do we see that happening because
it seems like the United States
Im not talking about a financial decoupling yet. Obviously, the
creditors are suffering when the debtors cant pay and thats
what were seeing. The rest of the world is hurting because we cant
pay back the money we borrowed. This is just the blowing up of the vendor-financing
scheme. The world is vendor financed. Theyve loaned us money to
buy their stuff. We cant pay them back and now theyre taking
But ultimately, the world will be able to decouple and the global economy
will be fine. The global economy is not suffering because Americans cant
spend anymore. Thats not the problem. The problem is we cant
pay them back the money we borrowed. But going forward, the world is fine
without Americans buying stuff because the rest of the world has plenty
of consumers and as long as the dollar sinks, other currencies will go
up and our purchasing power will simply be transferred abroad.
Any thoughts on why the Chinese are so willing to hold our bonds? Why
are they doing that? It seems like theyre propping up our currency,
but what are they getting out of it?
Well, people do foolish things. Theyre doing it out of desperation,
out of hope because they already own so many. Theyre trying to preserve
the status quo. I mean we are the worlds biggest customer. Its
like if you ran a small store and you had one customer that was buying
such a high percentage of your goods and they were in trouble, you might
feel compelled to help them out because you want to keep the business.
But once you realize that no matter how much you help them, theyre
going to go broke anyway, you might have to decide to cut your losses.
And ultimately, the world is going to realize that the cost of propping
up America far exceeds the cost of letting us collapse.
So what do you think about the thought of Chinese creating their own consumer
class and not needing the American customers.
They dont have to create it. It exists. Its created by itself.
You have a billion Chinese who are working hard and producing, which means
they can consume. The reason theyre not consuming is because the
Chinese government is stealing their purchasing power and giving it to
us. Theyre suppressing the exchange rate of the R&B to prop
up the buying power of the dollar so that we end up outbidding Chinese
citizens for the very products that they would love to be able to consume.
And if the Chinese government stepped out of the way, then the R&B
would rise and all of a sudden, the Chinese would be buying stuff and
wed be left out in the cold.
So do you think theyll do that at some point? And if so, when?
Eventually, they will, yeah. Its going to happen soon, whether its
in six weeks or six months or six years. I dont know, but its
coming. This is not something that our grandchildren are going to deal
with. This is something that were going to deal with.
Our current situation is pretty scary, Peter. What is your advice for
protecting wealth and profiting in the future?
The advice is re-diversify their investments outside the U.S. dollars.
Diversified portfolios of dividend-paying stocks, precious metals, foreign
bonds to preserve wealth, in the event that Im right and the dollar
does collapse. In the event that Im wrong, worst-case scenario,
youve got a portfolio of foreign stocks that pay good dividends.
So I think its a very prudent approach. You can hope for the best,
but plan for the worst and thats basically what were doing.
The important thing is to get out of U.S. assets while you can, get rid
of the dollar before it loses much more of its value, and accumulate assets
that are going to hold their value, and that are going to provide you
with income in currencies that are not the dollar.
Excellent. Well, Peter Schiff, thank you so much for joining us. Any final
words in closing?
Just anybody tuned in, make sure to go to my website. Its www.europac.net.
Good stuff. Well, Peter Schiff, thanks for being with us. Good to have
you on the show. Thanks.
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[End of Audio]
Duration: 45 minutes
About the host, Jason Hartman:
Jason Hartman is the Founder and CEO of Platinum Properties Investor
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