Peter Schiff: Obama Doesn’t Understand How Economies Grow (Video)

Peter Schiff appeared on CNBC World earlier this week, continuing his crusade of warning the financial media that central bank money printing is ultimately going to be a disaster for the economy. He also commented on President Obama’s hopes of raising capital gains and inheritance taxes. Peter slammed the president for his fundamental lack of understanding of how to responsibly grow an economy.

Follow along with this partial transcript:

Question: What is your take on central bank policy and the impact it has on the global economy?

Peter: I think any nation that undergoes quantitative easing is ultimately damaging its economy. Sometimes you don’t see the effects right away, because QE can often lift financial markets and that gives a false impression that the quantitative easing is actually helping, but it’s really hurting. It’s undermining the economy. It’s distorting investments, resources, savings, consumption. And it’s helping to grow government, which generally undermines economic growth. So it’s not good for the man on the street. Maybe it’s good for some of the speculators. But hopefully there will be enough pressure from Germany… to prevent a full-blown QE in Europe.

Question: You say QE undermines the economy, but take a look at the nearly 6 year rally that we’ve had in the US. Isn’t that mostly from liquidity and QE?

Peter: Yes, but you’re talking about a rally in the stock market, not the economy. I would argue that the US economy is in a much weaker position today than it was 6 years ago. We’ve destroyed good jobs. Our labor force is collapsing. Debt has sky-rocketed. Real wages are falling, and I think we’re on the precipice of a worse economic crisis than the one we had in 2008, thanks to all this quantitative easing.

Question: If you weren’t a cheerleader for QE in the United States… and for many years have been saying the dollar is not somewhere you want to be… What are your thoughts on the euro?

Peter: It’s not one of my favorite currencies. I’ve been advocating for years for people to own Swiss francs instead of euros, because I knew at some point they would have to drop the peg. In fact, the first day they launched it, I said it was a mistake and that they would have to get rid of it when they got tired of throwing away their money… But against the dollar, I think the euro is going to rally…

We’re going to do QE4, because the central bankers don’t want to watch those [asset] bubbles deflate, so they’re going to fill them back up with air. But that just does more damage to the economy, and ultimately to the US dollar. You mentioned the dollar has been rising, but it’s only because people think that QE was a success. Because they think it was a success, they think it’s over. It wasn’t a success, it was a failure. Because it was a failure, they’re going to do it again. That is going to send a shockwave throughout the currency markets like this recent decision by the Swiss to abandon their peg to the euro…

Question: What is your opinion on [how the lower oil prices have affected] US consumers and the money they have been able to save as they fill up their tanks?

Peter: Yeah, they are saving a little bit of money when they go to the gas station, but they’re spending it at the grocery store. They’re spending it when they pay their healthcare bills. So it’s not like there’s a big windfall. Meanwhile, Americans have seen their purchasing power eroded over the years. I think this is a temporary benefit to American consumers, because I think when the Fed is forced into doing QE4, one of the prices that’s going to be most affected is going to be oil prices. I think they’re going to head much higher when the Fed starts printing more money.

Question: [One of Obama’s] proposals is to increase the capital gains tax from 23.5% to 28% for the wealthiest of Americans, and also to impose fees on financial firms that hold the largest amount of debt. So he’s got several pieces in place in terms of raising revenues for the US government. Is this the most effective way for the government to raise money?

Peter: No. First of all, it doesn’t matter what [Obama says in his state of the union address]. None of it is going to get passed through Congress. But I don’t want to raise more money. I want the government to cut spending. I think they’re spending too much, and they’re taxing too much. The most inefficient way to raise revenue is through an income tax. This capital gains tax that the President is imposing – what he really wants to do that would be very destructive is eliminate the stepped-up basis for assets on death. We have a very punitive 50% inheritance tax in the United States right now. But one benefit is that when you die, your heirs don’t have to pay the capital gains tax on your appreciated assets, but they do have to pay the huge inheritance tax. What Obama wants is to tax you twice on death. They want to make you pay the capital gains tax and then make you pay the inheritance tax on what’s left. It would be a complete disaster. It would be very destructive for entrepreneurship, for capital formation, for economic growth. But the president doesn’t understand how economies actually grow. He’s a socialist, and he believes that economic growth comes from central planning, and it doesn’t.

Question: Do you expect brighter things for the US economy outside the things the central bank has tried to achieve, if we have political change in the US?

Peter: Unfortunately, I don’t expect brighter things, and I don’t think we’re going to have political change until after we have a real economic catastrophe. Fortunately, one is coming. Maybe that will be the catalyst at some point. But as long as the central bankers can monetize our debt, as long as foreign governments will keep buying dollars to facilitate that, there’s no real impetus for us to change. We’ll keep on piling debt on debt, because there’s no reason not to. We don’t feel the consequences in higher interest rates, or a currency collapse. But when those things happen – and they will happen – then maybe our politicians in the United States will ultimately be forced to do the right thing. But until then, we’re going to keep borrowing as much money as the world is foolish enough to lend us.

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!