Peter Schiff: This Is an Inflation Tsunami

Peter Schiff recently appeared on Real America with Dan Ball to talk about the ongoing banking and financial crisis. Peter emphasized that the Federal Reserve and the US government are trying to fix a problem that they caused. And their cure is going to unleash an inflation tsunami.

Another shoe dropped last week with the failure of First Republic Bank. Peter said a lot more banks are going to fail.

This is the mess that the Fed made by keeping interest rates so low for so long. This is what enabled the banks to load up on all this low-yielding, overpriced, long-term debt, Treasuries, mortgages. And government regulators actually pushed the banks into these securities with favorable accounting treatment for government securities or anything guaranteed by the US government.”

Meanwhile, the FDIC has rushed in to bail out these failing banks. In effect, the government is trying to fix the problems it created in the first place. Peter said the problem is we shouldn’t even have an FDIC to begin with.

You’re talking about how they might want to tweak the coverage. How about abolishing the FDIC and letting the free market handle banking? We’d have a much more solid banking system if depositors knew that their deposits could be lost at a bank that was reckless and took a lot of risks. Then those banks would be under competitive pressures not to take those kinds of risks.”

Peter pointed out that there is no other industry like this.

The government doesn’t guarantee your money anyplace else. So, why should they guarantee it if you put it in a bank?”

Peter said we’re supposed to have a capitalist system, but it’s been corrupted by socialism.

We socialized the banking industry. That is the source of the problem. And we’ve also socialized interest rates because the Federal Reserve is like a Polit Bureau. They just pick an interest rate rather than allowing the market to discover the appropriate rate. And when the Fed sets interest rates too low and prints a lot of money in order to make that possible, it unleashes massive inflation, creates tremendous economic imbalances that result in financial crises and depressions when the bubbles burst. That’s where we are right now.”

Peter said he thinks this is the last straw.

I think the Fed is going to have to unleash so much inflation to try to prop up all these banks, and the US government, which is also insolvent. That is going to unleash runaway inflation. That is the real problem. Nobody’s money is safe in any bank, because even if your bank doesn’t fail, it’s going to be bailed out through inflation. So, you might not lose your money, but your money will definitely lose its purchasing power.”

At the May FOMC meeting last week, the Federal Reserve raised rates another 25 basis points. The Fed funds rate now stands between 5 and 5.25%. But Peter said that’s still not enough to do anything about inflation.

But it is enough to create more problems for the banks and anybody else that has debt that they have to service. A lot of companies, a lot of people who own commercial real estate, took out short-term loans at very low rates a few years ago. As those loans mature, and now they have to roll them over, they can’t afford these higher payments, especially when a lot of their rental income has dropped. So, they have less revenue, and now their interest expenses are rising. And for a lot of companies that were borrowing in the junk bond market, they’re not going to be able to afford to service this debt at the new rates once these bonds mature. So, the bulk of this financial crisis, which just got started, is in our future. We’re just at the tip of a huge iceberg right now.”

Dan asked Peter, “Where do I put my money? Are you still saying buy gold?”

Gold did very well today. It’s back above $2,000… But this is just the beginning. It’s going much, much higher than this — many multiples of its current price. So absolutely, get out of the dollar. Get out of banks, and get into something real, whether its gold, silver, foreign stocks. You have to look for a port in the storm because this is an inflation tsunami.”