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April 20, 2009

Peter Schiff: Gold Report Interview (Part 1)

Amid an “inflationary depression” in the U.S., Peter Schiff, president and chief global strategist of Euro Pacific Capital, sees opportunities in the maelstrom. Facing a massive redistribution of wealth, he advises investors to act quickly and “divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States.” In this exclusive interview with The Gold Report, the widely-quoted expert on money, economic theory and international investing discusses what led up to our current “phony economy” and how investors can actually profit from the crisis.

The Gold Report: Peter, you were one of few people to predict financial crisis that the U.S. and the world is now in the midst of. At a recent conference, you called the conditions that we’re facing “an inflationary depression.” Can you describe what you mean by that?

Peter Schiff: Well, basically, that is the condition that the government is creating here in the United States, and an inflationary depression is going to be a protracted period of economic decline accompanied by rapid increases in consumer prices. So, it’s going to be something like the stagflation of the 1970s, only much more stagnation, or outright contraction of the economy, with the cost of living increasing even more rapidly than it did then.

TGR: As we look at some of the things that Obama’s trying to put into place, is there anything the government could do now to avoid this?

PS: There’s nothing the government can do to avoid some serious short-term pain. The country is in a lot of trouble because of all of the monetary mismanagement of the past, the reckless government spending and the money creation that led to the phony economy.

We’ve spent a long time squandering wealth in this country. We’ve borrowed a lot of money and foolishly used it to consume. We’ve allowed our industrial base to disintegrate, and it’s going to be difficult to rebuild a viable economy. But we’re never going to rebuild one if the government stands in the way. What the government is doing now with their polices is trying to reflate the bubble; they’re trying to get Americans to borrow and spend even more money when we’re broke from the money that we shouldn’t have borrowed and spent in the first place. And the government is trying to get itself bigger. The government is trying to grow its size at a time when it needs to contract because we’re really too broke to afford a bloated government.
It was bad in the past—it was making us less competitive, but at least we could afford it; now we clearly can’t.

So, we need less government. We need sound monetary policy. We need higher interest rates. We need to allow businesses to fail. We need to allow companies to go out of business or bankrupt. We need to allow foreclosures to take place. We need to allow people to lose certain jobs. We can’t try and interfere with that. And to the extent that we do, we’re going to create this depression; and if we keep printing money, we’re going to have massive inflation on top of it.
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