Doom forecasts depression
Oct 27 2008
YORK -- Peter D. Schiff, an extreme bear who correctly foresaw
the U.S. stock-market slide, the home mortgage meltdown
and the credit crunch, still sees plenty of doom and gloom
of Euro-Pacific Capital, a Connecticut-based brokerage,
the 43-year old financial advisor has long been urging his
clients to get their money out of U.S. stock and bond markets
and look for safer investments outside of America or put
their nest eggs into silver and gold.
Mr. Schiff, a
frequent pundit on U.S. business channels whose gloomy views
have earned him the nickname "Dr. Doom, sees no need
to alter that strategy.
He expects a
lot more downside, despite the already precipitous drop
in U.S. stocks, which has seen the Dow Jones Industrial
Average tumble 40% from its
record of 14,164 to 8,379 points as of Friday's close.
Far from fixing
the problem, the US$700-billion Wall Street bailout and
other government interventions are only going to prolong
the pain, predicts Mr. Schiff, who was economic advisor
for libertarian Ron Paul's 2008 presidential campaign.
he says, appears headed for its first depression since the
Post recently interviewed Mr. Schiff about the current crisis.
did the U.S. get into this mess?
Mr. Schiff: It
was the result of reckless monetary policies. Of course,
the rest of the world is not blameless. They're the ones
who loaned us all the money that we spent. We couldn't have
dug ourselves into this gigantic hole without them. We've
printed and spent and borrowed our way into a financial
disaster...What we are witnessing is the consequences of
the excesses of our economy, especially over the past eight
years since the bursting of the tech bubble...We basically
ended up with false economic growth...Ultimately, if an
economy lives by credit, it dies by credit. When we can't
borrow any more, it implodes. A lot of companies were built
around this phony economy. Americans are now too broke to
buy those products. We never could afford to pay for them.
We were paying for them with debt.
government bailouts helping?
the government is doing right now is designed to prevent
the market from administering its tough medicine. All of
the bailouts are a bad idea...The government is trying to
put more cash out there so Americans can keep spending.
We don't need more loans for consumers. We need less.
not be borrowing. They should be doing the opposite. We're
trying to encourage more of the behavior that's behind the
is the solution then?
Mr. Schiff: What
we need is real change. We need to rein in the government
and let lose the free market, unfettered by government.
It was government intervention that created this crisis
in the first place. The Federal Reserve brought interest
rates down...and provided all this cheap money for everyone
to speculate with...A lot of Americans refinanced and took
out much bigger mortgages in the last few years. The idea
was, You don't want to leave all of that equity in your
house. You're rich now, you live in half million-dollar
house. You need a media room and a Mercedes. You can't be
driving that Ford...Everybody was spending all that money
like they were entitled to it. Now all the debt is still
there and we can't pay it back...We can't fix the problem.
We can't stop housing prices from falling because they are
too high. Most people still think that the government can
fix it and put it back together the way it was. But we need
housing prices to fall to a point where Americans can afford
them – where you can put 20% down and have a mortgage
payment that's only 25% of your income...I think real estate
in America is going to be the cheapest it's ever been in
real terms....Pendulums don't stop in the center. They swing
in the other direction and over shift.
bad is the economic downturn going to get?
Mr. Schiff: As
of right now, we are headed for a depression, meaning a
protracted period of economic contraction with elevated
levels of bankruptcies and unemployment. It's not going
to be a recession the way we've come to know them. Whatever
we call it, we're still going to be in it at the end of
[U.S. presidential contender Barack] Obama's term. He's
going to be known as a depression-era president. Unfortunately,
[things he's proposing to do] could make it worse and drag
it out. The economy will be the issue when he goes for reelection...We
have to restructure the economy in a different way. That's
going to involve a lot of pain....We haven't seen the full
extent of the doom and gloom in real economy. It's showing
up on Wall Street first because they funded all of the extravagance...But
the bigger picture is the party is over. We're going to
have to get used to a different lifestyle. We're going to
have to start saving money again.
might the U.S. stock market bottom out?
Mr. Schiff: The
U.S. stock market is still fairly expensive...especially
if you factor in what future earnings are going to be...I
think [the Dow] still has a long way to go down. Is it 7,500,
6,000, 5,000? I don't know, but I don't think we're there
yet...Adjusted for inflation, I think in five years the
Dow is going to be below where it is today.