Peter Schiff-Deflationary Period Good for the US Economy and Struggling Americans

Today, Peter Schiff has announced his plan to help struggling Americans. If you do not know who Peter Schiff is, he is an American author, businessman, financial commentator, and a 2010 candidate for the United States Senate. He is also president and chief global strategist of Euro Pacific Capital Inc. and is often quoted in major financial publications and frequently makes guest appearances on internet radio as well as CNBC, Fox News, and Bloomberg Television. He also is the host of the podcast Wall Street Unspun.


Schiff is known for extremely bearish views on the United States stock market, bond market, the US dollar, and the United States economy in general. Recently he has stated that a deflationary period would be good for the US and struggling Americans to be specific.

With unemployment still uncomfortably high, the housing market down, and the consumer price index (CPI) down three straight months, at Fed Chairman Ben Bernanke's semi-annual testimony to Congress this week he was very careful to downplay deflation and to assure markets that the Federal Reserve has the capacity to reverse deflation, should it occur. However, Bernanke's comments didn't settle the deflation debate, nor did they convince Peter Schiff that the Fed chairman knows what is going on.


In an Article today, Schiff stated "I don't know where anyone thinks prices are falling,” alluding to rising prices for food, healthcare and energy. He also declared "I don't know where most people do their shopping but I don't see falling prices. To me, prices are rising." While the Fed believes it has prevented a deflationary spiral such as Japan faced in the 1990s from taking root, Schiff sees more government stimulus analogous to feeding an addiction. He states that “we are high on government stimulus; the US needs to go “cold turkey” from more monetary stimulus and government spending

After Bernanke’s testimony yesterday, Schiff stated "It's not that the Fed has done too little, they've done too much, interest rates are too low, they need to be much higher.” He says the federal government is spending too much, they need to spend a lot less, and government stimulus is the source of our problems." Schiff believes the U.S. economy is addicted to government stimulus and is at risk of overdosing. He stated "They're trying to sober up a drunk by giving him more alcohol - it won't work."

Schiff does concur with the view that there will be economic would become weaker if the Fed and Congress force the economy to go "cold turkey" rather than slowly weaning it off stimulus. But the pain would be short-term; however, any short-term pain will be well worth the long-term gain, and may even avoid another Great Depression.

Schiff believes that even though we have been in the worst recession since the Great Depression, at the moment, deflation is non-existent because the government has created so much inflation that they have prevented prices from falling. Schiff stated. "It would have been a relief for a lot of Americans...if things cost less and the cost of living was falling in line with a weaker economy."

Schiff believes inflation is a much greater threat than deflation. In his view the government created inflation by creating too much money, keeping interest rates at zero, and increased spending. The result of this government induced inflationary period is that Americans are soon going to be paying much more for food, clothing, energy, healthcare, etc. However, the prices of financial assets and real estate are not going anywhere but down, according to Schiff.

Authors note: We all know that the US cannot continue to print dollars, just because they have the ink and paper. Since this is a precious metals blog, I feel I should interject with the notion that when paper money is worthless (seems to be heading in that direction), people will fall back to anything of value. PMs such as Silver and Gold will likely be used to purchase goods and services. I know what I am describing is the SHTF scenario, but it always pays to be prepared.

On Euro Pacific Capital, Inc. Peter Schiff wrote: “I have long been an advocate of fortifying investment portfolios with precious metals. Holding actual precious metals is important, but it is primarily a way to preserve capital. I believe that a fully realized precious metals portfolio also includes some exposure to the companies that explore and produce gold and silver.”

In the paragraph above, Schiff is advising holding precious metals as a hedge and investing in mining companies. Of course he would not say “take all of your free money and buy Silver and Gold” because that would be reckless and likely to cause a panic that could precipitate the SHTF. Now, this last statement is not a fact, it is just my thoughts and opinions. I DO recommend buying as much silver and gold as you can. How much? That depends on how much you are comfortable with. Most places of business still want payment in dollars, so do not use all of your money to buy PMs or you might find it hard to pay your mortgage, rent, utilities, etc.