Schiff on w/ IEA: 2008 Set the Stage for 2025

Last week Peter joined Tom Clougherty, Executive Director of the Institute of Economic Affairs, to discuss his unwavering view of free-market economics, the enduring threats from misguided government policies, and the urgent need for economic reform. Throughout the conversation, Peter and Tom highlight the consequences of central bank intervention, the artificial distortion of markets, and the serious risks posed by escalating reliance on speculative assets like cryptocurrencies.

Peter starts by explaining that his skepticism of government intervention stems from correctly anticipating the 2008 financial crisis. Peter foresaw how reckless monetary policy by the Federal Reserve and the moral hazards created by entities like Freddie Mac and Fannie Mae inflated an unsustainable housing bubble:

I could see that we had a huge housing bubble that was unsustainable. But I also saw how the housing wealth was impacting the economy and how people were consuming more and saving less. And the whole economy was distorted based on the illusion of wealth that didn’t really exist. And I knew that there was a lot of fraud inherent in the mortgage market and the housing market based on the government’s involvement. And that I knew that eventually rates would rise, teaser rates would reset, housing prices would crash, and it would bring down the banks that financed it.

He emphasizes how mainstream explanations for the crisis wrongly blamed capitalism and private-sector greed. Instead, he squarely identifies central banks and loose monetary policy as the root cause of market distortions:

And the main reason was all the people that the government brought on to explain why we had a financial crisis, and of course they had no idea that it was coming until after the fact, they all blamed a lack of regulation, too much greed on Wall Street, not enough capitalism. My blame was the government itself. When George Bush made a speech early on, he said, ‘Wall Street got drunk.’ That was his rec, and I said, ‘Yeah, they were drunk, but where did they get the liquor?’ They got it from the Fed.

While Peter predicted the crash, he admits he underestimated the government’s willingness and ability to delay the inevitable crisis by inflating even larger bubbles. The result today, he warns, is a far more threatening economic situation that will dwarf the 2008 downturn:

The only thing I got wrong really was in my assessment of what would happen after the government made that mistake. I assumed that the attempts to reflate the bubbles would fail and that instead we would have a big drop in the dollar and a surge in inflation. That didn’t happen and we went on many, many years and the bubbles got so much bigger and not just real estate, stocks, bonds, cryptocurrencies. I mean we inflated just this massive bubble and the debt rose to enormous levels way beyond anything that brought us down in 2008. The fact that we were able to kick the can down the road up until now and we’re still kicking it just means that the crisis that’s coming is going to be so much worse than the one that we had in 2008 because we didn’t get to solve the problems.

While appreciative of efforts to streamline the government, Peter challenges the notion that government can ever operate efficiently. Peter illustrates how only private businesses, driven by market competition and self-interest, can achieve true economic efficiency:

You can’t have a government that is efficient; efficiency is only found in the free market. If I own a business, I will be efficient because if I’m not, I’m wasting my own money. I have a lot of incentives not to waste my money. Plus, if I have competition and my competitors are efficient and I’m being wasteful, then they’re going to undercut me and I’m going to go out of business. You have market forces and self-interest that keep you from wasting resources.

He concludes by criticizing contemporary enthusiasm for cryptocurrencies, calling out the current administration’s promotion of digital assets as a misguided distraction from genuinely productive economic activities. He argues that promoting crypto merely props up what he sees as a digital Ponzi scheme:

The worst thing about it is he’s [Trump’s] been completely hijacked by the cryptocurrency industry. I mean this is a farce that his administration now pumps and dumps crypto and everybody is trading on insider information and making a fortune off of this. Meanwhile, he wants to make America great again, but he wants us to be the leaders in crypto. Why would we want to be the leaders in a digital Ponzi scheme or digital pyramid? Whatever money we waste on the crypto industry is money we can invest in productive investments, in real wealth creation.

Gold is trading above $3,000– check out Peter’s analysis of the yellow metal’s price action.