Economics

Peter Schiff: The dollar system must be nearing its end

In a letter this morning to his Euro Pacific Precious Metals customers, Peter Schiff gave his opinion on the recent thoughts of Robert Zoellick, president of the World Bank:

On Sunday, World Bank President Robert Zoellick wrote a remarkable article in the Financial Times of London. (FT subscribers, click here to read. Others, click here for a summary.) He called for a renegotiation of the global monetary order and – incredibly – the introduction of a new gold standard. In response, gold broke $1,400/oz on Monday.

This is a tremendous breakthrough for gold investors. For the head of the World Bank to make such a statement is unheard of in modern times. Among top bureaucrats and their economist friends in academia, the gold standard has always been a taboo – mostly because it prevents governments from using the “inflation tax” to finance military expeditions and entitlement programs. So, for such a high-ranking official to publicly express support for gold-backed currency, the dollar system must be nearing its end.

In fact, since the Fed’s announcement last week of a new round of stimulus using $600 billion freshly printed dollars, world leaders from Brasilia to Tokyo have been protesting like never before.

This may be remembered as the moment the world rose up and said, “enough!”

While Zoellick danced around the edges of calling for a true gold standard, I believe that the transition is already taking place. Investors and foreign central banks are re-monetizing gold as they move their savings out of the dollar. In Zoellick’s words: “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.” That’s why gold is breaking one record after another, and will continue to do so for the foreseeable future.

If gold were officially remonetized, the price would have to be about 47 times higher to pair central bank holdings with the assets of the global banking system (according to 2008 estimates from the McKinsey Global Institute). To look at it another way, central banks would be in the market for about 42.6 million ounces of gold to back up all the fiat money in circulation. Martin Wolf, columnist for the FT, asserted that a new gold standard “would generate huge windfall gains to holders of gold.”

It has only been since 1971 that the world money system has functioned without a gold-backing. I believe this experiment is rapidly coming to a close. Commentators are right when they say there is no currency ready to take the dollar’s place as the global reserve – but there is a metal with a great track record that has been waiting patiently in the bullpen.

It is hard say when the Fed’s monetary Ponzi scheme will fall apart, but many of its biggest “investors” are wisening up. I strongly recommend preparing for a dollar collapse before it’s too late. When the president of the Washington-based and Washington-funded World Bank speaks out against the dollar system, what more warning do you need?

Here is a recent Peter Schiff interview covering much the same ground:

6 comments to Peter Schiff: The dollar system must be nearing its end

  • If Peter Schiff thinks the dollar will collapse because of large scale QE, perhaps he can tell us why the Japanese Yen has not collapsed despite Japan’s equally large experiment with QE starting a decade ago.

    • Andy Duncan Andy Duncan

      Hi Ralph,

      You will have to ask Mr Schiff directly, for a proper response, but if I were to make an educated guess, he would say something along the lines that when the Japanese first had problems in the late 1980s and early 1990s, they could ‘afford’ to inflate and create Zombie banks for two reasons:

      1. They were amongst the club of the most productive nations in the world, producing enormous volumes of goods and exporting these goods to the world.

      2. They had one of the highest savings rates in the world and the Japanese government could pass off all of its debt onto the Japanese people, who would dutifully buy Japanese government bonds and hold them in Japan.

      Over the 20 years that have passed since, with the enormous borrowings and inflations the Japanese government has engaged in, they have exhausted much of this savings habit and have ‘eaten their seed corn’, leading them into a precarious position today. You might like to read Schiff’s recent thoughts on that, here:

      http://www.safehaven.com/article/7922/will-japan-destroy-the-yen-to-save-the-dollar

      He might go on to say that whereas the Japanese had massive production and massive savings before they embarked on their 20-year Keynesian experiment of failure, which has now almost reached an end-game, the US is in a far worse position because it has exported much of its production to China and Asia, and therefore has a massive consumption overhang and has massive debt, most of which is held abroad (strangely enough, with much of this in Japan). Therefore, the US is starting the same game in a far worse starting position, therefore it won’t take 20 years to start destroying their currency, it will take (to use a little Schiffianesque hyperbole) take 20 minutes. He might also say that if the Japanese keep going with their race to the bottom with the Dollar, that they WILL destroy the Yen, if they don’t back out first to let the US government win that particular contest.

      But as I said, that is just an educated guess. You need Schiff himself for a real answer.

  • Type peter schiff was right in youtube and you will find plenty of videos showing how peter has been right on the economy since 2000. No one comes close to his record on predicting the economic future the guys a genius…

  • Some comments. You say:

    “He might go on to say that whereas the Japanese had massive production and massive savings before they embarked on their 20-year Keynesian experiment of failure, which has now almost reached an end-game”

    The belief that Keynesian stimulus failed in Japan is nonsense. Keynesian stimulus worked when it was tried, and certainly prevented a depression in Japan.

    the US is in a far worse position because it has exported much of its production to China and Asia,

    And yet it is SILL the largest manufacturing nation on earth, and US-based multinational corporations are in fact owners of a great deal of the manufacturing sector of China.

    and therefore has a massive consumption overhang and has massive debt, most of which is held abroad (strangely enough, with much of this in Japan).

    US government debt to GDP is not that high, and certainly not high relative to other Western countries:

    http://socialdemocracy21stcentury.blogspot.com/2010/08/us-government-debt-and-social-security.html

    And while the US trade deficit is large, if it ended East Asia’s export earnings would be wiped out. It is not in their interests to destroy their own export markets.

    • Current

      > The belief that Keynesian stimulus failed in Japan is nonsense.
      > Keynesian stimulus worked when it was tried, and certainly
      > prevented a depression in Japan.

      I don’t agree with this. I could argue about this generically, but I think it would be much easier if I knew what kind of Keynesian you are. Are you a New Keynesian, post-Keynesian, Post Keynesian or Neo-orthodox Keynesian (like Krugman)?

      > And while the US trade deficit is large, if it ended East Asia’s
      > export earnings would be wiped out. It is not in their interests
      > to destroy their own export markets.

      I generally agree that the “trade imbalance” between the US and East Asia is overhyped. But, to argue such is a very strange position for a professed merchantilist like yourself to take ;)

  • I listen to Peter Schiff with much interest. I follow his youtube channel and he constantly gets things right.