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Peter Schiff on Politics, Precious Metals and President Obama's Second Term
by Anthony Wile | January 27, 2013

Introduction: Peter Schiff is CEO of Euro Pacific Capital, Inc. and Euro Pacific Precious Metals, LLC. He is an internationally recognized economist specializing in the foreign equity, currency and gold markets. Mr. Schiff frequently delivers lectures at major economic and investment conferences, and is quoted often in the print media, including the Wall Street Journal, New York Times, L.A. Times, Barron's, BusinessWeek, Time, and Fortune. His broadcast credits include regular guest appearances on CNBC, FOX Business, CNN, MSNBC and Fox News Channel, as well as hosting a daily radio show, The Peter Schiff Show. Mr. Schiff is also the author of several bestselling books, including: Crash Proof 2.0: How to Profit from the Economic Collapse and the illustrated parable, How an Economy Grows and Why It Crashes. His latest bestseller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country, was released in May 2012.

Daily Bell: Peter, thanks for sitting down again with us again. Please introduce yourself and your firm for those who don't know you.

Peter Schiff: My name is Peter Schiff. I have several companies; the largest one is Euro Pacific Capital and also in the US I have Euro Pacific Precious Metals.

Daily Bell: Talk about your father, who is now in jail as a tax protestor. How is he doing?

Peter Schiff: He's hanging in there. He's 84. He turns 85 next month. I think he's a political prisoner. He's in jail not because he really violated the law but because he represented a threat to the government's illegal collection of income taxes. So I think it's very unfortunate that my father is in jail and I think it says a lot about the character of our country when we can have a political prisoner.

Daily Bell: You ran for office, but it didn't work out. Are you finished with politics? What do you think of the political system?

Peter Schiff: I ran for office once. I was in the primary for the US Senate. I ran in a pretty blue state, Connecticut, so even if I had won the primary it would have been a difficult challenge to win the general election. The person who beat me, Linda McMahon, lost. In fact, she lost twice. She spent about $100 million and still couldn't win the election.

I have no idea whether or not I'll try it again and whether or not I'll try it again in Connecticut or maybe I'll try from another state. I certainly might move out of Connecticut. They're raising taxes here in Connecticut so one day I might live in a more tax-friendly state. And also, those states might tend to have a greater chance of electing somebody like me. But you never know; you never say never. I have no immediate plans to run for anything.

Daily Bell: Bring us up to date about Euro Pacific Capital Inc. [a broker/dealer based in Westport, Connecticut] and its ongoing success.

Peter Schiff: Euro Pacific Capital is a brokerage firm. We work with mainly American investors and help them diversify globally, invest in foreign stocks and bonds. We also work with US opportunities as well. But I think the biggest threat that most Americans face is a collapse in the value of the dollar and so I think to mitigate the loss of purchasing power that will result from that you really need to look abroad and concentrate in countries that have currencies that will hold more of their value, where the governments are not pursuing policies that are as destructive as the ones that we're pursuing here. I think universally, though, politicians in all countries are doing foolish things. We don't have a monopoly on stupidity here in America but we've certainly raised it to a higher level than most countries. So I think Americans have to protect themselves. We also deal with commodities and precious metals, things of that nature.

Daily Bell: Tell us about The Peter Schiff Show.

Peter Schiff: It's a radio show that I do, on the Internet at schiffradio.com. It's also syndicated nationally. We're on maybe 50 or 60 stations right now, mostly smaller markets but we're starting to get some traction at getting some bigger markets to carry the show. Hopefully, we'll have more and more stations picking it up as the year progresses.

I'm hoping to make a much bigger impact. Right now it's pretty much preaching to the choir. I think the people who listen to the show are primarily people who follow me anyway and who appreciate listening to me everyday to get my take on what's going on but I'm hoping to broaden my reach. That's the whole purpose for the show, to try to get this message to a wider audience. And as more stations pick up the show, hopefully we'll be able to accomplish that.

We do it live from 10:00 a.m. to noon Eastern Time, Monday through Friday. Of course, you don't have to listen live. It's great if you do because you can call in but you can also listen to the show later. We repeat it; there's a loop that continuously runs each day so if you don't listen live you can certainly listen to the rebroadcast.

Daily Bell: Are you still bearish on the dollar and bullish on investment in tangible assets?

Peter Schiff: Oh, very much so. Everything that's happening just makes me even more confident that my bearish forecast is correct. For example, the House just voted to suspend the debt ceiling, which makes it easier for the government to create dollars, and the more dollars they print, the less they're going to be worth. And I think now that we have cleared the way for much bigger deficits in the future. We're going to have a lot more money printing when the Fed monetizes them. And so the dollar's days are numbered. How many days are in that number? That I don't know but I do know that you want to prepare for its demise and that's what I'm helping people do.

Daily Bell: Tells us about Euro Pacific Precious Metals.

Peter Schiff: That's my precious metals company. I sell individual investors gold and silver for physical delivery. We sell bullion bars and coins. We don't sell numismatics. I think a lot of Americans have been fooled by some of my competitors into buying rare coins rather than just gold and silver. Most people who want to buy gold and silver are looking for an inflation hedge and they call up a gold firm looking to buy Maple Leafs or things like that but they end up being sold a rare coin, a collectible coin, on the guise that it would be a better investment.

But it's not a better investment. It's just a much bigger commission for the broker who sells it. The markups are horrific. In many cases they exceed 50 percent – 60, 70 percent markups are commonplace, meaning that if you want to buy $6,000 worth of gold you've got to send a check for $10,000 and $4,000 of it is commission. And what has to happen is the price of gold has to really double before you can even sell your coins and get your original investment back.

So we don't do that at my firm and that's the reason I set it up. Too many people were being conned by salesmen into buying these overpriced collectibles and being talked out of legitimate gold investment. We only sell legitimate investments. The markups are very small; they average maybe about 2% above our cost and so you don't need a doubling in the price of gold to break even. You just need a small movement in the price of gold. And, of course, I'm expecting a much larger movement in the price of gold, which is the reason I have and keep owning it in the first place.

In fact, I've got a special report people might want to download. I put it up for free on the Internet. Just go to goldscams.com and in my special report that you can download I go over all the scams, the popular cons that are being used by a lot of the gold companies to fleece their clients out of their money. So if you read that you'll know what to be on the lookout for.

Daily Bell: Are physical metals a good buy? Which is better right now, gold or silver?

Peter Schiff: I think they're both good. I think you're seeing pullbacks already in both. I think if I'm correct on what I think is going to happen the price of silver, percentage-wise, will probably go up more than the price of gold. But recognize that if I'm wrong then silver prices will probably go down more than gold prices. So you get more risk upside in silver but you probably also have more downside. That's generally the way it works in the investment world; the more gain if you're right; the more you can lose if you're wrong.

I think Americans should have both. I think it makes sense for people to have both gold and silver as an alternative to dollars or other fiat currencies. The dollar isn't the only flawed fiat currency. I think we just have a larger flaw than most. But I think everybody needs to be worried, no matter where they live. Central banks everywhere are printing too much money. Interest rates are too low everywhere. There's too much inflation and people need to protect themselves. Gold and silver represent an excellent way to do that.

Daily Bell: Is silver money or just gold, historically speaking?

Peter Schiff: Well, both. In the United States the Founding Fathers put us on a bimetallic standard. If you look at the Constitution, both gold and silver were established as money in the United States and gold and silver circulated as money in this country for most of its history. We went off the gold standard in 1971 and we basically took silver out of our coins in 1964, 1965. So we pretty much followed the Constitution for most of our history but we abandoned it, of course, eventually, and that's the reason for our downfall. We are no longer operating under the rules that our Founding Fathers set up. We became a wealthy nation, the wealthiest nation in the history of the world, because the Constitution limited the size of government, and we had sound money.

Well, we destroyed the Constitution. Now we have fiat money, we have a massive government that gets bigger and bigger and bigger, we have the exact opposite type of nation that the Founding Fathers created for us and now we're having the opposite result. We're now broke. We're now the world's biggest debtor nation, we're hemorrhaging red ink, our standard of living is falling and it's about to collapse.

Daily Bell: Does one need to be careful when buying gold and silver generally?

Peter Schiff: Yes. First of all, you want to make sure that you're actually getting gold and silver. You don't want to have something else. So you want to deal with a reputable dealer and you want to buy products that you can trust from a dealer that you can trust like Euro Pacific Precious Metals. If you buy a recognizable coin or bar from a reliable mint or issuer then you can be confident that you own real gold and silver and not just some other kind of base metal that's just coated with the gold or silver.

But you want to not buy numismatics unless you want to collect coins. You can be a coin collector just like you can be a stamp collector or a baseball card collector, any kind of memorabilia. People collect art. But it's different than being an investor in gold and silver because a rare coin is valuable because of its rarity, not because it's made of gold or silver. People want it because it's rare. Just like if you want to invest in paper you don't buy a rare baseball card because it's made of paper. The paper has got nothing to do with the value of the card. You can buy a rare gold coin and you can pay $20,000 for it, $50,000, even though it might only have $1,500 worth of gold. The gold is immaterial to the value of the coin. Just like a char is made out of wood but it doesn't mean you're investing in wood and lumber when you buy a chair. You're buying a chair. So if you want to be a coin collector that's one thing but it's difficult to make money and the spreads are very wide. The difference that you pay between the bid and the ask.

But I think if we have a real collapse in the US economy with lots of inflation I would expect rare coins to lose value relatively. People who own coin collections might have to sell their coins because they lost money someplace else. And so I think if you really feel that there's going to be a lot of inflation and a weak economy you don't want to start a coin collection; you want to own just gold and silver. So you want to buy coins that are made of gold and silver where the price you pay closely approximates the value of the gold and silver in the coin.

If you buy a one ounce gold coin and gold's $1600 an ounce, if you're paying $1640, $1650 you're getting your money's worth. If you pay $5,000, $10,000 to get a one ounce gold coin the price that you're paying has very little to do with the value of the gold that's in the coin. But the reason the gold and silver dealers try to talk people out of buying a bullion coin as opposed to a rare coin is the markups in the bullion coins are 1%, 2%, 3% tops whereas their markup is 50%, 60%, 70%, 100% when they sell you the so-called rare coins.

And I even say "so-called rare" because most of the coins that are being marketed as rare aren't rare at all. They're actually quite common and in reality they have very little numismatic value. They're just marking these things up so enormously. So even if you want to buy legitimate rare coins, the last place you want to buy them is from a lot of these firms that are advertising on TV because even what they're selling isn't rare at all. And if you are a collector the last thing you would want to buy is a circulated French rooster or a British sovereign. Those are no more rare than junk silver coins – quarters and dimes – that you can buy for pretty much their melt value.

So you want to realize that the salesman has a big interest in switching you over into one of these coins and they try to tell you that, "Well, the reason to buy it is because if the government ever confiscates gold or silver they're not going to confiscate these coins," and I just think that's a bunch of BS. I don't know if the government is ever going to confiscate gold and silver but if they do they're going to confiscate everything, including those coins.

Daily Bell: What about commemoratives?

Peter Schiff: This is also kind of like a scam because these commemoratives aren't rare at all. The mint issues them like hotcakes. What makes something rare is its scarcity. If you buy a coin that was minted 100 years ago and it wasn't minted as a collectible, it was minted as an actual coin but a few people maybe set them aside and never used them so now maybe there's five or ten of them left in the world, then those are legitimately rare and some collector will pay a lot of money to possess something that hardly anybody else has. But all these proof sets that are being made today will never be rare and so they don't really have any value other than to somebody who doesn't know any better and buys them.

But the thing is, if you buy a freshly minted coin it's in proof condition even if it's not a proof set. There's really no difference between a brand new, just minted coin and one that's in a little plastic box that says "proof set." It's the same thing yet you pay a huge markup for it when you buy it but if you try to sell it you're not going to get any more money than any other silver coin. So you don't want to buy anything that's marketed as being a proof, a collectible. All you're going to do is overpay for it and make somebody's day – the salesman, the firm that he works for, they're going to make a bunch of money at your expense.

You want to buy as much gold and silver as you can for the money. You want to pay the lowest premium you can over the melt value of the coin and that's what we do at Euro Pacific. We always make sure that we're selling bullion bars and coins that enable people to maximize the amount of money going into metal and minimize the amount of money going into my pocket when it comes to a sales commission.

Daily Bell: Is it time to buy precious metals stocks? Will it ever be?

Peter Schiff: I've been saying it for a long time. I've been buying gold and silver stocks for about 12 years for myself and there have been rallies, there have been pullbacks. Recently we've had a pretty substantial pullback from the highs. I think there's lots of opportunity in the mining stocks, particularly if I'm correct on what I think is going to happen to the price of gold and silver.

One of the interesting things about the move that we've had so far, even though gold has gone from $300 an ounce to $1600 and silver's gone from $4 an ounce to $30. You would think that these gold and silver companies are just minting money right now and they're making a fortune but they're not because the cost of mining has also gone up by roughly the same percentage. It's no more profitable to mine gold at $1600 an ounce than it was to mine it at $400 because of the cost. What's ironic about it is that inflation is driving up the cost of mining but because the governments have convinced most investors that there is no inflation, they don't see a reason to buy gold as a hedge. And so gold companies are kind of a victim of inflation as opposed to benefitting from it, which is what you would believe.

But I think ultimately they will. I think ultimately you're going to see gold and silver prices just skyrocketing much higher than the cost of mining and that's when these companies are going to be able to really start making money. So you would want to buy them before that happens and I think there are some great deals right now in the mining sector. If people are interested in knowing which stocks are my favorites they should contact Euro Pacific Capital, talk to the brokers, find out if these types of investments are suitable and then have a discussion about which of the gold and silver stocks I would recommend that people buy.

Daily Bell: Do you believe in a gold standard? How about a market-based gold and silver standard? Isn't that a historically prevalent standard?

Peter Schiff: I believe what the Founding Fathers believed. My views are aligned with George Washington and Thomas Jefferson and Benjamin Franklin and John Adams. The Americans who founded this country founded it on a gold standard. They believed in real money, that the free market should determine the price of money and the quantity of money, not the government. Money is too important to be turned over to government. And whenever government has the power to do something they will abuse that power and that's what they've done. Ever since they usurped the power to create money out of thin air they've debased the dollar dramatically. Ever since we created the Federal Reserve 100 years ago the dollar's lost 98% of its purchasing power and now the country is on the verge of complete collapse.

The government, with fiat money, has turned us from the world's wealthiest creditor nation to the world's biggest debtor. We have a trade deficit with every country we trade with. We have an enormous national debt that we can never pay back. The only reason we can even pay the interest on the debt is because the Fed has got interest rates at zero. That's the highest rate we can afford. But the minute interest rates go up the party's over.

And this is the consequence of allowing government to usurp all these powers that were denied to it by the Constitution but they found a way around those safeguards and one way around it was the monetary system that unfortunately now exists in our country, where we just have fiat money, we have paper that has no intrinsic value, that is just created at will by the Federal Reserve, used to monetize government debt and the country's suffering because we didn't heed the good advice and the laws that were created by our founders.

Daily Bell: What do you think of President Obama's reelection?

Peter Schiff: I think it's a shame but sometimes you elect the government you deserve. To say that we deserve Obama is quite a statement because it's pretty bad to say that we deserve this. But we voted for him and we're going to have four more years of growth in government, four more years of decline in our living standards, four more years of taxes and inflation and regulation and stagnation and unemployment. President Obama constantly talks about how unlucky he was that he inherited such a bad economy from his predecessor. Well, his successor is going to inherit an even worse economy than the one that he did. I think the economy is going to be in much worse shape in 2016 when Obama finishes his second term than it was in '09 when Bush finished his second term.

Daily Bell: Will Obama be able to turn the economy around in his second term?

Peter Schiff: No. The second term is going to be when it hits the fan. That's when the chickens are going to come home to roost. People think that now that the economy is going, this is where we're going to have the Obama legacy. He has an opportunity to really form his legacy and he doesn't have to worry about fixing the economy anymore because he already fixed it.

He didn't fix it; he just broke it beyond repair. We just don't realize how broken it is because we're drunk on a bunch of new, cheap money and more stimulus, the exact same monetary and fiscal policy that created the housing bubble and created the financial crisis of 2008. So we've numbed us to the greater pain but the novacaine is going to wear off in the Obama second term and we're going to find ourselves in worse shape than we were in the depths of the financial crisis because we didn't solve any of our problems. We made them bigger. Most people just don't know that yet. It's the same people that didn't realize that we had a housing bubble, that didn't see the financial crisis until they could see it in a rear view mirror. Those are the same people who think that the worst is behind us.

I think we're in the eye of the hurricane and I think that once we get out of the eye and we get to the other side we're going to realize that we were in the weak side of the hurricane before. We're about to get into the much stronger side because I think the next downturn is going to be the more severe.

Daily Bell: Are elections rigged these days? Are votes trustworthy?

Peter Schiff: They're rigged in the sense that you can't outvote the mob at this point. The government has created so many people who depend on government, who are voting for theft, who vote for somebody who promises to steal