Jan. 13, 2016 - Freedomain Radio - Stefan Molyneux
54:45
3176 Obama’s State of the Union Address | Peter Schiff and Stefan Molyneux
United States President Barack Obama delivered just his final State of the Union address – but unfortunately the facts don’t serve his fictional narrative. Stefan Molyneux and Peter Schiff go through Obama’s address and discuss the state of the economy, the stock market crash, misleading unemployment numbers, the illusion of job creation, Federal Reserve interest rates, climate change talking points and much much more!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.com
It's Stefan Molyneux from Freedomain Radio, back with a good friend, Peter Schiff.
Now, we're going to talk about Obama's State of the Union.
Now, Peter stared the Medusa straight in the face and watched the thing.
I confined myself to transcripts because, for me, Obama's sort of monotonous, juggiered, hypnotic speaking style sort of reminds me of the snake in the jungle book.
So I can't stare directly into his eyes.
I get those, like, spiral vortices and lose my soul to socialism.
So Peter had the direct, full-on frontal experience, I assume, without much medication other than a couple of scotches.
So We're going to chat about the State of the Union and also a little bit about what the Fed's doing and what the economy looks like coming up for those of you with portfolios who are currently enjoying these shrill screams of your stock prices going up and down.
This might be worth hanging in for.
So just a note about where you can find Peter's vital statistics, as you probably know, financial broker and dealer, author, frequent guest on national news.
He's the host of the Peter Schiff Show podcast, CEO of Euro Pacific Capital, chairman of Schiff Gold, Schiff Gold, S-C-H-I-F-F-Gold.com, Schiff Radio.com, and Europac, B-A-C.com.
Good to chat with you again.
Thanks for having me on your podcast.
So what were your thoughts about the state?
It's his last State of the Union.
He opened with a joke, which I can't imagine Churchill doing.
But, you know, he's like the Lounge Act.
What did you get out of his State of the Union?
Well, he opened with a joke.
He closed with a joke.
The entire State of the Union address was one big joke.
Unfortunately, the joke's on the United States.
But, you know, completely clueless as far as I'm concerned.
Probably the most clueless State of the Union address ever delivered.
You know, at least when George Bush...
He delivered his final State of the Union address in January of 2008.
And of course, this is the year where everything fell apart.
While he didn't come out and, you know, and say, look, we're about to have a crisis, he at least acknowledged that the economy was slowing, that there were some problems, that the voters, you know, were rightly concerned, and that he was trying to do something about the economy to try to stimulate it.
But Barack Obama tried to pretend that everything is great, that we have this fantastic economy that's the envy of the world, it's the strongest economy in the world, we've created all these jobs, everything is fantastic, and the reality is it's a disaster.
Voters know that.
The public knows it.
That's why Donald Trump is so popular, even among Democrats.
Apparently 20 percent of Democrats say they vote for Trump.
And the reason guys like Bernie Sanders are so popular, because the economy is rotten.
Most people know it.
And Barack Obama was trying to convince people that they're wrong, that if you think the U.S. economy is in decline, there's something wrong with you.
And he tried to say, look, the only thing is the economy is changing.
Like, what's changing?
There's nothing changing, except that it's getting worse, unless you want to count getting worse a change.
Now, he says that he cut the deficit by 75%.
Actually, he referred to it as plural.
But as far as I remember, didn't he blow up deficit spending just as he got in office and then blamed it, of course, on Bush?
So the fact that he's cut his wildly inflated deficit seems to me like, you know, if I double my drink intake from five to ten scotches a day and then say, well, I'm back down, I mean, it's...
It's still high, and I think that would still have lost a lot of people.
You know, there's a Yiddish word called chutzpah, and if you look it up, the classic way to explain chutzpah is a guy's on trial for murdering both of his parents, and he pleads for mercy to the jury on the grounds that he's an orphan, right?
So I think we can replace it with Barack Obama, because Barack Obama actually If Trump has doubled the national debt, by the time he leaves office, it will have doubled under his presidency, which would mean that Barack Obama would have added more to the national debt than every president from George Washington to George W. Bush.
Yet he's got, you know, the audacity to come out and state That he cut the deficit.
He's going to claim credit for reducing deficits when he doubled our national debt.
Now the national debt is simply the sum total of all the deficits of the eight years of his administration.
So how much deficit cutting could he have done if he took an enormous national debt that took 200 and some odd years to accumulate and then he doubled it in eight?
Well, I assume that he's relying on the American voters not knowing the difference between debt and deficit, right?
Deficit, of course, is the deficiency in this year's spending.
Debt is the accumulation of those deficiencies.
So maybe in some people's heads, he's cut the debt by 75% if they don't know the numbers.
And of course...
As this great recession resumes, that was temporarily interrupted by the Fed, but I think it's resuming now and we're either already back in recession or we soon will be, these deficits are going to explode again.
And of course, if the Federal Reserve actually followed through with its threats to raise rates, That alone would increase the deficit because we'd have to borrow more money to pay the interest on all the money we borrowed, not only during the Obama presidency, but in all the presidencies before that, because all that national debt has been rolled over, and instead of it being in 30-year bonds, it's in T-bills.
Now, when he talks about the unemployment rate being 5%, I mean, I'm surprised that the sort of monitor doesn't break with a sort of Pinocchio nose impact on the glass screen, but how would you unpack that number?
I mean, it doesn't even pass the smell test for me, but I know you've got more details about how that number may be rigged a little.
Yeah, no, I'm surprised, you know, usually the State of the Union addresses are interrupted by applause.
I can't understand why there wasn't laughter when he started talking about this great jobs recovery that he created.
Look, the main reason that the unemployment rate is down, well, there's two reasons.
One is that people have left the labor force in droves.
Millions and millions of people that were in the labor force are no longer there.
And it's not because they retired.
That's the myth.
Labor force participation is at a record high for people 55 and older.
The people who are leaving the labor force are in their 20s and 30s and 40s, especially men.
The labor force participation rate for men has never been this low in the history of the republic.
It has collapsed under the Obama administration.
And the other reason that so many people have jobs is because a lot of the older people who were retired when Obama was sworn in now have jobs.
Now, they don't want those jobs.
But they need those jobs because they're too broke to afford to stay retired.
And of course, because of Obamacare, Obama has destroyed so many full-time jobs that the part-time jobs needed to replace them are more numerous than the full-time jobs he destroyed.
So yes, he's created all these jobs for waiters and bartenders But the problem is, a lot of these people don't want these jobs.
They have college degrees.
They have lots of debt to prove it.
And now they're waiting tables, thanks Barack Obama.
They are not happy to have these jobs.
And also, you know, you have a lot of people who used to have one job, but now they have two or three.
But they're making less money than they used to make when they had one.
But he's just keeping score by the numbers, right?
So I used to have one good job, and now I have three lousy jobs.
That's plus two.
And Obama's taking credit for that.
Well, I mean, the recovery is the slowest, of course, since World War II. Labor force participation, the lowest around wages.
The stagnation in wages combined with, I think, a well-veiled inflation.
Household incomes are still not back to where they were before the recession.
And young people, I mean, according to polls, are just increasingly saying we're screwed for the future.
We have nothing to look forward to.
And that's catastrophic.
The savings rate has collapsed.
Real wages have collapsed.
Homeownership is at a 50-year low.
Rents have gone up almost every year of the Obama presidency much faster than wages.
You know, if Barack Obama were not president, if, let's say, some Republican had been president for the last eight years, Barack Obama would be the biggest critic of this administration because the average American, and particularly the poor, the minorities, have been decimated.
By this Obama recovery.
And so he is covering this up and trying to pretend that everything is great.
But the reality is it's lousy.
And people forget no president has had more help from the Federal Reserve than President Obama.
We have had more monetary stimulus under his term than anybody else.
So this is all artificial.
It's like we feel good because we've had more drugs.
You know, we have more from the Fed.
They've got us all high as a kite on all these drugs.
Much more so than what we had under the Bush administration.
And so the payback for this, right, the payback for what the Fed did under Bush was the 2008 financial crisis.
Well, the payback for what Bernanke did under Obama is going to be on an order of magnitude greater.
But in the meantime, Obama is taking credit for the high, but he's going to deny responsibility for the hangover, which is coming soon.
So he said, and this is more for the listeners who don't know this history, which we've talked about before, but he said, food stamp recipients didn't cause the financial crisis.
Recklessness on Wall Street did.
Now, there's a great analogy that's been put out, which is saying, you know, like greed on Wall Street, recklessness.
Well, Wall Street has always been greedy and always been reckless, just like all human beings do.
Tom Woods said that blaming the financial crisis on greed is like blaming an airplane crash on gravity.
Gravity's always been there.
Something else must have changed.
So when he says stuff like, well, it wasn't food stamp recipients, it was Wall Street recklessness.
Of course, he's class baiting and trying to get people to hate the Wall Street fat cats who blah, blah, blah.
You know, for the still probably hungover remnants of Occupy Wall Street, he's playing to that base.
How would you push back against that characterization?
Yeah, well, you're right.
I mean, people in all professions, not just Wall Street, everybody is greedy, right?
I mean, we've had greed, you know, all along.
But in a free market, greed is generally tempered by fear.
I mean, people want to make money, but they don't want to lose money.
You have these counter-balling forces.
But the reason that Wall Street greed got us into so much trouble is because of the Fed, because of the president, because of the government.
What happened was Alan Greenspan lowered interest rates to artificial levels to encourage speculation.
He also came out with the concept of the Greenspan put, meaning, hey, I've got your back.
If anything goes wrong, we'll just print even more money to bail you out.
And then you have the government encouraging reckless behavior through the tax code, through the regulations, the moral hazards surrounding government guaranteed bank accounts.
People act recklessly when the government removes the negative consequences from their behavior.
I mean, now even more so with all the too-big-to-fail ideas.
And so all the recklessness on Wall Street is because of recklessness in Washington from the Fed, from the Congress, from the White House.
So if you're going to blame the financial crisis on Wall Street, you've got to pin the blame on what caused Wall Street's reckless behavior in the first place, which is the very same policies that Barack Obama has embraced and the very same monetary policies that first Ben Bernanke and now Janet Yellen have embraced.
So the next crisis that's coming that's going to be much worse than the one in 2008, it's got the same cause.
But, of course, the people that caused it are going to try to point their fingers at the so-called, you know, fat cats on Wall Street so they can make up more excuses to take over more control of the economy and take more of our money.
Yeah, no, nothing breeds the expansion of power like credible scapegoats because then you always end up missing the target of what is causing the problems because they can get you to attack a shadow rather than the grim statues that are casting the shadow.
And also, I would argue, and I've done this before on a podcast, that What was called the Community Reinvestment Act or the idea that minorities were disproportionately underrepresented in home ownership.
The government passed a lot of legislation pushing banks to provide housing loans and get people into houses who were eminently unqualified should interest rates change, a lot of variable rate mortgages and so on.
And so, you know, some of the race baiting that Obama is kind of famous for, which he alluded to, I think, later in the speech, given that race relations in the U.S. are at the lowest ebb in decades.
I think that that kind of race-baiting as well, like, well, the only reason that blacks aren't getting into houses is because banks are racist, even though the black banks actually gave loans to blacks at lower rates than other banks.
I think that kind of race-baiting is causing a lot of economic problems as well.
Well, it also shows the hypocrisy, because on the one hand, Obama will say that, well, people on Wall Street is greedy, right?
The bankers are all greedy.
Well, if they're so greedy, why don't they make loans to black applicants, right?
If they just want money, why aren't they making these loans?
Now, is it that they're more racist than they are greedy?
So even though they see a profit opportunity, they don't want the money because their racism is stronger than their greed?
I would imagine if there's a racist banker, his greed takes priority to his racism.
And he's going to You know, he's going to make a loan anyway if he thinks he can make money, even if he happens to loan money to somebody who's black.
No, the reality is the reason those loans weren't being made was because they were bad loans, because the applicants were not creditworthy.
It wasn't because they were the wrong caller.
They just didn't have the wherewithal to repay the loan.
So the fact that a disproportionate number of black applicants were being turned down was a good thing.
It was a good thing that people who couldn't borrow money were turned down for loans.
But when the government encouraged banks to loan money to applicants who had no ability to repay it, that was bad for everybody, including the people who borrowed money that they never should have borrowed in the first place.
The banks were protecting people from making bad decisions, yet the government was encouraging people to make those very bad decisions because they wanted to sound like, you know, they were more racially tolerant.
But the reality was they were the ones that were hurting blacks, not the banks.
Oh, yeah.
I mean, the relationship between the Democrats and in particular blacks, but other minorities, to me, the Democrats sell the black community in particular down the river, because the inner cities have such terrible schools, largely because the Democrats don't want to give up that steady drip, drip, drip of donations from the educational unions, the government teacher unions.
And so they don't want to have We're good to go.
Oh yeah, and then of course when you oppose what they're doing in education, you're anti-education, you're anti-kids, which ignores the fact that the current government system is a complete failure and it costs a fortune.
The free market alternatives that people like me, people like you, espouse, these would actually solve problems.
These would actually bring down the cost of education while dramatically improving the quality of education, particularly for the people in the inner cities who disproportionately are minorities.
Oh, yes.
It's heartbreaking videos.
I think it was called Waiting for Superman, where you see minorities desperate to get their children into any kind of charter school.
And the commitment of the parents to wanting their children to get a better education is just heartbreaking to see relative to the options that they have in government schools, which, you know, are reasonably characterized as educational prisons with metal detectors designed by the same kind of people who design prisons and fears of violence and so on.
I mean, they really are monstrous.
Oh yeah, and everything that we get that we like, you know, is provided to us by the private sector.
I mean, would you want to buy your cell phone or your laptop computer from the army or from the post office?
You know, no.
I mean, all the things that actually work well, that we're happy with, we get from a private company.
And you'll notice that when the private sector is providing something, the quality keeps going up and the price keeps coming down.
And that's a good thing.
But when something comes from the government, it's the reverse.
The quality keeps going down and the price keeps going up.
Now, he talked a lot about clean energy and I don't know, like this leftist policy or habit of just stitching together nice sounding words and then daring anyone to contradict them.
No child left behind.
I oppose that.
What do you want children left?
This kind of stuff.
So clean energy, the results, at least from what I've read, seem to be pretty catastrophic in that a vast majority of these sort of clean energy loans and grants went to very well connected friends of Obama and their friends and so on.
And a lot of them have kind of gone bankrupt and there's been a huge amount of capital wasted.
But he put this forward, this clean energy thing as a massive success while of course not citing any particular individual success within that paradigm.
That's all about just hitting the key talking points of their constituents to make sure he nods to the global warming crowd.
You know, yes, climate change is the greatest threat facing mankind.
No, it's not.
I mean, the greatest threat facing mankind is government.
You know, maybe the climate is changing and maybe it's not, but if it is, it's got nothing to do with us and we can't stop it.
But what we can stop is the man-made problems coming from our own government.
That is the immediate threat to people, not just in America.
Big government exists all around the world and is creating poverty all around the world.
It's preventing private individuals or free market from lifting people out of poverty.
So we need to deal with the threats that we can actually do something about Not just pretend that, you know, the globe is collapsing and Obama and his liberal buddies are going to save the planet.
Now, he really got heavy on military spending and so on.
He was really sort of chest-thumping.
And talking about how America is so powerful, and literally said with a straight face that no nation dares to attack us or our allies.
Now, using the word nation, I understand, but that's not how war works anymore.
War is all guerrilla.
It's all infiltration.
I mean, it wasn't like the resistance against the occupation of Iraq.
They didn't sort of wear uniforms and march like a Roman phalanx.
They blended in with the population.
So yeah, nations don't dare to attack, but I'm imagining that national attack to America or its allies is any kind of threat when they all have nukes and giant navies and air forces and so on.
But he doesn't talk about anything else.
Hours before the speech, 10 US sailors got snatched by Iran.
And then they apologized in order to get them back.
I mean, that's the kind of attack I think that they need to worry about, what happened in Iran.
In Cologne and New Year's Eve, what happened in Paris late last year.
Of course, no nation is going to attack us.
I mean, no nation has attacked us in decades.
I mean, we've been attacked by terrorists.
But yeah, no nation is going to be dumb enough to pick a fight with the United States.
I mean, no government is going to do that.
I mean, why would they?
And it's not because of anything Barack Obama did.
But look, terrorism is there.
It's alive and well.
And our government policies have been feeding it.
But, you know, If a country wants to bring us down, they don't have to fight us in a war.
You know, I mean, they can do it financially.
I mean, we're dependent on the world, you know, for all the money we borrow, for all the consumer goods that we import.
So people can hit us in our wallets, you know, in our standard of living.
They don't have to try to take us on on the battlefield.
Economic collapse comes, but I think it's very close.
It's not going to matter how big our military is.
We're not going to have the resources financially to utilize it.
We're not going to be able to mobilize the troops because we're not going to be able to afford to pay the cost of it.
So we're just going to completely collapse militarily just like the Soviet Union did.
And then we'll see if a nation wants to attack us when we're very vulnerable.
But in general, I mean, there's no upside to war for anybody.
So that's why generally nations don't want to do it.
Well, I mean, that certainly the governments like war and the people who make money off war through the government like it as well.
Now, there's something that he talked about.
I mean, I've heard these statistics that, you know, 50,000 jobs a month were destroyed over the past decade or so in the manufacturing sector.
But Obama seemed very bullish on the manufacturing sector in the United States.
He says it's created nearly 900,000 new jobs in the past six years and so on.
And I don't know how to square that circle.
I mean, how is it possible that these two facts can be true?
Unless they count, you know, making hamburgers as manufacturing.
I mean, maybe that's what he's talking about.
But manufacturing has been decimated during his presidency.
We've lost millions of manufacturing jobs.
You know, now we've replaced them with, again, you know, bartenders and waiters.
I mean, I think bartenders and waiters maybe outnumber factory workers now.
That wasn't the case eight years ago.
And a lot of people have gotten jobs in government, in healthcare, in education.
But we've lost goods-producing jobs across the economy, and that's going to continue.
But you know, a lot of these low-paying service sector jobs, we're going to lose those too.
You know, once this next recession resumes, I think a lot of the people that were hired over the last several years were hired erroneously.
They were hired by companies who were under the mistaken belief that there was a recovery coming and not another recession.
And just like we have huge inventories, you know, the inventory to sales ratios now are the lowest they've ever been since the Great Recession.
In fact, they're never this high unless we're in a recession.
So businesses loaded up on a lot of merchandise that they thought their customers could afford.
But the reality is they can't.
So all this stuff is, you know, gathering dust on the shelves because people aren't buying it, including now the auto bubble, which has popped.
You've got a buildup now of cars on the showroom lots.
They're starting to come down.
So I think just like businesses bought too much inventory, they hired too many workers and they're going to be, you know, laying off a lot of people.
Plus, you know, a lot of states were dumb enough to raise the minimum wage this year.
And more states and localities are threatening higher minimum wages.
So you've really created increased incentives for employers of low-skilled workers to automate and outsource.
And so this trend is going to be accelerating by those policies.
So there's a lot of layoffs coming, I think, in 2016 and 2017.
And a lot of them are not going to be in the manufacturing sector.
In fact, manufacturing might actually turn around here in the next couple years.
It's going to be the service sector that's going to start hemorrhaging jobs.
Well, and I think people underestimate the degree to which the economy has been sustained, not only of course by the massive amount of money printing going on at the Fed and the low interest rates, but the degree to which Americans are relying on credit to sustain their lifestyle.
Oh, yeah.
And whether either they're relying on it directly because it's their own credit, right, where they go out and take out a loan, whether it's a student loan.
And, you know, a lot of these student loans and, of course, the student loan bubble has blown, you know, through the roof since Obama nationalized it.
But a lot of these student loans are not going for tuition.
They're going for rent.
They're going for utilities and food.
But people are living off of credit or they're taking out, you know, credit card loans or, you know, mortgages or home equity loans.
But the people who are on welfare, people who are just collecting money from the government, even if they're not borrowing money themselves, the government borrowed that money to give it to them.
So all this government spending is being financed by debt.
And what about all the stock market rally the last couple years?
That's financed by debt, too, because corporations have borrowed all the money to buy up their shares.
But meanwhile, they haven't been using money to invest in plant equipment, in modernizing, in research and development.
So they've sacrificed their future growth in order to go into debt to buy up overpriced shares.
So the whole economy is loaded up with debt.
Well, and the degree to which I think America is consuming its prior accumulation of capital.
You know, when you talked about the young men who were no longer in the workforce, they dropped out of the workforce.
Well, where are they?
I assume they're living in their parents' basement.
But that's a way of having their parents pay their bills, consuming prior...
I can't remember the number off the top of my head, but some huge proportion of Americans have less than like $100 in the bank or $500 in the bank.
And they're operating without a net.
Like one thing goes awry.
Like literally, oh, I have to get my tires replaced or a car needs to be fixed or I got a hole in the roof.
I mean, they're done.
Yeah, it's not that they just don't have money saved for retirement.
I mean, they don't have money saved for everyday emergencies.
They have no rainy day fund.
And in fact, they're already maxed out on a lot of their credit cards.
In fact, the way a lot of Americans live is they look in the mail for a new offer where they can transfer their balance to some other card that's going to give them a better deal.
And so we're all just one Credit card statement away, let alone paycheck to paycheck.
So yeah, this whole thing is one gigantic bubble, which is why the last thing the Fed wants to do is raise interest rates in an environment where everybody is loaded up with debt, and even a tiny increase in the cost of servicing that debt is enough to, you know, collapse everything.
I mean, why do you think the stock market is cratering just based on a quarter-point rate hike?
I mean, rates are still ridiculously low.
The problem is they're not as ridiculously low as they were.
If you are a heroin addict and you are used to this massive amount of heroin, and then your pusher cuts you back a little bit and he still gives you a bunch of heroin, but not as much as you're used to, that's still going to give you a violent reaction because you need what you need.
You need your fix to stay high.
And so now that we don't have 0% interest rates anymore, even though they're still low, they ain't low enough.
And the fact is, the Fed is threatening to raise them some more.
And that's what's really causing a problem, because the markets are starting to factor in those higher rates right now.
Well, yeah, the degree to which the financial sector has over the past six, seven, eight years, the degree to which it's adapted itself to basically zero percent interest, you could even argue negative interest rates, that huge amounts of capital and human resources and practical abilities and everybody's adapted themselves to this particular environment,
And the degree to which then the Fed can just change that environment without exposing that massive misallocation of capital, I think, is going to really startle people.
Yeah, and if you think about what Greenspan did, you know, he brought interest rates down to 1%, and they were only there for about a year, year and a half.
And then he raised them, you know, slowly, but over a couple of years, back up about 5%.
So we normalized.
But what Yellen did, or Bernanke and then Yellen, Not only did they lower interest rates to zero, but they told everybody that they were going to stay there for a long time.
And so that gave people the confidence to do things that they wouldn't have done if they weren't sure how long rates would stay at zero.
They would have been a little nervous.
Hey, maybe I shouldn't do this because the Fed might raise rates.
But Bernanke and Yellen said, don't worry.
Make all the stupid, irrational decisions you want.
Lever up completely because we've got your back for a long time.
And so this has been a party that's been going on recklessly for seven years.
And yes, Wall Street is way more reckless now than it was under Bush.
But it's not because of the inherent greed of the people on Wall Street.
It's because The Fed has upped the dosage of this monetary heroin, and so it's got these people high as a kite, much higher than they were before, and the things that they've done in this environment are far worse.
And so the U.S. economy, as screwed up as it was in 2008, and that financial crisis was the market's cure for that problem.
The market was trying to fix All the mistakes that were made while rates were too low.
And that's a painful process.
But now far more mistakes were made because rates were much lower for much longer.
And more importantly, the borrowers were reassured that the rates would stay low for a long time.
The mistakes that we've made dwarf the ones that were made during the housing bubble.
And so the market's fixed.
The correction process is much deeper and much more painful because we've dug ourselves into a much deeper ditch.
And you can thank President Obama.
He presided over it.
And you can thank the Federal Reserve.
Well, I mean, if you and I are in Vegas, and we had dinner there a couple of years ago, we go to a casino, and I know you've got this terrible gambling habit, you know, in this theoretical scenario.
And I say, Peter, don't worry, man.
I'm going to cover all your losses.
You get to keep all of your winnings.
And then you go crazy gambling.
I mean, who's going to blame you?
It's the environment.
It's the situation.
And, of course, in this case, it's the addiction to power that drives this stuff.
Yeah, I mean, the government creates this moral hazard.
They create these incentives.
I mean, this was going on in real estate when they were encouraging, you know, low down payment or zero down loans.
I mean, sure, people will gamble with somebody else's money because they've got nothing to lose and everything to gain.
But that is something that is a creature of government.
It's not a creature of the market.
The market would never create something like that.
It takes government to stack the odds so much in one direction.
So let's talk a little bit about some of the stuff we touched on over the conversations for the last year, Peter.
And one, of course, was that your position, if I remember it correctly, was something like this.
The Federal Reserve at some point is going to have to raise interest rates because when they keep interest rates down at zero, they're openly admitting to everyone on the planet with a computer.
That the American economy is terribly weak.
And so it's going to get hard to sustain the fantasy that the American economy is improving if they have to keep the interest rates at zero.
On the other hand, if they raise interest rates, they will reveal the structural underlying weaknesses of the U.S. economy by showing the kind of stuff that showed up in the stock market since the New Year.
So I wonder if you can talk about that a little bit.
Yeah.
So what I said, the middle ground that the Fed was walking to try to have their cake and eat it, too, was to keep talking about raising interest rates as if they were actually going to do it, right?
Keep pretending the economy was strong enough for a rate hike, but not actually raise hikes.
Raise rates and then prove that it wasn't.
And in fact, that is exactly what they did for all of 2015 until the very last minute, until the last meeting of the year.
Now, the Fed had been bluffing, in my opinion.
They had been talking about how they were going to raise rates before the year was over because the economy would be strong enough.
But they didn't do it in June.
They didn't do it in September.
They didn't do it in October, November.
Here it came December.
There were two weeks left of the year.
And if the Fed didn't pull the trigger, the markets were going to start to worry, hey, wait a minute.
What does the Fed know?
Maybe they weren't being candid or maybe the Fed was wrong.
They thought the economy would be strong enough for a rate hike, but it must not be because they didn't hike rates.
So the Fed, I think, symbolically raised rates.
To prove that the economy was strong enough to handle it, even though they probably didn't want to do it.
And what I said all along, because people are trying to say, oh, Peter Schiff, see you were wrong.
You said the Fed wasn't going to raise rates.
That's not what I said.
I said I didn't think they would raise rates, but it was possible that they could.
But what I said was if they did raise rates, they would regret it, because the next thing they would probably do is cut them back to zero, and then they would look like complete fools.
And I thought the Fed would have been smart enough not to want to put itself into that predicament to have to reverse course and then look like they got it wrong.
I thought they would have rather kept them at zero.
And then when the economy turned down on its own and the markets turned down, they could have looked smart.
They could have said, well, see, it's a good thing we didn't jump the gun.
Because, you know, the economy turned back down and we need more stimulus.
When they have to go back to zero and launch QE4 after just, you know, basically declaring the patient healed and raising interest rates and say, hey, everything is great, and then they have to cut them right away.
They're going to look ridiculous.
Now, they're going to try to come up with some excuse as to why nobody could have known this and everything was fine, but something happened in China or something happened with oil or something happened somewhere in the world.
But they're going to find something to blame it on so that they can try to save face.
But I don't think the markets are going to buy it next time.
Oh, and this little rate hike, a quarter was a quarter point they did, right?
Yeah.
I mean, that's like if we did a graph recently on this show, we did all historical interest rates and it's like crash, crash, crash, and then bink, like a tiny little, tiny little bit up.
You know, you talked about Greenspan going from one to four.
That's 16 times a bigger rate increase.
And the market absorbed that.
And now you've got the worst opening of the stock market in history for a new year based on...
This is how hypersensitive...
It's become this weird hibiscus that can't survive out of like a quarter of a degree temperature.
Yeah, and that's exactly what I said.
I warned.
I said, if the Fed...
Made the mistake of raising rates.
And of course, I don't think it's a mistake to raise rates.
I think they should raise them a lot more.
But I also know that it's going to bring on another crisis.
But the crisis is part of the necessary healing process.
But most people think, oh, the Fed could just raise rates because everything is great.
No, everything is a disaster because they lowered rates.
They never should have cut them in the first place.
So we've got to raise them.
But from the Fed's perspective, right, what they're trying to pull off here, this con...
I knew that it would be a mistake for them to raise rates because I knew that if they raised rates, the stock market would tank.
And I said that.
I said that on every show I was on.
If the Fed raises rates, the market's going to go down.
And I remember some guys were making fun of me on TV because the day they raised rates, the market went up.
And they said, oh, you see, Peter, you're wrong.
I said, what do you mean I'm wrong?
It's one day.
I mean, you've got to give it a- Long view.
Long view.
You've got to give it a little time here.
I said, just wait.
The market's going to go down because of this rate hike.
And another thing I said would happen, I said gold was going to rise if the Fed actually raised rates, because that was the one thing everybody said, well, if the Fed raises rates, gold's going to get killed, right?
Well, gold's actually up about $40 since they raised rates.
The price of gold has actually started to rise because I was saying that, hey, the gold market had discounted the rate hike for the last few years.
Everybody was worried that higher rates would hurt gold, but nobody was worried that higher rates were going to hurt stocks.
But the only reason that stocks went up was because of the Fed.
This was a bubble created by the Fed.
And if you have a market that lives by QE and 0% rates, it dies by it as well.
The minute you take away the props, everything that was supported by those props comes crashing down.
And that's why the market's going down.
And I think the market's going to keep going down until the Fed capitulates, admits somehow that they have to stop raising rates, and they come back with another round of quantitative easing.
And that'll put a cushion beneath the The market, a floor beneath the market, but that's going to crush the dollar.
Because to save the market, they have to sacrifice the dollar.
And that is the real crisis that I think is coming this time.
It's not just a currency crisis, it's a dollar crisis.
And the fact that the dollar has risen so much in the last few years is just going to make that crisis that much more spectacular because the dollar is going to have a much bigger fall because it's going to start from a much higher level.
Well, yeah, and I would argue that the price of gold is going up not just because the Fed raised the rates, but because the Fed raising the rates exposed such an underlying weakness in the U.S. economy that people are looking for something more tangible as a value.
Yeah, and people are still in denial.
They still don't get it.
But, you know, this is how it was when the dot-com bubble burst in 2000.
People didn't get it then.
They thought it was contained to the dot-coms.
And then, of course, a year later, the S&P rolled over and the Dow rolled over and we were in recession.
And then the same thing happened when the real estate bubble burst.
They said, oh, don't worry.
It's contained to a subprime and it's not going to affect the overall economy.
And they were wrong then.
And now they're wrong again.
They're saying, well, it's contained to manufacturing.
It's contained to China.
You know, it's contained to oil.
Whatever they want to blame it on, it's not.
This is a huge problem, and the powers that be are dismissing it, they're rationalizing it, and of course they have a vested interest to do that, but it's all going to collapse again, and then when it does, it's going to be, well, nobody could have predicted this.
Gee, this is totally out of left field.
It must be too much reckless greed.
We must need more regulations.
We need to give more power to the Fed.
That's what they're going to blame it on.
Right, right.
Now, as somebody I know you know, Mike Maloney was on this show recently, and he was talking about I'd like to expand upon this, because I think for my audience and your audience who's interested in sort of physical ownership of gold, paper contracts for gold versus the actual amount of gold available for physical delivery.
I mean, the ratios there seem to be like completely mental.
I wonder if you could help people understand...
That having the piece of paper is not quite the same as having the thing itself.
I mean, gold is pretty scarce as far as elements go, as far as resources go.
It's very scarce.
That's one of the reasons that it's so valuable is because there's not a lot of it.
But there's a lot of paper, right?
There's no limit to how much paper they can create.
And so there's the physical market for gold, which is what I deal in at Shift Gold.
We sell people actual gold.
We have to take the gold bars or coins, put them in a box, and actually deliver them to our clients, right?
So we have to actually have gold.
But most of the gold that is traded doesn't exist.
It's just a piece of paper.
It's people betting on the direction of gold.
And you have at least 10 times people betting on where gold is going to go.
They're actually buying and selling gold.
But here's the key.
When somebody buys a contract for gold, they buy gold, the person who sold them that contract, even though they don't have any gold, Technically, they are obligated to deliver the gold if the person who bought the contract decides he wants delivery.
Because all these contracts are deliverable, except nobody ever takes delivery, right?
So people are buying the gold that don't actually want it, and the people who are selling the gold don't actually have it.
But what happens if people who actually want the gold end up buying these contracts?
And then when the contracts mature, instead of just rolling it over to some other contract, they just send a notice to the other side that they want their gold.
Well, where is the other side, where is the short going to get that gold?
It doesn't exist.
So when all the people who have sold gold contracts that have no gold have to try to buy gold to deliver to the counterparty who now wants this gold, the price is going to skyrocket.
And this is going to happen eventually.
The fact that it hasn't happened already, you know, it's just a matter of time.
I mean, this is an accident waiting to happen.
And, you know, what's the expression, Murphy's Law?
Anything that can go wrong will go wrong.
This can go wrong, and it definitely will.
Yeah, it sort of reminds me that's a very old Steve Martin bit.
I think it's from the 70s or 80s where he's trying to impress some woman and he's pretending to be this pickup artist and he says, you know, yeah, I bought cardboard when it was only two cents a ton.
I bought six tons, you know, so let me see.
That's a lot of money.
And I had a special deal where I only had to keep four tons of it at my house.
You know, the degree to which this stuff is actually real is very much overestimated.
It is a lot of paper chasing very little actual stuff.
Yeah, and that's why I tell people, buy the stuff.
Don't buy the paper, because you might end up with nothing.
Because I think what's going to happen to a lot of the paper longs is they're going to be told by the paper shorts that they don't have any gold, so, you know, you're out of luck.
You know?
And then they're going to have to scramble to try to buy the gold that they thought that they owned.
But who are they going to get it from?
Well, they're going to have to write a bunch of stuff off, right?
Which means that they're going to have to call in a whole bunch of loans, which is going to stop that whole house of cards going.
Look, think about it this way.
How can the central banks around the world have created all this money I mean, think about the money the Fed has created, the money the Bank of Japan has created, the money the ECB has created, the money the Bank of China has created, all this money.
And the price of gold isn't going up.
It has to because the price of gold simply measures the value of all that paper.
And if you increase the supply of paper, the value of that paper has to come down.
And where you see the decline is in the price of gold because the price of the supply of gold is not going up.
I mean, it's going up very slightly compared to the massive increase in the supply of paper.
Right.
So, the Fed, I think, has threatened, or I shouldn't say threatened, has promised, has given the future opportunity of raising rates about a couple of times over this coming year.
Have they given any sense of the kind of slice they might be upping it by?
Well, they have basically let the markets believe that they're going to be raising rates four times throughout the course of the year.
Now, I don't think they're going to raise them at all.
I think that the raise that they just had was the end of the cycle.
I don't think it was the beginning of the tightening.
I think it was the end of the tightening cycle.
I think the tightening cycle began over two years ago with the taper talk.
When they first started talking about tapering QE, that was a tightening.
And I think they've been tightening the entire time, and now we're rolling over into recession.
But the reason the Fed wants to pretend that they're going to raise rates is so they can pretend they have confidence in the economy.
Because there are Commitment to raising rates that proves that the economy is fine, because everybody says, well, if the Fed is raising rates, then, you know, the economy must be in good shape, as if the Fed is going to be honest.
And in fact, Ben Bernanke was interviewed recently on an economics podcast, and he admitted somebody, the host of this podcast asked Ben Bernanke, because he played him some clips.
Ben Bernanke in 2008 or 7, talking about how the economy was in great shape and how there was nothing to worry about.
There was no housing bubble or whatever.
Maybe it was 2006.
And he asked Ben Bernanke, hey, Ben, how do you feel listening to these tapes now?
Because you were so wrong.
I mean, are you embarrassed?
How does it make you feel?
And what Ben Bernanke said is, well, in my defense, you know, I was speaking as a member of the administration, so I couldn't actually come out and say how bad things were.
So in other words, he said, look, even if I believed things were bad, I couldn't say that.
I had to talk about how things are good.
The Federal Reserve, not only does Janet Yellen think she's a member of the Obama administration and a future member of the Hillary Clinton administration, but she believes that her job is to drum up confidence.
The Fed believes that a lot of the economy is based on confidence, right?
And it's kind of like a field of dreams.
Like, if we build it, it will come.
If we talk up the economy, if we tell everybody how strong the economy is and how great the economy is, well, they'll believe it and they'll act accordingly.
That will alter people's behavior.
But if we tell the truth, if we let people know how bad things are, well, then they're going to start acting that way.
They're going to start preparing for the bad times.
They're going to stop spending.
They're going to lay people off.
So even if the Fed believed we were headed for the worst recession ever, they would be saying it looks great.
Because they don't want to cause the crisis by warning about it.
They want to deny that it exists and they can hope that they can avert it with their optimism.
But by doing that, right, it actually makes it worse because now people are unprepared by the crisis.
People do foolish things because they believe the Fed's propaganda.
And so maybe they hire people they shouldn't hire.
They expand in areas where they shouldn't expand.
And then when they're surprised by this collapse that comes out of left field because nobody warned about it, now they have to do a lot of things.
And it's much worse than had they prepared because the Fed was honest.
But they were too afraid, to be honest.
And that's exactly what's going on now.
And after the experience with Ben Bernanke and the great financial crisis and the Great Recession, why does anybody still believe or give any credibility to anything coming out of the Fed?
If you had a doctor who openly said to you, I'm never going to tell you if you're ill because it's just going to make you upset.
But I want to run all these tests and I want to be your doctor, but I'm never ever going to tell you if you have cancer or anything because that's just going to make you upset.
Would you ever go back to a doctor like that?
Or your dentist who says, I'll never tell you if you have any dental problems.
I'll never do anything preventative.
I'll never drill early into a cavity.
I'm just going to wait until your teeth come out your nose in some sort of tentacle fashion.
I mean, you would never have anything.
So the people who are in charge of your life, your savings, your business, your entrepreneurship, your dreams, your skills, your training, your education, all these people are directly committed to lying to you for the sake of their own political advantage.
And it's not even a hidden agenda.
That's because they need your vote, and because they want your vote, they don't want to deliver the bad news.
You know, they don't want to tell you what it is, so they're going to pretend that everything is great so that they can stay in power.
And maybe even the Fed, you know, because doctors, let's say if a doctor thought you had a disease and it was incurable, If he believed that psychologically, that if you didn't know you were sick, maybe you would live longer, but that if you knew how bad your prognosis is, your state of mind would actually hurt you so that you could see that doctor rationalizing, not telling you how sick you are.
And maybe that's how the Fed looks at it.
Like, gee, the economy's in really bad shape, but we can't let anybody know because then it's going to be even worse.
Except it's illegal for a doctor to know you're sick and not tell you.
They have that Hippocratic Oath, which would be nice.
I want like a sort of Keynesian oath, sorry, a von Mises oath or something like that.
Economists have to say, because of course if you're sick, you want to not waste your time.
Maybe you won't watch season four of Homeland if you know you're going to die in six months.
Maybe you'll go take that world trip you've always wanted to.
You've got to get your affairs in order.
So the idea that you're going to withhold that information even from a sick person while you can at least sort of understand that...
But of course, I wouldn't want a doctor like that.
...is that we've got a disease that's curable, except the cure is unpleasant, but it will work.
But the fact that the Fed is not letting us know how sick we are, by the time we find out, it's going to be too late for the cure.
We're going to be dead.
So...
The people who are listening to this, they're going to go out among the muggles, right?
They're going to go out among the people who get their news from the mainstream media and so on and, you know, they're just cute kittens in the next three minutes and is it going to rain kind of thing.
What speech would you want to put into their mouths?
Because I think now is the time.
It feels, I was saying this the other day, I was on another show, and I was saying, like, it feels like events are kind of accelerating faster and faster and I think this is going to be kind of a make or break year for the future of freedom.
So I'm really trying to encourage people to be proactive.
Don't wait for disasters and then try to explain them away.
But prepare people for what's coming.
Prepare people and have them have the right moral and economic and philosophical and rational framework in place so that when these disasters do hit, they're not surprised, they're not freaking out.
I mean, they may, but at least they'll know the actual causes behind it.
So what kind of speech would you offer people up to make their next dinner party as uncomfortable but productive as possible for those around them?
I know from having had these types of conversations at dinner parties in the 1990s about the dot-coms with a table full of people who owned internet stocks or about real estate back in 2004 and 5 and 6 when everybody but me owned multiple properties and I was renting my primary residence.
Not only did I not own any real estate as an investment, I didn't even own the place that I lived.
And I got into more arguments with more people who had You know, they drank all the Kool-Aid, and the last thing they wanted was, you know, for me to rain on their parade, right?
But I was trying to help people by telling them the truth, and most people didn't want to know the truth.
They wanted to, you know, continue to believe the myth, like, you know, the people in that movie, you know, where they were, you know, the Keanu Reeves movie.
Oh, the Matrix?
Yeah, the Matrix.
I mean, waking up to reality that you're a battery and you're living in this morbid world, it's much better than living in that fantasy world that the computers created.
I mean, it's a much better place to live.
And so people didn't want to wake up.
They didn't want to take that pill and wake up to the reality.
They wanted to stay in the fantasy.
But ultimately, it's a mistake to do that.
And I try to encourage people to do the right thing.
And it's very difficult because...
When I tell people to do the right thing, I'm telling them to do it early.
And the problem that I see gets bigger and bigger as I'm preparing for it.
And so until I'm proven right, the outside world, it looks like I'm wrong.
And sometimes the people who follow my advice for a while begin to question it.
Because when I told people to sell their houses in 2004 or 2005, they kept going up for a while.
Or when I told people to sell their dot-coms in 98 or 99, they kept going up.
And they thought I was wrong.
But eventually, when those stocks went to zero, I was right.
Or when the housing market collapsed.
So this is still a great time for people who listen to your show or their friends to do something now before it's too late.
And believe me, there's not that much time left.
I mean, I'm early, but I'm not nearly as early now as I was a few years ago.
The dollars had this huge sucker rally, probably the biggest suckers rally ever, gives people this one last window to escape, to take your dollars, buy some gold, buy some foreign stocks, invest in places like Switzerland and Singapore and New Zealand, buy up quality assets that are now on sale.
Because of an overvalued dollar, because a bunch of speculators are making the same mistakes they made in the 90s or with the housing bubble, and they bought into this nonsense.
They're going to wake up one day and discover how long they are.
You're going to see a complete collapse.
But by then, it's too late to protect yourself.
You have to be protected in advance.
All right.
Last question.
I'll be in a recession.
Well, I think we're in a depression.
I don't think we've ever had a recovery.
I think it's been a depression the whole time.
And in fact, if you look at a lot of the other evidence of what's going on in the economy, it looks more like a depression than a recovery.
And that's why I think you even see, again, at the polls, you see the types of candidates that are generating so much support.
People are upset because of the environment they're living in.
But I think the government has dramatically underreported The true rate of inflation.
The government has claimed that inflation is practically non-existent, and so this nominal 1% or 2% economic growth, you know, gets counted as real growth.
I think it's really an inflationary illusion.
I think inflation is higher than what the government reports, and therefore the economy is not growing but contracting.
And that's what makes more sense to me.
That squares with the economic evidence because there's lots of economic data that we see now that we've never seen in this country unless we're in a recession.
So it makes sense to me that we are in a recession rather than that all this data that we only see when we're in a recession.
We're seeing it now and somehow the economy is as good as they tell us.
That doesn't make any sense.
But I think even the way the government measures it, the economy may be so weak right now that we may even be in a government statistical recession.
The fourth quarter of 2015, we're going to get the data in a couple of weeks.
I think January 29th is when the government reports it.
The Atlanta Fed is currently forecasting 0.8% economic growth for the fourth quarter, which is barely above zero.
It's possible that the fourth quarter could end up being negative by the time they fully revise it.
I think that even if the fourth quarter is slightly positive, I think the quarter we're in right now, the first quarter, which is starting off with the biggest collapse in stock market history for the month of January, That the first quarter of 2016 is going to be a negative quarter.
So either we're halfway in a recession or fully in a recession, which is why I think that before middle of next year, the Fed is going to have to come out with an economic stimulus.
They're going to have to lower rates back to zero.
They're going to have to do QE4 because the last thing they want is voters going to the polls in November in a full-blown massive financial crisis recession again.
That's going to destroy the entire Obama narrative.
So they're going to have to do something to try to keep the wheels from falling off the bus before November, because Janet Yellen doesn't want to do to Hillary Clinton, let's say, what Ben Bernanke or Alan Greenspan did To John McCain.
I mean, when that bubble blew up, while Bush was still in Dodge, he was still president, it all got blamed on him, and then it was all saddled on McCain.
McCain had no chance.
I mean, it didn't matter who the Republicans.
Now they got a reincarnation of Ronald Reagan.
It wasn't gonna matter, based on the baggage that the Republican carried, because that bubble blew up on George Bush's wash.
Watch.
So they don't want this bigger bubble to blow up while Obama is still the president.
Because they want, you know, or at least well before the people vote.
Because Janet Yellen is a very partisan Democrat.
And obviously if Ben Bernanke viewed himself as part of the Bush administration, she clearly views herself as part of the Obama administration.
And she wants to continue in her job.
She wants Hillary Clinton to...
You know, to nominate her or for some reason, if it's not Hillary, if somehow Bernie Sanders ends up making it because Hillary Clinton gets indicted and we end up with Bernie Sanders.
I mean, you know, she wants some Democrat in office to reappoint her because I don't even care.
I don't care who the Republican is.
They're not going to reappoint Janet Yellen.
I'm sure she knows that.
And so she's doing everything she can to keep her team on the field so she stays in the game.
And it's one of the very many things that makes current democracy a complete lie when you have very partisan people pulling and pushing on the biggest levers that run the economy and people's sense of well-being and security and the value of their savings and their possibility of having a job.
And the fact that you can throw these giant switches to turn the economy one way or the other is not...
Well, look, that's why we shouldn't have governments trying to pull levers and switches and buttons.
We want a free market.
We want capitalism.
We don't want the government doing anything.
We want decisions to be made collectively in a free market by millions and millions of people interacting with one another.
That's how we get efficient allocations of resources when we have Prices that are discovered by a free and unfettered market.
It's when the government comes in and tries to micromanage and centrally plan, that's when we get a disaster.
And that's what we've been doing.
Yet for some reason, whenever government interferes in the free market and creates a problem, they end up blaming the problem on the free market.
And the solution is always more government interference, which means the next crisis is going to be even worse.
All right, well, let's leave off with people who can come and explore.
You have a very informative and easy-to-digest podcast.
You can get that at SchiffRadio.com.
Schiff Gold, of course, if you want to fire a cannon full of evaporating fiat currency at the giant bounce-back of gold that Peter Schiff can get you a hold of.
EuroPack, if you would like a more comprehensive solution for your portfolio.
Always a pleasure, Peter, and I'm sure we'll talk again soon.
Thanks for your time today.
Yeah, absolutely.
And also, by the way, I want to mention you've got a pretty big following on YouTube.
You've got a lot more subscribers than I do.
And I do have a plan to redistribute some of those subscribers from your account to my account.
Because I don't think it's fair that you have so many more people on your YouTube channel than I have on mine.
But maybe some of your people can help out and subscribe to my channel, too, to make it a little bit fair.
Level the playing field a little bit.
Because you're hogging all the subscribers.
It doesn't feel right without the coercive armor of government forcing people to click the subscribe button.
Then I'm sure that will be better.
I might have to get my congressman involved.
Maybe you have too many subscribers.
Maybe we should have a legal limit to how many subscribers you can have.
A forced redistribution of eyeballs, I think, is key to moving forward in the YouTube paradigm.
