Why doesn't a recession happen in a couple of weeks or a month or so?
Well, the reason it doesn't happen in a couple of weeks, you don't have a quick boom, a quick recession almost before you can see it, is because the banking system, in order to validate the process, keeps inflating.
It's not a one-shot proposition.
In order to keep price flow in the other companies afloat, they have to continue to increase the money supply, continue to inflate, so as to allow, for example, price flow to buy more, finance their inventory more as prices keep going up.
They then have to get more bank credit to keep the thing going.
It's like staying one step ahead of, if you're a heroin addict, let's say, increasing the dosage, staying one step ahead of retribution, one step ahead of total collapse, by getting a larger dose as they keep the whole inflationary boom afloat.
All right, my friends, welcome back to Anti-War Radio on Chaos 92.7 FM in Austin, Texas, streaming live worldwide on the internet, chaosradioaustin.org, antiwar.com slash radio, and for the first hour of the show all week this week, from Campaign for Liberty, Ron Paul's new site, new pressure group, policy group, and we're studying the financial crisis with experts from the Austrian School of Economics, including our first guest today, Peter Schiff, who actually is or was an economic advisor to Ron Paul, at least during the presidential campaign.
He is the president of Euro-Pacific Capital, based in Connecticut.
Welcome to the show, Peter.
Thanks for having me.
I'm very glad to have you here today, sir.
So I think my first question for you, before we get too far into all this, is about the bill going through Congress, which is, they say, a $700 billion bailout bill.
Does it look, from all your latest information, that this is a done deal?
Is it worth opposing for people who are opposed to it?
Well, it's certainly worth opposing, but it's probably a done deal in one shape or form.
I mean, these guys have been able to cram everything else through.
It's amazing that the politicians don't look back at the repeated statements that Paulson and Bernanke have made over the years.
They have been consistently wrong.
They have never gotten anything right.
So why people are going to trust them with this much power and this much money is beyond me.
But believe me, the more money we give them, the more power we give them, the more damage they're going to do.
Okay, well, now this is going to be a bit repetitive from earlier in the week, but I want to make sure and give everybody a chance to answer what is on TV the bottom line basic question, or the way that they put it, is that this is terrible.
This is terrible.
Peter Schiff, you're right.
It's terrible to take all this money out of the hands of everybody in this country and give it to these banks.
It is terrible.
But you know what?
President Bush said it.
It's better than the alternative, which is a complete unraveling.
No, it's not.
It's not better than the alternative.
Okay, how's that?
The alternative is worse because the government is not going to solve any of these problems.
They're not dealing with the problems.
They're trying to cover up the symptoms.
And all they're going to do is allow the basic problems in our economy to worsen, and everybody is going to suffer.
And in the meantime, it's not American taxpayers.
We're not going to suffer as taxpayers because nobody is talking about raising anybody's taxes.
We're going to suffer as wage earners.
We're going to suffer as savers because the value of the dollar is going to plunge.
You know, Paulson said today, or Bernanke said, that what he's doing is not going to create any inflation.
That's a bold fight.
Why?
It's pure inflation.
We're paying for it with inflation.
We're printing money to buy up all these mortgages, and it's not going to stop with $700 billion.
It's going to end up into the trillions because it's not just mortgages they're buying.
They're buying credit card debt.
They're buying auto loans.
They're buying student loans.
They're buying, you know, who knows, eventually they might start buying up houses.
There's no end in sight, and they're going to keep on creating money.
And the way we're going to suffer is when people go to cash their paychecks, they're not going to buy very much.
You know, Bernanke is saying if we don't do this, the banks might fail, that people might lose money that they have in the bank.
Well, maybe this guarantees that the banks won't fail, but it guarantees that the money you have in your account isn't going to buy you anything.
I don't see how that's an improvement.
And, you know, when people think inflation, if people think inflation solves economic problems, they should take a trip over to Zimbabwe and ask the people over there how well inflation is working out for them.
You know, it's funny that you bring up Zimbabwe.
I think if you asked anyone in the whole world why do they have such inflation in Zimbabwe, they'll tell you the obvious answer, because they have their money machine on full blast.
They're just counterfeiting money.
And yet, even as you just phrased Bernanke's lie that creating this money might cause inflation, creating the money is inflation.
Yeah, now the reason that we can get away with it and Zimbabwe can't is we got the Chinese and the Saudis and the Japanese willing to lend us the money.
They don't lend any money to Zimbabwe.
But one of these days, the world's going to wake up, and they're not going to lend us any more money.
And then that's where it really hits the fan.
Well, why do they continue to buy American debt?
Why is it in their interest, at least up until this point?
It's not in their interest.
It's foolish.
I mean, a lot of people make foolish investments.
You know, many of us have probably made the mistake of throwing good money after bad.
You refuse to admit your mistake.
Look what Bank of America did.
First, they invested $2 billion in Countrywide.
And then when the stock collapsed, they bought the whole company because they didn't want to admit their mistake.
They tried to average down.
So I think the rest of the world is looking at all these dollars that they've been holding onto, and they don't want to admit that they're worthless.
So they keep buying our debt so they can pretend that the dollars they already own still have value.
But at some point, you know, they're going to have to be confronted with this reality, because the more money we lend them, the more money they're going to lose.
Because we can't pay it back.
All we can do is print more.
Because in order to pay it back, we have to export stuff to the Chinese.
Well, what do we make that the Chinese want?
You know, every day, you know, more people lose their jobs in manufacturing.
And, you know, I do a lot of radio.
I was on radio in Norway this morning.
I was on television in China last night.
I was in Australia.
And, you know, I'm telling the world to stop lending us money.
And people think, well, gee, you know, isn't this unpatriotic?
It's not.
We're addicted to cheap money.
We're addicted to borrowed money.
And the more money the world loans us, the more screwed up our economy is going to get.
I mean, they're pushing this credit on us.
Ultimately, it's going to backfire.
Eventually, the world's going to stop lending us money.
I'd rather it happen sooner.
Because the longer it takes, the bigger the hole we're going to dig for ourselves.
Now, I've heard people talk before about some kind of breaking point.
No one can really pinpoint, you know, when it might happen.
But basically, one day, it's almost inevitable that central bankers around the world are going to say to themselves, Oh, no, today's the day.
And they're going to dump as many American securities as they possibly can before it's too late.
And that that's the day that the real crisis starts.
Yeah, I mean, eventually that's going to happen.
I mean, one of these days, the world's going to wake up, and this is going to happen.
I mean, it's only a question of time.
They're not going to be this foolish forever.
But the problem is, as long as the world will lend us money, we'll keep borrowing it.
And we'll keep doing all the wrong things.
And the world was enabling it.
I mean, maybe, maybe if the world said no more, and all of a sudden interest rates started skyrocketing, and the dollar started to plunge, maybe the politicians would finally see the light, and would make the needed reforms.
But instead, by the world continuously lending us money, they allow the politicians to take the cheap way out, to try to appease all the electorate, and to pretend that there's a solution that doesn't involve sacrifice.
And there's not.
I mean, there's no way that we can go from this borrow-and-spend economy, which is unsustainable, which is the source of our problems.
And, of course, the root of that is our cheap money, the Federal Reserve and government.
But we can't go from that to a sound economy that's based on underconsumption, on savings and production.
We can't get from where we are to where we need to be without a severe recession, without a lot of people losing money.
You know, assets have to fall in price.
Homes have to go down in price.
They're too expensive.
Americans have to be confronted with the reality that they haven't saved enough, and they can't retire.
And we're going to have to start working and doing real work, making stuff.
We just can't pretend to go to work in the service sector.
We just all can't work in a legal profession, or in tech for government, or in health care.
We've actually got to make stuff.
If we want to consume, we've got to produce.
All right.
Now, you mentioned that it's going to be trillions.
Don't believe me for a second when they say $700 billion.
How many trillions do you think?
I don't know.
I mean, at least a couple.
I mean, maybe more by the time it's all over.
I mean, the government never estimates the cost of anything right, whether any kind of program.
And everything they do, they screw up.
I mean, how are they going to run this?
This is going to be the biggest, you know, this is going to be hundreds of billions of dollars, trillions of dollars.
It's going to be run out of Washington.
Washington, I mean, they can't even deliver the mail.
How are they going to run this biggest investment fund in the world, ultimately?
How are they going to be able to do it?
They're going to hire the same Wall Street idiots that bankrupted their own firms.
They're going to do a better job.
This is going to be a political boondoggle.
And then, of course, once the government owns all these mortgages, are they going to foreclose when people don't pay?
Who knows?
They might end up saying, okay, nobody has to ban foreclosures.
And the minute they do that, nobody's going to pay their mortgage.
I mean, they're going to buy up this paper, and then they're going to devalue it the minute they buy it.
I mean, look, this is going to be a boondoggle.
There's going to be all kinds of patrons, all kinds of people trying to get jobs, running this money, managing this money.
And it's going to be done for political reasons, not for economic reasons.
And every time we do one of these bailouts, you'll notice it's getting bigger and bigger and bigger.
And government is growing with each step that it takes.
And the crazy part about it is all of these problems are the result of government interference in the free market.
It's the result of the Fed and our being on a fiat money where the Fed was able to take interest rates and set them at a rate much too low, given our low rate of savings and all the borrowing.
So they created all the malinvestments.
They encouraged all the reckless borrowing and spending.
And then you have big government creations like Fannie and Freddie that were guaranteeing mortgages, taking all the risk out of the mortgage lending.
I mean, without Fannie and Freddie, people wouldn't have been able to borrow all this money to buy homes because nobody would have loaned it to them on those crazy terms.
It was only because the government stepped in and invalidated the free market.
The free market would have guarded against this because lenders would have been concerned about losing money.
But once the government stepped up and said, don't worry about losing money because we're going to cover you, they created it.
So the government creates this gigantic mess, and now they use the disaster as an excuse to get even bigger and to get even more power because they're blaming this collapse on capitalism.
They're blaming it on a lack of regulation, when actually the opposite was the cause.
Yeah, they have this term called deregulation, which means that maybe five out of 700 billion rules have been repealed that maybe allow a little bit more fraud than under the rules before.
But that's not really deregulation when we all have to still bail them out, is it?
No, no.
And if we go back to the free market, then the problems will eventually be solved.
But the government doesn't like the manner in which they get solved.
As I said, if you're a heroin addict and you want to get healthy, the problem is you've got to go through withdrawal first.
But ultimately, at the end of the day, you're going to be a healthier person if you can get the heroin out of your body.
But you can't do it without withdrawal.
We're addicted to spending and money, borrowing and spending.
We've got this cheap money.
We've got to get it out of our system.
But it means that we can't buy everything when we want.
We can't buy new cars, and we can't buy all the new gadgets and all the new big screen TVs.
We can't remodel our houses and do all this stuff because we don't have the money.
And we can't keep borrowing it because how can we pay it back?
All right.
Now, when we go back over the last few weeks, and I guess, you know, beginning in the spring, you had the Bear Stearns and all that kind of stuff.
But you have Merrill Lynch and AIG.
One of the things I heard about the AIG bailout was that the government now has an 80 percent ownership stake in AIG.
Is that correct?
And then how long is that expected to last?
80 percent ownership, and they loaned AIG $85 billion.
So first they're on the hook for $85 billion, and I think they got 80 percent of the common stock.
And now they're running a company.
They're running the world's biggest insurance company.
I mean, look, what right do they have to do this?
I mean, what constitutional authority do they have, number one, to go in there?
And the scary thing about it is if the government could just go in there and buy out a sick company, right, which is what they did.
I mean, this is not – they could buy any company.
They could buy a healthy company, and we've stated the precedent now.
It's like we don't even need to have a communist revolution.
If the government wants to take over the property, now they have the formula.
The Fed just prints up the money and starts buying everything.
Well, that's funny, because, you know, I think a central bank is like Plink three or four of the Communist Manifesto.
See, there's no limit to how much money they can print.
And if you say the Federal Reserve can start buying assets by printing money, they can buy up the whole country.
Who's going to stop them?
Well, yeah, and bankrupt every other property owner who's trying to save in the process by the inflation.
Ultimately, they think, well, the government is buying the assets.
They're not buying them.
They're seizing them, because ultimately the money that people are getting in exchange for the property is not going to have any value.
Well, now, so is it expected that they're going to continue to own AIG 80 percent from now on, or they're going to – I don't know what they expect.
Who knows?
I mean, who knows what they're doing?
But these guys are clueless.
Again, these are politicians.
What do they know about running this insurance company?
These guys don't know anything.
And who knows whether assets they're going to be buying, that they have no idea what they are.
Yeah, well, I mean, I guess I just wondered whether they're even saying that they plan on selling those shares again once everything's gone.
I don't know.
They're just grabbing straws.
I mean, this whole phony economy is about to come tumbling down, and all they care about is how can I get reelected, and what can we do to slow this down?
And they don't care how much worse they made it.
I was screaming this stuff four or five years ago because I saw what we were doing to try to postpone or try to avoid the recession or soften the recession that we should have had back in 2001, 2002, when the NASDAQ bubble blew up, which was another creation of government.
But, you know, the politicians didn't allow that recession to run its course.
And in order to spare us that recession, they laid the foundation and created the housing bubble.
They're the ones that enabled us to borrow these trillions of dollars, and all this failure, all this stuff that's happening now is a direct result of government intervention a few years ago.
What's going to be the result of this intervention, which is much bigger, much grander than what they did back then?
I mean, there's always consequences to what the government does.
They don't solve a problem.
They just create a bigger problem every time they act.
Well, now, I think it's kind of hard to tell from where I'm sitting.
I wonder if you have any kind of clarity on how big of a revolution within the forum are we experiencing here?
I mean, is this equal to a brand-new New Deal, or it's a tenth of one or two hundred?
I think some kind of brand-new New Deal is coming in the next administration.
I mean, after we've bailed out Wall Street, no one is going to be able to say no to the bailouts for Main Street.
And so it's going to be probably bigger than a New Deal.
The problem is we can't even afford the old deal, let alone this new one.
And back in the 1930s, when Roosevelt enacted the New Deal, America had savings.
We were still able to pay for it.
As misguided as the New Deal was, at least we can afford it.
We can't afford anything now.
We are flat broke.
And that's the risk.
The real risk is that we underestimate this, and that the rest of the world doesn't want to loan us any money, and our dollar collapses, the currency collapses, and we have hyperinflation.
And that's when you potentially have civil unrest and riots and looting.
I mean, there are some really bad things that are going to happen if we continue on this course.
That's why I work at Europe Pacific Capital, and that's why I am so feverishly trying to help my clients and anybody who will listen to me get rid of their dollars.
I mean, I see where this is going.
As I said, it's not the taxpayers who are going to suffer.
It's anyone who has U.S. currency.
It's anyone who collects wages in U.S. dollars.
Now, I can't do anything about your wages.
But if you have savings, if you've got money in bonds, in the CD, or mini-bonds, money market, if you have U.S. assets, I can help you get rid of those dollars before the dollar loses its value.
And you've got to get your money into foreign currencies.
You've got to invest abroad.
You've got to buy precious metals.
You know, anything but U.S. currency, because if you're holding U.S. dollars, you're going to be stuck with this massive bill.
And it's all going to hit you in the form of depreciation of your currency, which means every time you want to buy something, it's going to be that much more expensive.
You know, I think one of the key phrases for people who aren't so immersed in this subject, but one of the ways to get them to understand, I think, immediately, is something that you're just describing, which is inflation as a hidden tax, basically.
Like you said before, they're not going to raise taxes, but you're going to pay, because it's sort of like they're kind of reaching into your pocket and picking the corners off your dollars in your pocket and stealing the value out of your dollars.
The same reason it's a crime for me to counterfeit in my basement, right?
Well, exactly.
I mean, although the government outlaws counterfeiting because they hate competition.
I mean, they're running the biggest counterfeit organization in the world, because all of our money is counterfeit.
It's supposed to be backed by gold, instead it's backed by nothing.
Well, now, I'm glad you said that, because I wanted to ask you about what's a better way, and I'm sure that, in your view, it has something to do with gold.
I want to start off with the common perception that, oh, you're one of those gold people, and that that's some kind of weird, outdated thing.
No, it's not weird or outdated at all, because gold is money.
The people who oppose gold don't understand what money is.
In fact, the basic reason that this economy is so sick is because of the bad money.
I mean, gold is maybe to an economy like blood is to the human body.
And if you've got toxic or tainted blood flowing through your body, you're not going to live.
And that's why we're dying, because the money is no good.
Money needs to have intrinsic value.
I mean, it needs to be something real.
I mean, what's the difference between a $1 bill and a $100 bill?
You know, nothing.
It's just a couple of extra zeros.
There's no difference.
But if you have 100 ounces of gold and you have 1 ounce of gold, there's a big difference there.
There's 100 more ounces.
You know, it takes a lot of extra effort.
It takes 100 times the effort to mine 100 ounces as it does to mine 1 ounce.
I mean, why do you think a quarter is bigger than a dime?
Because there's more metal there.
I mean, real money has actual value.
And we were on a gold standard.
Remember, for the first 200 years of this country, up until 1971, the dollar was tied to gold.
And so it's only since 1971 that we've been off the gold standard.
So saying, I want to go back to a gold standard isn't like I'm going back to the Stone Age.
We're going back to the 1960s.
But the thing was, the entire world was on a gold standard.
What happened is, after the Second World War, we basically convinced the world to go off a gold standard and adopt a dollar standard.
Because the dollar was backed by gold.
And we told everybody, look, hold dollars as the reserve.
You can earn interest.
And we've got all the gold here in Fort Knox.
And if you need any gold, you can, for every $35 that you have, we'll give you an ounce of gold.
And so the world stayed on that dollar standard but was still a gold standard up until 1971 when we repudiated because we just printed too much money.
We abused that privilege.
We basically conned the world.
And then we declared bankruptcy because we wouldn't redeem our notes.
And then the dollar lost about two-thirds of its value in the ensuing six years.
But it stayed as the reserve currency, even though it was no longer backed by anything.
It was the reserve currency at a lower value because it no longer had the gold backing.
But it stayed the reserve currency.
And ultimately, I think it's going to lose that status because it can't be the reserve currency.
We can't have a reserve currency that has no value.
If we keep printing it, I mean, initially, the value of the dollar was American exports and American assets that people wanted to buy.
But, you know, we're not exporting anymore, at least like we used to.
And our assets, who wants our assets?
So the dollar is going to collapse.
And ultimately, we have to go back to real money.
But politicians, see, politicians hate gold because it imposes discipline on them.
See, if we were on the gold standard right now, this plan wouldn't even be up for debate.
I mean, obviously, we wouldn't even have a housing bubble.
We wouldn't have had a stock market bubble.
So there would be no need for the rescue because there would be nothing to rescue.
But under a gold standard, if politicians want to spend money, they have to have the gold.
They just can't print it.
So that's why politicians don't like the gold standard, you know, because it keeps them honest.
I mean, just like if you go out on a date, if a high school kid goes on a date, he doesn't want a chaperone there.
You know, they don't want chaperones at the party, but they're there anyway.
And so gold is like a chaperone, making sure that the politicians are honest.
And that's why they don't want gold around.
Now, I've read some analyses before that said that Kissinger, in a way, worked out what amounted to sort of a pseudo-oil standard after being taken off the gold standard, and that because we have an agreement with the Saudis to denominate their oil sales in dollars, that that, you know, helps to prop up the dollar as a reserve currency.
And, of course, there are some who say...
Yeah, it does.
I mean, it gives the dollar some value because, of course, the Saudis keep raising the price of oil.
It's not like they fixed the price of oil to the dollar, so as the dollar loses value, the Saudis continue to raise the price.
So you don't get to restore any value.
If the Saudis said, we're going to fix oil in dollars and you're going to have a known quantity of oil for your dollars, then it would be some kind of backing.
But as long as the Saudis are free to raise their prices, you know, then it really doesn't amount to much of a backing.
I see.
And do you put any stock in the idea that that was part of the motivation for the war in Iraq and possibly for one coming up with Iran, that they were trying to switch to denominate their oil sales in euros?
Yeah, and I hear that.
I mean, that Iran and other countries are moving away from the dollar, and that might have been a reason we went in there.
And who knows?
It might have been.
I mean, I don't know.
We can speculate.
I know the one reason we didn't go in there was weapons of mass destruction.
I mean, obviously, you know, they weren't there, and I'm sure that they knew they weren't there.
I don't think that they actually believed they were there.
I mean, our intelligence has got to be good enough to know that they weren't there.
And it's like the same guys that told us we had to go into Iraq, right?
We had to.
We had no choice.
There was weapons of mass destruction there.
We had to go in.
These are the same guys that are saying we have to pass this plan or the whole economy is going to collapse.
We have to pass this plan.
We have no choice.
Of course we have a choice.
And you know what?
If the economy was about to collapse, there's no way that this plan would save it.
Now, that's the crazy part.
You've got the government saying that the fundamentals of the economy are sound, that everything is sound.
Yet on the other hand, they say if we don't pass this bailout bill, the entire country is going to collapse, and it's going to be Armageddon and worse than the Great Depression.
Well, which is it?
Are we teetering on the edge of depression, or is the economy sound?
I mean, it can't be both.
Right.
Okay.
If the economy was really sound, then we wouldn't need a bailout.
And, in fact, the reason that all these problems are happening is because the economy is not sound.
That's what they don't understand.
Well, now, if Ron had won the nomination and you were in line to be, I don't know, Treasury Secretary or the next chairman of the Fed or something, obviously the media would be asking you all day every day what the plan is.
I would just close it down, and that would be the end of my job.
Well, that would be nice.
Okay, how about he appoints you Treasury Secretary.
Now you're in the fight of your life versus the Barack Obama team for who's going to be the president.
What's your proposal?
How do we fix this other than just saying, well, abolish the SEC?
I mean, specifically, how should we have it set from now on?
There's no fix that automatically, there's nothing the government can do to solve the problem so that people don't suffer.
That's impossible.
There's no way to do that.
We're going to have to pay the price for all this reckless borrowing and spending.
We've gutted our economy.
We've blown through our savings.
We've destroyed our manufacturing base.
We've allowed our infrastructure to decay.
So we are going to have to suffer a rather substantial decline in our standard of living.
I mean, that's the bad news.
There's no way around that.
The good news is if the government, if we can have some meaningful reforms on the federal level, if we can bring the government back to size, if we can restore sound money, one of these days we're going to dig our way out of this hole.
But if we don't do that, we're never going to get out of it.
We're just going to keep digging ourselves deeper.
So what I would try to do is try to spearhead a movement to, A, restore sound money, to get back on a gold standard somehow, to maybe try to restructure our national debt and to work with the lenders around the world at a meaningful way to not just default, but maybe renegotiate the terms.
Because basically we can level with our creditors and say, look, you were going to get inflated away and you were going to get nothing.
Why don't you agree to a lower amount now, but at least we'll pay you back in real money?
We can try to do that.
We can try to abolish all the entitlement programs like Social Security and Medicare and maybe try to find a way to have some kind of temporary transition for people who really need some help.
But if we don't do that, if we don't abolish Social Security, the Social Security payments are going to be worthless.
And it's not going to matter that the checks come in the mail because they're not going to buy anything.
We need to abolish these taxes like the income tax and the payroll tax and the corporate income tax.
We need to slash government.
We need to make government small.
We've got to get rid of entire departments.
And if we can do all that, then we can rebuild the economy because we won't have the government on our backs.
How can we dig our way out of this hole if the government is stepping on all the shovels?
Now, when you say gold standard, do you mean that there should be no fractional reserve banking at all?
No, no.
You can still have fractional reserve banking.
What I'm saying is money has to be backed by something.
It can't be backed by nothing.
You have to have some intrinsic value.
And there has to be some limit on the ability of government to just create it out of thin air.
So you have to have something behind it.
It can't just be nothing.
It can't be political hot air that backs your money.
Because money has to have value.
I mean, the reason that we have money as opposed to barter is because we're all basically bartering for money.
But money itself has to have some intrinsic value.
Otherwise, it doesn't work.
Not for long, anyway, it looks like.
Well, otherwise, you're just basing your money on faith, on faith in politicians.
And they've proven time and time again that they can't be trusted.
I'd rather trust gold instead of the politicians.
Well, but now anything less than 100% gold standard is money out of nothing, too, right?
No, no.
Once you have some kind of fixed backing, and you have each ounce of gold, each dollar is worth this much of gold, there is a discipline right there because you can't print more money unless you mine gold.
There's something.
And look, it should be backed at some level.
But, of course, obviously we can't do it with gold at $800 an ounce.
Maybe gold will have to be valued at $5,000 an ounce.
I don't know where it's going to have to be valued.
But it doesn't matter.
We just have to figure out what price we can set it at where we can back the money.
And then go from there.
All right.
Now, this is way off topic.
As far as I've read, I haven't seen that you've addressed this or anything, but I figure I'll take a shot in the dark on it.
Are you familiar with the reporter Greg Palast?
No.
A kind of a liberal.
The story with him is that he, I guess, kind of undercover working with this labor union, somehow he went and studied under Art Laffer and all the Chicago School economists and things like that.
So he's got a real economist understanding, although he does come from more of a left-wing perspective.
But in his book, Arm Madhouse, he describes a lot of this stock market bubble, I think, as somewhat, and I don't know exactly personalities or what.
I don't think he points to the finger that specifically.
But I think he's basically trying to say that they created this bubble so that all of us regular people would put all our money in the stock market and inflate the values way up.
Then all the most rich and powerful people take all their money out because they've already given up on America.
They think America's done for.
They're going to take their money out and move it to China.
I don't think they're smart enough to pull everything off.
I think it's just the not natural consequences of the inept policies and the inflation to take credit.
But if you think, you know, Art Laffer, if you want to see a funny debate with me and Art Laffer that took place on Kudlow and Company a couple years ago, if you just go on YouTube and type in Kudlow, you know, one of the top four or five watched shows is, you know, see a picture of me there, but it's a debate with me and Art Laffer.
You can see how completely off-base Art Laffer was just a year before this crisis happened, talking about how great everything was when I tried to warn him.
I mean, you know, just watch it.
And also, if you want to see a really good video on YouTube, there's eight of them up there of me.
If you type in Peter Schiff Mortgage Bankers, you can see these eight clips that will come up of a presentation I made in 2006 in front of the Western Regional Association of Mortgage Bankers.
And I totally laid out exactly what was going to happen in the mortgage market and the housing market to a stunned audience of about 2,000 people who were in the mortgage lending business.
And it's just amazing.
And if people think that this stuff happened out of left field, you know, the politicians are pretending that nobody could have predicted this.
Well, it was easily predictable if you understood economics.
If you understood money, you knew exactly what was going to happen.
And the problem is the people who didn't understand it, who were completely blindsided, those are the people who are now being asked to fix the problem that they inadvertently created, and they have no understanding of why.
And all they're going to do is make it worse.
Well, let me ask you in a more general sense, would it even be fair to say, assuming I characterized his argument correctly at all in the first place, would it be fair to say that that's even true, kind of in effect, that the people who are the richest are, you know, smart enough to get out before the big collapse comes and that they're moving all their investments to China and leaving all the regular working people in this country on the back?
Well, I don't know what the average, you know, what these richest people are doing.
I know what my clients are doing and what I'm encouraging people to do and get out of the dollar.
And, you know, whether these guys are smart enough to be doing that with their own money, I don't know.
You know, I have no clue what they're doing with their own money.
But if they were smart, they would be doing exactly what I'm doing with my money and exactly what I'm encouraging my clients to do.
That's get out of the currency that's being debased.
Get out of the dollar and own foreign assets, own foreign stocks, foreign bonds, own precious metals, own pretty much anything but U.S. dollars or dollar denominated debt.
All right.
And now the other thing, I mean, what you really focused on there with your first answer was the ignorance of the people who've created this mess.
And this is something that I hear Ron Paul talk about when they interview him on TV about this crisis, is that the people on Capitol Hill, for one group, have no idea.
They don't listen to him.
They don't understand.
They refuse, just like Bill Clinton on The Daily Show last night, they refuse to rewind any further than, well, there were too many mortgages.
Like, that was the big bang and nothing ever preceded it.
And, wow, is it really that bad that the people who run America's economic system from D.C. really don't understand the basic premises of creating a bunch of money in a big bubble and then the bubble pops and you have to deal with it?
They just can't even understand this at all?
Yeah.
I mean, they're crazy.
It really is that bad.
I don't know.
I mean, they're just completely, they don't understand what's going on and they have a distorted view of reality.
They've been living in this bubble in Washington, D.C. for so long.
They believe that, you know, this economy is infallible and everything that we do is great.
And, you know, it's not the case anymore.
You know, we're not the country that they remember.
And they don't understand to the extent to which we're living off the charity of the rest of the world.
And the thing is, the world doesn't realize that they're being charitable.
They think they're investing in a viable economy when they're not.
They're helping to sustain a bubble.
And eventually this thing is going to burst around them and they're not going to understand what happened.
Well, you know, another thing that Bill Clinton said last night on The Daily Show is that he's for the bailout, but we've got to put all our strings attached.
Like he said at the beginning, all the politicians can say is that apparently we had a free market last month and what we need now is real regulations.
And he said that one of his conditions that he would insist on would be a freeze on foreclosures.
And that sounds pretty good, I think, maybe, to somebody who doesn't really understand.
Here are these people who are going to lose their house even though they've been paying all this money.
Tell us why, you know, what kind of consequences.
Well, the minute you freeze foreclosures, people are going to stop making their mortgage payments.
Even the people who are making them now, the minute they know that they can't get foreclosed on, then why make your mortgage payment?
Why not live rent free?
And so there's a moral hazard there.
When you freeze foreclosures, you end up with a lot more people who don't make their mortgage payments.
So you make the problem bigger and you immediately debase the value of all this paper the government is scooping up.
But, you know, what the government is trying to do is artificially keep home prices high by keeping these foreclosures off the market.
But why?
Why are they trying to fix prices?
Real estate prices need to go down.
I mean, actually, wouldn't that benefit people if houses were a lot cheaper?
If housing was more affordable?
If we didn't have to hawk our souls to the devil to buy a house?
If we didn't have to borrow so much money that people can actually afford houses?
Why does the government feel that they have to keep housing expensive?
Just let home prices fall.
Because they're way too high, and that's going to have to happen.
But the government is going to come in here and create all these problems.
And people who are living in houses, they're not going to get hurt if they get foreclosed.
I mean, it's not like they're going to be out on the street.
You know, I read an article about a guy who walked away from his mortgage.
He wasn't even foreclosed on up in California.
His mortgage payment was $3,400 a month.
He decided he didn't want to pay it anymore, so he walked away.
And he rented a brand new house in the same neighborhood.
Five bedrooms instead of four.
Nicer, newer house with the rent is $1,200 a month.
So how was that guy hurt?
Because he got out from under a $3,400 mortgage that he never should have taken on in the first place.
That he never would have had if it wasn't for the government inflating real estate prices.
And now he's renting a nicer house for a third of the cost without the headaches.
Now he doesn't have to pay the maintenance anymore.
He doesn't have to worry about what happens if the roof leaks.
Because he just called the landlord now.
So, I mean, this is all saying that we're helping these homeowners.
It's not helping homeowners.
It doesn't matter.
You know, most of these people put very little down in the house anyway.
What difference does it make?
And a lot of people have already extracted and spent the equity.
They're trying to help the creditors.
They're trying to help the people who loaned them the money.
But ultimately, even those people are going to be hurt.
Because they're not going to get paid back in anything real.
I mean, it would be better if you loaned somebody money to buy a house.
And you foreclosed.
And you foreclosed.
And you get back $0.30 or $0.40 on the dollar than have the government let you get all your money back.
But inflation is so rampant that you get all your money back.
But you have a 90% decline in its buying power.
You know, I have a friend who called me up and said he had bought a house, I guess, a couple of years ago.
And he said he ran into a little bit of financial trouble.
But he's a real money-making guy.
And he was obviously going to be able to get out of it real quick.
But he said he felt just a little bit behind.
And rather than trying to work out any sort of deal where he would be able to pay them back.
And I know for a fact it only took him a couple of weeks anyway.
But he said that he got the idea that they were trying really hard to just get him to give up and to go ahead and foreclose on him.
Rather than continue collecting the money that he owed them.
Why is that, you think?
Why was it?
His impression was that the bank preferred that he default and that they could foreclose on him.
Rather than continue collecting his payments.
Well, I don't know.
I mean, it depends on the situation as far as whether he could actually pay.
I mean, if they thought they could sell it to somebody who could actually afford it.
I mean, what's the point of just delaying the inevitable?
I mean, a lot of the problem is you keep the homeowner in the home.
And you know that they ultimately can't afford it.
Meanwhile, the longer he's in that home, the less the home is worth.
And so for a lot of the banks, it actually would be better to take the home and sell it now before it loses any more value.
And at least let somebody buy it who's actually going to put up some money.
You know, if you've got no equity.
See, once you have no equity in a property, you have no incentive to even take care of it.
You have no incentive to maintain it.
And that's the problem.
You have a lot of people who are living in homes right now with no incentive to maintain them.
And they're going to run them into the ground.
That's why a lot of these homes, when they get foreclosed on and you take a look at them, they've actually been gutted.
They've been deliberately destroyed.
People rip out the plumbing and sell it for the copper.
Because what do they care what they do to the house?
They don't have no equity in it.
So having a bunch of people in homes with no equity is very dangerous for the lenders.
All right.
Now, somebody sent me an e-mail, and this is our last question here.
Peter Schiff, president of Euro Pacific Capital, economic advisor to Dr. Ron Paul.
I got an article this morning that said, oh, this is just the beginning.
As you said, you know, we've probably got trillions coming down the line here.
And this article was focusing on what they call credit default swaps, which they said was this new mechanism where banks committed even more fraud and got themselves in even deeper trouble than before.
Can you explain to us what these things are and what the big deal is?
Well, yeah.
I mean, obviously this is going to be another derivative disaster waiting to happen.
But basically what a credit default swap is, is if I buy a risky asset like a subprime mortgage or if I have a transaction where a counterparty is a bank or an investment bank that might go under, I want to protect myself in case that entity goes broke.
And they're not going to perform to their contract.
So Wall Street created these credit default swaps where you can buy insurance on whether or not the entity, you know, so that if the entity goes bankrupt, the insurance will pay off.
And, of course, when you buy it, you hope that, you know, it doesn't, you know, that you don't need it.
Just like when somebody buys fire insurance, they don't hope the house burns down.
They hope they, you know, they don't need to cash in on the policy.
But, of course, once these vehicles start to exist, you have a lot of people that start speculating and trading it.
And they do it with tremendous leverage.
And it really starts to expose the problem because all of a sudden some of the companies that are in trouble, the credit default swaps, you know, go up and it costs people.
It's more expensive to hedge.
And then they don't want to deal with those firms.
But the real problem is when all these firms start to fail and the counterparties on the other side of the credit default swaps, they don't have the money.
It's like let's assume you're, you know, you're writing fire insurance policies.
And you just assume that none of the houses are going to burn down.
And you take all the insurance money that everybody gives you for their premiums and you just spend it, right?
All of a sudden there's a huge wildfire and every single house you insure burns down.
Well, I mean, you're done.
I mean, you couldn't even, you know, and this is what's happening.
All of a sudden it overwhelms it.
And now all of a sudden a lot of people that bought these credit default swaps, they thought they had protection.
And it turns out they don't have protection because the insurance company that sold them the swap went broke because they had too many people trying to redeem them at once.
There's all these.
We've been living on borrowed money, on gimmicks, and it's all because it's a giant credit bubble.
And it was destined to collapse.
And that's what's happening right now.
And you've got all these politicians trying to desperately reflate it and blow more air into it, but it never works.
It's funny.
It's almost like our entire economic system is based on the model of one of those kind of marginal vitamin sale distributorship things.
Or a giant Ponzi scheme.
I mean, that's why when I wrote the book Crash Proof, you know, on the cover of the book, I referred to our economy as a house of cards.
I said it was impressive on the outside, but a disaster waiting to happen beneath the surface.
And this is what's happening.
It's almost like termites can eat a house all the way to the paint.
And you can look at the house and you can think that the house is solid, but all of a sudden one big wind is going to topple it.
And that was the situation with our economy.
All right, everybody.
That's Peter Schiff.
He's president of Euro Pacific Capital and advisor to Dr. Ron Paul.
I thank you very much for your time.
People should also get, if you want to try to convince people or help, you know, to Ron Paul's ideas.
I mean, people, again, people are trying to pretend that all this was unpredictable.
If you get people to read that book Crash Proof, let them read it.
Let them read the chapter on real estate, on money and on inflation and all this.
I mean, it was all predictable.
None of this is coming out of left field and it's all caused by government.
So I would try to get that book.
And I have another book that's actually coming out in about two weeks called The Little Book of Bull Moves and Bear Markets.
But Crash Proof is available now.
And I think the more copies we can get out there, we can educate people so they understand the real cause of these problems.
And that more government is not the solution.
It's just going to create even bigger problems.
Great.
And is there a website you'd like to refer people to look at?
Yeah, people can go to my website at www.europac.net.
In fact, I do my own radio show every Wednesday.
You can listen on that site and on shortwave radio.
And I've got hundreds of video interviews going back for years and commentaries with me debating all sorts of people.
I mean, they were all wrong.
Everything that all the other experts have said, they're still wrong.
Yet people keep going back to them and asking them for their advice.
It's like the definition of insanity is repeating the same thing over and over again and expecting a different result.
Yet everybody goes back to these same experts who have been repeatedly wrong and expects them to all of a sudden be right.
Yep.
Well, same story, different day in America.
All right.
Thanks very much for your time today, Peter.
Okay.
