Peter Schiff on the Collapse of the Dollar
It’s End-the-Fed day today. I thought I’d commemorate it by posting a video featuring Peter Schiff (Ron Paul’s campaign finance advisor), who accurately predicted the sub-prime meltdown and the ensuing recession.
Some great quotes (emphasis added):
Our markets are going lower. This is not just a financial crisis; this is an economic collapse. Our entire phony economy is collapsing around us. There’s nothing the government can do to stop it; they should get out of the way and let it happen.
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Look, you have to understand: for the past several years everybody thought we had a real economy. We didn’t. We had a bubble. All we did was borrow trillions of dollars from the rest of the world, and we blew all the money on consumption. We can’t pay the bills. The asset bubbles that were inflated by reckless monetary policy are deflating around us, and we’re going to have to rebuild a viable economy; and it’s not going to be easy. A lot of companies are going to go bankrupt during the process. A lot of people are going to lose their jobs, but this has to happen: we have to go back to a sane economy where we save our money and actually make stuff.
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I’d be … getting out of the dollar because it’s a bottomless pit. When this dollar stops rallying, it’s going to fall like a stone. That is the next major economic crisis we are a setting up, a major major run on the dollar, and that’s going to have tremendous repercussions for our economy and our markets.
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We manufactured our way into becoming the wealthiest economy country in the world, and now we’ve consumed our way into bankruptcy.
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It’s time Americans take a long, hard look at the flawed monetary policy that’s behind all of this funny business; and that means understanding the history, operations, and goals of the Federal Reserve. If we don’t figure this out and get back to system of sound money, we may well “wake-up homeless on the continent their fathers conquered“.
It’s frustrating that the only major party presidential candidate that was talking about these issues in any substantial way was written off from the very beginning. But you wanted empty platitudes? Well, you got ‘em.
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Tags: Bankruptcy, Business, Central Banks, Economic Bubbles, Economic Collapse, Economics, End The Fed Day, Faith-Based Currency, Federal Reserve, Free Markets, Issuing Power, Liberty, Manufacturing, Monetary Policy, National Debt, Peter Schiff, Politics, Ron Paul, Sound Money, Sub-Prime Meltdown, Thomas Jefferson, US Dollar
November 22nd, 2008 at 8:44 pm
Part of the reason the dollar is so valuable right now is that, paradoxically, all the uncertainty surrounding the global financial meltdown has made investors very risk averse. They flee to the safest assets they can find and those are US Treasury securities. The nominal yield on short-term T-bills is close to zero right now.
Another reason people may want dollars right now is they may be thinking there is a good chance of deflation in the US, which would make dollars (even if they are stuffed in a matress) worth more over time. Of course, that makes sense only if they don’t think other currencies are going to deflate as well.
One advantage of the way our foreign debt is structured is that it’s mostly denominated in dollars. A falling value of the dollar, if it does occur in the near future, would mean we pay off our debts to foreigners in money that is worth less than when we borrowed it.
One problem I have with eliminating the Fed is who gets to print money in the US? If we let congress take direct control of the money supply, I guarantee the Fed will start looking really attractive by comparison. Some system of private money could probably be made to work. The Scots had an experiment with free banking that was not a disaster. I just don’t think there is enough political will to eliminate the Fed.
November 22nd, 2008 at 9:54 pm
@ Kerk,
Lots of good points.
I agree that allowing the current Congress to print money would be disastrous; their guilt in the current fiasco is complicit. Actually, having anybody “print money” is disastrous in the long run, since “printing” money is inflationary by it’s very nature –and the temptation to rolling the presses every time you’re in a pinch is too great.
But the constitution mandates that Congress “coin money” which implies that precious metals should be used. I would trust Congress with that since making gold out of thin air is impossible. I’m also fine with Congress issuing “paper money” so long as it is merely a warehouse receipt, backed 100% by real money. Printing more “money” than there is gold (or silver) is counterfeiting –I don’t care who does it.
At the very least Congress and the Fed should allow for competing currencies to be used as legal tender. Having a monopoly on the money supply is just dangerous in every way.
It’s interesting that inflationary monetary policies actually encourage debt. (I hadn’t realized that until I read your comment.) While that may be good for the government (they become more bloated without having to tax the citizenry directly, then just pay it off in cheaper money), it’s disastrous for the people, who end up footing the bill in inflated prices. Furthermore, I think incentivizing the government to destroy our currency so it can pay its own bills is a bad idea. :)
Yes, there is not enough political will to eliminate the Fed right now. We need to change that. It’s going to take a lot of education.
Great comments.
November 23rd, 2008 at 1:13 am
I have never been wrong about the value of the dollar!!! I always say that it with ether go up or down…. Right every time! Schiff ain’t got nothing on me.
November 23rd, 2008 at 9:54 am
Jordy,
Thanks for sharing this insightful information from Schiff.
I don’t agree with getting rid of the Fed. I point most of the blame to individuals. If Americans would have made smarter decisions about getting in so much personal debt, the housing crisis would not have happened. Then the liquidity crisis would not have happened. We DO need the government to make policies that prevent financial institutions from being so leveraged with debt over assets.
The main point is that we need to stop spending more than we make, and start saving again. This is something each and everyone of us can do, regardless of what the government does. Listen to Dave Ramsey for some great inspiration.
Keep of the great posts, Jordy.
Tristan
November 23rd, 2008 at 8:06 pm
The problem with a gold standard is that the value of money tends to fluctuate in unpredictable ways as new gold deposits are discovered, mined and brought into circulation.
I agree that money ought to be pegged in value to something, the question is what the something should be. If you can decide what that something is, then congress could pass a law allowing anyone to issue money backed 100% by that something. There is no need for a congressional or government monopoly on money creation.
A lot of economists would oppose a “fixed” money supply rule like this, aguing that the government needs to have monetary policy as tool available to combat recessions. I think the monetarists had this right, monetary policy has lags are that are too long and too variable to be used effectively. I would personally be in favor of a 100% something-backed privately issued money.
In fact you could even let the banks or money issuers decided what the something is they back their money with as long as you had transparency and everyone knows what is backing it. You as a household could chose to hold money backed by gold if you wished, or money backed by mortgages if you wanted that, but you would choose knowing what the bank is using to back it and be fully aware of the risks.
Money used to be fairly easy to define. These days its a lot less clear.
November 23rd, 2008 at 10:34 pm
@ Kerk -
Now we’re talking. :)
I wish you had been my Econ teacher. Mine was as Keynesian as they come.