Sacrificing the U.S. Dollar – Peter Schiff

Sacrificing the U.S. Dollar – Peter Schiff

Sacrificing the U.S. Dollar – Peter Schiff

He warned us … and he was right. Peter Schiff was one of the few investment professionals to caution the public about the 2007 financial crisis before it began. Since then, he’s continued to help Americans weather financial storms and keep their money safe. Schiff discusses his market predictions, cryptocurrency and the future of the dollar with host Charles Mizrahi.

Topics Discussed:

  • An Introduction to Peter Schiff (00:00:00)
  • The Real Estate Bubble (00:01:20)
  • What Others Missed (00:09:42)
  • The Bitcoin Bubble (00:13:50)
  • An Even Bigger Bubble (00:21:19)
  • Rushing to the Suburbs (00:32:04)
  • Sacrificing the Dollar (00:35:11)
  • Investing Alternatives (00:38:10)
  • The Future of the Dollar (00:39:57)
  • Opportunity in Puerto Rico (00:44:39)

Guest Bio:

Peter Schiff said the real estate bubble would eventually pop. But before the 2007-2008 financial crisis, few believed him. Regardless, Schiff kept his head high and continued to reach out to Americans — hoping that some would follow his lead. In the end, Schiff’s prediction came true.

And he hasn’t stopped giving financial advice since…

Today, he’s the founder and chief market strategist of Euro Pacific Asset Management. Schiff leads a “stock-focused wealth management program” to help Americans prepare for future changes in the global economy — particularly, the devaluation of the U.S. dollar.

Resources Mentioned:

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Read Transcript

PETER SCHIFF: I don’t know when the dollar is going to crash. But if you short the dollar, you’re going make a lot of money when it finally does. The way I short the dollar is by owning gold, silver, mining stocks or companies outside the United States — where their shares trade in foreign currencies.

CHARLES MIZRAHI: My guest today is Peter Schiff. Peter is the founder and chief market strategist of Euro Pacific Asset Management. Peter was one of the few economists and investment professionals to warn [the public] about the 2008 financial crisis before it began.

CHARLES MIZRAHI: He appeared on CNBC, Fox News and Bloomberg back in 2007 and 2008. He said home prices were going to come crashing down to earth. We were going to experience an enormous credit crunch, and we were heading for a major recession. Peter was ridiculed and mocked for his bold predictions.

CHARLES MIZRAHI: But it was Peter who had the last laugh as the U.S. headed into the worst financial crisis since the Great Depression. I recently sat down with Peter to discuss his thoughts on Bitcoin and how to prepare for the coming tsunami of inflation.

CHARLES MIZRAHI: Peter, I’ve looked forward to this conversation since I first heard about you.

CHARLES MIZRAHI: Back in 2007 or 2008, I saw a video of you on YouTube — where you were getting laughed at on Bloomberg, CNBC and Fox. They were ridiculing you. Tell me what was going on.

PETER SCHIFF: You’re talking about the years that lead up to the 2008 financial crisis. The specific video that you likely saw was called: “Peter Schiff was right.” It mostly highlighted a lot of my Fox News stuff.

PETER SCHIFF: There were other videos that came out which weren’t as popular. But I was pretty much a fixture on financial television for a few years — from 2005 to 2009. I was on all the time. I wasn’t just on CNBC, Bloomberg. I was also on Fox News, CNN and MSNBC. But my big ones were Bloomberg and CNBC. I was on all the time — every week.

PETER SCHIFF: Then, I started doing the Saturday shows on Fox News — where they had two hours of market programing. I was on there quite a bit. The difference was that everybody thought everything was great because the markets were rising and real estate prices were going up. Pretty much everybody was optimistic.

PETER SCHIFF: But I was saying: “Wait a minute. This is all a bubble. This is all because of the Fed and the fact that it lowered interest rates to 1%. And now, they’re still artificially low, and it’s all bleeding into this real estate bubble. There’s reckless lending. This bubble is going to pop. Real estate prices are going to fall. Loans are going to default. Financial entities are going to fail. We’re going to have bankruptcies on Wall Street. Fannie Mae and Freddie Mac are going to go bankrupt.”

PETER SCHIFF: I talked about all of this. And everybody made fun of me because, as far as they were concerned, there was nothing wrong. Everything was great. The economy was booming. There was no recession anywhere in sight. Housing prices would always go up.”

PETER SCHIFF: I was just this doom-and-gloom guy who they liked having around because they wanted to show that they had both sides of the coin — that they weren’t all bullish and cheerleaders. They had me along to provide the counterpoint. Sometimes, it was almost like comic relief. They needed somebody that they could make fun of. When my forecast came true, they stopped inviting me.

CHARLES MIZRAHI: So, you were the clown. I watched some of them just before this interview. They were ridiculing, mocking and laughing at you. First of all, that’s totally disrespectful.

CHARLES MIZRAHI: Secondly, they weren’t listening to what you had to say. Do you agree or disagree? You had some excellent points that weren’t being addressed back in ’07.

PETER SCHIFF: Yeah, that’s the problem. Just like the current mania, when you’re trapped in a bubble, it’s almost like cognitive dissonance. You tune out anything that contradicts the narrative you have in your head.

PETER SCHIFF: I didn’t mind. I actually enjoyed the fact that they were all making fun of me. Because I knew they were wrong. It was just a matter of time. Eventually, I had the last laugh. Although, they control the network. So, they decided: We can’t let this guy laugh at us anymore. Now, we can’t make fun of him because he was right.

PETER SCHIFF: Initially, I still got some media attention for being right. They didn’t just cut me off right away. Then, my invites completely disappeared.

PETER SCHIFF: I’m still on once in a while. I still go on Fox Business. I was on Fox News the other day with Tucker Carlson. I happen to be a big fan of Tucker’s show. I actually watch that show a lot. So, it’s not like there’s a complete media blackout of me. But I haven’t been on Bloomberg in nine or 10 years. They clearly banned me. I used to co-host the shows. They had me on for an hour! CNBC hasn’t had me on for around three or four years. Those networks have clearly decided that I’m not welcome. I haven’t been on CNN in quite a few years either. That network doesn’t want me.

CHARLES MIZRAHI: What does that say to the average investor who watches these shows and actually tries to invest based on who the networks put in front of the camera that day?

PETER SCHIFF: Well, you shouldn’t actually look at these shows for investment advice.

PETER SCHIFF: It’s entertainment. There’s certainly an agenda. They want to promote certain types of investments and strategies. You’re getting very biased coverage.

PETER SCHIFF: I think that you can look at some of these networks for the news. You can look at the tickers or see what’s going on. But when it comes to making your investments, they’re probably more of a contrarian indicator. When you see a lot of people making the same types of recommendations, then it’s probably a good idea to do the opposite. Try to figure out the type of investments that they’re not encouraging people to make. Those are likely the values that you want to concentrate on.

CHARLES MIZRAHI: We’ll get to modern day, but what did you see in ’07? Real estate didn’t go down all at once. Different markets went down for small periods of time but never across the nation. What did you see — in terms of credit and subprime — that everyone was missing?

PETER SCHIFF: No. 1, I understood the effects that monetary policy had on the real estate market, lending and the moral hazards created by Fannie and Freddie. I saw it firsthand while living in Southern California and seeing the lax lending standards, zero-down mortgages, interest-only mortgages and no-doc loans. All of that was crazy.

PETER SCHIFF: My book, Crash Proof: How to Profit From the Economic Collapse, came out in ’07, but I mainly wrote it in 2005 and 2006. I was initially going to make the title about real estate — like “America’s Dream” or “America’s Nightmare.” But I ended up making real estate a chapter rather than the whole book because I wanted to have a broader topic for my first book.

PETER SCHIFF: But people couldn’t see this. I went to speak at a conference of mortgage brokers — the Western Regional Mortgage Bankers conference. I spoke in 2005, and I was on a panel —

CHARLES MIZRAHI: I’m sorry, I’m a little confused. When was this?

PETER SCHIFF: I meant 2005. I got my decades wrong. So, I spoke in 2005, and I was on a panel with a lot of the bigwigs in the banking and housing industry. They were all very optimistic.

PETER SCHIFF: Now, 2005 was the peak of the housing bubble. I was the only guy there who was negative, said it was a bubble, the prices were going to crash and all this bad stuff was going to happen. Nobody believed me.

PETER SCHIFF: But this was a wild convention. Everybody was on cloud nine in Vegas. They were making tons of money. You could see it in the opulence of the conference and how much money was being spent on entertainment. That was also the heyday for the mortgage bankers. I warned them about all the problems.

PETER SCHIFF: A year later, they invited me back to have a debate. And the only reason I agreed to go was because I was trying to raise money for a hedge fund that was shorting subprime mortgages. I started it with a guy named Andy Laddy, who came to my office earlier that year to let me know about how the subprime market was working — as far as how it was being financed.

PETER SCHIFF: I thought: “Oh my God. This is crazy. These bonds are going to go to zero.” These were the tranches of the securitized mortgages that were rated triple B minus. And I said, “They should be rated F. They’re going to fail.” So, he said, “OK, let’s start this hedge fund.” But I said, “You start the hedge fund, and I’ll raise you the money. This is a slam dunk. These things are going to collapse.”

PETER SCHIFF: I needed investors to invest in the fund and bet against subprime. So, I knew I was going to come to the conference. There were 3,000 people there, and I said: “I want you to give me a workshop. I want to be able to pitch this hedge fund. I want people to invest as a hedge — to hedge their careers — because a lot of these guys are going to be out of business if I’m right about what’s going to happen. Maybe they want some money on the don’t pass-line.” They agreed to let me have a workshop. I went to the conference and debated this guy.

PETER SCHIFF: You can see the whole thing if you go on YouTube and search “Peter Schiff, mortgage bankers.” You won’t see the whole debate. It just has my part of it. You get my part and then some stuff at the end — where we go back and forth. But his presentation isn’t there. Although, you can see him rebutting me. He’s very optimistic.

CHARLES MIZRAHI: Was this the same conference that was depicted in the movie The Big Short?

PETER SCHIFF: No. The Big Short had nothing to do with me. I hadn’t even seen it, believe it or not. I lived it, so I never watched it.

CHARLES MIZRAHI: It was a mortgage bankers’ conference.

PETER SCHIFF: The main character was Michael Barry — or whoever it was. But somebody was in the audience and listening to it. I was the guy on the stage giving the speech. I explained why the whole thing was a house of cards and was going to collapse.

PETER SCHIFF: Everybody else was probably bullish at the conference. I didn’t attend the other speaking events. I didn’t care what they had to say. I was just there to present my case and hopefully find some people who wanted to invest in shorting the subprime market — which was what that movie was based on. I was trying to get people to do that trade. I wanted people to put that trade on in 2006. The market blew up in 2007.

PETER SCHIFF: Anybody who took my advice and shorted the subprime made those profits. You could watch my whole presentation. They gave me a room. And even though there were 3,000 people in attendance, only 50 to 70 people attended my workshop.

PETER SCHIFF: Of those people, one guy invested. One guy. I think he sent in $500,000.

PETER SCHIFF: A year later, I sent him around $5 million back. Maybe it was $5 million. He made around ten times his money. I forget exactly what he invested. I think it was $500,000.

PETER SCHIFF: He called up the office and talked to one of the representatives there. He said: “I heard Peter Schiff, and I want to invest.” That was it. He was of 3,000 people. I handed them that trade. I explained exactly how it was going to go down and why they should participate. Only one guy did.

PETER SCHIFF: You can bring a horse to water, but you can’t make him drink. I brought 3,000 horses to that well, and only one of them decided to drink.

CHARLES MIZRAHI: So, what is it? When people are in a bubble, they just don’t see anything but the bubble?

PETER SCHIFF: Pretty much. A lot of times, their minds are affected by the fact that they’ve made money.

PETER SCHIFF: The best example of that mentality today is in cryptocurrencies — like Bitcoin. What has emboldened the people trapped in the Bitcoin bubble is how much money they’ve all made. A lot of it’s on paper because they haven’t sold. But when you have a guy like me — who has been critical of Bitcoin since it’s gone from pennies to almost $60,000 — people say: “What do you know? You’ve been wrong all these years because look how expensive it is. Look at the price!” The people who are in on it are convinced that they’re so brilliant because they bought it, and it’s gone up.

PETER SCHIFF: They don’t realize that they’re not brilliant. There are a lot of other people who are also not brilliant and made the same foolish decision they did.

PETER SCHIFF: So, you have this mob mentality. You know that old Wall Street expression: “Don’t confuse brains with a bull market”? Well, you definitely don’t want to confuse brains with a bubble. Because that’s an even bigger mistake to make. But everybody thinks they’re geniuses in a bubble — just like everybody thought they were geniuses during the real estate bubble. Everybody also thought they were geniuses during the dot-com bubble.

PETER SCHIFF: They only found out how dumb they were when the bubbles popped and all the air came out. The same thing is going to happen today to the to the crypto-crowd.

CHARLES MIZRAHI: You’re telling me that Bitcoin doesn’t have intrinsic value?

PETER SCHIFF: It doesn’t have intrinsic value. It has a market price. People are willing to buy it. But you can’t confuse price with value. There’s an old Warren Buffett saying: “Prices what you pay, but value is what you get.” If you buy a Bitcoin today, you might have to pay $60,000, and you get no value.

CHARLES MIZRAHI: For the past five or six years, I’ve asked everyone I’ve known — who are invested in cryptocurrencies and think they know a lot about how they work — one question: What’s the intrinsic value of Bitcoin? If you know the intrinsic value, then $60,000 might be cheap. Or, $1 million might be cheap. What do you base your investments on if you don’t know their intrinsic value? I get the dumbest answers in the world — it’s worth the whole of the Internet or silly answers that are absolutely ridiculous.

PETER SCHIFF: The answer I typically get is that nothing has intrinsic value, and value is subjective. Value is whatever people think something is worth. That’s what they truly believe. 

PETER SCHIFF: A lot of these Bitcoin people want to bring it back to gold. They say that Bitcoin is digital gold. So, if I ask: “What’s the intrinsic value of Bitcoin,” they’ll say, “What’s the intrinsic value of gold? Gold doesn’t have any value either.” And I’ll say, “Of course it does. Gold is an actual metal.”

CHARLES MIZRAHI: You’re wearing it on your rings, earrings and other jewelry.

PETER SCHIFF: The reason we wear it is because of its properties. It doesn’t corrode. It doesn’t tarnish. It works better in jewelry than other metals. Gold has very rare and unique properties. It’s very rare in the earth, so it’s a valuable metal.

PETER SCHIFF: Whenever I point that out, people say, “No, it’s not. It’s worthless.” So, in order to defend Bitcoin, they have to say that gold has no value either — which is completely false. Gold has tremendous value.

CHARLES MIZRAHI: I ask the same people: “If you’re dealing with such an undervalued asset, why are you holding dollars? Why don’t you just convert all your money and property into Bitcoin — because it’s worth a zillion dollars — and get rid of all this fiat currency that you’re telling me is worthless?

PETER SCHIFF: A lot of them have actually done that!

CHARLES MIZRAHI: You must know a different crowd than I do.

PETER SCHIFF: There are some people that are almost all-in. All their liquidity is in Bitcoin. You can’t live in your Bitcoin, so you aren’t necessarily going to sell your house to buy Bitcoin. But a lot of other people who are in Bitcoin are diversified. They are confident that Bitcoin is going to go way up. They really believe in the narrative that says it’s going to be the new money, have store value in a medium of exchange or whatever. But they’re not betting everything they have on it. They’re betting a certain amount, and it is just part of their portfolio.

PETER SCHIFF: I can respect that strategy, but I just don’t think that Bitcoin is going to work. If I actually thought that Bitcoin had a reasonable chance of working, I would own some of it, too. But I wouldn’t own all of it because there are a lot of things that can go wrong.

PETER SCHIFF: There are some people who recognize that there are things that could go wrong, and it might not work out. So, they’re prudently diversified. But there are some people who are way overweighed in Bitcoin, and they’re going to regret that. Right now, they’re convinced they can’t lose. That’s generally the mentality in a bubble. Whenever you get a situation where people think that they can’t lose, they generally do.

CHARLES MIZRAHI: Do you see any similarities between now and when you were out there in 2007?

PETER SCHIFF: There are certainly similarities among the people who bought real estate, had multiple homes or flipped homes — and even individual homeowners who believed that their houses could never go down in value. There are a lot of similarities there. The people who own Bitcoin are under a similar delusion.

PETER SCHIFF: I saw the same attitude among people who fell in love with various dot-com stocks during the 1990s — when people thought their stocks could never go down. The more relevant similarity was not about individual investors, but what was happening in the broader economy. In the ‘90s, you had a stock market bubble that was a byproduct of the Fed. Then, you had a bigger bubble in real estate that was a byproduct of the same Fed and misguided monetary policy.

PETER SCHIFF: We are now in an even bigger bubble. That’s the consequence of even more misguided and reckless monetary policy. Yet the powers that be — the big financial houses and media outlets — are oblivious.

PETER SCHIFF: They still trust the Fed and are being cheerleaders for the bubble like they were in the ‘90s and 2000s. They’ve learned absolutely nothing from their mistakes.

PETER SCHIFF: I was on CNBC and got interviewed by the late Mark Haines. That was probably in 2005 or 2006. I explained the housing bubble, and Mark Haines’ said: “Peter, are you telling me that there’s a housing bubble? You really expect me to believe that we have a bubble in housing? We just had a bubble in stocks five or six years ago. These are once-in-a-lifetime or once-in-100-years events. Are you telling me that we have another bubble in housing so close to the one we had in stocks?”

PETER SCHIFF: And I said: “Yeah, Mark. That’s exactly what I’m telling you. The bubbles are related to each other because they have the same source. They both got their air from the same Fed.” But Wall Street was clueless.

PETER SCHIFF: Now, we have an even bigger bubble than those two bubbles combined! And people still don’t get it. The Fed doesn’t get it. Or, at least, it won’t publicly admit it. Who knows what it gets privately.

CHARLES MIZRAHI: For the Fed to telegraph that over the next several years we’re going to have virtually zero interest rate is basically throwing gasoline on the fire. You’re basically telling people to speculate.

PETER SCHIFF: The reason it’s reassuring the markets that rates are going to be at 0% is because if it lets them know that rates are going to go up, they will crash. It’s the low rates that are propping it up. They’re trying to assure the speculators: “I’m not going to end this party. Just keep dancing. The music’s not going to stop.”

PETER SCHIFF: But this just means that the problems are getting worse, and the bubble is getting bigger. When the music eventually stops — not because the Federal Reserve wants to stop it, but because the markets will stop it — we’re going to have the crash of the dollar. That’s what’s going to end this party.

CHARLES MIZRAHI: When do you see that happening?

PETER SCHIFF: It’s long overdue, so we’re living on borrowed time — which is why I tell people to be prepared. When people ask me: “When is the real estate market going to pop?” I say, “I don’t know. But if you short subprime when it does, you’re going to make a lot of money.”

PETER SCHIFF: I don’t know when the dollar is going to crash. But if you short the dollar, you’re going make a lot of money when it finally does. The way I short the dollar is by owning gold, silver, mining stocks or companies outside the United States — where their shares trade in foreign currencies and dividends are paid in foreign currencies. It’s also where they’ll derive most of their income.

PETER SCHIFF: I’m positioned to benefit from the drop in the dollar. I think I’m personally going to make a lot more money — even for clients — off the collapse of the dollar than I did the mortgage market.

CHARLES MIZRAHI: This recent $1.9 trillion stimulus … Someone asked me the other day: “Where are they getting all this money?” And I said: “Look at your checkbook. It’s coming from you. It’s the printing of dollars — and the money supply continues to expand like a balloon.

PETER SCHIFF: The problem is that people don’t realize that when the Fed prints money, it costs them.

PETER SCHIFF: People know that when the government raises their taxes and takes their money, they’ll see it. The money comes out of their paychecks — and that’s money they can’t spend. So, they know that government spending has to be paid for.

PETER SCHIFF: But when they just send out $2 trillion and don’t raise anybody’s taxes, a lot of people think that we’re getting all this government money for free. They’re not! You don’t get anything for free. When the government prints and spends money, there’s a cost. And that cost is measured in inflation.

PETER SCHIFF: What happens is it inflates the money supply, and that new money chases the existing supply of goods and services because the government doesn’t add to it. It doesn’t create new goods and services to spend money on. It just creates money.

PETER SCHIFF: Then, people spend their money on the goods and services that have already been there. So, in order to clear the market, prices have to go up.

PETER SCHIFF: Now, everything that you want to buy costs more. And because stuff costs more, you buy less. That’s the same thing as you buying less because you have less money. You’re buying less because your money has less purchasing power and the prices have gone up. I have a special report on my website. People should download it. It’s free. It’s called “Tax by Inflation” because inflation is a tax. First, you need to understand what inflation is. Once you know it’s a tax, there are things you can do to avoid it.

PETER SCHIFF: If you go to Europac.com, there’s a special report on the front page. You can download and read it. But yeah, inflation is going to be a horrific tax. It’s going to hit those that can least afford to pay it. It’s very regressive. It hurts the middle class and poor the most.

CHARLES MIZRAHI: It’ll hurt senior citizens as well, who live on a fixed budget.

PETER SCHIFF: Oh, yeah. A lot of people who are retired are going to end up having to leave retirement early because their money won’t cut it anymore. Their money is going to retire, and they’re going to have to go back to work. That’s the problem. So, if you know this tax is coming, you can do something to avoid or mitigate it. That’s the point of the special report.

PETER SCHIFF: People just don’t get how bad this is going to be. Very few people remember the 1970s. I remember them, but I was a kid. I wasn’t an adult. But people read about it. We had high inflation and a weak economy. Well, what were we going to have now is going to be much worse. It’s not just going to be stagflation. It’s going to be an inflationary depression.

CHARLES MIZRAHI: I remember President Ford. I also remember wearing the WIN buttons in elementary and high school, which said: “Whip Inflation Now.” I remember my mother buying groceries each week. She would complain that she brought home fewer bags but spent the same amount of money. Tomatoes prices had risen, and food prices were going through the roof. It was a disaster.

PETER SCHIFF: Yeah. We’ve changed the CPI a lot since then. Prices are rising quite a bit. If you remember, Nixon imposed wage and price controls when the CPI hit 4%. We could be at a 4% CPI this year — which probably means that the actual CPI is closer to 10%, if not well north of 10%.

PETER SCHIFF: The reason that the “Whip Inflation Now” buttons were fraudulent was because the government tried to pretend that inflation was somehow caused by the public — and that if the public got together, it could whip it. But inflation was called by the Federal Reserve.

PETER SCHIFF: They were the ones printing all the money. The prices went up as a consequence of that inflation. Farmers didn’t cause inflation by raising prices. The Middle Eastern countries didn’t cause inflation by raising the price of gas. Unions didn’t cause inflation by demanding higher wages.

PETER SCHIFF: All of this stuff happened as a result of money losing value. Because money had less value, stuff was more expensive. When we started sending Saudi Arabia dollars that had lower purchasing power, the country had to raise the price of its oil.

PETER SCHIFF: That was what happened. So, the public couldn’t whip inflation. The Federal Reserve caused inflation, and the government lied about it.

PETER SCHIFF: Did you ever watch the show All in the Family?

CHARLES MIZRAHI: Yeah, sure.

PETER SCHIFF: I remember there was an episode of All in the Family where Archie Bunker was talking about the WIN buttons. Then, Mike — the meathead son-in-law — said: “You had better get down to the store because they’re about to raise the price on those buttons.”

CHARLES MIZRAHI: Ha. If you went on Zillow, for example, and looked up vacation areas in parts of Arizona or California, there were bidding wars on housing prices. People were buying second homes, and the starting point was the asking price. And you had four or five people bidding up the price 30%, 40% or even 50% higher! 

CHARLES MIZRAHI: I asked one broker: “Why is that happening?” And he said: “Money is zero,” meaning you’re making $0 in the bank, “So, you might as well own a house that you can enjoy.”

PETER SCHIFF: Well, but also remember that back then, people bought houses with others’ money. They put nothing down, so they had nothing to lose. The interest was low. I remember I was in a cab in San Francisco or something, and I was talking to a cabbie who had just bought a $600,000-dollar house. He was a cab driver. He said: “I guess it’s really crazy, but I’m buying it for $0 down. So, what the hell? If I actually had to put my own money into it, I don’t think I’d do it.” He didn’t care!

CHARLES MIZRAHI: But that was then. I was talking about now. I was just vacationing in Arizona, and the tour guide was telling us how he moved from San Jose, California to Arizona. There was a bidding war on his house. I think he was asking $600,000, and it eventually went for $800,000. Then, when he got to Scottsdale, he had to up his bid over the ask-price because everybody was buying those things. He said, “My mortgage is virtually going to be 2% or so. And my money’s earning $0 in the bank.”

PETER SCHIFF: A lot of people have been enticed into the market by the lowest mortgage rates of their lifetimes. But there’s also a quick rush. A lot of people who live in cities have rethought their whole lifestyles in the wake of COVID-19.

PETER SCHIFF: So, you have a lot of people who are living in cities but are looking at the suburbs. They’re all rushing, and there isn’t a lot of new supply on the market.

PETER SCHIFF: It doesn’t necessarily have to be related to debt. Look where I am. In Puerto Rico, in my neighborhood, I’ve never seen anything like this — as far as sheer appreciation.

PETER SCHIFF: They are all cash buyers. These are not mortgages. You can’t buy a house in my neighborhood if you need a mortgage because somebody is going to outbid you for cash. But I would say that prices — and I’m not making this up — have gone up three to four times since I moved here in 2014. It’s crazy stuff!

PETER SCHIFF: I can sell my house for three to four times what I paid for it to somebody who’s going to write a check in cash. And the reason that prices are so high right now is that nobody wants to move. Nobody wants to sell. So, if somebody comes to Puerto Rico, and they want to live in this neighborhood, there’s nothing to buy. They’ll keep bidding up until [the seller] says, “I paid $3 million for this house, and you’re offering me $12 million. All right, I’ll sell.” That’s what’s going on.

PETER SCHIFF: But people have turned [offers] down. I’ve talked to people who have been offered three to four times what they paid, and they say no! People are making offers on homes that aren’t even for sale. There are no for-sale signs around. A lot of this is because of the cheap money, and the price of everything is going up. It’s not so much because the price of everything is going up, but because the value of the money is going down.

PETER SCHIFF: I think wealthy people — and I live in a in a high-end neighborhood — just want to get rid of their cash. How many stocks are they going to buy? There are even a lot of crypto-people here. They’re going to buy something.

CHARLES MIZRAHI: They might as well enjoy it.

PETER SCHIFF: Somebody paid $60 million or $70 million for a digital piece of art. If that digital art is worth $70 million, my house is worth more than that. Now, there’s no price. It’s like: “Just let me buy something.” It’s like a game of musical chairs. When the music stops playing, whatever cash you have turns into Monopoly money.

CHARLES MIZRAHI: It turns into dust.

PETER SCHIFF: Do you remember that movie Brewster’s Millions, where the guy has to spend all this money or he doesn’t get to inherit a larger amount? He’s rushing to get rid of the money because if he gets caught with it, he loses. So, I think it’s almost like the Brewster Millions’ economy — where everybody is trying to spend their money on assets. I don’t want to get rid of it. I don’t want to just throw a huge party and blow it. I want to turn it into assets. And even if I overpay for those assets, who cares? I get out of Dodge. I get rid of dollars that are going to be worth nothing. And now, I have a house that will be worth something.

CHARLES MIZRAHI: What do you think the catalyst for popping this bubble is?

PETER SCHIFF: I think it’s going to happen in the dollar. And the reason I think that is because I think the Fed will keep blowing air into the bubble until the dollar cracks. The way the Fed keeps everything propped up — the real estate market, the stock market, the bond market and the whole economy…

PETER SCHIFF: The reason the U.S. Government can keep spending money is because the Federal Reserve keeps printing it. But at some point, that money won’t have value. That’s what ends it. Because in order to prop up everything else, the Fed is sacrificing the dollar. Right now, it’s printing money, and the dollar’s value hasn’t collapsed. So, it can keep printing more. And it’s going to keep printing more and running deficits until the dollar collapses.

PETER SCHIFF: Until the dollar collapses, there’s no reason to stop. Why end a good thing? Why rain on your own party? They’re going to wait for a crisis. Only this is going to be much worse than the financial crisis of ’08 because it’s going to be a U.S. dollar crisis — which means it’s also a sovereign debt crisis. Treasury bonds are just IOU dollars for the future.

PETER SCHIFF: When the crisis is the dollar, the U.S. Government can’t do anything to bail anybody out. All it can do in a crisis is print more dollars. But if the dollar is the crisis, then printing more just throws gasoline on the fire. So, this next crisis is coming — no bailouts or stimulus. Everybody is going to have to pay the piper when we have a dollar crisis. And believe me, the bill is going to be huge.

CHARLES MIZRAHI: Do you see them raising interest rates?

PETER SCHIFF: Eventually, yes — when they have no choice. But they’re not going to raise interest rates until they have to. The minute they raise interest rates, everything will collapse. When they raise interest rates, that’s when the U.S. Government has to confess that it’s broke and has to start cutting spending. [It’ll claim:] “We can’t do any of these programs. In fact, we have to cut back on the programs we already have because we don’t have any money.”

PETER SCHIFF: We can’t get it from the Fed anymore because the Fed is no longer in the business of printing money. The Fed is in the business of shrinking the money supply. It’s trying to fight inflation. So, it’s destroying the money it has already created. It’s raising interest rates.

PETER SCHIFF: In that environment, not only can the government not borrow new money, but it can’t even repay the debts it already owes. It can’t even make the interest payments. Remember: The bonds are all short-term. So, when the T-bills mature, it’ll have to roll them over. But it won’t have the money. So, the government is going to default. That’s what’s going to happen.

PETER SCHIFF: When subprime borrowers couldn’t make the payments, they defaulted.

PETER SCHIFF: The U.S. Government is a subprime borrower, too. Without the Fed, all of its checks bounce. And if it doesn’t have the Fed, then it will default. It’s one or the other. It’s either hyperinflation or default. You decide.

CHARLES MIZRAHI: Pick your poison. So, what should the average investor look for?

PETER SCHIFF: Well, [they should be looking for] alternatives to U.S. investments and the U.S. dollar. Look at some of the foreign markets — both developed and emerging. I think the emerging markets are going to be rockier or bumpier, but they’ll give you more long-term gains as the whole world moves past the U.S. dollar.

PETER SCHIFF: You need to have a very unconventional portfolio because this is a very unconventional outcome that the establishment is not prepared for. They’re going to be blindsided by it — like ’00 and ’08. But the Fed’s not going to be there to bail them out.

PETER SCHIFF: That was what happened. If you were completely oblivious to the problems that caused the 2008 financial crisis, it was OK because the Fed bailed you out. You ended up making money anyways.

PETER SCHIFF: But that’s not going to work this time, so you have to bail yourself out prematurely. And that’s what I’m doing. If you’re interested in having me help you implement strategies, go to Euro Pacific Capital’s website or my mutual fund website: Euro Pacific Asset Management. My company in Puerto Rico is Euro Pacific Asset Management.

PETER SCHIFF: You can speak to one of my representatives about strategies and how we can work them into your portfolio. I have five proprietary mutual funds that can be bought anywhere, or you can have them in specialized rap accounts that we manage at my company. I also have separately-managed accounts of individual stocks and bonds that we manage — all overseas. International investments.

CHARLES MIZRAHI: What will happen to the United States and its dollar?

PETER SCHIFF: Well, the dollar is going to get marked down. Look what happened to the dollar in the 1970s. The dollar lost 70% of its value. Prices went way up. That’s why gold went from $35 an ounce to $800. That’s why oil went from $3 a barrel to $30 a barrel. The price of everything went up in the 1970s. In fact, because money lost so much value, many women started to work.

PETER SCHIFF: If you go back to the 1960s and look at the typical American family, the housewife didn’t have a job. I don’t care what job the husband had — butcher, baker, candlestick maker, firemen, policeman or teacher. His wife didn’t have a job. That one paycheck had enough buying power to support the entire family.

PETER SCHIFF: But by the end of the 1970s and early 1980s, that paycheck diminished by inflation. All of the sudden, a guy couldn’t support his family anymore. His wife had to go get a job.

PETER SCHIFF: That was really the beginning. People want to say it was women’s liberation. No, it wasn’t. Women were liberated when they didn’t have to work. That’s liberation. When you’re forced to work, that’s what you lose your liberty. You don’t have a choice. You have to leave your kids at home and go out and work because your husband can’t support you anymore.

PETER SCHIFF: That was a big change. I think we’re going to see another substantive change. This time, we’ll wipe out retirement. As I’ve said earlier, no one’s going to be retired anymore in America. Everybody is going to be working because no one will have any savings that have purchasing power.

CHARLES MIZRAHI: What’s your upbeat prediction?

PETER SCHIFF: My upbeat prediction is that this crisis could be a catalyst. Maybe it’ll be a catalyst and cause America to finally understand the root cause of its problems: government and central banks. Then, we can kind of go backwards to the principles that were enshrined in the Constitution by our founders. We can go back to a free market economy with limited government and sound money. That would be great.

PETER SCHIFF: Then, we could marry 19th century liberty with 21st century technology. We could then have an unprecedented economic boom. Because if you think about what America accomplished without computers — and all the things that we have now — just imagine what we could accomplish if we have the same freedoms that we had back then.

PETER SCHIFF: In fact, had we had the same amount of freedom in the 20th and 21st century that we had in the 19th, we’d have much better technology right now. It’s hard to know how much better off we’d have been — how much wealthier or how much higher our living standards would be now if we hadn’t gone on this big government tangent, created this huge welfare state, and given so much power to the central bank. It would be a whole different world. We might actually look like the Jetsons by now. Who knows?

CHARLES MIZRAHI: You’re saying this right on the right on the heels of a 1.9 trillion-dollar stimulus package.

PETER SCHIFF: It’s a sedative. It’s not a stimulus. It’s sedates the economy. It encourages more reckless spending.

CHARLES MIZRAHI: People don’t need to work anymore. There’s no productivity. It’s going to decrease productivity.

PETER SCHIFF: We’re paying people not to work. We’re giving them a better deal.

CHARLES MIZRAHI: We’re giving them $25 an hour or so through unemployment — before the stimulus. Why even work at $15 an hour when you can stay home?

PETER SCHIFF: Nobody reported. Last week, the merchandise trade deficit was the biggest monthly trade deficit in history.

PETER SCHIFF: Why do we have these huge trade deficits? It’s because we’re not producing. We’re just producing money. But that doesn’t produce the products you buy. So, we’re relying on overseas economies to produce the stuff that we consume. Well, why should they do that? For what? In exchange for our pieces of paper? What the hell they want those for? They can print their own money. What people want are goods. That’s what makes your life better — not having a stack of paper.

PETER SCHIFF: The dollar is going to collapse. Meanwhile, the ink is barely dry on the $1.9 trillion, and they’re talking about another $3 trillion or $4 trillion!

CHARLES MIZRAHI: Unbelievable. It’s just absolutely amazing. Why did you move to Puerto Rico — out of all places — in 2014?

PETER SCHIFF: Well, I didn’t even move here. I bought my condo — my first property here — at the end of 2013, and it closed in 2014. I moved a business here from California in 2014.

PETER SCHIFF: I moved here full-time and bought my house in 2017. I still own the condo, and now we also have a house here. There were a lot of reasons I moved here. But what put Puerto Rico on my radar — because otherwise I wouldn’t have even considered it — was the fact that it was not a U.S. state.

PETER SCHIFF: Therefore, the U.S. income tax doesn’t apply to any of your Puerto Rican-sourced income. That includes your capital gains. I’m expecting a lot of capital gains, and I have plenty of income right now. By living in Puerto Rico, that income is only subject to a Puerto Rican tax, which is $0 when it comes to capital gains. It’s 4% on the income that I earn while running my business. That’s a great deal.

PETER SCHIFF: But the real reason I moved was because I was in love with the community.

PETER SCHIFF: I love living here. It’s a great lifestyle. There’s great weather. There are great people. I enjoy living here from a lifestyle perspective. If I had to move up to someplace in Alaska to get these tax breaks, I don’t know that I would. But on a tropical island, which to me reminds me of Maui…

PETER SCHIFF: There are great people here. I have a really good social life. There are a lot of parties and like-minded people. It’s a great overall experience. It’s great for my kids. The kids have a great lifestyle here. So, there are a lot of reasons why I’m here.

CHARLES MIZRAHI: Are you seeing a lot of like-minded people moving down? I know a lot of people from New York — friends of mine — who are starting to move to Florida simply because of the state tax.

PETER SCHIFF: That’s a motive, too. I tell people: “If you’re going to move down to Florida, just keep going, and you’ll get to Puerto Rico. I like it better. I’ve lived in Florida, too.

PETER SCHIFF: I lived in South Florida. I used to have a house in Boca. My mom lived there. I sold it, and now she lives with us in Puerto Rico. Although, she spends more time at my house in Connecticut than I do. I don’t spend that much time there anymore. I still have a house up there.

PETER SCHIFF: What did you ask me? I just forgot.

CHARLES MIZRAHI: Are you seeing a lot of people like yourself — successful business people — coming down?

PETER SCHIFF: Yeah, very much so. I just ran into a CEO of a major publicly-traded company. He just moved here. The company said: “You can work remotely.” And he ended up coming down here. He wanted to get out of the cold weather, and this was a great place to be.

PETER SCHIFF: There are a lot of people who look at this as a real-life Galt’s Gulch from Atlas Shrugged. A lot of people are moving down here, and we’re creating a community.

PETER SCHIFF: The biggest beneficiary of this is going to be Puerto Rico. If Puerto Rico can resist the temptation to take away its tax breaks — and there’s always a lot of pressure to do it — and if it doesn’t become a state, in 10 years, this place is going to be Wall Street and Silicon Valley combined. There is going to be the biggest economic boom — and maybe the only economic boom — in the United States.

PETER SCHIFF: That’s one of the reasons that real estate prices are rising. People are dying to get down here. They don’t care what it costs. They just want to live here. And they’re going to pay what it costs because they want to get out of where they are and come to Puerto Rico.

CHARLES MIZRAHI: I’m in New York. All they have to do is keep raising rates, and they’re going to help fuel your beautiful lifestyle.

PETER SCHIFF: The capital gains tax — the top-end federal is about 24%. It’s 20% capital gains and 3.9% Obamacare — which is the Medicare tax. They’re going to probably double that to about 50% — on the federal level — under Biden.

PETER SCHIFF: A lot of people are going to take a look at the 50% tax in the U.S. — and New York state or California state taxes on top of that — and compare that to the 0% tax in Puerto Rico. It’s a no-brainer. People are going to get up and move.

CHARLES MIZRAHI: Yeah. It’s just absolutely amazing. All right. Beautiful.

PETER SCHIFF: But it’s better that they move to Puerto Rico than another country. At least Puerto Ricans are Americans. Anybody who wants to move to Puerto Rico can move. You don’t need a visa. Just come down here. So, if anybody just wants to live in Puerto Rico and enjoy the beautiful weather and lifestyle — and get rid of those confiscatory taxes — they can come down here. It’s better to have all these opportunities in Puerto Rico rather than Dubai, Singapore or Hong Kong. They’re right here in our own neighborhood.

CHARLES MIZRAHI: You’re 3.5 hours from the New York airport, right?

PETER SCHIFF: It’s a three-hour flight. Usually, it takes four hours because you have to sit in the plane for a little while. But I think the total time — from wheels-up to wheels-down — is three hours.

CHARLES MIZRAHI: Yeah, it’s something like that.

CHARLES MIZRAHI: I don’t get why states think that if they tax the wealthy, they’re going to stay and keep paying taxes. The wealthy are the most mobile in society, and they will go to a place where their money is safe and taxed lightly. They’re not going to stick around. What’s happening now is absolutely staggering. 

PETER SCHIFF: Yeah. And a lot of people who aren’t wealthy are doing their best to avoid taxes, too. They might not have as much mobility, but they have other things that they can do. At the end of the day, they may be mobile. It depends how big their incentive is to move.

PETER SCHIFF: What’s also important to consider when you look at taxes are the unintended consequences that they have on shaping behavior. You get less of what you tax. That’s just an economic truism. When you start taxing people in certain ways, they respond. Their behavior changes. It’s the same when it comes to giving out government money. You get more of what you subsidize.

PETER SCHIFF: When the government starts giving money to people who meet certain criteria, those people are going to change their lifestyles and circumstances to become eligible for benefits. And some people will receive those benefits fraudulently. They’ll lie to get them. But some people won’t lie. They’ll alter their lifestyles, so they qualify. There are plenty of people who don’t want to go back to work because they’d rather get unemployment benefits. 

CHARLES MIZRAHI: I remember back in the ‘70s — when I was 18 or 19 — I had a summer job. The boss told me: “Don’t work overtime. If you work overtime, your taxes are going to eat up most of that increase. So, you’ll put in an extra five or six hours but walk away with less money.

PETER SCHIFF: You might as well have the leisure, right? You might as well enjoy your time off.

CHARLES MIZRAHI: Right. Peter Schiff, thank you so much. I just hope that everything you mentioned about our future regarding the dollar doesn’t take place. I hope saner heads prevail. If not, we’re in for a bad storm.

PETER SCHIFF: Unfortunately, it’s too late to prevent the crisis. It’s inevitable. But again, we still have the ability to do the right thing.

PETER SCHIFF: That’s the optimistic note. We can’t avoid the crisis, but we can do the right thing in the aftermath. That’s one of the reasons I’m out here. I want people to understand that it’s coming and understand why it’s coming. So, when the government tries to blame capitalism, people will know that it’s not capitalism’s fault. If we had capitalism, we wouldn’t have had the problem. Capitalism is the cure. It’s the only way out of the hole that the government put us in.

CHARLES MIZRAHI: Outstanding. Peter Schiff, thanks so much for being on the show. I greatly appreciate it.

PETER SCHIFF: My pleasure. Thanks for having me on it. Good luck with your show.

CHARLES MIZRAHI: Thank you.

CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube. 

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