Nov. 26, 2015 - Freedomain Radio - Stefan Molyneux
50:55
3138 Myths About Economic Collapse | Peter Schiff and Stefan Molyneux
Did government deregulation cause the financial crisis? Did the partial repeal of the Glass-Steagall Act lead to America's banking crisis - and to massive government bailouts? Stefan Molyneux speaks with Peter Schiff about the persistent myth of financial deregulation and the true cause of the economic crisis! Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, the host of the Peter Schiff Show Podcast, the CEO of Euro Pacific Capital and the Chairmain of Schiff Gold.Schiff Gold: http://schiffgold.comSchiff Radio: http://www.schiffradio.comEuro Pacific Capital: http://www.europac.comFreedomain Radio is 100% funded by viewers like you. Please support the show by signing up for a monthly subscription or making a one time donation at: http://www.fdrurl.com/donate
Stefan Molyneux from Free Domain Radio back with our old friend Peter Schiff, president of the Europe Pacific Capital and a well-known commenter on all things financial, economic, and practical and theoretical.
Thanks again, of course.
Always a pleasure to chat with you, Peter.
Always a pleasure to be out with you, Stefan, and I'm glad you're still doing this Free Domain Radio.
It's probably one of the best podcasts out there.
Well, thank you.
So, I did some videos on Bernie Sanders, inviting the Bernie Sanders supporters to come into a rational discussion of economics.
And instead, I got Bernie Sanders supporters.
No, I'm just kidding.
Some of them are actually pretty good.
But there are a couple of myths that are sort of floating around that I think are worth having a discussion about.
And you certainly study this a lot.
The first is this, you know, if I'm going to paint a mental picture or an image for the listeners, there's a big giant dam.
Like a big Hoover-style giant dam.
And that is government regulation.
And below are like the little people who have their sheep and their children playing in the pastures.
This big giant dam of government regulation is holding back the sea of lava called corporate greed and banker greed and so on.
And this idea, of course, that a lot of people on the left and some people on the right believe was that, you know, in the 90s and in the early 2000s, This dam was cracked.
They took this wrecking ball.
They took these regulations down.
They let unfettered, rampant, eat your grandmother free market greed run rampant.
The shadow of the lava cascaded down on the sheep and the children and everybody got burned alive.
The important thing to do is to rebuild that dam of regulation.
It's talked about regulation as a whole.
They talk about Glass-Steagall, which is sort of like a magic spell supposed to ward off I wonder if you could talk to people about this myth and ways in which they can think about it differently.
Yeah, well, I mean, first of all, there's more than just a couple of myths.
I guess a couple is two.
I mean, the whole, you know, Sanders campaign is built on a foundation of myths.
But that is certainly one of them, that the only thing separating the average American from being completely victimized by greedy corporations is the government.
And if it wasn't for the government, you know, we would all be breathing toxic air and, you know, we'd be eating contaminated food and we'd be dying of all sorts of diseases.
And, you know, all of our products would be defective.
And, you know, it's just a government that is responsible for quality in a market economy.
And it's actually the complete reverse.
Individuals don't need protection from private companies, and all private companies are a collection of other individuals that are trying to win your business.
They are trying to satisfy your needs and your desires in a more efficient way than their competitors.
Everybody is competing in a free market economy to give the consumer the best possible deal, the highest quality at the lowest cost.
Government doesn't facilitate that.
The market does.
Competition does.
What happens when government comes in to regulate an industry, often it gets captured by the industry it's regulating, and then the industry uses government power to protect it, and it uses the government to rip off the consumer in ways that never could happen We're good
to go.
So, there are, of course, this myth of deregulation that somehow in the financial markets is this wild west and there's no laws and sometimes it even sees that laws of physics dare not apply for a position on Wall Street.
But the facts seem to be, of course, that regulations have continually gone up and that there are, what, 119 agencies currently regulating all of this?
Yeah, in many cases, regulations act as a barrier to entry because the mere cost of complying with all these regulations is so high that it prevents new entrants into a business.
It makes it harder for individuals to maybe quit their jobs and start their own company to compete with their boss because the cost of complying the regulations is prohibitively high.
And that's great for the boss because it means, OK, I don't have to worry about more competition because people can't afford to start businesses because they can't afford to pay for all the costs.
And, of course, all the money that governments force businesses to waste on unnecessary regulation just runs up the cost of doing business, ultimately results in higher prices, which are paid for by the consumer.
But, you know, this whole idea about Glass-Steagall and deregulation, and that's why we had a financial crisis.
I mean, this is perfect for the government because it allows the government to blame capitalism or the markets for the 08 financial crisis, and it can hold itself out as the solution.
All we need is more regulation.
To prevent this from happening.
But the truth is that the financial crisis was not caused by a lack of regulation, but by an abundance, an excess of regulation.
Yes, it is true that there was the repeal of portions of Glass-Steagall.
And people point to that and say, you see, we repealed some regulations and look at the disaster that was created.
But what you have to understand Is that there were a lot of other elements that weren't repealed.
And the fact of the matter is there were some government regulations that were there to simply deter the damage being created by other government regulations.
Like one regulation is like a gas pedal and then another regulation is like a brake.
And so what we did is we repealed a break, but we didn't repeal the gas.
And so the government regulation created a problem, and it was no longer being offset by a counteracting regulation.
And what I'm referring to is the government guaranteed all of the bank deposits.
And when the government did that, when the government came up and said, hey, you know, if you open up a bank account, don't worry about what the banker does with your money.
Don't worry about how much risk the bank is taking.
Just put your money in any bank.
They're all the same because the government guarantees them all, right?
And so once the government did that, they create a huge moral hazard.
See, normally...
Before you put your hard-earned savings in a bank, you want to make darn sure that that bank is safe, that that bank is not taking a lot of excess risk.
And even if you yourself are not necessarily smart enough to know the good banks and the bad banks, there would be plenty of companies in the private sector that would rate banks, That can let you know, kind of like a Consumer Reports, just like most of us, we're not auto mechanics, but we can read an auto magazine and get an idea which cars are reliable, which cars are better mechanically or perform better, and we can rely on experts.
And the same thing would happen in the banking sector, except it doesn't because nobody cares, because the government says not to care, because even if you If you put your money in a bank and it fails, well, no harm, no foul.
You're going to get all your money back.
So when the government did that, they took away all of the free market barriers to risky behavior on the part of banks.
And so once they did that, they needed to counteract it.
So now they had various regulations that controlled what banks can do with their deposits because the free market was no longer going to do the job.
So the government was going to do it.
Now, over time, some of those government protections that were only necessarily, sorry, because of other government regulations were whittled away.
And so there was a problem that that helped create.
But it wasn't because of the deregulation.
It was because they didn't deregulate enough.
Had they got rid of all those regulations and had banks been a true free market, Both in profit and risk.
And if individual depositors had to be concerned about the health and stability of the institutions in which they entrusted their deposits and had bank executives known that their customers, you know, they would lose their customers if they were making risky loans, then none of this stuff would have happened.
We wouldn't have had all these risky mortgages if it wasn't for the government guaranteeing all of the banks so that nobody cared what the banks were doing with their money.
Well, and there is this, just to take a brief wind sprint through the Glass-Steagall, of course, in the 1920s, we've talked about this before, the Federal Reserve cranked up the money supply and then cut it by a third, causing a crash.
Two percent of bank deposits vaporized and everybody freaked out.
Now, the Glass-Steagall came in in 1933, I think it was, and the idea behind it, of course, was to separate banks.
It was actually brought in by the investment banks who didn't want competition from the regular banks in terms of being able to manage stock portfolios and so on.
And it largely weakened in the 60s and then only one of the four provisions was repealed in the 90s and even Barack Obama has said it wasn't really glass steel that caused this problem.
The vast majority of the companies that hit the rocks in 2008 Weren't even covered by Glass-Steagall.
In Canada, there's no such thing as Glass-Steagall, and there wasn't the same kind of housing crash.
So there's almost no match between the theory and the practice, which is why you know you're kind of dealing with this magic spell of anti-capitalism that is supposed to justify further government action.
And of course, the real problem was the Federal Reserve.
It was the Federal Reserve's It was a policy of keeping interest rates artificially low.
That provided the air for the housing bubble.
And it was the moral hazard supplied by Fannie Mae, Freddie Mac, and the FHA, all sorts of government entities that encouraged and guaranteed the mortgages of noncreditworthy borrowers.
So it wasn't the free market that was creating these loans.
It was the government that was encouraging and backstopping these loans, and that's the reason that they existed.
So all of the fuel for the bubble was supplied by the government, whether at the Fed or directly by the US government.
And so the ensuing financial crisis was 100% created by the government.
And even the fact that, yes, there were private actors in the free market That were part of it, but they only acted the way they did because of government-provided incentives and government-provided, you know, backstops or guarantees.
So it was the government that perverted private activity and private behavior.
Had the government not been there, had the Fed not lowered interest rates to artificial Officially stimulate the economy.
Had the government not been involved in the housing market, not been encouraging banks to lend money recklessly to non-credit-worthy minority borrowers simply because politicians wanted to get the votes of the people that were getting the credit.
Had the government not done that, there would have been no financial crisis.
But then, of course, the government and guys like Bernie Sanders use that financial crisis to tell the voters, you see, look what capitalism did.
Look what the free market did.
We need the government to protect you.
We need more government to make sure it doesn't happen again.
And people believe that.
They think that these bad things happen because of the free market and that the solution is to make sure that we build that government damn stronger so that the free market doesn't do these bad things again.
When, in fact, we had a great economy or we would have had a great economy, but the government came in and dammed it up.
And now they want to, you know, make the dam bigger so that the economy is even weaker.
Well, and of course, the mortgage-backed securities were the major way in which these bad loans were sort of cast out into the world to do their damage.
And they're not even covered under Glass-Steagall legislation because they don't fall into either of the categories.
So the idea that Glass-Steagall would have somehow prevented this.
Sorry, go ahead.
Right.
But the problem loans were predominantly subprime or they were adjustable rate mortgages.
So even they were prime mortgages, but they were adjustable rate.
And a lot of these, again, mortgages never would have been originated if it wasn't for Fannie and Freddie, if it wasn't for the Fed.
And, of course, you know, once the Federal Reserve ignited that housing bubble and it kind of had a life of its own, it did alter the judgments of many people on the Fed.
And that a lot of people believed that this bubble was some legitimate new era in the housing market, and it corrupted people's thought processes.
There was all sorts of greed that entered into the picture, and people were not seeing things that they otherwise would have seen had they not been blinded by the greed.
But all of that started with the Fed.
That's why, you know, when When President Obama initially started saying, you know, Wall Street was drunk and he blamed the collapse on the drunken behavior of the Wall Street bankers.
And what I was saying back then was, yes, I agree with the president.
Wall Street was drunk, but we have to look at who liquored them up.
Where did they get all the alcohol that caused them to get so drunk and to act so irrationally?
And the bartender was Alan Greenspan.
It was the Federal Reserve that liquored everybody up.
And it was no surprise to me that people acted the way they did once they were drunk on all that cheap money.
But you have to go back to the source and look why were they drunk.
And go after that.
Don't just say, oh, we need to make changes on Wall Street.
Well, if now we have Janet Yellen pouring the same alcohol and Ben Bernanke poured the same alcohol that Alan Greenspan did, well, everybody is getting drunk again.
And all these new regulations aren't going to stop the next financial crisis.
Actually, they're going to make it worse.
Well, and of course, you have Alan Greenspan, who I'm not sure is halfway between a Bond villain and a villain out of Ayn Rand, going back into Congress after they dragged him out of retirement, because of course, in the 90s, Greenspan was saying, oh, the market is self-correcting, it's self-regulating, you don't need all those regulations, and so on.
And this was publicly promulgated, of course, and everybody waited for the pride that comes before a fall.
Then he was dragged back out of retirement, he was put in front of Congress, and he said, whoa, I guess it's not that self-regulating, I must have been wrong, and so on.
And I mean, I can understand why he'd want to bury the bodies, because he knows where they are, but that kind of statement did not exactly help the case of those of us more into the free market.
Yeah, and once again, I mean, I look at him as a real traitor to the free market and to what he used to believe in, because he doesn't want to admit that he screwed up in the actions that he took.
So now he's trying to say, well, my mistake was overestimating the free markets.
And overestimate the ability of the market to act.
Look, the free market works when it's not corrupted by the Fed.
So the free market would have functioned had Alan Greenspan allowed it to.
But Alan Greenspan basically prevented the market from functioning by artificially lowering interest rates and keeping them too low for too long.
That is what corrupted the free market because we didn't have a free market in money.
We didn't have a free market in interest rates.
We had a command economy.
We had the Federal Reserve dictating that monetary policy, and that distorted the free market.
And what happened in the financial crisis was the market was trying to fix what the government, what the central bankers had broke.
And that process involves a lot of pain as you're trying to right all the previous wrongs, just like the pain of, you know, going into rehab when you're trying to get healthy because you used to be a drug addict.
And so it's not the fault of the rehab that you're going through such a tough withdrawal.
The problem is that you develop this drug habit in the first place.
And so Greenspan is being utilized, really.
To try to justify even more government, and rather than admitting his own culpability, he's now trying to blame the problem on the free market and saying, well, I just had all this faith in the free market, and, you know, I shouldn't have.
And this plays right into what the government wants, because they want to discredit the free market, because that justifies...
More government.
Bigger government.
And the ironic consequence is, the bigger the government gets, the less of the free market we have, the worse the economy is, the more problems we get, and now the government can say, oh, you see?
You know, we need even more government.
So it really helps the government.
The worse the economy is, the bigger the government gets, and then it's just a self-perpetuating spiral.
Now, another criticism that free market economics is undergoing these days, possibly with the resurgence or the I think?
That the giant sucking sound of all of the manufacturing jobs and labor jobs heading overseas is inevitably the result.
And, you know, the number of unemployed people in India is bigger than the entire American workforce, so there's no way that enough cheddar sliding downhill is going to fill them up to the point where it raises their wages in a competitive way.
Now, this seems plausible.
And, you know, when I first read this, I'm like, well, you know, I'm pretty into free markets, but I can see.
But then as I start to dig into more dollar reserve currency and, of course, a bunch of other factors, what do you think is driving so much of this, the exporting of what used to be the ladder to the middle class for the lower classes in particular, the manufacturing jobs and so on?
Well, a lot of it has to do with the regulatory and anti-business climate that permeates the United States.
It is certainly expensive to do business here.
Not just labor costs.
I mean, that's only a part of it.
But the regulatory costs and also litigation and the expense involved in trying to avoid litigation This is a very hostile environment that has been created here, and so individuals naturally look to escape that hostility,
and they look to start businesses and employ people in environments that are lower cost and less risky, and a lot of the reduction in cost comes from regulation, taxation, and litigation.
It's not simply, oh, all the jobs are going to go to the countries that have the cheapest labor, because that's not true.
And in fact, if you go back to America in the latter part of the 19th century or the early to mid part of the 20th century, America had very high wages on a global scale.
Yet we made everything.
I mean, we produced everything, not only all the things that Americans bought, but all the things that almost everybody else bought.
We had huge trade surpluses in manufactured goods.
We produced manufactured goods of all sorts.
We produced the highest quality at the lowest price, despite paying some of the highest wage rates in the world.
In fact, Americans, you know, 100 years ago probably enjoyed higher real wages than they do today, certainly after tax, way more, because they didn't pay any taxes back then.
And on a relative basis, our wages were higher.
You know, there are plenty of countries today that have higher wage scales than the United States.
But also, I think the dollar is overvalued.
And that is also, you know, making these problems worse.
And it is artificially increasing the cost of production in the United States.
Now, the overvalued dollar is both a blessing and a curse in, It's a blessing in that it makes life in America better now for people who are earning dollars because those dollars have more value so we can buy more things and we have a higher standard of living.
prices are lower than they otherwise would be because of the artificial strength of the dollar.
We get to consume a lot of products that we didn't produce because the world is willing to accept the dollars that we just create out of thin air for the real products that require, you know, land, labor and capital to produce.
We get something really for nothing.
But the tradeoff is that the longer this goes on, the weaker our real economy is.
Right.
Our industrial capacity continues to diminish.
Our productive, high-paying jobs continue to go away.
And so eventually, when this thing comes crashing down and the dollar comes crashing down, we're going to have to deal with the aftermath of this.
And it's going to be we're going to have a collapsed dollar, so we're not going to be able to afford to buy all these products from overseas.
But since we no longer have the industrial base, we're not going to be able to produce them ourselves.
So we're going to have to, you know, make do without things.
We're going to have a huge decline in our standard of living until we can reverse the process.
But reversing the process is going to require wholesale changes at the government level on regulations and taxes because we're going to have to save and invest our way out of this hole.
Do you think, and I was just reading about how the Chinese are looking to up the convertibility between their currency and the Swiss franc and so on, It seems to me like this overvalued dollar, dollar as a reserve currency, seems to be something that people are trying to get around, trying to get away from.
Do you think that that's happening overseas, that people are looking at alternatives to a more worldwide currency?
I think so.
I mean, I think that the dollar as the reserve currency is a problem for the global economy.
I mean, it's helping America, right?
We're the principal beneficiaries as far as the immediate impact on our quality of life.
But since there's a loser, though, that makes that possible, Americans get to live beyond their means, right?
But that means somebody else is living beneath their means.
Somebody else is producing something and not consuming it.
And so other people are sacrificing so that we don't have to, so that we can enjoy a better quality of life.
And so when the world moves away from the dollar as the reserve currency and goes back to a different monetary system, then America is going to lose that privilege.
America is going to lose that advantage.
But now other people are no longer going to have to bear that burden.
I keep hearing all the time, people say, well, you know, if the Chinese or other countries, if they can't export to America, who are they going to sell their products to?
They're going to buy their products themselves.
I mean, people forget that exporting is not an ends.
It is a means to an ends.
What people want are consumer goods.
And if you're exporting some of what you produce, you're only doing that so you can import other goods that other people maybe are more efficient at producing than you are.
It's about trading for a gain so that you end up with more stuff Because you produce the stuff that you produce well, and you exchange that for the stuff that other people produce more efficiently than you do.
But what happens with America, the world gives us stuff, and we don't give them any stuff.
We just give them paper.
We just print some money.
We don't even print it, right?
We just print it electronically.
And so when the world realizes that exporting to America is a waste of resources, it's a waste of labor, it's a waste of material, it's a waste of capital, they should use those resources to produce things that they want, that they need.
Their lives will be better.
And when these countries, emerging market economies, when their currencies rise as the dollar falls, We're good to go.
That a collapse in the dollar is going to be bad for the countries that have been supplying us with stuff, and they don't even worry about what it's going to do here in America.
Americans rely on that overvalued dollar to survive.
Well, and there's a really tragic backstory, I think, to this question, which is...
The price of something doesn't matter.
It's the value that matters, right?
I mean, if I want to make a movie, I can get Brad Pitt.
He's like $10 million or $15 million, but people will buy him because he can open a movie.
People will go and see it because it's a Brad Pitt movie.
The guy behind him, you know, the guy in the background holding up the sign or whatever in the union shot or whatever, he's like $5 an hour.
So the question is, why does anybody bother hiring Brad Pitt when there's a guy behind him you can get for like.00001% of the price?
And the question to me is, how is it possible...
That America invests, you know, pushing a quarter million dollars in every single student.
They go through 12 or 13 years of government education.
And they emerge from that government education unable to compete with people thousands of miles away who speak different languages.
They don't seem to have any of the job skills available.
That would give them the competitive advantage that would allow them to go out and compete equally.
Because the fact that American workers paid 33 bucks an hour doesn't mean that they're worse than people paid a buck 50 an hour, any more than Brad Pitt with his 10 million is worse than the guy five bucks an hour.
How is it possible that the school system has become so degraded that they're pushing people out and they can't compete with anyone?
Well, what do you expect from a government-run enterprise?
And remember, the schools are not run for the benefit of the students.
They're run for the benefit of the administrators, of the teachers' unions, of the politicians.
You know, the students are just, you know, part of the process, but, you know, it's not student-oriented, right?
I mean, in a private school, it is.
But in a public school where the children are forced to go to school and the parents really have no choice, then, you know, what they care doesn't even matter.
And so the schools are really running away to keep people out of the labor market.
I mean, we waste the formative years.
I mean, so many young Americans are in school until they're 23, 24, 25.
Some stay in school until they're 28, 30 if they get a few different degrees.
But these are the years where they should be learning how to do something.
And, you know, there are a lot of kids that, you know, by the time you're in eighth or ninth grade, I mean, you know, your parents know, you know, is this kid cut out for academics?
I mean, what are my kids' talents?
And, you know, not everybody is cut out to be a rocket scientist or, you know, you know.
And people could recognize earlier on that, look, certain kids, learning a trade, learning how to do something is a lot better than just staying in school and pretending that you're getting some kind of an education when you're really not.
And we're spending a fortune.
We're spending a tremendous amount of money.
On taking kids through this process and we're doing a disservice to the child.
I guess he's growing up without any skills that he could have accumulated and if he went to college and he borrowed the money, now not only doesn't he have any marketable skills, but now he has debt.
But the cost to society of wasting all these resources On all this public education and all these colleges, this is another example of why education is too important to entrust to government.
Let the free market take over this function.
And people say, well, if it's up to the free market, we can't let the free market do it because nobody will be educated.
I mean, so you don't trust parents?
I mean, obviously parents want to educate their children.
And they know their children's limitations.
They know their children's strong points and their talents.
And if there's a child who really is academically proficient and is a really bright kid, then they're going to want that child to go to college.
And they're going to pay for it.
They're going to guide him.
Nobody is going to take We need better care of their kids than their parents.
We don't need the government.
I mean, to say that without the government, nobody would be educated.
It's like saying, well, without the government, we'd all starve to death.
Without the government, we'd all be naked.
I mean, the free market can satisfy our need for clothing, our need for nourishment, our need for housing.
It can also satisfy our need for education.
And people always say, well, it's not fair if the private sector does it.
The rich are going to get better educations than the poor.
Well, maybe they eat better food than the poor.
They wear nicer clothes than the poor.
They live in bigger houses.
So yes, they might go to fancier schools.
But you know what?
So what?
Because I bet in a free market education, even if the rich get better educations than the poor, the poor will get better educations than they're getting now.
So they're still going to be better off.
It's hard to imagine they get worse.
And just while you were talking, Peter, I was just thinking about Ben Carson.
Because Ben Carson says that basically he's not said he got anything from his school environment other than people to punch and stab.
But his education was driven by his mother because his mother, even though she herself could not read, made him and his brother do two book reports.
He said no TV, two book reports every week, and they had to go ahead and do it.
It really came out of the home despite what was going on in the school that gave him his drive.
Yeah, and a lot of these schools now, these government schools, particularly in the inner cities, I mean, no one gives a darn.
The parents don't care.
The parents have no, you know, really respect.
I mean, they're living off of government.
I mean, they don't have any work ethic.
They didn't, you know, they didn't really even get anything out of their school.
And they've got the kids and they're only going to school because the government requires them to go to school.
And the kids even resent being there.
I mean, the whole environment is toxic.
And the few kids that are there that really want to learn, the environment is so polluted by all the kids that shouldn't be there in the first place that they can't learn.
And now you have the teachers having to teach to the lowest common denominator.
I mean, the whole thing is a complete disaster, and it costs a fortune.
And all the resources that we waste on the education system, those are resources that could have gone into productive investment so that the kids would actually have jobs and have a higher standard of living.
Instead, we squander all the money on worthless educations that they don't learn anything.
I mean, how many people have graduated college and are functionally illiterate?
And yes, there are plenty of college grads who can read and write, but they can't do much else.
I mean, a lot of the college grads don't really know much more than people used to know when they graduated elementary school.
I mean, probably if you took an elementary school graduate from 1900 and put him against your typical college grad today, not even a high school grad, a guy that graduated sixth grade, I bet sixth graders from 1900 can do better on math and reading or geography than college grads today.
Well, Shakespeare only went to school for 12 weeks a year when he was a kid and not for very long.
Now, I like to dip into politics.
I know that you've run for office and I assume that you're circling around the current level of excitement.
And I think it's a very exciting election that is coming up in America.
I'm like every single cycle.
I'm like, maybe I'll take this one out.
Maybe I'll take a break.
But then when you have like Bernie Sanders versus Donald Trump or Hillary Clinton versus Ben Carson or Ted Cruz, it really does seem like Clash of the Titans and a giant fork in the road for America.
And I can't think of an election in the past that has had such a wide divergence of ideologies as the one that's coming up.
What are your thoughts on...
Am I completely out to lunch being out of the country or whatever?
Well, it might depend on the candidates.
I mean, yes, if it's Bernie Sanders...
Bernie Sanders is about as far left as we've ever gone, right?
But it still looks like the Democrats are more likely to nominate Hillary Clinton and I don't know how much Further to the left, or if she is further to the left, than Barack Obama or any one of a number of, you know, we had Hubert Humphrey ran for president or McGovern.
I mean, we've had some pretty liberal guys, you know, run for office.
And so I don't know that Hillary is, you know, any more radical than they are.
But Bernie Sanders clearly, to me, would probably represent the sharpest turns left.
And, you know, and he's not even embarrassed about admitting that he's a socialist.
He's trying to maybe redefine, well, I'm a European socialist.
Like, somehow that makes it better.
But, you know, depending on who the Republicans nominate, yes, there could be a sharp difference in ideology.
Certainly if Rand Paul got the nomination, I mean, he'd be very different from what we've had in Republican nominees.
But even if it was a Ted Cruz, Or even a Carly Fiorini, you know, or maybe even a Rubio.
Obviously, these guys talk about limited government.
But, you know, I don't know how much different.
Other than Iran, Iran could be a wild card.
Trump, I don't know.
I mean, Trump, what I like about Trump is he speaks, you know, about a lot of the problems that a lot of candidates ignore.
But his solutions are completely wrong.
But at least he's identifying serious problems.
Now, I don't know whether his solutions are simply what he knows is going to play well at the polls or if he actually believes them.
I don't know.
I mean, maybe he really knows that those solutions won't work.
But if he campaigned on the actual solutions that would work, he wouldn't get the support.
So you don't know.
I mean, he's kind of a wild card.
You know, he might he could be a great president or he could be a horrible one.
I don't know.
Right.
Because you don't really know if he's honest or Or if he's just saying what he thinks will get him elected.
But we know all regular politicians mostly just say what is going to get him elected because that's why they're politicians.
So, you know, who knows what they actually think.
But if you look at the debates, clearly no candidates are really leveling with the public about the severity of the problems and what it means in the way of sacrifice.
Nobody is saying that we're broke and that the government can't keep its promises.
Everybody is talking about, I'm going to save Social Security, I'm going to save Medicare.
You know, even when Donald Trump talks about repealing Obamacare, he basically wants to replace it with something that sounds just like it.
In fact, every Republican candidate wants to replace Obamacare after they repeal it.
Why can't they just repeal it?
The Republicans always want to criticize the Democrats for wanting to give people something for nothing.
Well, the Republicans want to give something for nothing, too.
It's just a different something.
It's not just a government handout.
It's maybe a tax cut.
But it's, you know, there's no way to pay for it as far as actual identifiable cuts in government spending.
Even when you hear, who's it?
Was it, not Rubio, Ted Cruz.
Yeah, I want to get rid of the Department of Education and I want to block grant the money to the states.
Well, I mean, how about get rid of the Department of Education and just not spend the money?
If we get rid of the department, but then we just give the money to state governments, I mean, why is that a big improvement?
I mean, so if the federal government just takes money from the citizens and then redistributes it to other governments, I mean, why is that good?
That's not much progress.
I mean, could it slightly be better?
Yeah, probably.
But how about just end the Department of Education and then it's over?
The government just doesn't send the money.
Don't block grant anything to the states because the government is broke.
How does the government get the money to block grant it to the states?
It's got to go out and borrow it.
It's got to go into debt.
But again, he's afraid of saying, hey, let's not spend the money.
But that's what we have to do.
People who were promised benefits from government have to be told that the government is broke.
And they're not going to get their money.
We're not going to bleed millennials dry.
We're not going to make 20- and 30-year-old kids pay confiscatory levels of taxation so that promises can be kept to their grandparents that they never were even a part of.
So people have to, you know, be honest and, you know, honest with all of our creditors, government people who are going to get government pensions.
The money is not there.
We are broke.
The government spent it.
But I still don't see Republicans willing to tell it like it is because they're probably afraid that if they're the messenger of that bad news, the voters are going to shoot them and they're going to just elect somebody else who's, you know, who's not telling the truth.
Well, I mean, this is the great challenge of the modern democracy.
Maybe it's the challenge of all democracies.
People will certainly take extraordinary levels of sacrifice if they believe in the moral mission.
Of course, if you think of the degrees of losses of freedoms and the draft and so on that occurred during a major war like the Second World War...
People will, they'll take their food stamps, they'll, you know, not the new food stamps, the food rationing coupon books, and they'll, the women will give up their stockings and the men will go out to fight because they believe in the moral mission.
But of course, to make the moral case that the system has founded because it is continually violating personal and property rights is to really take a bit of a sledgehammer to the base of the current edifice of society.
That's a lot for people to swallow.
If you can get them to believe in the moral mission, as an old quote by Nietzsche says, give a man a why he can bear almost any how.
But that why seems very tough for politicians to articulate.
You know, the Republicans still are trying to look for quick fixes like on immigration, like, oh, the problems, our problems are just based on these immigrants.
And if we can only stop the illegal immigrants from coming in.
If we only build a wall, then our problems are going to be solved.
If you look at the number of immigrants coming to this country, both legally and illegally, and each year as a percentage of our population, it's substantially smaller than the immigrants that were coming here towards the end of the 19th century and in the early decades of the 20th century.
And we absorbed those immigrants and it was great.
There wasn't any problems.
And, you know, it was Ted Cruz was saying that, oh, these immigrants are driving down our wages and somehow this is a bad thing.
Well, first of all, wages are costs.
It's cost of production.
And if costs go down, that's a good thing because everybody who earns wages also buys stuff.
And the lower the cost of making stuff, the more you can buy, the lower the price.
Look, a lot of people hire illegal immigrants.
take care of their lawns, right?
So they save money.
If they had to hire somebody legal, it would cost a fortune or they'd have to do it themselves.
What about all the people in California, all the working women that have housekeepers or nannies that watch their kids?
If it wasn't for the ability to hire illegals, they couldn't hire anybody.
What you would have to pay an American to forego welfare to watch your kid would be so high that most women after taxes couldn't afford it.
So there's all these women that have jobs that couldn't even afford to take them if it wasn't for the immigrants coming in.
Certainly agriculture that would completely shut down if they didn't have immigrant labor coming in.
And of course, there are a lot of higher earning jobs that would disappear if those lower paid jobs weren't here.
We'd have to import even more of our agriculture.
So it's not a bad thing.
I mean, if you have to take your car to get fixed, do you want the mechanic to charge a lot or a little?
If some mechanics are coming in from overseas, then that brings down repair bills.
That's a positive.
If you've got some tailors coming in, some skilled craftsmen, some plumbers, some electricians, and if that brings down the rates of a plumber or an electrician, is that a bad thing if you have to call up an electrician and you can get it cheaper?
I mean, so the fact that immigrants come and they bring their skills...
And they compete for, you know, and they sell their services to Americans.
Americans benefit from this.
We benefited it from in, you know, the 1890s, 1900s, 1910s, 1920s.
People coming in and working and bringing their skills is a net positive.
But you've got the fear mongers of the Republican Party saying, hey, we've got to keep these immigrants out because they're pushing down your wages.
That's just not true.
Well, the pushback position, if I understand it correctly, goes something like this, which is that if you compare immigration in the 1890s, then you're talking about getting the most motivated and energetic people coming into a free market environment, low taxes, no welfare state, comparing that to sort of the post-1965 era where you have significant welfare state, Oh, yeah.
Oh, yeah.
Well, certainly, number one, the problem there is the welfare state.
And you don't say, hey, it's not an immigration problem.
It's a welfare problem.
So dismantle the welfare state.
Don't, you know, hold out a sign that says, come here, we'll give you welfare and food stamps and Obamacare.
Get rid of all that, not just for immigrants, but for native-born Americans.
And let it be known that if you come to America, you come to work.
Not come for a handout.
But when Republicans are talking about immigrants taking our jobs, the ones that are coming and going on welfare aren't taking any jobs.
The ones that are actually coming and working, they are making a positive contribution to the U.S. economy.
And of course, if we had fewer regulations in the labor market and lower taxes, it would be easier for those workers to make even bigger contributions.
It would be easier for them to start businesses.
How many small businesses in America have been started by immigrants?
You know, going to a lot of these inner cities and a lot of the small businesses are not being started by the native-born population.
They're being started by immigrants.
Well, that's true.
They do disproportionately get federal loans for that purpose, which is not to say that all of those businesses are unviable.
But I think the position from the Republicans, and as you know, it's not exactly my major part of affiliation, but the position from the Republicans is if you get more people coming into the country who are disproportionately on welfare, your chances of getting rid of the welfare state go down significantly.
That is true.
I mean, if your reason for cracking down on immigration is to limit Democratic voter turnout, I can see the rationale there.
We don't want more Democrats coming in.
The immigrants that are coming in today are probably disproportionately likely to vote Democrat.
And so if it's about a political aspect, that's a different argument.
But the way the Republicans really need to change the debate is we need to turn off the welfare magnet.
You know, that's what will stop the bad immigrants from coming in, but won't stop the good ones from coming.
But believe me, if Donald Trump could actually accomplish, let's assume that we can build the wall and make Mexico pay for it, which, you know, is ridiculous.
But let's say we could.
And somehow, economically, we can round up all the illegals and their families and export them.
I think the net contribution would be a net negative for the U.S. economy.
It wouldn't be a net positive, even if we could do it.
And of course, the cost of doing it would be astronomical, and Mexico wouldn't pay for it.
I mean, I don't even know how Donald Trump thinks Mexico is going to pay for that wall.
I mean, the only way he could do it is to put tariffs.
Mexican products being imported into the United States.
But Mexico doesn't pay those tariffs.
The American consumers buying Mexican products pay those tariffs.
So there's no way to just send Mexico a bill and have them pay it.
Like on Saturday Night Live, somebody from Mexico shows up and hands them a big check.
That's just not going to happen.
Maybe what they're going to do is the next time that the Mexican peso collapses, they won't bail it out to the tune of whatever the wall costs.
Maybe that's how it's going to work.
Now, let me close off by asking one question that I absolutely know we're going to get in the YouTube comments and in the inbox from this show.
And I think it's a good way of talking about division of labor and differential advantage.
Okay.
YouTube comments, whenever we do a show together, at least half a dozen people to a dozen people ask the following question.
Hey, Peter, if gold is so valuable, why are you selling it For dollars via Schiff Gold.
I mean, come on.
If it's so valuable, you should be wearing it.
You should be eating it.
You should have your underpants made of it.
I mean, why are you possibly trading it away if it's going to be so valuable?
Well, I mean, if I owned all the gold that I was selling, I wouldn't even need to sell it.
I'd be very wealthy.
But no, see, we don't sell gold out of inventory.
I'm not sitting on a pile of gold that I'm trying to unload.
Hang on.
I'm just going to look here.
Wait a second.
Let me just check.
Okay.
If I had a pile of gold, I mean, I have my own pile, but it's not nearly as big as, you know, the pile that, you know, theoretically we would have to have to fill all the orders that we get at Schiff Gold.
No, I'm a middleman, right?
I buy wholesale and sell retail.
I'm encouraging people to buy gold and I'm helping them buy it from other people who I believe are foolish enough to sell it.
But I'm not selling my gold.
I'm still buying gold for myself.
I'm still taking some of the money I earn and increasing my ownership in gold and gold stocks and silver and things like that.
But the reason that I, when I sell gold, the reason that I sell it for dollars is, A, well, that's what my clients have.
And I want to help them replace their paper dollars with real money, real gold.
But then most of the money that I get, I've got to pay my rent.
The landlord wants dollars.
I've got to pay my salaries to my workers.
They need dollars because their landlords want dollars, or the bank wants dollars on their mortgage, or they've got to pay their electric bills, or they've got to go to the grocery store.
And, of course, I have suppliers to pay.
I've got the phone bill.
I've got the FedEx bill.
We've got a lot of costs.
But once I subtract all my costs from all my revenues, to the extent that I have some profit left over, yes, I choose to invest some of my profit in buying some gold for myself, too.
But to say that I'm just telling people to buy gold because I want to get rid of mine, I haven't sold an ounce of gold.
I have more gold today than I had 10 years ago.
Even though we've been selling all this gold, I'm not selling my gold.
I'm still buying gold.
Just like I'm advising other people to do.
Buy gold, buy silver.
I'm buying gold stocks.
And yes, over the last few years, gold has gone down.
Gold mining stocks have gone way down.
And so I would have been better off personally, and certainly people would have been better off personally not having bought any a few years ago and buying it all right now.
But that's easy with the benefit of hindsight.
We didn't have the benefit of hindsight two or three years ago to know that we would have this bigger correction.
But we're fortunate enough to be able to take advantage of the correction.
Because I've never advised anybody to go all in.
Hey, put 100% of your money.
I have 5% or 10%.
And of course, as the price of gold goes down, well now, if you had 5% to 10% of your money in gold three years ago, well now the price is down.
You don't have 5% to 10% anymore.
So buy more.
Take advantage of the fact that gold has gone down.
And take more of your earnings and more of your wealth.
It's an opportunity.
Because I don't think it's going to stay down.
And I think the fact that gold went down before it ultimately takes off It's just going to allow a lot more people to get on board who didn't have any gold at all to buy some, and it's going to allow some people who already bought some gold and silver to buy some more.
Well, and of course, you don't have to sell your house to drive up the value of your house.
You just have to make your neighborhood more desirable.
So the fact that you're stimulating demand for gold helps your gold holdings as it helps the gold holdings of your clients and so on.
You know, don't overestimate my ability to influence the market.
The people buying gold from me, it's such a small percentage.
I mean, what really sets the price of gold are the speculators in the futures markets.
I mean, they're trading so much gold.
Of course, they're trading non-existent gold, right?
You have people who don't even have gold selling it to people who have no intention of actually buying it.
But all that activity dwarfs what's happening in the physical market, but the price is being really set in the paper market.
So I don't think anything I've ever said or done has influenced gold by even 10 cents on a given day.
So I'm not trying to talk it up, right?
I'm not trying to tout it so, you know, no.
But I want people to be prepared.
I believe that gold's going to go way up, regardless of what I say.
Even if I never existed, if my precious metals company never existed, Gold's going to do what it's going to do.
I'm going to have no effect on the gold market, but I think I'm going to have an effect on people who own gold who might otherwise not have owned it, but for the fact that they heard me and I got them to do some research and to do some understanding, and they came to the same conclusion as me that they should own gold and they buy it before the price goes way up.
Alright, well thanks Peter.
Always a really great chat.
Why don't you just hit my listeners with your websites in case they want to pursue your thoughts and advice further?
Well, you can see for precious metals, it's shiftgold.com.
For people who want to get into stocks around the world, you want to invest in countries that are in better shape economically.
They have lower taxes, fewer regulations, standard monetary policies.
Countries like Singapore, New Zealand, Switzerland, Hong Kong, there are places that we're investing.
If you're interested in owning stocks and bonds there, also gold stocks, you can go to Europe Pacific Capital's website.
It's europac.com.
E-U-R-O-P-A-C dot com.
EuropePAC dot com.
If you're a Canadian and listening, you know, there's EuropePAC dot C-A, my Canadian broker dealer.
And if you're anywhere else in the world, it's my bank, Europe Pacific Bank, EuropePACBank dot com.
We provide a whole range of investment services, including the world's first and only gold and silver backed debit cards, which allow you to spend gold and silver if you want to, the way you would spend euros or pounds or dollars.
So we have that program offered at Europe Pacific Bank.
And again, I'm not doing my radio show anymore, but SchiffRadio.com is hosting my podcasts.
I do those a couple times a week when I can.
I do my video blogs on my YouTube channel.
So you can certainly follow me, Schiff Report, on YouTube.
You can go on my Facebook page.
You know, I remember you're doing something, because I remember a couple years ago, you know, I had a lot more YouTube subscribers than you did, Stefan, and you just blew by me at some point.
I mean, I used to have twice as many people subscribing to my YouTube channel.
Now I think you've got twice as many people subscribing to yours as subscribing to mine.
So you've done a good job.
You just need to do more shows topless.
I think that's the key.
It's just putting all your pride to one side and shaking it all up.
Well, thanks again.
Always great to chat with you, Peter.
We'll do it again soon, and we'll put all the links if you want to follow Peter's stuff below.
