Speaking with Cambridge House International, the CEO of Euro Pacific Capital said, “The United States is in a lot of trouble.” After the Fed presumably embarks on QE3, and that stimulus wears off, “I think we’re going to have a crisis. I don’t think we’re going to have time for QE4 or QE5. I mean, ultimately, that’s where we’re headed, because that’s all QE does. Each QE sows the seeds of the next QE
And global money looking for a safe haven won’t stand for another repeated currency debasements through debt monetization by the U.S. central bank. Because Europe’s woes have forced politicians to make tough choices there, the spotlight has been taken off, temporarily, the even-more dire circumstances of debt loads and deficits of the U.S., according to Schiff.
In 2014, that’s the year the U.S. economy is expected to reach fresh new lows and the year politicians will finally be forced to face the tough choices regarding proposed cuts to federal, state and local government budgets, according to the three men. It will also be the year that ushers in severe social unrest, similar to what is happening in Greece, in the case of Jim Rogers’ prediction for 2014.
Ironically, Schiff believes that if the U.S. economy miraculously digs its way into real economic growth, the bond market will sell off due to concerns of inflation from two massive QE programs from the Fed, driving interest rates much higher, along with U.S. borrowing costs—costs that will explode the federal budget deficit beyond the already red-line levels of 10-plus percent of GDP. The dollar cannot survive under that scenario, according to Schiff.
“We don’t want to allow a real recovery, because that means real bitter-tasting medicine needs to be swallowed,” he said. And added, no later than the year 2014, we’ll see “higher interest rates. There’s going to be lower real estate prices, stock prices, some banks are going to fail, and the government is going to have to seriously cut spending dramatically to everybody.”
Under a Schiff scenario of deeper economic recession/depression, dramatic cuts to all levels of U.S. government spending will create a similar and immediate economic and financial death spiral, now faced by Greece, with reduced GDP coming from total U.S. government spending—presently 40.3 percent of GDP—further limiting the U.S. economy to pay on its local, state and federal debt, thereby initiating a feedback loop of further cuts and GDP declines, and so on—an unraveling of the Ponzi-like scheme warned of by Russian economist Nikolai Kondratiev in 1925, and later, by Austrian economist Ludwig von Mises, among others.
By the year 2014, like Jim Rogers’ longstanding ‘heads-you-win-tails-you-win’ investment theme as a result of continued stimulus (currency debasements) to fight the Kondratiev Winter (depression) or the immediate inflation unleashed from years of Fed balance sheet expansion, Schiff recommends holding real money—gold (and silver)—the only money that will survive the loss of confidence in all fiat currencies and the ability of the U.S. to make good on debt obligations.
“There is no short-term fix anymore, because we’ve been doing these short-term fixes for a along time,” Schiff concluded. “We got a little extra rope from this European crisis . . . Something is going to happen in Europe, because this cannot go on indefinitely. And the numbers are just so big for the U.S. Interest rates have got to rise, or the Fed is going to have to print so much money to keep them from rising that inflation is going to flare up in a way that government numbers can’t hide it anymore.”
Therefore, Schiff’s advice: Avoid dollars and euros. Buy gold, real “money”.