In his typical candid style, Peter Schiff said he believes the U.S. is again on the brink of another banking collapse—this time the crisis will be worse than the scary swan dive of 2009.
“The stimulus is wearing off and the much anticipated hangover is starting to set in. The economy is now in worse shape because the government stimulated it,” Schiff told King World New’s Eric King. “The stimulus merely interfered with the corrective process. So instead of resolving some of our economic imbalances, the government has made them worse. Now we are on the precipice of a bigger economic decline than the one the stimulus interrupted back in 2009.”
The irascible president of Europacific Capital, Schiff (known for his no-nonsense responses to interviewer questions), is well-liked by investors who cherish forthrightness amid the legion of perma bulls paraded on financial television programs throughout both bull and bear markets. The stock bulls of 2000 and 2008 as well as the housing bulls of 2006 still regularly appear on those financial programs.
Schiff has stated many times that he wonders why those who have gotten it consistently wrong are still asked to appear on television in front of a mass audience, while on the other hand, he, who’s gotten it right, is periodically browbeaten for their “fear mongering.”
Schiff, like many independent investors, doesn’t trust the Federal Reserve and the Treasury to come clean on articulating the core problematic issues surrounding the reasons for the precipitous decline of the U.S. dollar against nearly all Forex currencies, commodities and precious metals. Schiff has not only offered blunt assessments when asked about the dollar, he’s been spot on the mark with his predictions, too, which in turn has steadily increased the size of his flock of Schiff disciples.
Those fortunate enough to have followed Schiff’s commentary prior to the collapse of Bear Strearns, Lehman (LEHMQ), AIG (AIG), Fannie and Freddie (FNMA, FMMC)—or have read his book, Crash Proof: How to Profit From the Coming Economic Collapse, weren’t taken by surprise by the dramatic swings and crashes that followed the Bear Stearns fiasco.
So what’s Schiff saying about the U.S. dollar at this juncture?
He told Eric King, Monday, “It’s going lower, last Friday the U.S. dollar closed at a new low against the Swiss Franc. You need a $1.18 to buy a single Swiss Franc. I think you are going to see much more of the safe haven money going into other currencies or precious metals and the dollar is going to lose that bid, especially if the Fed launches QE3.”
Schiff continued, “… If you look at the economic relapse that’s going on right now, look at Friday’s abysmal job numbers, look at the housing numbers, understand that all of this is taking place with record monetary and fiscal stimulus. What happens if we remove those supports?”
Schiff told KWN he believes the Fed’s actions to bailout the banking system throughout the years 2009 and 2010 have made the initial problem of highly leveraged banks vulnerable to a downturn in the economy more acute, so the next crisis will result in a bigger problem for the Fed and less options to cope with bank and broker/dealer insolvencies.
“I think it’s a certainty,” said Schiff in his response to KWN’s question on the chances of another banking system meltdown. “The financial crisis in our future is bigger than the financial crisis in our past. We are more vulnerable as a nation, we are more heavily leveraged now than we have been at any other time. We are more vulnerable to an increase in interest rates or a run on the dollar and either of things or both of things could happen soon.”
Just as Schiff predicted before the crisis began in 2008 that the Fed would fight a U.S. economic collapse with massive money printing, Fed chairman Ben Bernanke will print again if the U.S. economy cannot grow on its own, Schiff warned.
“It [the Fed’s balance sheet] just hit a record size on Friday. It’s $2.77 trillion, almost $2.8 trillion,” he said. “We’re approaching a $3 trillion balance sheet, but the thing is in order for the Fed to keep this phony economy on life support that balance sheet has to continue to grow.”
He continued, “Once that happens we can build a lasting and sustainable period of prosperity. The one we have now is doomed, it’s an abomination, it can’t survive. It depends on ever and ever greater injections of credit so that we can keep on borrowing to consume and import. If we try to do that indefinitely we will destroy the economy completely because we will destroy the currency completely.”
Schiff predicted gold’s ascent well before the debt crisis became apparent to everyone in 2008, and he again expects more bullish moves in the monetary metals in the months and years to come as the beginning of “Act II” of the global crisis—as George Soros described the volatile financial markets in March 2010 (during the Greece sovereign debt crisis)—plays itself out around the globe.
“The more mistakes the Fed makes, the more stimulus the government pours into the economy, the brighter gold and silver are going to shine. Since I am optimistic that the government will keep doing the wrong thing, I’m optimistic that gold and silver prices will keep rising.”