HardAssetsInvestor

Mike Norman, HardAssetsInvestor.com (Norman): Hello everybody, and welcome back to HardAssetsInvestor.com's interview series. I'm Mike Norman, your host. Well, here he is, Mr. Doom and Gloom himself, Peter Schiff.

I know you've been of this point of view that … just let everything go down, and somehow that's beneficial.

Peter Schiff, president of Euro Pacific Capital (Schiff): It's called capitalism.

Norman: No, it's not called capitalism. Capitalism has a political structure over it; there are laws, there are regulations.

Schiff: It's all that regulation, all that interference that's the source of our problems. It's the government that interfered with the market; that's why we had a housing bubble, that's why we have this phony economy ― because politicians mettle in the market, and they tried to direct capital in politically favored ways. That's what causes these problems.

Norman: Some people say, basically, Wall Street was given the keys and the government walked away, that it was a totally unregulated environment, and the cutting of regulations to the bone is what precipitated the whole bubble.

Schiff: They gave Wall Street the keys. But the problem is Alan Greenspan, the Fed ― they supplied the alcohol, Wall Street got drunk. It's the government that is responsible, it's the government that supplied the alcohol. If we had sound money and if we didn't have Freddie and Fannie …

Norman: We're going to get to the gold standard in a second, but I have to disagree with you on this, and this is just a fact. The one thing the Fed has control over is the monetary base, and if you look at the last six years ― which, by the way, includes the period when Alan Greenspan was in there supposedly creating all this money ― the monetary base shrunk. In fact, it got down to almost zero growth. We have never seen that, with the exception being periods of recession, but they've [the Fed] been very, very tight.

Schiff: It was showing up in other places. Look at the asset bubbles that they blew up, look how low interest rates were. Maybe they should have been looking at M3 [money supply statistics], but I guess that was growing so much they stopped covering it.

Norman: All right. You say that we'd be better off on a gold standard. I've heard you say that, but yet the trade-off with a gold standard, while yes you can maintain stable prices, the cost is less money. Gold standards are inherently deflationary. How can you not…? Even extreme economists [don't] buy into this idea now.

Schiff: Look, we were on a gold standard until 1971, right? We didn't leave it until then. What gold does …

Norman: FDR made it illegal for Americans to own gold in 1933.

Schiff: But international trade … the dollar was redeemable in gold up until 1971 … so all the currencies were backed by the dollar, which was convertible into gold. What gold does is it puts discipline on central bankers and governments: they can't simply spend money that they don't have, they can't run deficits, so it keeps a limit on the size of government.

Norman: The total value of gold ever mined since the beginning of time is $4.3 trillion. The global economy is $60 trillion. Are you suggesting that we should cut the global economy by what, $56 trillion?

Schiff: Mike, prices adjust downward to reflect the supply of gold; that's fine, and we want prices to fall. As consumer prices fall, that's how standards of living grow. You want money to be scarce. The problem is now it's abundant; there's an infinite amount of it.