Euro Pacific Capital CEO and Chief Global Strategist Peter Schiff talks with the Opportunist’s Managing Editor Leslie Stone about his economic insight, his radio show and his disdain for big government, personal income tax and Social Security.
Telling people what they don’t want to hear can sometimes make you, well, not exactly the most popular person in the world. Peter Schiff’s warnings of imminent economic collapse in 2006 made him the subject of ridicule and speculative name calling—earning him the title “Dr. Doom.” But even as the naysayers were fiercely outspoken in their opposition, Schiff continued to put his reputation on the line. “I understood the dynamic that was going on during the days of the housing bubble better than I think just about anybody,” he says. “I was talking about 50 percent declines and people thought I was crazy, but I knew Freddie and Fannie would go bankrupt.”
Today, Schiff is credited with “more or less accurately” predicting the financial crisis that would come to be known as The Great Recession. However, being right did not bring him a sense of having won anything. “After the crisis, very few reporters would take our calls,” he explains. “It’s like we were a voice in the wilderness saying ‘black’ when everybody else was saying ‘white,’ and soon they aren’t listening to us at all. It was almost like they didn’t want to hear what we had to say.”
Opportunist: Do you thrive on controversy, Peter?
Peter Schiff: Well, I certainly never shied away from it. [Laughs] To me, it’s more interesting. People will ask "Why do you keep going on these shows where people make fun of you?’ The truth is, I don’t mind as long as they let me say what I want to say. I don’t necessarily like it when people call me names, but I would much rather be on TV with a guy who disagrees with me—as long as my character isn’t under fire—than with someone who just agrees with me. I’ve discovered that whenever it’s three or four against one, I typically come off more sympathetic.
Opportunist: Do you ever worry about being perceived as feeling superior?
Peter Schiff: My perspective is outside the mainstream. I disagree with the vast majority of people out there—whether they are economists or investment advisors—and though there are some people in my camp there aren’t a lot of us percentage-wise. Millions of people saw my Occupy Wall Street video, where I stood in front of the people in Manhattan’s Zuccotti Park and said ‘I am the 1 percent … Let’s talk.’ I was very polite and respectful, but I was presenting opposing arguments and wanted to see if I could find some common ground.
Opportunist: Were you successful?
Peter Schiff: I didn’t think I would convince many of the occupiers; I was more concerned about the people who would watch the video. Lots of people emailed to say they saw my video and it put them on a different path. It was the controversy of the video that made it popular.
Opportunist: You have called for an end to income tax, Social Security and Medicare. What is your reasoning behind that?
Peter Schiff: I believe they are unconstitutional. The income tax is provided for in the 16th Amendment, obviously, but the way it is enforced today is very oppressive and certainly not in harmony with that amendment.
Opportunist: Why do you think that is?
Peter Schiff: It requires citizens to keep books and records and share their personal information with the government. The U.S. government knows more about its citizens than the Soviet Union knew about its subjects. [Laughs] Then you’ve got the government snooping on everybody in an effort to catch tax evaders who don’t want to fill out forms or hire accountants. I think a lot of Americans live in fear of the IRS and, quite frankly, I want to get rid of that whole agency. And, as for Social Security, well that’s a giant Ponzi scheme. Young people are getting clobbered by paying for benefits they will never collect. A free society should not be taxing people on their income. You’re a free person, not a slave, so you have a right to work. You own your labor—not the government—so the government should not interfere by taxing you. I believe our current tax code discourages people from working harder and being successful. Businesses spend fortunes on tax accountants just to navigate the tax code. Personal income tax, corporate income tax and especially the tax on investments is enormous. The U.S. government takes more than any lord of any medieval manor ever did. Medieval serfs took 25 percent of what you made. I would love to live in a land where I can keep 75 percent of what I earn, so I am way below serfdom! [Laughs]
Opportunist: So what is the alternative for funding the cost of running the government?
Peter Schiff: I would like to basically see the government run on sales tax or duties or imports. If the government just had a sales tax on what I buy, I would pay that. I would also like to see resources kept in the private sector with the people who created them, and a dismantling of the giant welfare state that has been erected to replace the America that our forefathers founded. When we look back at the most prosperous time for the U.S. economy we see that it was before income tax and Social Security and corporate income tax existed.
Opportunist: How can the country get unemployed and underemployed citizens back to work?
Peter Schiff: Dismantle the Federal Reserve and let the free market reign. Why aren’t American citizens producing the things we are importing? It’s because government regulations get in the way. We need to get rid of health care mandates and make it harder for employees to sue their bosses simply because they believe they were wrongfully fired or weren’t promoted. If you don’t like your job then quit! One of the riskiest things you can do in America right now is hire somebody. Employees are expensive headaches, and the government made it that way.
Opportunist: Would raising minimum wage improve our economic efficiency?
Peter Schiff: I think we should get rid of the minimum wage law altogether. Companies are required to pay minimum wage plus other costs on top of that. We need to stop vilifying employers and get rid of worker’s rights. Workers should not get special rights just because they collect a paycheck. It’s the government’s fault, though, because it is punishing and discouraging business owners. And we ask why so many jobs are outsourced? It’s too damned expensive and risky to hire Americans! It wasn’t always this way. Today the government passes laws to protect workers and ends up protecting them right out of a job. And in its effort to make it illegal to discriminate against the disabled, for example, the government has made it too expensive and risky for many small businesses to hire disabled workers. There was a guy recently who went from restaurant to restaurant suing people for violating the Americans with Disabilities Act [ADA]. The only thing wrong at one of the restaurants was that the grade on one of its handicapped parking spaces was off about an inch from what it was required to be. Another woman sued a strip club because she couldn’t get her wheelchair up on the pedestal and, therefore, couldn’t work as a stripper.
Opportunist: That is incredible.
Peter Schiff: Look, I feel for anyone in a wheelchair—my aunt is in a wheelchair and I even built special accommodations for when she comes to visit—but let’s face it, if you’re unfortunate to be in a wheelchair then one job offer you probably won’t get is stripper. I sure can’t be a professional ball player just because I might want to. It’s too easy to sue in the United States. We have become an overly litigious society. So, in an effort to reduce their liability, companies have been forced to hire as few people as they possibly can. If we get rid of all these laws and regulations we can use these resources to invest in equipment and capital. The whole thing is ridiculous. It’s like trying to win a race with an 800-pound gorilla on your back and wondering why you’re lagging behind!
Opportunist: Has the brokerage business changed much since you started out?
Peter Schiff: There is so much more minutiae, compliance and regulation now. I would have had to take a totally different route if the regulations that we have today existed back then. Many of the doors that were open to me are simply not open to people today. Quite a few small brokerage firms have already called it quits.
Opportunist: What aspect of your work do you enjoy most?
Peter Schiff: You do get a sense of pride and satisfaction in starting a business and making it grow, but it’s frustrating when the government stifles smaller companies like mine and prevents them from innovating. I do still enjoy talking to people and working with clients, although I don’t work with as many as I used to. I do a lot of seminars and public speaking now, and I write books and host my own radio show—I certainly find more enjoyment in that process—and I have a passive ownership interest in my brokerage firm, precious metals, offshore bank, Canadian broker dealer, etc. that I kind of let others run for me. Offshore banking is an exciting business that I am interested in, although I am not running it day-to-day, but I am in tune with what’s happening. I plan to move my asset management and planning business offshore as well, which is being driven out by regulations and taxes.
Opportunist: Tell us about your radio show.
Peter Schiff: I cover three areas: politics, finance, and the economy. My show is different from what you’d get on FOX and CNN because I talk about what’s happening in the stock and bond markets and precious metals from my perspective. I don’t give specific advice but I do invite listeners to talk with brokers privately in a framework consistent with the rules and regulations that won’t get me sued. I take calls on any of those topics and my clients listen in, and sometimes they are upset when I don’t spend all my time on the markets. My passion lies there, but I am trying to grow the audience and hoping to penetrate mainstream talk radio to listen to my perspective. In order to get stations to pick me up I cannot just talk about gold and the bond market. When I started out I appeared on a radio show for an hour each week and people would call in. My current show is a daily show that airs two hours every morning. It doesn’t make me any money right now but, hopefully, it’s an investment that will bear fruit in the future and become a profit generating enterprise. My listeners are out there referring business to me—that’s really how I make money. Companies have approached me with lucrative proposals, but I don’t want to recommend their services when they will likely charge my clients outrageous commissions. In good conscience I cannot endorse anyone who will rip off my audience.
Opportunist: What kind of preparation goes into the show?
Peter Schiff: What’s different about me and other talk show hosts is that I don’t do a structured show. There is very little preparation and I generally just discuss whatever comes to mind. I do a lot of speaking events as well and I usually don’t even know what I am going to say for sure before I take the stage. Over time my presentation will change based on changing circumstances, but I have never used any notes. I just talk until my time is up and everything just flows and I am building on it as I am talking. One of the reasons my shows and presentations are so improvisational is that I simply do not have enough time to spend hours preparing. So, it’s a good thing I can think quickly and just go for it. I do read articles in the morning, and if there’s a good story or current event I will save it to reference on the show. Sometimes I don’t’ even look at the articles, and other times I will have an article ready and then callers will take the show off on a different direction. Some shows go better than others, but I never think Oh, that show really sucked. It's a way for me to try to influence the direction of the country and the way people think and I believe it’s a worthy endeavor.
Opportunist: Who is the most impressive person you have met?
Peter Schiff: I have met a lot of impressive people, and I have met some big name people that I wasn’t impressed with. I’d have to say politician Ron Paul, Swiss investor Mark Faber and American investor and author Jim Rogers are heroes of mine. David Tice, Nigel Farrar, Daniel Hannan and Doug Casey are also well-respected names in the circle of old school hard money guys I try to travel among. That’s where I got started—in hard money investment conferences and speaking to the gold bugs—but my message is certainly much broader than just ‘buy gold.’
Opportunist: Who inspired your career?
Peter Schiff: My dad influenced me a lot early on—not necessarily my career, but my thinking about politics and economics—but no one in my family was a financial advisor or in the brokerage business. When I got out of U.C. Berkeley I wasn’t getting job offers, although I went on some interviews for accounting type positions and management and consulting. I never got a job offer coming out of Berkeley. I really wanted to sell something in which my economics background would come into play—I sure didn’t want to sell pharmaceuticals—so I got into investment products at Lehman. They used to call me ‘college boy’ because I was the only one with a college degree. It’s a shame that my Berkeley degree didn’t contribute to my success. The people who hired me would’ve hired me even without a degree. I talk about that a lot on my show as well. I think college is a racket. Young people get ripped off paying for worthless overpriced degrees when they’re much better off skipping college. In fact, I made a popular video interviewing people on Bourbon Street when I was in New Orleans for an investment conference. The video has received 160,000 views so far. I asked bouncers and strippers and truck drivers and orderlies and janitors where they went to college.
Opportunist: Let me guess … they all earned college degrees?
Peter Schiff: Yes, they sure did—and lots of student loan debt and lousy low-paying jobs. Another popular video features me interviewing delegates at the Democratic National Convention about whether they would be in favor of a law that would ban corporate profits. It was a very funny and timely video so it caught on and got over a million views within days. I take on a lot of these topics to try to get clients but I also get a lot of Ron Paul types and young people who don’t have any money to invest but are attracted to what I am saying. I enjoy teaching and educating them but they aren’t necessarily customers of mine, although their father or their uncle or even their boss might become a customer.
Opportunist: Are you in favor of a return to the gold standard for the U.S. dollar? If so, how would that affect the euro and the Chinese yuan?
Peter Schiff: I think the entire world monetary system would be much improved if anchored to gold. The free market functions much better with real money, but there is no real money anymore—it’s all fiat. Historically, that has not been the case. Gold became money because free individuals chose it. Paper is money simply because some government or king decrees it to be money. It’s the power of the state, if you believe government is better at central planning, to determine what money is worth and what interest rates are. If the government is such a genius then why limit its genius to money? Why not let it handle every aspect of our lives and go ahead and tell everybody where to work and what to produce? The fact is that government does not have any idea what the right money and interest rates are. When the government picks an interest rate, it’s purely for political reasons. Why do you think it always picks a rate that is too low? None of this is natural to the free market. The government comes in and screws up the economy with its monetary policy and creates bubbles, booms and busts. Then they use that as an excuse to step in, but it’s the government that caused the problems in the first place. The more government fails, the bigger it gets. In a free market, when companies fail they get smaller.
Opportunist: What is your investment philosophy?
Peter Schiff: My investment philosophy is very much rooted in economics. I don’t just look at a chart; I look at the U.S. economy and the global economy. A lot of it is politics too, and current events.
Opportunist: Where should investors be putting their money right now?
Peter Schiff: Sending it to us to manage at Euro Pacific Capital. [Laughs] I would recommend diversifying your investments globally and putting money in equities, bonds and other fixed income investments and trying to get out of the dollar and into better currencies like gold and gold related equities over time.
Opportunist: Do you believe the so-called American Dream is still attainable?
Peter Schiff: That depends on how you define the American Dream. Realtors try to hijack the term ‘American Dream’ and define it as homeownership. I will say that any individual, no matter how humble their origins, can rise as high in society as their ambitions and talents will take them. You aren’t defined by who your parents are—practically anybody can grow up to be president—and ours it not a caste or a class society. Is that dream alive? I think it is for a small percentage, but the bar has been raised a lot higher and it’s harder to make it in America now. You have to work a lot harder. We used to be such a great country. When you look at millionaires in America today, most wealthy people either inherited money from their parents or made good investments—they aren’t starting businesses. America now lags the world in entrepreneurship. Many Americans are raised in poverty and get trapped in the dependency culture they learned from their parents. They’re almost better off being born somewhere else.
Some serious soul searching and huge changes are needed. Sure, there is a small movement of people who are fed up—whether it’s the Tea Party or some other group—but even they don’t understand what really needs to be done to right this ship. Until we figure it out, our standard of living will keep falling. What will happen in the aftermath of what is to come? We might wind up dismantling what is left of a free market and get to where life becomes so miserable in the United States that the only option for some people will be to get the hell out. The path we are on is not good, and every time a government-created crisis comes about we end up creating more government. Look how many people now believe it’s OK if the government spies on us as long as we are a little bit safer when we go to the mall or the movies. You shouldn’t have to give up your freedoms so easily. We have to be more vigilant about our freedoms.
Opportunist: In your recent book The Real Crash, you warn that a crash worse than 2008 is imminent. What makes you say that?
Peter Schiff: I am more confident now than I was last time. It’s very frustrating to me that the same people who laughed and ignored my warnings in 2006 and 2007 are ignoring me yet again. You’d think I would be perceived as even more credible today as a result of getting it right last time. But no, people still accuse me of being too ‘gloom and doom.’ What they don’t realize is all the problems we had with the economy before the Great Recession are worse now because we didn’t solve them—we made them bigger! All my critics are right back in the fantasy world.
Opportunist: How can you be so sure?
Peter Schiff: The economy continues to evolve along an unsustainable path. Resources and labor and capital are allocated in an unsustainable manner and encouraged by artificially low interest rates, which would not happen in a free market. People would not take risks and pay prices for assets that they wouldn’t otherwise pay—or borrow more than they should. The rate of savings is going down. Manufacturing jobs are disappearing. Market forces will try to fix all their mistakes and rein everything in, but the market creates recessions. Central banks try to fight off recession by stimulating the economy, but recessions are bad tasting medicine that we have to swallow because recessions are where the mistakes are corrected. In 2008 the Fed should have let the process run its course.
Opportunist: Is it possible for America to restore its manufacturing base and, if so, how could it be done?
Peter Schiff: Not in its current form. We won’t restore it until we lower taxes, impose fewer government regulations and have less consumption, less speculating and more savings. All of this can happen, but not until we change and, unfortunately, go through a very painful process. We need to fix what’s wrong with the economy and clear out all the mistakes. The government tries to fool us with smoke and mirrors, saying there is no inflation and the economy is growing as we go deeper into debt. When the bubble finally bursts, believe me, it will be much worse this time.
Opportunist: Were you against the bailout?
Peter Schiff: The Fed should have let the banks fail and allowed the real estate market and debts to go bad. Had they done that it would’ve been more painful but at least it would’ve been constructive pain and the economy would’ve righted itself naturally. The government would have had layoffs and government workers would have been transitioned into more productive private sector jobs. Regulations that are still inhibiting employment would’ve been cut. None of that happened, and the government got bigger instead and Dodd Frank and Obamacare and other things we cannot afford and wouldn’t have enacted exacerbated all the problems. Bigger government screwed up the economy and created more malinvestment. When this one pops there is no more stimulus and the government itself will be in trouble. This will force the Fed to monetize debt to runaway inflation and wipe out financial assets because the dollar will lose value and cease to be the world’s reserve currency and Americans will be impoverished. I see a collapse coming that government cannot get us out of. The process may have already begun now that bonds have been sold off and interest rates are starting to rise. When Federal Reserve Chairman Ben Bernanke has to rescue the bond and housing and stock market by reversing his course and promising more quantitative easing, it will be a watershed event. There is no exit strategy. We haven’t solved our problems; we have made them worse and postponed the consequences.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989.
Follow Peter Schiff on Twitter at @PeterSchiff
The Peter Schiff Show - www.schiffradio.com
Euro Pacific Capital - www.europac.net
Videos to Watch - Peter Schiff Speaks for 1 Percent at Occupy Wall Street - http://youtu.be/UGL-Ex1CD1c
Is a college degree worth the cost? You decide. - http://youtu.be/kXpwAOHJsxg
Peter Schiff was Right - http://youtu.be/2I0QN-FYkpw
Democrats: Let's Ban Profits! - http://youtu.be/07fTsF5BiSM