Peter Schiff on BBC Newsnight

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Aug. 16, 2011

4 Aug 2011 BBC Newsnight

Peter Schiff -- CEO of Euro Pacific Capital
Paul Griffiths -- Global Head of Fixed Income Aberdeen Asset Management
Gillian Tett -- US managing editor at the Financial Times

[Paul Griffiths]
We are very concerned. Frankly we are on a knife-edge. A little too hot or a little too cold and we could easily be in a double dip.

[Peter Schiff -- he predicted the credit crunch]
It's pretty much predictable. A lot of people who controlled money around the world were making bad bets on an economic recovery. But the reality is that all the stimulus and bailouts in the United States didn't generate a recovery. It generated some debt-financed consumption. That wasn't a recovery -- in fact that exacerbated the underlying fundamental problems with the economy.
The US is heading for a more severe recession than the one we think we emerged from. In fact I think we are in a depression. And a depression is interrupted by government stimulus which only sows the seeds with the next downturn. The markets are only beginning to get to grips with this. Unless the Fed comes in with more QE and more stimulus the markets are going down but the problem is that more stimulus is weakening the economy. We need a tight Fed. We need higher interest rates. We need the government to cut back on spending. That medicine is the only thing that is going to save the economy.

[Gillian Tett]
I am trying to make sense of it all. There is a process of deleveraging going on . That process is going to be painful and slow. The problems in the Eurozone have not been solved. That is a pretty nasty cocktail. It feels like the banking crisis of 2007 and 2008. People can't assume there is going to be a bailout. Who is next? How do they know the next country won't be Greece?

[Paul Griffiths]
Investors can invest elsewhere -- Asia and Latin America.

[Peter Schiff]
You want to invest with the creditors. Those countries don't need us. Having to subsidise the American consumer is undermining their own citizens.

[Gillian Tett]
People are scrambling to anything that is safe. The Bank of New York Mellon is effectively paying negative interest rates to depositors. They are getting overwhelmed by investors.

[Peter Schiff]
They think the bank is too big to fail. That's why our central bank is keeping interest rates so low. Imagine what happens when the interest rate rises!

[Presenter]
We have to get growth! Where is it going to come from?

[Paul Griffiths]
It is very unclear. You might need capital controls.

[Peter Schiff]
We're not going to have genuine growth. But we might have inflation. The government is undermining the economy by regulation and sucking all the capital out of the private sector.

[Paul Griffiths]
Yes I agree. We have overly high levels of inflation and markets are not reflecting it.

[Gillian Tett]
Demand is in Asia. But let's remember that our economies are [at least] bumping along the bottom.

[Peter Schiff]
But we don't need more demand. We need more supply [Amazing]. We need more manufacturing but we can't do that. We have to borrow the money. The dollar is being propped up.