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Peter Schiff: The Collapse Of The U.S. Dollar Is Unavoidable

October 22nd, 2013

Peter SchiffIn a Q&A with GoldSilverWorlds, Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, explained why the mother of all collapses is still in front of us and shared his top tips on how to protect financially.

Peter Schiff has an outspoken libertarian view on the world and economics. It is no coincidence he will be one of the keynote speakers at the first Liberty Forum Conference 2013 on December 4 to 8. His libertarian view was mainly influenced by his father, more so than any of the books he has read. From a young age, he discussed with his father topics related to government, economics, the Constitution, and history of the US. His personal view and the free market oriented perspective were a perfect fit even if these ideas were in contrast with the majority of economic experts and governments. According to Schiff “many people just buy the establishment; they accept a lot of nonsense.”

Looking at the course of the economy and the markets, Schiff sees a confirmation of the outlook he presented in his books (The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your CountryHow An Economy Grows and Crashes and Crash Proof 2.0: How To Profit From The Coming Economic Collapse, learn more about these books). The collapse of the dollar is unavoidable and will be the worst of all crises.

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Why the collapse of the dollar is unavoidable

The current economic problems in the Western world are shared by most countries. It mostly boils down to excessive debt levels and too many promises by governments in untenable social welfare states. However, the US is suffering the most from this disease. One could compare it with cancer that is more advanced in some specific places. The US has taken debt to a level unparalleled, beyond anything the government had promised.

Even Japan, with the highest debt to GDP ratio in the developed world, is in a better situation than the US. If a crisis in Japan hits before the collapse of the dollar, it might postpone the dollar crisis simply because money would flow into the dollar. For all the debt that Japan has, the country is not nearly in as bad a shape as the US. “They have been trying to keep the Yen weak in order to export to America, which is a foolish strategy,” according to Schiff. The Japanese have more than a trillion dollars of Treasuries. “They could sell part of their Treasuries to cover at least a part of their debts. It would hurt the US if they started selling.”

Because of the privilege of the US having the dollar as the world reserve currency, the US economy has been able to evolve in a way that no other nation could. Like no other country in the world, the US is dependent on debt, cheap money, artificially low interest rates, and imports. Schiff explains: “When all this comes to an end, the US economy will suffer like no other. Maybe it will be a wake-up call to other countries in what the US did wrong in terms of the destruction of the country.”

When the dollar became the world reserve currency [in 1944], it was a fundamentally different country than it is today. At that time, the dollar was backed by gold. Everyone holding dollars could exchange it for gold at a pre-set rate. Gold was available on demand, so the dollar was as good as gold. In that period of time, the US was the world’s biggest creditor nation. It had a huge trade surplus which it invested in the rest of the world.

The fact that the US once was so great does not mean it still is. None of the attributes that made the US so great, and deserving of the world’s reserve currency, exist today.

“America is now its mirror image of its former self. We are the world’s biggest debtor, with the biggest trade deficit, and the dollar is backed by nothing. We have mountains of debt. If the US dollar was not the reserve currency today, nobody would accept it to become the reserve currency.”

Only an implosion will impose discipline among politicians

Schiff’s fundamental concerns are related to politicians who are not doing the right thing. He says:

“Looking at the fiasco of the debt ceiling, we are not doing the right thing. For the time being, the right thing is wrongly considered to be more debt and reckless spending. Any restraint on debt is seen as a problem. The type of ‘problem’ the US is solving currently is the limitation on debt, not the decrease of debt levels.

The conventional wisdom, mainly in Washington, is so wrong that only a complete implosion can impose discipline. An externally driven crisis will finally force the government to take the right action. It will be a currency crisis.”

Right now, the dollar is weakening somewhat, but that is nothing compared to what is coming, according to Schiff. As the dollar starts to collapse, Americans will protect what is left of their savings. Only then will the government exercise options to acquire foreign assets, foreign exchange, and precious metals.

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