EXCLUSIVE: Peter Schiff Interview

Posted by - Wednesday, July 17th, 2013

I had the pleasure of sitting down last week for an interview with an ever-invigorated Peter Schiff, who treated me to an all-you-can-eat buffet of enlightening metaphors and bon mots.

Now, if you aren't familiar with Schiff's work, allow me to get you up to speed...

Widely known as one of the only analysts to accurately predict the housing collapse of 2008, Schiff was warning of the subprime mortgage crisis back in 2002.

When he tried to warn people of the forming bubble, he was frequently jeered and even laughed at on national television shows... but Schiff had the last laugh when that house of cards came tumbling down.

And that's why when Peter speaks, we tend to listen.

In the following interview, Schiff shares his thoughts on the current and future states of the U.S. economy and Fed policy and, as always, makes some dire predictions...

Hi Peter, thanks for taking the time to speak with Outsider Club.

It's my pleasure, thanks for having me.

You recently said that the Fed really has no plans to roll back its Quantitative Easing program, and Bernanke's recent comments were basically a bluff. Can you elaborate on that?

Well, the Fed never learns from its mistakes. It's not like the Fed is gonna do QE and then when the economy doesn't recover, they say that was the wrong medicine and maybe we should try a different approach. They'll never do that, they'll just go ahead and do it all over again.

They'll just say "Hey, I guess the last one wasn't big enough..."

They will never acknowledge that is doesn't work let alone admit that its actually the problem itself.

It's like a drunk trying to sober up by drinking more and more liquor, and then say "I don't understand, I keep drinking this liquor, and I cannot sober up!"

The Fed is trying to sober up by drinking and I know it's not going to work.

At some point they had to start talking about an exit strategy, they have to pretend there's actually a way out. There isn't...

They won't sell any of these bonds, because who is going to buy them? Nobody. All this talk of an exit strategy is B.S., a bluff. But the Fed has to pretend, other wise they have to admit that the increase in the money supply will continue forever.

But now they are just talking about tapering, not exiting. Tapering is simply growing the balance sheet more slowly.

Bernanke's own words were: "We're not stepping on the breaks, we're letting off the accelerator."

But the car will keep moving forward. We need to slam on the breaks, come to a complete stop and THEN put it in reverse. They have to go backwards. And they certainly aren't doing that.

So you don't think that they'll roll QE back to $65 billion a month by September, like Bernanke alluded last month?

No, I think they'll step on the gas and roll it up to 125 billion or 150 billion. Because it's like drugs and a tolerance. The economy is so addicted to QE, that the more you maintain it, the more the economy needs to stay high. As the bubble gets bigger, the more air you need to sustain it.

So I don't think $85 billion is enough. They're going to have to take it to $125, $150, $200 billion, $250 billion... They're going to have to do it bigger and bigger. The minute they stop, it's going to implode.

The more easing we do now, the bigger the government gets, as the national debt gets bigger and bigger. The Fed has to monetize more debt.

What happens when the budget deficit is $2 or $3 trillion a year?

The more QE we do now, the bigger the government gets because its able to run bigger deficits, so its just more QE will have to do tomorrow to sustain it all.

So they are basically chasing the dragon...

Exactly. And the irony is that the Fed points to the housing market as a sign of recovery. But the only reason the housing market is getting better is because of the QE. How to you take it away?

It's like you have someone plugged in on life support, and now all the sudden they start to come to and you just yank out the plug. You can't do that, the plug is the only thing keeping them alive!

The minute you take away QE, we're right back into recession...

Speaking of recession, I just read that the second largest employer in the United States is a temp agency.

Yes, I think something like 10% of the entire nation's workforce is now temp. They can't afford full-time workers, the government has made it too expensive. That's a big sign that we never had a real recovery. We have a smaller labor force.

Only 47% of Americans have full-time jobs. But we actually have fewer people working full time. What we have is part-time jobs to replace the full-time jobs that are being lost.

So some people have two jobs now: The same guy working two places counts as two jobs. But its just one guy.

The economy is shrinking. There's more and more people on food stamps, welfare, and disability. So all the anecdotal evidence says we're still in a recession. It's just the government's phony numbers that say otherwise... It's a phony recovery that will fade if the Fed stops.

The analogy everyone wants to use is that the economy is a bicycle and the QE is the training wheels. The truth is that QE aren't the training wheels, they are the only wheels we got. The economy is just a frame. We're rolling on QE.

To take the analogy further, I'll say the bicycle is heading towards a cliff. If we don't remove the wheels, we'll go over the cliff. Either way, we're aiming for a fall. But it is far better to fall now then to go over the cliff and drop a great distance to your death.

But the Fed doesn't care, the Fed doesn't want that short-term pain, so they'd rather kill the economy in the long run — which is where we're headed.

Well, it would be awfully tough politically to say, "Hey, let's take the wheels off and crash this thing right now..."

Yeah, but the alternative is to leave them on and crash it later, when it will be much worse.

Maybe the politicians are just hoping for a miracle.

It's like Bernie Madoff. That's exactly what he said, too. People asked him, "Why did you keep doing it?"

He said "Well, I was hoping for a miracle. I was hoping it would all work itself out." And you saw what happened with him...

Everything is fine, as long as the politicians can say it's not on their watch. If they can get through their term, it's someone else's problem. For all they know, they can postpone it for 10 or 20 more years.

So that's why they're going to come up with an excuse for not tapering. Maybe inflation is too low, maybe they'll say interest rates are shooting up too fast, weakness in Europe or China...

They'll look for some external factor to justify it.

If they would do the right thing, they'd slam on the breaks and start working out these problems.

But they have no interest in that. They will do anything that's politically expedient.

Barack Obama will make sure of it. He's not going to appoint anyone who will do a good job...

He'll appoint a lackey so they can keep their party going.

Ok, Peter... So let's say your predictions come to pass and the Fed ramps up the money printing. What does that do to gold in the long and short term?

It's going to spike in price. It's setting itself up for a horrific rally. You've had so much speculative liquidation. A lot of the gold that speculators have bought in the last few years has been liquidated over the last couple months. 

When the market turns around, as it will, when the people who sold it want it back again because the prices are rising again, when people realize that we aren't in a recovery, the Fed won't stop easing... when people realize why gold has been going up for the last ten years, they'll want to buy it back.

But when they want to buy it back, where is going to come from?

I don't believe that the institutions and individuals buying gold the last couple months are interested in selling it. When gold goes to $1,500 or $1,600 again, they won't be blowing out of their position.

I think the gold being bought will never be sold.

There will be a huge rush to buy gold when the momentum turns. And we know miners aren't going to be producing it. Production won't be there, and the supply was just bought up and taken off the market.

I think this could be setting up for a spectacular, parabolic rise in the price of gold.

It's been a bloodbath for gold over the last year. Can you even begin to predict a bottom at this point?

It's hard to pick the bottom, because you are usually wrong... but what I tell people is, “It doesn't matter where the bottom is.” 

What if it goes to $1,000 or $800? There are a lot of “what ifs.” It doesn't matter, because it can't stay down there. Not for any length of time.

If I'm not planning on selling it until it hits $5,000 or $10,000, then does it matter that it went to $1,000?

But if I sit here and say, "I'm not going to buy until it hits $1,000," what if it hits $1,002 — and then goes straight up to $3,000? You may have been close, but you didn't get any of it.

So you don't know where the bottom is. And why would you try to be so cute about it that you'd wait until it hits exactly $1,000?

I'm sure that gold is going higher than $5,000 an ounce, I just can't be sure of when. I'm not saying ten or twenty years from now, I think it will be far sooner. But it's hard to know. There are so many external events that can slow the growth of gold.

I'm not clairvoyant, but I understand the macro fundamentals that will drive it. Just like when people were asking me about the housing bubble: “When is it going to burst, Peter?”

I didn't know exactly when, I just know it's a bubble, I can describe exactly why it's a bubble, and therefore it's going to burst. And it did.

Gold is the opposite of a bubble. If you look at the cost of mining gold, the price of gold hasn't even kept pace with the increase of the cost of mining.

If gold were a bubble, then mining companies would be making money hand over fist, because the price of gold would be divorced from the cost of producing it. Price would fundamentally be way too high.

Gold companies are losing money because gold is the opposite of a bubble.

Gold prices should have gone up more than they did, but they went down.

So your bank, Euro Pacific Bank, offers some very interesting ways for investors to protect and grow their wealth. Can you tell us a bit about what makes Euro Pacific unique?

Well, the good thing about our bank is it's both a bank and a full-service discounted brokerage firm and asset management company — sort of a one-stop shop if you want an offshore bank account: You can buy stocks, bonds all around the world, you can trade commodities, Forex, my proprietary mutual funds. You can even pay me to manage your money for you. Or you can do it all yourself online for very low commission. You can design your entire experience.

We're also providing a banking platform where you have 100% confidence that the bank cannot fail due to leverage. We have 100% reserves — all deposits are there, we do not loan them out. If every one of my customers came to the bank today and demanded their money, we can actually give it to them — 100% — which you really can't say about other banks.

I don't have any bad loans, mortgages, any government bonds... unless you as the customer want them. It's all up to you.

While a normal bank will take your money and buy government bonds for themselves, you don't own them. And if the government fails, they lost your deposit.

That's all extremely attractive, considering the uncertainty we've seen with Cyprus where folks woke up one day with their capital wiped out.

Right, so we do not speculate with bank capital, so you don't have any of that risk.

You won't wake up one morning, like with the Cypriot bank accounts, and now there's a “haircut” where you'll lose your deposits. There are governments trying to seize money from law-abiding citizens.

People need to have their money in areas where corrupt governments cannot get at it.

The only way you'll lose capital with us is if you do it on your own. The bank won't do anything risky with it.

It's all about trust: “Can you trust your banker? Can you trust that your money is safe?”

I'd like to think that my reputation speaks for itself. What you get with us is peace of mind: Your money is there, and you can get it whenever you want.

I was most intrigued by a unique debit card that Euro Pacific is offering, which you can back with either gold or silver. Can you tell us a bit about it?

It's an exciting prospect. We make working the gold and silver into your debit card very easy...

Let's say you buy $10,000 in gold. You can access that gold using our debit card. You log into your account, and let's say you want to buy something for $1,000, and you have $10,000 worth of gold...

You log on, sell $1,000 worth of gold, and then — with a click of a button — you load up the debit card and make your purchase.

It takes, like, 10 or 15 seconds and you can do it 24/7: It's instant access to your gold, which we store offshore at the Perth Mint. And you can spend it.

Unlike buying and selling gold, we make it quick and painless. Right now, you'd need to wait until Monday, look for a buyer, wait for a check to clear, wait for a wire, go to the bank...

With us, you can just log on and spend it, 24 hours a day, 7 days a week.

It's almost like spending your gold directly. And in the future, you will actually be able to.

Currently you have to take the 10 seconds and sell it. Right now, clients can transfer multiple currencies to other clients — and in the near future, they will be able to transfer gold and silver to other users. So in effect, they can trade between each other.

But the ultimate goal is to spend your gold directly?

Yes, but first we have to obtain critical mass. We need to get enough people to join us so we can implement these other features.

If we get enough members, we will be contacting businesses that want to be paid in gold. The goal is to eventually start an entire community of folks who want to be paid in gold.

So it would be kind of like an eBay or Craigslist for gold bugs?

Right.

So say you have an apartment in Paris that you want to rent out for, say, an ounce of gold a week. Someone could say, "Great! I'll take a two-week rental and transfer two ounces of gold to you."

Or maybe you have a boat to sell... Since we're both members of Euro Pacific, you can just give me the equivalent in gold. But it doesn't just have to be person to person, either...

Let's say some merchant wants to put their products online with us with the price based in gold. They can post it in grams of gold, and you as the cardholder can internally shop with the card in gold. We'd take gold from your account and transfer it to the merchant.

You don't have to physically ship it at all, since we hold all the gold.

So the more people we sign up, the easier it gets to use. I know there are people who want to be able to use their gold and silver as money. The community of our clients can buy and sell things in each other, which cuts out transaction costs, since we can set up both clients and merchants and create this marketplace.

We'd have a list of vendors on the website and you can choose whether to pay in dollars, euros, gold, or silver. This would be implemented.

Right now, you still have to take the 10 seconds to sell your gold before you use the card for purchases. But we're planning for the future.

So when the shit hits the fan and the dollar collapses, you will already be part of a gold monetary community. You've got a mechanism to keep functioning. You've already put it together, and have your own community that can spend gold and silver as money.

I think that sentiment really hits home for a lot of our Outsider Club members. How can they get in on the community?

Well right now, because of the crazy U.S. regulatory system, it is only available to people outside of the United States...

But if you need more information, we have plenty of folks at Euro Pacific that can answer questions for you and get you set up very quickly. The quickest and easiest way to get more information is to visit the website and you can actually chat with someone online right away.

Thanks for talking with us Peter, we appreciate your time.

My pleasure, thanks for listening.

If you'd like to learn more about joing the gold and silver community that Peter mentions in his interview, click here.

Remember, you must be currently living outside of the United States to join any of Euro Pacific's programs.

Godspeed,
Jimmy Mengel

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.

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