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.

This Little PIIGGY: Spain and Gold Prices

Since the economic situation in the EU was either better or less worrisome last weekend, many investors' felt that market trading was less risky.  Therefore, traders tentatively sold gold for stocks. Global stock markets  posted modest gains encouraged by the U.S. late-day rally on Friday.

There may be more volatility ahead  for gold prices as they continue to take their cue from the risk trade. In the short term, a weaker US dollar could boost demand for gold as the dollar-backed commodity becomes an inexpensive purchase in other currencies; furthermore, any significant pullback could lure in any bargain-hunters looking to buy gold at a discount.

Even though Spain denied rumors last week that it would be the next EU nation to request bailout funds, sovereign debt risk from Spain is waiting in the wings as a gold provocateur.  Even though the Spain's yields are on the rise. Bond yields typically rise when a government must sweeten the pot to entice  investors to lend the country money. Currently, the yield on Spain's 10-year bond is 4.59% while Portugal's is 5.33%. These levels do not yet compare with Greece's double-digit yield at the height of its' financial crisis, but investors are still worried, and any bad news out of the eurozone would trigger a gold rush as investors buy the metal as a form of money that retains value when paper currencies fail.

Gold bulls are hoping that prices can reclaim and exceed their record high last week of $1,254 an troy ounce. However, gold set that record intraday and settled under $1,250 leaving many analysts wondering if there is any momentum to this gold is bullish movement.

For the Silverbugs and base metal buyers: Monday, silver prices were rising .18 cents to $18.42, while copper was rallying 8 cents to $2.99.

Free Online Report on Gold

You can read a free online review copy of the brand new breakthrough financial report from Gold, Silver, and Energy expert Byron King entitled "The Curse of the Incas".  It is a very interesting read full of historical information and predictions for gold and silver prices, although it is ultimately an invitation to subscribe to his services.
http://agorafinancial.com/reports/OST/Inca/OST_IncaGold.php?code=EOSTL355&o=81348&s=82914&u=49657430&l=98572&r=Milo

Gold Prices Soar on EU, US troubles

Gold prices soared today as investors sought out the metal's safe haven. Prices have traded as high as $1,130.20 and closed at $1,126.90 as the U.S. dollar index slipped 0.49%.  Gold's spot price rose $18.10 according to Kitco's gold index.

Most investors bought gold as an alternative investment, seeking the safety of a hard asset over a pandemic of struggling currencies. Not only is the US dollar in trouble but the EU's multibillion-euro bailout for Greece is sketchy, and now Spain, US, UK, France and Germany are at risk for losing their triple-A credit rating from Moody's. Many analysts are anticipating further euro weakening and subsequent inflation.

Further currency debasement could help support higher gold prices, but global rate hikes might provide some short-term downside. After China's higher-than-expected inflation reading, analysts are expecting the government to raise interest rates to control economic expansion.

The Fed has pledged to keep interest rates low for an extended period of time despite fledgling economic recovery. But wary investors are ever vigilant, watching for any tell that the Fed will tighten rates sooner than expected. Gold has historically been the go to hedge against inflation bought by investors. Thus, any signs that the government will end the flow of free money will impact gold and other precious metal prices.

Gold Wars: A Very Knowledgeable PM Business Owner's Blog

I wanted to let my readers know of a blog called Gold Wars. The author is a gold and silver business owner named Kirsty Hogg. Conversely, the blog is not about her business, but instead addresses issues like hyper-inflation, the long term manipulation of gold and silver, current economic events, and other related items. We all know (at least those who read my blog) that the Federal Reserve continues to print money even as the Federal debt is out of control (just check that little ticker on the left side of the page). These are just some of the topics Kirsty discusses. Like me, she is trying to educate folks that paper money is virtually worthless.

Ever since 1971 when President Nixon took the US off the gold standard and replaced our money with fiat currency, the value of he dollar has eroded and many fear the US economy will soon reach a melting point if something is not done about it. She also addresses what you can do to prepare for the worst, if it comes. The number one way to protect your wealth is to buy precious metals such as gold and silver. Kirsty recommends and I agree that it makes sense to store your wealth in something that is inflation proof. As Kirsty put it “I for one will be buying gold and silver in a variety of forms.” So if you want an education in gold, the economics behind it and the value of owning precious metals, I recommend Gold Wars as required reading. Gold Wars link: http://www.goldwars.blogspot.com/.

Article from TheStreet.com : Why Gold Is the Best Money

Why Gold Is the Best Money: Opinion
Jeff Nielson
01/14/10 - 11:14 AM EST

By Jeff Nielson of Bullion Bulls Canada

Among the myths being constantly circulated by gold bears is that gold (and silver) only perform well in high-inflation environments. As with many of the pronouncements of the gold bears, this is another case of them drawing conclusions based upon their own faulty understanding of markets, history, and precious metals, themselves.

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