Peter Schiff Interview (The Inevitable Collapse of America - Part 1)
Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, author of the 2007 book, Crash Proof, and his recently released book, The Real Crash: America’s Coming Bankruptcy. Peter has been featured in Yahoo Finance, Business Insider, and is a regular contributor of Forbes.com.
Q:You say the next financial crisis is coming. You say it will be greater in scale and magnitude than that of 08. What events will trigger this collapse and how will it be different than that of 08?
Peter: Well it’s going to be different in that it’s going to be bigger. But what’s going trigger it is going to be reality. People’s perceptions have to change. What triggered the collapse of 08? It was the realization that all these mortgage loans were bad, that people had borrowed money to buy houses and had no ability to pay the loans back. A lot of defaults were coming and a lot of these securities weren’t worth what people thought they were worth and a lot of these situations that people assumed were solvent were not. It was really the discovery of that information which caused the collapse of 08; people coming to appreciate the truth that they were living in a delusional state.
The same thing exists today with respect to sovereign debt with the U.S. economy. People assume that we have a buyable economy, we do not. America is an economy that is based on borrowing for consumption and borrowing to sustain a massive government that is spending a tremendous amount of money. The reason that all the pieces haven’t collapsed already is because interest rates are very low and they are low because the risk is not properly perceived. Just like those risks perceived in the housing market, mortgages were mispriced or real estate was mispriced, now government bonds are mispriced. You have a bubble in a bond market where government is able to borrow extremely cheaply. We can service the debt only because the rates are so low. But, when our creditors come to the realization that we have borrowed beyond our capacity to repay and the only choices are default or inflation than our interest rates will skyrocket and bonds will plunge; or the Federal Reserve will print massive amounts of money to prevent that from happening and the dollar will plunge as prices skyrocket.
Ultimately the implosion in the economy is much more dramatic than in 08 because there are no bailouts coming. There’s nobody to bail out the bailer. Once the government fails its game over and so this is the final bubble and I called it in my book, the government bubble. That’s what it is, it’s a bubble in government and it’s sustained by low interest rates, just like the housing bubble was sustained by low interest rates. But, you know all bubbles burst. It’s inevitable; the problem isn’t that this bubble is going to burst, the problem is that we inflated it in the first place and that we continue to blow air into it. That’s the problem. The sooner it can burst the better, but that doesn’t mean it’s going to be an enjoyable experience for big parts of the economy. I mean there will be parts of the economy that will benefit immediately from this, but there will be a lot of high profile losses.