Peter Schiff, the author of the 2007 book “Crash Proof,” which accurately predicted the financial downturn of 2008, has struck again. In his new book, the author, who is the CEO and Chief Global Strategist of Euro Pacific Capital, predicts a new crash that will dwarf the recession of 2008. Schiff says that the coming financial cataclysm is not only unpreventable, but government programs meant to alleviate it will ultimately serve only to dramatically deepen the inevitable crash.
In fact, Schiff says the blame for the coming collapse lies partly on the government’s attempts to shore up the economy during the recent crisis. He says that America’s next financial crisis will be worse than the one Europe is currently struggling with. In “The Real Crash: America’s Coming Bankruptcy,” the author explains that the country’s current economic situation, which other analysts are predicting might be the start of a second dip of the 2007 crash looks to him more like the quiet before the storm.
BBy year’s end, Schiff predicts, the economy will have worsened, prompting the Federal Reserve to take action by agreeing to another attempt at Quantitative Easing. He believes that action will backfire, leading to weakening of the dollar and the inflation, layoffs, bank failures and nosedives in housing that come with a devalued dollar. As all of these things decimate the American economy, Schiff foresees a desperate government raising taxes at the worst possible time in a last-ditch effort to raise money for new stimulus efforts.
According to Schiff, this phase will be followed by a rude awakening for the government, in which it is forced to institute dramatic spending cutbacks. Social Security and Medicare are just two of the programs the author expects to be slashed or even eliminated. As harsh as it sounds, he says that allowing this terrible crisis to happen is actually for the best. He warns that the government might be tempted to make a move that is guaranteed to create the financial equivalent of a tsunami. Printing extra money and putting it into circulation sounds like a good idea at first glance, but it will lead to hyper-inflation, “…which is going to be far worse than the collapse we would have if we did the right thing and just let everything implode,” he says.
Schiff holds out little hope that the government will handle the coming crisis effectively. Instead, he recommends that individuals take steps now to cushion the impact of what he sees as an unavoidable financial disaster.
According to Schiff, investors should avoid treasury bonds. If runaway inflation occurs, as Schiff has predicted, investors will find themselves holding treasury bonds that are worth less than they paid for them. Even a small increase in inflation, such as that seen during brief recessions in the 20th century, is enough to make a huge impact on the value of government bonds.
Schiff also recommends that investors buy foreign stocks or stick to multi-national companies. Those who insist on buying American stocks should choose companies that export to other countries.
Finally, Schiff recommends that anyone who doesn’t own precious metals reconsider them. Historically, precious metals have held their value in the face of a devalued dollar. This means that those who invest heavily in them will likely weather the storm largely intact. Unfortunately, it also means that investors who don’t take action now are likely to see precious metal prices skyrocket beyond their reach at the first sign of increasing inflation.