Monday, July 13, 2009

The Man Who Predicted the Crisis


Recently I have read both books Peter Schiff has written. The first I read was The Little Book of Bull Moves in Bear Markets which is his most recent followed by Crash Proof which he wrote in 2006 predicting the economic meltdown we are now experiencing. I also found out that Crash Proof 2.0 is available for pre-order, and I can’t wait to get my hands on it.

I first heard about Peter Schiff when I saw the video of the economist Art Laffer laughing at Schiff explaining we are in the midst of a housing bubble. Laffer is likely regretting this encounter, as he has now lost a lot of the credibility he built up as an economic advisor to Reagan. But really what brought me to reading Schiff’s books has been the past year or so when I have been very interested in Ron Paul and his political positions. I don’t think it was a coincidence.

Schiff is the President of Euro Pacific Capital, a brokerage company that specializes in foreign investments. Their motto is "Because there's a bull market somewhere.” What I found profound about his investment strategies is that he looks above and beyond what other advisors look at. What he looks at is truly a global perspective. His future predictions are both alarming and urgent.

In his books he talks about how the dollar will inevitably come crashing down. What this means for America is very important. For everyone who has their wealth in the dollar, either through domestic investments, cash, bonds, etc. they will see their purchasing power diminish greatly. Currently, the dollar is the global reserve currency. If other nations (such as China) decide that the debt we have been selling them is worthless and they will not be repaid, there could be a “dollar rush.” Imagine if all those dollars held in reserves came rushing back to the United States. Talk about inflation!

The winners are going to be those who have their investments in countries that will see favorable results from this dollar rush and ultimate crash. Imagine two individuals, one with his million dollars invested abroad and in currencies that will gain against the dollar, and another who has a million dollars in just that, dollars. If the dollar loses half its value, the first investor will see gains in whatever currency they are invested in while the second investor will have only half the purchasing power he used to have. In today’s day and age you don’t have to BE abroad to invest abroad. These two individuals could be neighbors who originally had the same purchasing power but now have significantly different purchasing power, all because of the country and currency their wealth was invested in.

This is just the tip of the iceberg and an attempt to explain what Schiff is getting at. I would highly recommend reading his books and deciding for you whether what he is saying makes sense. He has a collection of commentaries and video blogs at Europac.net that you can sift through as well.

To me, at least, it is no mystery why Ron Paul picked Schiff as one of his economic advisors to his recent Presidential Campaign.

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