The Moral Hazards of Public Debt and How to Save Yourself

In the second part of his interview with the Daily Bell, Peter Schiff discusses the economic dilemmas of Greece and the eurozone. He warns that the United States faces the same moral hazard of massive public debts that will be impossible to repay. Peter believes the Federal Reserve and American government will resort to currency inflation to deal with these debts.

Daily Bell asks Peter for the best strategy to protect one’s savings and investments from a US dollar currency crisis. Peter recommends physical precious metals and careful investments abroad. Read the first part of the interview here.

You can also look at the resources, the precious metals, the mining companies. There are some real potentials for tremendous capital gains in some of these sectors.

“The traditional roadmap for safety that most people follow, the standard cookie-cutter approach of US treasuries, corporate bonds, annuities, fixed income products – there is no safety there anymore. These are just nothing but land mines. You’ve got very, very low yields and you are getting paid in the currency that could collapse in value and so these income streams may be of very little significance to people. The dollar is just worth what somebody is willing to give you for it and it is all a function of confidence and the Fed’s willingness to limit the quantity of money it prints. But they have expressed no willingness to diminish that and the only way the Fed is going to stop the dollar from collapsing is going to be to raise interest rates significantly, which would result in massive defaults on US dollar obligations.

“These are basically your choices. You could hold US treasuries and get paid back in near-worthless money or you can hold US treasuries and not get paid back because the government defaults. You might get back something, but it wil not be 100 cents on the dollar. You will take some kind of hair cut, which may well end up looking more like a crew cut. If interest rates go up the government can’t pay but if the Fed doesn’t raise interest rates because it does not want to force the government into default, then what they pay you won’t have much value. That is the only way this can end.

“You see, if the government borrows more than it can afford to repay, or commits to paying benefits that it cannot afford, its only option is default. Legitimate repayment is not even an option. But what it can do is choose the method by which it defaults. It can either do so honestly by paying less money than it promised, or it can do it dishonestly by printing the money it needs to pay in full….”

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