The Promise of Stockton
by Peter Schiff: The
Fed's Tightening Pipe Dream
of the Lew Rockwell Show episode 287 with Peter Schiff.
to the podcast
Well, good morning. This is the Lew Rockwell Show. And how great
to have as our guest this morning, Mr. Peter Schiff. What do we
say about Peter? He's had four best-selling books. He's a star of
television, star of radio. He's had his own show for some time now.
He's taking the place of G. Gordon Liddy. I must say, taking that
show to a much higher level. He's on three hours a day.
Peter, I don't
know how you do that.
Well, I don't know if I'm actually a star of radio and TV.
Let's just say that I appear on radio and TV.
No, you're a star. For those of us interested in the cause of freedom
and interested in Austrian economics and interested in the hole
this country is in, you are a star.
And, of course,
he's also president of Euro Pacific Capital.
your latest book, your latest best-seller is called The
Real Crash: America's Coming Bankruptcy How to Save Yourself and
Your Country. So is there more of a crash coming? 2008 wasn't
I think so. I mean, you can take a look at what's happening in Europe
right now as kind of a harbinger of things to come. You know, Europe
suffers from many of the same problems that we do. I just think
we have more of it. I think our problems have progressed to a worse
degree than Europe. It's just that Europe's problems are coming
to a head sooner, even though I believe they're smaller in scope,
simply because creditors are waking up to the European problem and
not cooperating by wanting to, you know, lend them more money at
low rates; whereas, our creditors still have their heads in the
sand. I mean, we're still able to borrow beyond our capacity to
But, you know,
I don't think there's a lot of time before we're going to deal with
this. I mean, just look, on a smaller scale, I think Stockton, in
California, is about to file for bankruptcy I think as early as
tomorrow. And Stockton is like a Greece here in California. I mean,
Stockton, the government there made a lot of promises to its government
employees. And, when the real estate boom was going, there was plenty
of revenue coming in, and they promised the moon to voters and to
employees, big pensions, health care benefits. And then the bottom
dropped out. You've got 20 percent unemployment now in Stockton.
They don't have the tax base. They can't afford all these commitments.
And what are they doing? They're telling their bondholders, we can't
pay. You've got all the municipal bonds outstanding. I mean, this
is going to be a major problem for those bondholders and now government
is not going to be the last city to declare bankruptcy, not by a
long shot. And I think it's going to go up the food chain. We're
going to have state governments that are going to face these problems.
We're going to have the federal government face this problem, especially
when interest rates go up.
I mean, look
at the talk now about Spain. They've got 7 percent interest rates.
People are trying to speculate how long Spain can finance its debt,
having to pay 7 percent. Well, if we had to pay 7 percent, if the
federal government had to pay 7 percent, it's actually in a worse
position than Spain. And the same thing with the states. If interest
rates go up, or rather "when" interest rates go up, the debt becomes
unserviceable. And the minute it becomes unserviceable, the minute
our creditors worry that we can't service the debt, then they actually
want their principle back. Then it's not about just the interest;
it's about coming up with the principle. Where are we going to get
But isn't this actually a good thing, Peter? Dont' we want these
broke governments to admit that they're broke and maybe do some
restructuring? I mean, a city like Stockton, as you know, the median
government employee is making more than double what the median taxpayer
makes. Why should they be able to do that? And then, of course,
you say these crazy pensions, crazy benefits they have. Don't they
need to go bankrupt in order to
That's what has to happen in Europe. The problem is bailouts make
it possible to postpone the pain. And I'm hoping that we don't get
a bailout for Stockton, you know, and I hope that, you know, nobody
in the U.S. gets a bailout. After all, you know, if you look at
what is theoretically the difference between a U.S. city or state
and a country in Europe, I mean, because all of our countries
you know, everybody has the same currency. We all have the dollar.
All the debts are in dollars and nobody but the federal government
can print them. And so, if it's OK for Stockton to go bankrupt,
why isn't it OK for Greece to go bankrupt? You know, they don't
have to get kicked out of the Eurozone. I mean, we're not going
to kick Stockton out of the dollar zone
But we should.
But, you know, it is going to be problematic for a lot of people
who have based their lives on assumptions of a revenue stream coming
in from a government entity. And so it's going to be very painful
for the people involved. And it's also going to be painful to people
who loaned money to the city of Stockton, who hold those bonds,
who thought they were going to get certain interest payments and
they were going to get their principle returned. They're going to
wake up to the reality that Stockton can't pay. So when we do have
the restructuring that we need, there is going to be pain. We just
have to be able to suck it up and bear that pain.
And, of course,
for some people, it'll be relief because, you know, otherwise, in
order to keep their promises, we have to increase taxes. And if
you already have 20 percent of the city unemployed, how are you
going to increase taxes on the few people that are still working,
and will they stay in town to pay those taxes or will they leave,
particularly the employers? So we have to do this.
But my fear
is we will resist it on a national level. In fact, we are resisting
it right now because we can print money. And because so many people
around the world are worried about Europe or the emerging markets,
they're buying dollars. And so we're able to print all this money
and send it all around the world to delay the pain. We can keep
on importing the goods that we didn't produce. We can live off of
everybody else's savings. But at some point, our creditors are going
to wake up we're not willing to do this anymore. And the fact
that we delayed it for so long because we have the extra rope
and then we promptly hung ourselves with the rope I mean, we're
going to regret the fact that we didn't take advantage of the opportunity
to try to solve the problems instead of using the extra time to
kick the can down the road.
Well, Peter, what's going to happen to, say, the people in this
country who think that they are going to be taken care of by Social
Security or Medicare, food stamps, Medicaid?
I mean, go down the list. There are hundreds and hundreds of these
government giveaway programs.
Oh, well, what happened to people who thought they were going to
retire on Bernie Madoff, you know?
There are a lot of people that put their faith in a con. And unfortunately,
a lot of people put their faith in a government con. I mean, a ponzi
scheme run by the government is no different than the one run by
a private citizen.
is a lot of people were forced to contribute to Social Security.
Even the ones that knew it was a ponzi scheme, they couldn't get
out from under it because the money was taken out of their paychecks.
But maybe they could have made alternative plans. But a lot of people
didn't have the wherewithal to both save for their retirement and
fund Social Security because Social Security took such a big chunk
out of their pay. Remember, you know, it's 15 percent of payroll.
I mean, if American citizens had been allowed to invest 15 percent
of their payroll on their own over the last 20 or 30 years, then
they would have they would be able to retire. And the country
would have benefited by that enormous build-up of savings that could
have been invested productively. So we'd have a much stronger, more
productive economy, had we had the benefit of those savings all
government took the money, spent every nickel of it. We had no savings.
And now you have a generation of people looking to this giant ponzi
scheme. You know, look, is Generation X I mean, look at the net
worth of the average Generation Xer, who is, you know, behind the
baby boom. How are they supposed to finance the retirement of their
parents when they're broke?
No, of course, it's true. And the young kids who pay into Social
Security are the poorest group in the country among the working
people. And, of course, the people getting Social Security are the
richest group. So
And, of course, a lot of them are struggling
it's not sustainable.
to pay interest on their student loans.
I mean, they've got to pay student loans. They've got to pay mortgages
on the inflated values on their homes that they overpaid for their
houses. They overpaid for their education. You know, and now they've
got to retire the baby boomers?
So here we have government spending at insane levels, whether it's
here or in Europe, government debt at insane levels, all other kinds
of crazy monetary things going on. What's going to happen? I mean,
they're going to, I guess, create a United States of Europe, a new
mega-state to have even more spending and more inflation and more
everything else, and the U.S. in partnership with them. How long
can all this crazy business go on?
Well, there's a limit because, you know, eventually you run out
of other peoples' money. I mean, that's what's going to happen.
You know, I
don't know. Angela Merkel just the other day basically said the
equivalent of "over my dead body" when it comes to sharing sovereign
debt, you know, jointly among Europe. I mean, just like, look, I
don't think Texas wants any part of California's debt, you know,
and so you can understand why the Germans wouldn't want to assume
the Greek debt. And so I don't know that they're going to have a
United States of Europe, considering the basket case of some of
these countries. I can see why Greece would want to be a part of
it but I can't see why Germany would. And so maybe that won't happen.
But I think
the more important consideration is when is the world going to stop
obsessing or focusing solely on Europe's problems? When are they
going to notice that, on our side of the Atlantic, the problems
are even bigger? You know, it's amazing. We're actually lecturing
Europe on taking care of their debt problem
when we're in bigger trouble. We have more debt in comparison
to our GDP than Europe does. And we have a much bigger unfunded
liability problem than Europe does. And we are far more vulnerable
to an increase in interest rates than Europe is.
And, Peter, isn't the basic underlying problem the same in both
continents that they're sort of bankocracies? I mean, isn't all
this money actually to bailout the banks? It's not
Well, a lot of it is.
Greece that's being bailed out, but isn't it the banks that hold
the Greek debt, the Greek government debt?
Oh, yes. I mean, it's a lot of banks but also, you know, there are
depositors, particularly here in America. When they bailout the
banks, they're also trying to bailout American citizens who have
money in those banks. Because if the government let these banks
fail, you know, the FDIC doesn't have anywhere near enough money
to cover the losses on the insured deposits. So, you know, there
are a lot of people who are going to lose when these banks fail.
I'm not saying that we should bail them out because of that. I'm
saying that we should allow those losses, as bad as they are, because
the losses will be even worse in terms of real purchasing power
if we continue on the course we're on.
Well, Peter, considering the course we're on, considering the situation
here in this country as you say, worse than in Europe tell us
about why your book is important, why it explains the crisis and
also helps guide people in what the heck to do as individuals.
Well, I think it's important that people understand why we're having
these problems. Because the tendency, you know, in Washington is
to blame the markets, blame capitalism for what are basically failures
of government. And there's a tendency for a lot of people to rewrite
history, and they look back at America's success and somehow think
that we it was a creation of government and that what we need
is more government, more regulation so that we can have more prosperity,
and that what is hurting us is all this unbridled capitalism. And
so I need to point out that that's not the case, that it was capitalism
that made us rich, and it's government's undermining of capitalism
that's impoverishing us. And so, if you understand, you know, where
the crash is coming from, what's caused it and what I wanted to
do in my book is I wanted to kind of expose a lot of fallacies and
get people to actually understand that, if we get the government
out of the economy, their lives will improve.
You know, the
government wants to convince us that, you know, we need government
for education, we need government for health care. And the point
of my book is to show that, without government involvement, we'd
have better education, we'd have more accessible education, we'd
have better health care, we'd have less expensive health care, that
we everything that we need, we get better from the free market
than we will from government. Because when free people provide us
with services and products, you know, the consumer is in charge.
Everybody is trying to satisfy a consumer, and they measure that
by a profit and a loss. And so, if you're a private entrepreneur
and you're trying to generate a profit, you can only do that by
satisfying the desires of your consumers. So if you desire education,
if you desire health care, where are you going to get a better product?
From a private businessman who needs your business, who needs to
convince you to voluntarily buy his services or from some government
that couldn't care less whether you use the services or not because
they're compensation is not tied to whether or not you get any value
for your money?
You know, so
when you're looking to government to provide you with something,
government workers don't care about you. They just care about themselves.
But a private businessman has to care about his customers. He has
to put the customer first because, if he doesn't, he's going to
go out of business.
Well, that's for sure.
you know, you're known as a politically savvy guy. Do you think
there's any what do you think about the coming election? Do you
think that it really makes a difference, despite his business background
to have Romney in the White House versus Obama?
No. I mean, the problem with the current election is that one of
these two guys is going to win.
And, you know
(laughing) neither one of them is what we need. I mean, if Ron
Paul were the candidate, you know, we could both agree the election
would really have consequences; it would mean something.
Peter, thanks so much for coming on the show today. And, of course,
we'll link to your books, to your web page and Facebook page and
your Twitter page and so forth.
But I especially
want to urge everybody Peter's most recent book is really quite
extraordinary. And I want to urge everybody to read it. It's called
Real Crash: America's Coming Bankruptcy How to Save Yourself and
for all you do and thanks for coming on the show today.
Thanks for all you do and thanks for having me on.
Well, thanks so much for listening to the Lew Rockwell Show today.
Take a look at all
the podcasts. There have been hundreds of them. There's
a link on the upper right-hand corner of the LRC front page.
date, June 29, 2012
Schiff is CEO of Euro
Pacific Precious Metals and author of The
Little Book of Bull Moves in Bear Markets and Crash
Proof: How to Profit from the Coming Economic Collapse. His
latest book is How
an Economy Grows and Why It Crashes.
© 2013 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.
Best of Peter Schiff