Peter Schiff on the dollar crisis, Fed and future of gold prices

Peter Schiff: Precious Metals.

BGG: Precious Metals. And I just wanted to sit down with you and ask you a little bit about the future of gold and the markets. You famously predicted the crash of 2008, 2009, and I loved watching your interviews on television where they would just laugh at you, and just ridicule you, but in the end you had the last laugh.

Peter Schiff: Not yet. Not even yet. Because the people that were ridiculing me back then are still ridiculing me, because I’m still warning that the real crisis hasn’t even happened yet. Because everything that the Federal Reserve has done, everything that the government has done since the financial crisis of ’08 has just made the problems that they were trying to solve worse. Problems that they caused.

BGG: They’ve learned nothing. They’ve learned absolutely nothing because they don’t understand what caused it.

Peter Schiff: No, they still don’t understand even after the fact. So we’re going to live through a worse financial crisis. Next time I think it’s going to be a dollar crisis, which is going to be much more painful than a banking crisis. And in that environment gold is going to shine a lot brighter than it did in the last crisis. And so the reasons to own it now are even more numerous than they were then.

BGG: So you predicted the housing bubble, do you think they’re actually creating a dollar bubble?

Peter Schiff: Well there’s been a dollar bubble the whole time. It’s global in nature, everybody owns dollars but they don’t really need them. They just use them for trade. But it’s really a leftover from a different era. The dollar became the world’s reserve currency because we dominated the world financially, economically. We don’t do that anymore. We’re not the world’s biggest creditor, we’re the world’s biggest debtor. We have huge trade deficits, not trade surpluses. We’re bankrupt as a nation. So, the currency of a bankrupt nation shouldn’t be the world reserve currency, yet it is and we have a lot of global imbalances. There’s lots of bubbles, it’s very dysfunctional. The world tried to maintain the dollar at the center of the monetary system and it won’t be at the center much longer. And the question is, what’s going to take its place? And again, that brings me back to gold. Because I don’t think the Euro is ready or the Yen is ready. I don’t see any fiat currencies that can replace the dollar. Not that they wouldn’t be better than the dollar. I think there are other paper currencies that are in better shape than the dollar. But I don’t know that the world is willing to embrace them because they are flawed. I mean, the world would not embrace the dollar today. If the dollar wasn’t the reserve currency right now, it never would be. It’s all because it used to be the reserve currency.

BGG: Yeah, and old habits die hard.

Peter Schiff: Yeah, but it’s still going to die. And in the meantime though, people should buy gold while it’s still cheap because when gold is remonetized, when it’s once again at the center of the monetary universe, when countries are holding gold reserves as opposed to dollar reserves… Central banks have a lot of gold to buy and the price only has one way to go, and that’s up.

BGG: Right. What do you think about, lately, China and Russia and those kind of guys talking about a regional reserve currency? Do you think they are eventually get together and make that happen? Instead of like a global reserve currency maybe blocks of regional reserve currencies?

Peter Schiff: Well, everybody is talking about ways to extricate themselves from the dollar system. Especially now, you know, there are a lot of news stories, the U.S. has been fining European banks, Swiss banks, British banks, French banks. And the only reason we can do that is because the dollar is a reserve currency and all of these transactions are taking place in dollars. But the banks are not violating laws in their own countries. They’re just violating U.S. laws even though they’re not on U.S. soil.

BGG: That they never agreed to.

Peter Schiff: So we’re just making a lot of enemies. You know, we’re talking about biting the hand that feeds you. And of course we’re also antagonizing people through the NSA. I mean, we’re spying on our friends. And they don’t like that. I don’t like it when the U.S. government spies on me, I can imagine the Germans don’t like it, or anyone else likes it any more. So you know, we’re antagonizing a lot of people that we really need to be sucking up to.

BGG: For sure. Yeah, and the solution to things like that, that fine we just imposed on BNP Paribas is for them to not be doing those transactions in dollars.

Peter Schiff: Well, the only reason that they’re agreeing to the fine is because they don’t want to get shut off from the dollar’s wiring system. But that’s the reason the U.S. government has all this leverage, but one day they’re going to lose that leverage. And especially, you have the CEO of Total, which is the big French oil company, saying, “Why are we dealing oil in dollars? What’s the reason?” Even Airbus, when Airbus sells a plane in Europe, they invoice in dollars. I mean, it’s a European manufacturer, they shouldn’t. Again, it’s a holdover from days long gone.

BGG: Yeah, especially now that gives us a plausible excuse, in our mind, to oversee that transaction or police it in some way, obviously. At Birch Gold, we’ve been talking a lot about FATCA and those laws that have just gone into effect. What’s your view on that and how soon do you see serious implications coming from that?

Peter Schiff: All of that further undermines the desirability of owning dollars or U.S. financial assets, U.S. stocks, because of the extra reporting requirements that are required. So the higher costs that are required and the loss of privacy that is involved. So again, it’s just making the dollar less desirable at a point where we need as many foreign dollar buyers as possible. The U.S. government has an enormous debt, Americans have no savings. So how is the U.S. government going to finance itself? It needs to find foreign lenders. But if we keep punishing people and fining them and taxing them for loaning us money, for holding our currency, it’s just going to hasten its demise. As far as I’m concerned, the demise of the dollar couldn’t come too soon. Because the longer it takes, the worse it’s going to be. Let’s just get it over with and deal with reality.

BGG: Yeah, and adjust to a new normal as soon as we can. My theory is whatever currency takes the place of the dollar will be convertible into gold but no longer in dollars. Your dollars are going to be worthless but your gold will adjust.

Peter Schiff: Well hopefully the dollar won’t be worthless. I mean it will be worth a lot less than it is today, but worthless would mean zero. So if the dollar were worthless, you could have a hundred million of them and not be able to afford a subway ticket. There’s a lot of distance between being worth nothing and being worth a lot less than it is today. And clearly the dollar is going to lose a lot of value, probably most of its value. But I certainly hope it doesn’t lose all. That would be pretty… you’re talking Weimar Republic or you’re talking Zimbabwe.

BGG: Yeah, I’m thinking worst case scenario.

Peter Schiff: That is the worst case scenario! But I don’t know that it’s the most likely scenario.

BGG: Well, what you’re talking about is bad enough.

Peter Schiff: Yeah, the dollar is going to be marked down considerably. You can go to a store and there’s merchandise 80-90% off, you still have to pay for it. It’s a big mark down, it’s not free. They never give it away, just take whatever you want right. But they mark it down a lot. And so, you know, it’s going to be a big, rude awakening for a lot of Americans. You know, the Americans that had the foresight to get rid of a lot of their dollars and own gold or other foreign assets, but it’s easy obviously to buy gold or silver, but that’s going to preserve its value. The dollar won’t.

BGG: Do you think that silver is better than gold?

Peter Schiff: Well, better for what? Gold is a little bit more portable, it’s easy to store because you have more value concentrated in a smaller space and I don’t know that the central banks are going to start hoarding silver. They’re going to, again for the same reasons, they’ve got the storage problems. But if you’re just looking at a percentage move, is silver likely to move up? I mean, if gold goes to $5,000, will the percentage increase in silver be greater? Well, my guess is that it would be. My guess is that when gold is at $5,000, I’m saying “when” because I believe that it’s inevitable, but when gold’s at $5,000, will silver be at $100? Because $100 silver is a fivefold increase. $5,000 gold, what is that, well maybe silver will be $150 or $200 when gold’s at $5,000. If gold goes to $500, which I really don’t think it will, you know, maybe silver would go to $5. But I don’t think either of those is likely to happen. But you probably do have more risk in silver. But you have more upside in it. But we still sell more gold to people. But we recommend that people have gold and silver.

BGG: Diversify.

Peter Schiff: That’s among their metals. I don’t tell people to only hold gold and silver. I tell people 5-10% of their portfolio in gold and silver, maybe more. But you have to have other assets. And it doesn’t mean that you should be in U.S. Treasuries, or muni bonds, or the U.S. stock market. There’s a whole world of opportunity out there that people can look at that is still going to give you a hedge against the dollar collapsing, it’s just that you don’t necessarily have to have all your hedges being in precious metals. And, you know, a lot of people need income and you don’t get a lot of income from a gold coin.

BGG: Yeah, and Euro Pacific Capital…

Peter Schiff: My brokerage firm, my asset management company, we help people invest in foreign stocks, in foreign bonds, and foreign property, so that you can have other hard assets, tangible assets, especially as the dollar is no longer the center of the world and the U.S. economy really sinks relative to the global economy. There’s going to be a lot of winners. People focus on the losers, right: What happens if the dollar crashes? What do Americans lose? But it’s not a zero sum game. What Americans lose, somebody else gains when it comes to purchasing power. If Americans stop shopping it doesn’t mean that the factories in China stop producing.

BGG: They just sell to somebody else.

Peter Schiff: Right, so figure out who the new buyer is going to be. Somebody is going to gain the purchasing power that we lose. And I think there’s going to be a realignment of global living standards. The global hierarchy is going to change. Americans are going to be knocked down quite a few pegs. But somebody else is going to come up. And so there is a lot of opportunity, not only do you want to avoid loss as the U.S. implodes, but you want to get in on the gains as somebody else rises to take its place.

BGG: That makes sense. Jim Rogers is big on agriculture, are you also a big…

Peter Schiff: Yeah, anything that the central banks can’t print. But, you know, there hasn’t been a lot of resources devoted to agriculture. A lot of it has been diverted to other activities, thanks to bad monetary policies. So I do think that you’re going to see increases across the board. You’re seeing certain commodities, certain agricultural commodities have done very well recently, some have not, but over time, I think, the rising tide is going to lift all boats, especially when that tide is a sea of inflation that is being unleashed by all these central banks.

BGG: Thank you so much for talking with me. I think that’s enough of your time that I’ve taken up.

Peter Schiff: Alright well I hope you enjoy the rest of your time here at FreedomFest.

BGG: Likewise. Thank you Peter Schiff.