Peter Schiff Speech at Mises Event

2006 CNBC debate with Peter Schiff and Art Laffer is just astounding to watch today. Schiff's predictions were perfect and Laffer is shown to be a fool. At the end, there's a link to Laffer on Bill Maher's show where Maher asks him about the bet he made with Schiff during the CNBC video. It's crazy that we still look to the same economists who had no clue this recession was coming to lead us out of it, and we believe them when they say the worst is over.

In Peter Schiff's (long but very worthwhile) talk about the economic crisis, one of many things he explains is how Obama is just like George Bush on steroids.

"When you have President Obama talking about how everything is different than George Bush, how his administration is change — we're doing it differently. He hasn't changed anything. He's doing exactly what Bush did. He inherited the same situation, only worse, and he's doing the same thing, only worse.

His fiscal policy is worse than Bush's. And it's funny; as he's getting ready to sign a budget, or proposing a budget, with near a two trillion-dollar deficit — in one year — he's criticizing Bush for deficit spending.

And what Bernanke is doing? The things that Bernanke is doing now dwarf what Greenspan did in irresponsibility. I still say that it's a tough race. I said that there's a race to see who's going to go down in history as the worst Fed chairman ever. And Greenspan is probably still in the lead, but Bernanke is hot on his tail.
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But, so the combination of Obama/Bernanke is way worse than Bush/Greenspan, but it's the same philosophy. Nothing has changed. This might as well be the third Bush term. He is doing the same exact stuff.

The rhetoric is a little bit different, but the policies are all the same, the ideas are all the same: that economic growth is a function of people spending money and that we need more government to stimulate the economy; that we should bail out the people who fail and punish the people who succeed. And that we should have no interest rate. The Fed should be cranking out money."

We never learn. In this speech Schiff talks about out trade deficit, our debt problem, our failure to produce, the folly of a service based economy and much more including personal anecdotes that he considers to be tangents but really explain some of these issues at a personal level. Nice of Schiff to back up my description of the Obama administration as the third term of the Bush-Obama administration. I think the winning strategy in 2012 is for a freedom candidate to call this administration the third term of the Bush-Obama administration. To save America, we need a leader who will repudiate Bush and Obama and champion freedom on every issue. Forget all these minor differences on minor, distracting issues like the war on terror, health care and whatever else. Forget Iraq and Afghanistan. We're talking about the survival of America. Go for the jugular by explaining that Bush and Obama are ideological brothers in arms fighting against freedom and in the process destroying America. Freedom always leads to prosperity and security. Government does just the opposite.

Schiff on US government debt:

"And what's really causing the global credit crunch is that we're borrowing so much money right now, we're crowding out everybody else. The fact that people are loaning us so much money means that private businesses around the world can't get capital. Why? Because it's all going to the US government, that's why.

So the world is suffering, not because our economy is collapsing, but because they're foolishly trying to prop it up.

And when they figure this out, then we're going to get a real economic crisis. Because when the dollar starts to plunge — and it will — then we're going to see prices rising, sharply, for consumer goods, and interest rates rising.

And if we think we have problems now, wait till we see how much worse they get when we throw rising consumer prices and rising interest rates into the mix. And there's nothing the government's going to be able to do about it.

Right now, unemployed people are getting the benefit of lower prices. Imagine when you're out of work and your prices are going up, because that's what's going to happen. And then this is going to be a real economic crisis and then we're going to be in for very, very difficult choices.

And, unfortunately, the worst-case scenario is one that is looking increasingly more likely, which is hyperinflation. And if we get that, that's where nobody will lend us money.

And, so, the Fed buys all the bonds in order to keep interest rates down and to maintain deficit spending. And, then, the velocity money really starts to pick up. Nobody is going to want our money — not even American citizens will want our money and they will try to spend it as quickly as they can.

The government might try to keep it together a little bit longer, with regulation. Maybe we'll have capital controls. Maybe they'll make it illegal for American citizens to do what I'm doing with my clients right now — buying foreign currencies, foreign stocks. Maybe they'll make it illegal to buy gold.

As prices really start to contract, to escalate, private parties will try to make contracts with payment in gold or other currencies. Maybe the government will make that illegal. There might be stores or people that actually don't want to accept dollars because their value is dropping too rapidly. The government will make that illegal.

And that means that we'll have a black market. That means if you want to buy something, you'll have to buy it on the black market, just like they did in the Soviet Union. The only reason you could buy anything there was because you bought it illegally.

A lot of these things are going to happen. I think early on, probably even in Barack Obama's first term of office, I think we're going to have price controls.

I think prices will be rising so rapidly, maybe even by next year, that they're going to impose price controls on a number of products; probably energy, probably gasoline, probably milk, bread. And we're repeating all the mistakes of the 1930s. We might as well repeat the mistakes of the 1970s.

And, so, when they put on price controls, what's that going to mean? Shortages, power blackouts, long lines for gas, long lines for food. A lot of things are going to happen, I just mention that. Everybody now, of course, is talking about the 1930s and saying, "Oh, no, we can't repeat the mistakes of the '30s." Well, that's exactly what we're doing."

Yikes!

"And, of course, when Roosevelt came in, we had a sound economy, beneath the surface. We had a productive economy, we saved, we made stuff, we exported. We didn't have a huge social-welfare state — nobody got checks from the government — we were in much better shape. If they did that much damage to a sound economy, imagine what they could do with the one we got now.

Plus, back then, we had real money. We were on the gold standard. Now look at us. Look at the problems we had in the 1970s. Still, we had a fundamentally sound economy then. We had a bubble in the '60s. Same thing, the same stock-market bubble. We printed too much money, we went to Vietnam. We fought the war in Vietnam, we went to the moon, we had the war on poverty. The government created too much money and they gave us the 1970s. That was the payback for the 1960s."

As for comparisons to Japan:

"And there's a lot of other people that say we can't repeat the mistakes of Japan. Well, again, we're doing exactly what Japan did.

Japan had a bubble in the 1980s. Why'd they have a bubble? Same reason we had a bubble. They kept their interest rates too low. Why did they do that? To keep the yen artificially low, because they didn't want the dollar to collapse. Kind of like what we did with Great Britain in the 1920s. Very similar.

So the Japanese kept interest rates too low, and they're still too low. But they kept them too low and they had a bubble. Two bubbles: stocks and real estate. Pretty familiar. Stock-market bubble burst first; real-estate bubble, two or three years later.

And, of course, real-estate prices are still falling in Japan — what is it, 15, 20 years later? They've fallen 70 or 80 percent. And that's in a country where you lose face if you don't pay your debts. And they have high savings.

But the problem in Japan was the government in Japan refused to allow the market to function — didn't want to take the pain of the deleveraging and the unwinding of the bubble, so they intervened and intervened and intervened, and ran up the deficits and postponed this thing and dragged it out.

But the main difference between Japan and America is Japan was a wealthy nation that could afford all that big government. They would have been better off without it, but the Japanese economy, beneath the surface, was so competitive and so fundamentally sound that they survived anyway.

They had enough domestic savings to fund the growth of government. The Japanese didn't borrow any money from anybody else — nobody would lend it to them. The Japanese citizens financed that gigantic government, but they still have a high savings rate.

They're still the world's biggest current-account nation. They're the world's largest creditor nation — even still bigger than China. So, they were a wealthy country. Yet the Japanese government managed to create so much damage to an economy that was fundamentally sound.

We're the exact opposite. There's no way that we can get off as easy as Japan, because we're a mess. We're the world's biggest debtor. We have a huge trade deficit, we have no domestic savings, and we're already loaded up with debt. And the only hope we have of artificially stimulating our economy is that we borrow the money from the rest of the world. We don't have it on our own."

It makes you want to move to Montana and build a shelter. I keep saying that our government is turing America into a third world country. Schiff agrees, but thinks it's going to happen very soon and very fast:

"But the rest of the world —and a lot of people think this, I've had a lot of arguments, people call it decoupling: "Well, this is never going to happen," or, "When America stops consuming, the whole world is finished."

They're not finished. We're not the engine of the world's economy, we're the caboose. And if you decouple the caboose, the cars move faster. We're not doing the world any favors consuming their stuff. It's just vendor financing. But people say we're the best customer. We're not; we're the worst customer, because we don't pay. A good customer pays you.

And in the world of trade, you pay for imports with exports. And if you don't have anything to export, you can't pay, and that's what we have. We issue an IOU.

And when the world finally lets the dollar collapse — and they will — our purchasing power isn't going to vanish, it's just going to be redistributed. Other currencies are going to rise. And people in other countries, people that are working in factories right now in China, that are producing products and just shipping them abroad and just kind of waving good-bye, all of a sudden, they'll be able to afford them.

The Chinese will be able to turn in their bicycles and buy automobiles because steel will be cheaper, because cars will be cheaper, because the value of their wages will rise because their currency will gain purchasing power.

It's the Americans who are going to be buying the bicycles. Because, all of a sudden, cars will be too expensive for us, gasoline will be too expensive for us, because we'll be bidding with currency of much less value. And that's what's going to happen. And the world is not going to suffer because we don't buy their stuff. They're going to benefit because now there's going to be more stuff for them."

It makes you want to plan an exit strategy.