Transcript of JBP Podcast titled ‘ECONOMIC STORMS ARE GATHERING’. In this episode, Dr. Jordan B. Peterson and economist Peter Schiff discuss the gold standard, the corruption and impending failure of the fiat system in the wake of inflation, why politicians are pushing inflation to astronomical new levels, and why they’re lying about it.
DR. JORDAN B. PETERSON: Hello, everyone. I’m speaking today with Peter Schiff, the economist and stockbroker who successfully predicted the 2008 housing crisis. Today, we will discuss the current market, hyperinflation, fiat currency, and the value of gold in times of instability. Looking forward to the conversation.
So thank you very much for talking to me today and to everyone who’s watching and listening. Thank you for your time and attention. That’s much appreciated.
So the first thing I guess I might ask is what do you think it is that the typical person who’s watching or listening should know on the financial front practically for their own protection and incremental wisdom that they don’t know? I mean, people aren’t taught even the basics of how to think financially in our education system, and so maybe you could walk through what you regard as the basics of financial literacy on the practical front.
WHAT YOU SHOULD KNOW ABOUT INFLATION
PETER SCHIFF: Well, there’s a lot there, but I think the most pertinent thing that people need to understand before they make any investments, really, particularly now, is inflation and the impact that inflation is going to have on the decisions that they make on their savings and their investment, because inflation is probably a bigger threat now than it’s ever been. And therefore, it’s an even bigger factor in determining everything that we do and ultimately what the rewards are going to be or the returns from your investments.
And the reason I think that inflation is a bigger problem now than it’s been in the past is because of the fiscal predicament that most of the major governments have put themselves in. And the fact that all politicians, unfortunately, and this is a fatal flaw in democracy, is that politicians first and foremost care about themselves and their own political career and their own re-election. That’s what they do for a living. They are career politicians. And so, like anybody else, they’re concerned about perpetuating their career.
And most people who are in politics, they really enjoy it. I mean, they like all the perks that come with it. You get a lot of respect. If you’re in the United States, you’re a congressman, you’re a senator. It’s a career that a lot of people would aspire to. And once you get there, once you get to Washington, and I’m sure this is true in every country in Europe and all around the world, you like it. You like the lifestyle. You like the prestige that comes with being a government official. So you want to stay there.
DECADES OF BOUGHT ELECTIONS
All right. Well, how do you stay in office? Well, you’ve got to keep getting elected. The United States, we get elections every two years, right? So politicians are very concerned about the polls. And they’re constantly got their finger in the air, seeing where the winds are blowing. And they don’t want to say anything or do anything that might jeopardize their re-election.
And, of course, one of the most important things that you need to get re-elected is you need a lot of money. You need to spend money on advertising, on television, which is expensive. And so you tend to cater to donors, whether it’s a corporation or a union, anyone that can provide a lot of money. You need to do things that are in their interest. And so what is usually sacrificed by these politicians is the national interest, doing what’s right for the country is secondary to doing what’s right for themselves.
And also, in order to be successful as a politician, you have to be a really good liar. And that’s probably why a lot of lawyers go into politics, because lawyers, you know, they’re paid to lie. I mean, you have to argue your client’s case, even if you know they’re wrong, right? And you have to put on a defense or whatever it is. And so lawyers are generally pretty good liars. And so they become politicians.
Because if you’re honest and you tell the truth, you’re not going to have a career in politics. You’re just not going to, even if you manage to get elected telling the truth, you’re not going to stay in office telling the truth. So you got to lie.
So here’s the situation. So you’ve had decades of politicians buying their re-election by promising voters something for nothing, because unfortunately, that’s what a lot of voters want. They want something from the government. So if you’re running for office, like I ran for office in 2010, once in Connecticut. But all I promised was more freedom. I’m going to leave you alone. I’m going to repeal government laws, regulations. I’m going to leave you free to do what you want. And I’m not going to interfere with you.
Some people like that message. But a lot of people, that’s not what they want. They don’t want to be free. They want to be taken care of. They want to know, what are you going to give me? What stuff am I going to get if I vote for you, right? What free stuff?
DR. JORDAN B. PETERSON: Yeah, well, that’s attractive in the short term, especially if you’re not paying attention, right? And lots of people don’t pay that much attention to political discourse. And so if you offer something tangible and immediate, that’s gripped short-term attention. And that can be an effective strategy. And so it’s this proclivity to gift in this manner that drives inflation. Do you want to define inflation for me?
PETER SCHIFF: Yeah, I will.
DR. JORDAN B. PETERSON: Do you know exactly what we’re talking about?
PETER SCHIFF: Yeah, I will. I’m getting there. And it’s even worse when it comes to trying to take away something. Like if you want to cut a program spending, that’s even worse. Because once a voter has something, nobody wants to take it away. In fact, even some of the politicians, let’s say Republicans in the United States that might have opposed certain government welfare-type programs when they started, once they’re in place, even those people won’t vote to take them away. That’s how dangerous it is.
So the situation is, you’ve had all these politicians who have promised so much stuff that the taxpayers can’t deliver. And of course, when politicians want to give voters something, they don’t want them to pay for it. So they want to spend money, but they don’t want to raise taxes. Because governments don’t have any money. They only have the money they take. They have to take money from the people in order to give money back to the people.
And so if the government’s taking your money, that you don’t like. So with paper money, which unfortunately we have now fiat currency, where governments don’t need gold, real money, they could just create paper money out of thin air. They could just manufacture it digitally, and there it is. That enables governments to spend without collecting taxes. They run these large deficits, and they’re able to print the difference and hand out that money. So they can give people money without also taking the money away.
And now they don’t mind taking money away from rich people, because there’s not as many of those. So they don’t lose as many votes. Although certain rich people can donate a lot to their campaigns, which often prevents the taxes from getting too high.
INFLATION IS ANOTHER FORM OF TAX
But inflation, you asked for the definition. Inflation is really just another tax, because governments create inflation. And inflation is also probably one of the most misunderstood words in the English language, and deliberately so. I think governments around the world kind of led the campaign to redefine inflation.
So if you go back to the origin of the word, and if you have a dictionary, even from the 1980s, a Webster’s dictionary, you’ll get the real definition of inflation. So inflation is an expansion of the money supply. That’s all it is. Deflation is a contraction of the money supply. So if you even think about the word inflate, inflate is to expand, like a balloon. If you fill a balloon with air, it expands.
So with inflation, what’s being expanded is the money supply. And who expands the money supply? Governments. Or they do it generally now through a central bank, but it’s the central banks of these governments that are expanding the money supply. Now, when you expand the money supply, you have more money.
Well, if you have more money, but you don’t have more stuff to buy, well, the price of everything goes up. That’s just basic economic supply and demand. The more money there is, the less each individual monetary unit is worth. And now prices go up.
Now, what governments have done is they’ve said price is going up. That’s inflation. No, it’s not. That is the consequence of inflation. Because prices don’t expand, prices go up and down as a result of inflation. Now, what happens is sometimes prices don’t go up, but you still have inflation. And that’s because without that inflation, prices would have gone down. And if prices don’t go down because government creates inflation, that still represents a loss to the people because they lost the benefit of lower prices. Because in capitalism, the tendency of capitalism is to reduce prices. That’s why it’s so good. Because you keep coming up with better ways of producing more efficient ways, economies of scale.
If you look at the CPI, for example, in the United States in 1800, and then you look at the same CPI in 1900, and they have the data, prices were cut in half. You had a 100-year period where you had deflation or prices falling for 100 years. And that was a good thing. All the politicians now tell us that we need prices to go up, that we must have inflation the way they define it of 2% a year. Why?
Why do prices have to go up every year? Why can’t they go down every year? Isn’t that better if stuff gets cheaper? You know, if the cost of living goes down, of course it is. But these politicians are trying to sell this lie to the public that rising prices are somehow necessary for prosperity. That if prices don’t go up…
DR. JORDAN B. PETERSON: Okay, so let me sum up what you’ve said. So the first thing you said that I think is worthy of note for people to remember is that the price of something is a function of the ratio of the money available to the goods available. And so if you make money twice as available, then things cost twice as much. And then you defined inflation. You defined inflation in that regard. You said inflation isn’t prices going up, inflation is the value of money going down. And so it isn’t because things are becoming more expensive, it’s because there’s more money chasing the same amount or fewer items.
Now, you could imagine an inflation in a particular sector that would emerge because that thing has become more scarce. But general inflation is a reflection of the inflation of the money supply.
PETER SCHIFF: Right.
THE GOLD STANDARD, KEEPING POLITICIANS HONEST
DR. JORDAN B. PETERSON: Then you said, well, here’s the… Let me just finish the summary. You said there’s drivers of that inflation of the money supply. And the basic driver is that because we have a fiat currency that isn’t pegged to something permanent, let’s say, like gold, and because politicians can create money by printing it, they’re incentivized to do so because they can offer people who aren’t paying much attention cheap gifts for nothing. And the fastest way to pay for that, because they don’t want to raise taxes, is to increase the money supply.
And then you might say, and this is where we could bring this home to land, is, well, what’s so bad about that is that we defer our expenses into the future. People get more free stuff from the government. There’s a bit of a tax. That’s the inflation tax, let’s say. But all in all, the system works pretty well. But you started this whole discussion by saying the biggest threat to the financial integrity of people, individuals, over the long run is inflation. And so why does that pose the cardinal danger to long-term financial security and prosperity for people?
PETER SCHIFF: Yeah, well, first of all, it’s not working well. That is the problem. It worked much better when we had honest money. When we were on a gold standard, if governments wanted to spend money, they needed gold. And where did they get it? They had to collect taxes because they couldn’t create the gold. It needed to be mined. And so it was an honest system. And it was disciplined on politicians.
Now, the politicians don’t want to be disciplined any more than teenagers want to chaperone at the prom, right? So they want to do a lot of stuff that the chaperone won’t allow. And so gold was keeping politicians in check. But to your point about individual prices, you can’t confuse… prices individually will go up and down based on the supply and demand. But if the price of one thing goes up, it’s going to necessitate the price of something else to go down. And so the general level of prices won’t change.
It’s only when you have the expansion of the money supply that the price of everything goes up because the value of money is going down. And so now you need more money to buy stuff. But the problem now is because these governments have run such enormous deficits and inflated — the housing bubble that popped in 2008 in the U.S. and then a decade or more of massive deficit spending, quantitative easing programs.
And by the way, quantitative easing is inflation. They’ve basically taken inflation and put a nice sounding name to it because quantitative easing is printing money and buying government bonds. That’s inflation. But if the politicians said our policy is inflation, the public doesn’t like that. So they said, no, we’re doing quantitative easing. And somehow that sounds more palatable than inflation. But they’ve created so much. And for years and years, these central bankers were telling us that inflation is too low. We don’t have enough inflation because it’s not 2%. And again, we don’t need prices to go up.
And the reason they say that prices have to go up is they claim that we won’t buy stuff, that if we think prices are going to go down, we’ll just hold off on buying indefinitely, waiting for a cheaper price and the economy is going to collapse. And that’s a bunch of BS because you buy things when you need them and when you can afford them. I mean, if that was true, nobody would own a cell phone. Nobody would own a laptop computer. Nobody would have a television set because all those things get cheaper every year. Yet we keep buying them. So it’s nonsense that we won’t buy if price is going down.
In fact, price is going down, create demand. If you can’t afford something, the way to buy it is for the price to go down. And then you can afford it. And then you buy it. But they’ve created so much inflation when they said it was too low that now it’s exploded, right? You’ve got double-digit inflation or high single-digit inflation, pretty much in all the vast economies of the world. And no government anywhere in the world is willing to actually do what it takes to reduce inflation because A, they have to accept responsibility for creating it. And then B, they have to significantly reduce government spending and/or raise taxes on middle-class voters. And neither of those choices are politically expedient.
And so politicians now are under more pressure than ever to continue to finance their spending through inflation. So the inflation tax is going to get bigger and bigger and bigger every year. And the reason that that’s such a problem is it’s really the worst possible tax because it impacts the people the most who could afford it the least. It’s the middle class, the working poor, and the retirees who are living off of fixed income. They end up paying the inflation tax the most. They have some savings. They have a pension. They have an annuity, a cash value and insurance policies. All this stuff gets destroyed.
Wealthier people who tend to own assets and who have more good debt, right? Bad debt is consumer debt. You go out and you borrow money and you spend it. You buy a consumer good. You buy a TV with your credit card and that’s bad debt. Or you take a vacation and you pay for it on a credit card. But if you buy an asset, particularly an income-producing asset, a piece of property, a business, a stock, if you borrow money and you buy an asset, and that asset is appreciating and generating income, inflation is your friend. Inflation helps you out because it wipes out the value of your debt and you still have the asset.
So wealthy people, very wealthy people, if they invest the right way, will benefit from inflation. Whereas ordinary people are going to get hurt.
THE FRAUD BEHIND CALCULATING INFLATION
DR. JORDAN B. PETERSON: So inflation is particularly hard on non-entrepreneurial savers. So people who put away a certain store of value, maybe that’s in a pension, who aren’t invested in some active enterprise that could be generating revenue, it just devastates them. And if it’s 4% a year, they lose what? What does that mean? They lose half the value of their investment in like 4% a year. It’d be something like 10 years.
PETER SCHIFF: Yeah, and unfortunately, it’s going to be a lot higher than 4%.
DR. JORDAN B. PETERSON: Yeah, let’s talk about that for a second. So two questions about that, that come along with what you’ve already laid out. The first question is, how is the inflation rate calculated? That’s mysterious, right? Consumer Price Index.
PETER SCHIFF: That’s another big part of the fraud. Because certainly in America, and I know a lot more about the US CPI, let’s say, than I do about CPIs in other countries. But my assumption is that, you know, the politicians are being dishonest everywhere. Because, you know, the inflation rate, it’s like a report card. And if our kids were responsible for grading their own report cards, it wouldn’t be as shocker if they came home with all As, right? So this is the problem that we’ve hired the government to grade its own, you know, its own success in the economy, because high inflation would be bad.
So the government, again, when they’re measuring inflation, and they’re looking at prices, they’re looking at an effect. They’re not looking at the thing itself. But over the years, governments have changed the methodology for measuring price increases. So the CPI that we use today is nothing like the one that we used, say, in the 1970s.
DR. JORDAN B. PETERSON: Yeah, that’s exactly what I want to focus on. Because, so the CPI, for everyone listening, that’s the Consumer Price Index. And it’s, in principle, please correct me if I’ve got any of this wrong. It’s the average cost of something like a standard basket of goods.
PETER SCHIFF: That’s what it used to be.
DR. JORDAN B. PETERSON: But the question then is, which goods? Yeah, okay, so let’s go into that.
THE CPI IS RIGGED TO MASK THE TRUTH
PETER SCHIFF: It used to be, there was — the basket didn’t change. They picked a basket, and they just measured the same basket year after year. And so you could see the changes. Now the basket changes. The politicians decide what to put in the basket and what to take out. And generally, they take out stuff that’s gone up. And they put in stuff that hasn’t gone up as much. There’s all this substitution. There’s a lot of other indexes that they use where they have hedonics, or in a CPI, there’s hedonics.
And so what hedonics is, is the statisticians who compute the CPI, they look at a product, and they don’t use the actual price. They subjectively decide if they think that product got better. And if they think it got better, they adjust the price down. Now, maybe it didn’t get better. And a lot of times, stuff gets worse. And they don’t adjust for that.
Like, let’s say they’re looking at airline prices, and they just look at the ticket price. And they say, wait a minute, but you’re charged extra for luggage. You’re charged extra for a blanket. You’re charged extra for food. Oh, you know, they just look at the price. You know, a lot of quality has gone down, and a lot of things that hasn’t been captured. And, you know, I did this exercise. I did this a long time ago, in 2013. And I made a YouTube video about it. But I just did this for kicks.
I looked at the CPI in 2013. And according to the CPI, over the prior 10 years, the price of newspapers and magazines had gone up about 30%. According to the CPI, in 2013, magazines and newspapers were 30% more expensive than they were in 2003. Well, I decided to check, because it’s easy to do. You know, you could just go on the internet, and you could see a picture of those magazines, because they put the price right on the cover. So I took about 20. I took like 20 of the most circulated newspapers and magazines in the country. And I just looked at what the price was in 2003. And then I took the exact same magazines, and I looked at the price on the cover. And I just compared it over the 10 years.
And what I found was that the actual increase in price wasn’t 30%. It was 130%. So the question is, where did that extra 100% go? Because, you know, those are the prices. So obviously, the CPI is rigged in such a way as to have a number. It’s not that people lie when they calculate, like they get a certain number, and they say, oh, no, that’s too high. The methodology that is used has been engineered to mask the real degree to which prices are rising.
DR. JORDAN B. PETERSON: You also pointed to something else that’s a fundamental flaw, if your reasoning is correct, which is that if inflation is best construed as ratio of money to goods, merely calculating inflation as a consequence of price increase doesn’t capture the essential element of the inflation. That’s a huge problem, too.
PETER SCHIFF: Because let’s say prices should have gone down by 3%, and instead they go up by 2%. That’s 5% inflation, in that my cost of living is 5% higher than it would have been had you not had the inflation. And again, if you think about inflation as a tax, when the government taxes you legitimately, let’s say through a sales tax or an income tax, whatever, the government takes your money. Money that you had goes to the government, and then the government takes that money and gives it to somebody else, right? You lose your money.
But when they tax you through inflation, they don’t take any of your money. You get to keep your money. But they print new money, and they give that money to somebody else. Now, when that somebody else spends that money that he didn’t earn, it drives up your prices. So now you pay more. So the government didn’t take your money. They took your purchasing power. So it’s the same thing.
HOW HOME OWNERSHIP FACTORS INTO INFLATION
And another thing on our CPI, how they changed, is once upon a time back in the 70s, housing prices were in the CPI, and so were rents. And that’s about a third of the CPI, which is shelter. But somewhere along the way, they decided to use something called owner’s equivalent rent instead of actual rent or actual home prices.
Now, what is owner’s equivalent rent? Well, it’s a fiction that they made up that nobody actually pays. Apparently, the government calls people at random and asks them if they own their home, how much do they think they could rent it for if they were to rent it? And they keep track of those numbers. Now, I don’t know, like, you know, who they’re asking. I mean, I’ve owned homes for a long time. I’ve never gotten a call from a government guy wanting to know what I think I could rent my house for. But if you’re not a landlord, and you’re not in the rental market, how the hell do you know what you could rent your house for? It’s such a ridiculous way to try to measure the cost of shelter by using a number.
DR. JORDAN B. PETERSON: Okay, so let me ask you a question about that, because I’ve really been curious about that, because it’s obvious the case in Canada in particular, like housing and rent prices have skyrocketed in the last eight years. And that’s not reflected in the inflation statistics. And that seems to be a major oversight, at least according to one line of argumentation, because that’s one third of what people spend their money on.
Now, you could argue, and this is where it gets complicated, as far as I can tell, that if what you’ve bought is an asset that generates income, and its value goes up, that’s actually not a cost to you. It’s an advantage. You already made reference.
PETER SCHIFF: Well, only if you own the asset. If you want to buy it, and the price has gone up, it’s a disadvantage, right? Because now the assets that you want to buy are more costly.
DR. JORDAN B. PETERSON: Right. So does that imply that a proper CPI that would include the cost of shelter would be calculated on the basis of those who want to buy, rather than those who already own? And I’m trying to figure out how to measure inflation properly here, right? It’s a very complicated problem.
PETER SCHIFF: If you already own a home, then the cost of buying another one is not as important to you. Of course, a lot of people that own homes, they may want to buy bigger homes as their families grow, and so it would be. But for those people, what’s important are your maintenance costs, your insurance costs, your property taxes. There are a lot of other factors that would be significant to you. If you don’t own, if you’re a renter, then obviously rent is of primary importance to you. You’re paying rent. There’s all sorts of valid ways that the government could measure shelter as a component of the cost of living.
But in the United States, they don’t choose any of those valid ways. They choose another way. And they’re doing that because they want the number to be lower. They don’t want to report high inflation. And they even do this as part of the GNP, because when they report GDP, they don’t even do GNP anymore. It’s GDP now that they report, gross domestic product. In order to get the number, they have to deflate it. There’s a deflator, which adjusts the GDP for prices. And the government always underestimates that deflator, so the GDP looks bigger than it really is. Because in many cases, economies are actually contracting in real terms. But because the government is dishonest in the way it reports, it reports economic growth, even though there is no real growth. It’s inflation, which creates the illusion of growth. That’s another reason that politicians like inflation.
US DEBT AND WHY THEY ARE REDEFINING INFLATION
And of course, when inflation drives up the stock market and the real estate market, people think they’re richer, right? Because, oh, my house has gone way up, my stock. But it hasn’t gone up. Your money has gone down, right? But people don’t necessarily connect those dots. They think they’re wealthier. But also, if you think about, as I said earlier, inflation benefits debtors. It’s a transfer of wealth from creditors to debtors.
Who are the biggest debtors in the world? Governments. And the biggest, most highly indebted government is the United States government. We have $32 trillion of funded debt, almost. And our unfunded liabilities, commitments that have been made where they didn’t borrow the money, but they’re on the hook, like guaranteed student loans or guaranteed pensions, Social Security, Medicare, all that stuff. That’s like $100 trillion.
So when the government creates inflation, they repudiate enormous amounts of their debt. And so the governments have massive incentives to create inflation. But then they have massive incentives to lie about it and pretend it’s not as bad as it is and blame other people, which is the main reason that they redefined inflation from the expansion of the money supply to rising prices. Because when you know inflation is an expansion of the money supply, then you know who causes it. It’s the government. You can’t blame greedy corporations for it. You can’t blame Putin for it. Putin doesn’t print our money. We do. The Federal Reserve does.
And so when politicians can redefine inflation, they can blame everybody but themselves.
DR. JORDAN B. PETERSON: Okay, so let me ask you a kind of a modified Ponzi scheme question, because this is something that’s bedeviled me. So I understand that. So I have two questions. I understand that getting the measurements of something as fundamental as inflation correct is absolutely necessary.
So one of the things I’ve wondered is, like, why aren’t there independent teams of economists who generate various true estimates of inflation, make them public so that the public itself could gather a basket of independent estimates and know for themselves what the inflation rate is? Very curious about that.
PETER SCHIFF: Well, they are. I mean, there’s a website shadowing that.
DR. JORDAN B. PETERSON: Who’s reliable? Who’s reliable?
YOU WOULDN’T ASK THE MAFIA FOR CRIME STATISTICS
PETER SCHIFF: Yeah, you know, well, I think the least reliable would be the government. You don’t want their statistics because they’re completely biased, right? You know, it’s like, you know, the mafia is not going to give you accurate statistics on crime, right? So you got to look to independent sources.
But I think it’s kind of obvious, though, if you understand what inflation is and you see the enormity, I mean, the United States is running $2 trillion a year plus deficits now. And technically, we’re not even in a recession. The deficits are going to get even bigger when this next recession starts. But how are we financing those deficits? It’s inflation. There’s just no other way. Look at the Federal Reserve’s balance sheet.
So we know that inflation is going to be a significant threat. It’s going to reduce the value of money. And so that has to be the single most important factor in driving your decisions on savings, on investing. You know, and even for in this day and age, if you don’t have a lot of money to invest, you know, I’ve been saying this for years to people. I started talking about it several years ago. People have to stock up on things. You know, buy things that you’re going to use in a year or two. Buy it now, because it’s going to be a lot more expensive if you wait. Why hold on to the cash if the cash is going to lose value? Just buy the things that you’re actually going to need, because those things will retain their value if you’re planning on using them.
WHY NOT DEFER OUR DEBT TO THE FUTURE?
DR. JORDAN B. PETERSON: So here’s the Ponzi scheme question. So because of the efficiencies of the capitalist system, free market system, let’s say, we are generally able to produce more for less. And in some instances, we seem to be doing that faster and faster. So consumer electronics are a good example, and price of computation and so forth. And so what that means is that independent of inflation, because of technological progress, things will get cheaper in the future. The future will be richer than the present.
So then you might say, if you’re a politician, you say, well, if that’s the case, and if that’s invariably the case, then why not defer our debt to the future? Like, essentially, why not borrow from the future? Because the future is going to be wealthier than the present.
And then I wonder, like, if we had a 3% increment in actual productivity per year, then maybe we could tolerate a 2% inflation rate, because fundamentally, the tendency for things to get cheaper because of enhanced productivity would be balanced by that inflationary proclivity. So are the politicians, could you make a case that the politicians are making a good bet? Because they’re throwing the debt into the future when we’re going to be richer?
PETER SCHIFF: No, well, they are making a politically opportunistic decision. Because they’re telling the voters, hey, don’t worry about it. Your grandkids will pay for it, right? Or whatever. And of course, not all voters have kids, right? Some voters, you know, don’t have kids. And so why do they care if somebody else’s grandchildren pay for their program? But the only time you could justify borrowing from the future is if you are creating something that future people will benefit from. Let’s say a capital investment. Let’s say the government is going to build a bridge. And that bridge is going to be there for 100 years, right? And people who aren’t even born yet are going to benefit from that bridge.
Okay, maybe they can sell bonds to finance the construction of that bridge that future people will end up paying because they’re going to have the benefit of that bridge. So you can make an argument for debt to support that. But if we’re going to borrow money just to pay for welfare benefits or social security benefits, where we’re leaving our children and grandchildren with nothing but a bill, right? They don’t have a bridge or a capital asset. The money’s been spent.
THE DOLLAR WILL COLLAPSE IF WE STAY THIS COURSE
DR. JORDAN B. PETERSON: I see. So your argument basically is that if you’re borrowing from the future, isn’t designed specifically to drive productivity, let’s say, then it’s a degenerating bet.
PETER SCHIFF: Yeah, I don’t think it’s borrowing from the future. I think it’s stealing from the future. You’re trying to steal. But you know, a lot of this stuff is going to backfire because I think the current generation is going to pay for a lot of this stuff because the dollar is going to collapse. You know, we could have hyperinflation. And because the future generations are not going to pay this. They’re going to leave. They’ll leave the countries because they’re not going to want to be subjected to the confiscatory tax rates when they can’t get commensurate benefits from government. They’re going to leave. The currency is going to collapse in value. And we’re already there.
I mean, we’re already at that point because you’re talking about this intergenerational Ponzi scheme. That’s really what social security is. I mean, it wasn’t created that way in the 1930s when Roosevelt first concocted this social security, and it was totally unconstitutional and unfortunate that we have it. But the idea was that it was like insurance. The government was going to take the money and invest it. And then when everybody was older, you would get paid your benefits. And they even called the taxes premiums. But the whole thing was a con because it never was insurance because the government never invested the money. They spent the money.
And now they gave themselves an IOU. They created these things called trust funds. And so what would happen is the government would collect the money from social security. Then they would take the social security money and spend it on whatever military or whatever they’re doing. But then they would put an IOU in the government trust fund in the form of a bond. And then they would say, oh, we have an asset in this trust fund. We have a bond. That’s not an asset. It’s your own debt. It’s like if I write myself a check for a million dollars, I can’t take that uncashed check and claim I’ve got a million dollar asset. No, it’s also a million dollar liability.
So there never was any money in social security. They spent it all. The system is broke. And now they have to keep raising taxes on the workers. But now they won’t even raise taxes on the workers. So they just keep — they create inflation to pay for social security.
WHAT IS THE LEAST UNRELIABLE CURRENCY?
DR. JORDAN B. PETERSON: Okay, so let me offer another rosy scenario, sort of like the borrowing from the future scenario. So I’ve been thinking about this issue of fiat currency and the fact that the currency is unmoored. But we have a situation in the world now where every currency is unmoored, right? And so you might say, no matter what form of money you use, you’re making a bad bet. You’re relying on something unreliable. But if you’re going to rely on something unreliable, you should rely on the least unreliable currency, right?
And so then you might say, well, the least unreliable currency becomes by default, the standard. And the U.S. has managed that for 50 years, 60 years. And so why isn’t it the case? Because you said, for example, well, people who are subject to unfair tax because of future deferral of debt will leave. But I could say, yeah, but there won’t be anywhere better to go.
PETER SCHIFF: Although there will be. The whole world doesn’t have those tax rates. A certain country saddles its future generations with too big a debt burden. They could leave and go to a country that doesn’t have that demographic problem, that big of a debt burden.
DR. JORDAN B. PETERSON: So you think there’ll still be enough. Even if everyone’s on fiat currency and if all the currencies are corrupt, you still think there’ll be enough variability in corruption so that people will vote with their feet like they are in the U.S. moving from Democrats to Republican states.
PETER SCHIFF: Correct. And the idea that, you know, you have to settle for the least bad currency. And again, currency isn’t even really money. Money is a commodity. Gold was money. Silver would be money. Legitimate currency, which is backed by real money, is currency. What we have now is fiat currency and both fiat currency and legitimate currency are substitutes for money. They’re not actual money, but they substitute and they can function as money. But they’re not really money in the real sense of how you define money as the most marketable commodity, which is would be money.
But people have been saying, well, you know, the dollar is the cleanest shirt in the hamper. And but I think the dollar only appears clean because of its status as the reserve currency. And I think that status is in jeopardy. And when it’s lost, then the dollar is going to be by far the dirtiest shirt in that hamper.
THE DEFICIT VERSUS THE DEBT
DR. JORDAN B. PETERSON: And OK, so two questions from that. So first of all, maybe you could walk everybody through why the government is the biggest debtor, because people aren’t really clear, even, for example, about the difference between the deficit and the debt. And they don’t know what the debt means to them in real terms, because it’s always expressed in these huge numbers, like 132 trillion. It’s like no one knows what that means. But they could figure that out if they knew how much of that debt they were responsible for or their family. First of all, why is the government the big debtor?
PETER SCHIFF: Well, you’ve got the national debt, which is the accumulation of every year’s budget deficit. And then you’ve got the annual budget deficit, which adds to the total debt. But when I’m talking about creditors versus debtors, nations can either be a creditor nation or a debtor nation. A creditor nation is a nation in which the world owes it money, more money than it owes the world. A debtor nation owes the world more than it’s owed.
So prior to the US going off the gold standard in 1971, and in fact, all the way up to probably the early 1980s, the United States was the world’s biggest creditor nation. We generated tremendous amounts of wealth under a freer economy than the one we have today and one that was governed by the disciplines of a gold standard. So we became the world’s wealthiest creditor nation.
Today, after 50 years of fiat money, America is not only the world’s biggest debtor nation, America owes more money than all the other debtor nations of the world combined. That’s how much our financial position has eroded.
Now, when the dollar became the reserve currency, it became the reserve currency because of America’s financial and industrial might. We were the world’s biggest creditor nation. We also had huge trade surpluses. Now we have massive trade deficits, I mean, over a trillion dollars a year. But when the dollar became the reserve currency, we made everything. All the consumer electronics that are now made in Japan or Korea or China, all that stuff was made in America. I mean, if you wanted anything, we made it in this country, in America.
And so since everybody wanted American products, everybody needed American dollars to buy them. And the American dollar was as good as gold, because if you had dollars, you had gold. If you had $35, you could get an ounce of gold from the government. It was convertible. And so under those conditions, the U.S. dollar became the reserve currency.
THE TRADE DEFICIT, OUR MAIN EXPORT IS MONEY
But today, the dollar would never be the reserve currency today if it wasn’t already there. Nobody would pick the dollar given our financial position, our trade imbalances. But it’s been the reserve currency for the tradition of the fact that it’s been. But in order for the world to maintain this status, it’s very expensive for the world. It’s a huge benefit for America.
I said we have a trillion dollar a year trade deficit. That means the world has to supply America with a million dollars worth of merchandise for which it doesn’t get paid. It doesn’t get products. Most countries, in order to import, have to export. You have to export something in order to pay for your imports. Well, we don’t have to export anything. We just print money and export that. Well, that costs nothing. But the rest of the world has to produce real stuff and use resources, land, labor, and capital to produce products.
So Americans get to live beyond their means because of the dollar status. But the rest of the world, collectively, lives beneath its means. And of course, it’s not consistent because some countries have to live even further below their means depending on how big a trade surplus they have with the United States. That’s how much they’re subsidizing the U.S. economy. A lot of the emerging markets bear an even bigger burden of preserving the dollar status.
I think the world is starting to move away from the dollar, not only because of the economic cost of maintaining it, but now we have raised the political risks. If you look at what the Biden administration did with Russia, the unprecedented sanctions on Russia, this has really highlighted the tremendous risk that every sovereign nation assumes by being beholden to the dollar because it puts tremendous power in the hands of the United States. It’s like putting a noose around your neck and then throwing it over a tree to America, who’s holding the other end, and you’re hoping that they don’t pull. I mean, nobody wants to really be in that position, especially if you’re a country like China, where we’ve kind of made China our enemy. But in reality, China provides America with the largest annual subsidy. Our biggest trade deficit is with China, so they supply us with more merchandise than anybody else. They’re our largest creditor.
Now, some people say it’s Japan, but no, it’s actually China because you have to take Hong Kong because Hong Kong is part of China. So if you take all the treasuries that Hong Kong owns and the treasuries that China owns, that’s more than Japan. So they’re our biggest banker. They supply us with credit. They supply us with merchandise. That’s all going to end. China is going to wean itself of that.
DR. JORDAN B. PETERSON: Okay, so let’s go after that. So you said, and let me see if I got the reasons right, you said, well, the American dollar could stand as the fundamental currency because it had come off the gold standard but had still benefited from that. It was extraordinarily productive. It ran huge trade surpluses. It was a dynamic, expanding, rich country with a very stable currency. So it could run on that for a long time.
And you said, however, now if people looked at the American economic situation, the American dollar, without that historical context, there’s no way the US dollar would be the reserve currency. But then we’re back to the dirty shirt and the hamper problem. And I know the Russians and the Chinese and the Brazilians, et cetera, are wrestling with that. They’re trying to move people away to some degree from the dollar as a reserve currency. But nobody in their right mind is going to trust the Chinese currency. So where do people go if it’s not the American dollar that’s going to be the standard for all the reasons you laid out? Well, the euro doesn’t look better, really. And certainly, you have to be insane to use Chinese currency, I think.
PETER SCHIFF: See, that is the false choice that everybody thinks we have to make. One of the reasons that people are so arrogant, particularly in America, that the dollar’s status is not in jeopardy. And so that we can keep on running these huge deficits, we can keep on creating inflation, and the world’s got no choice but to stick with the dollar. Because are they going to go to the euro? Are they going to go to the yen? You know, the pound? I mean, the renminbi? I agree. All of those currencies also have problems.
And so do you really want to switch from one flawed fiat currency to another? Even if those other fiat currencies may be less flawed than the dollar, right? Do you really want to make that shift? I don’t think that that’s what’s going to happen. What everybody is missing is that there is an alternative to the dollar that doesn’t involve another fiat currency. And that’s gold. That is real money. Everybody forgets that for thousands of years, gold was money. It was money because it worked.
Now, over the course of time, we had paper currencies that would rise and fall. I mean, hundreds of years ago, there were paper currencies that are now worthless, and you don’t even know their names. You know, they come and go. But gold has stayed. You know, gold works as money.
WHY CENTRAL BANKS WILL GO BACK TO GOLD
And so I think what these central banks are going to do is, as they get out of dollars, they will just increase their holdings of gold. Gold will be the monetary anchor. Gold will be the reserve monetary asset, just the way it was before the dollar. It wasn’t the British pound. I mean, the British pound was the dominant currency. But gold was what everybody owned. The British backed the pound.
DR. JORDAN B. PETERSON: Do you see any evidence that some of these alternate currencies are starting to back their currency claims with gold? What’s happening on the…
PETER SCHIFF: Central banks are now buying more gold than they’ve bought in decades, especially a lot of the emerging market countries, not even maybe so much the United States isn’t buying any gold, and maybe some of the more mature countries, but a lot of other countries that had predominantly held dollars and then to a lower degree euros or yen or pounds. These countries are increasingly buying gold. That’s why gold is at a record high. I mean, gold’s around $2,000 an ounce. But in terms of just about every other currency on the planet, gold has been hitting all-time record highs. And again, that’s not really gold going up. That’s all these fiat currencies going down.
But one of the reasons that countries would want gold as opposed to the dollar is the US government doesn’t have any control over it. You know, gold is an asset that’s not also somebody else’s liability, and nobody could create it. You have to mine it. No one country has the advantage. Why would you want to take away that privilege that the United States has and just bestow it on somebody else who is going to abuse it the same way? I mean, the United States abused that privilege that we have, and we exported all this inflation to the world. We took advantage of the position that we were in. So why would you want to put another nation in a position to similarly take advantage of the world? It’s much better to go back to honest money.
And again, even when we were on Bretton Woods before 1971, and we were on the dollar standard, it was because the dollar was backed by gold. Again, if you held dollars, you held gold. That’s where the saying came from. The dollar is as good as gold. In fact, the legal definition of a dollar is a weight of gold. That’s what a dollar is. Dollars are gold. The paper currency that circulated Federal Reserve notes are not dollars. They are notes of the Federal Reserve. Initially, those Federal Reserve notes were payable in dollars. The dollars were the gold that the Federal Reserve notes paid. Because if you think about what a note is, a note is a promise to pay something. A Federal Reserve note is supposed to pay something. Well, what did it pay? It paid gold. It paid dollars. Today, Federal Reserve notes pay nothing. Their IOUs, nothing. The Federal Reserve is not obligated to give you anything. I mean, if you have a $10 bill…
WHY DOES GOLD HAVE INTRINSIC VALUE?
DR. JORDAN B. PETERSON: Okay, so people might object, and they have, that while gold is just another arbitrary standard of value, it has some intrinsic worth. It’s useful for jewelry. It’s useful for certain industrial applications. But it’s just another psychologically valuable currency without any intrinsic value. It shouldn’t be a repository of value in principle that’s any more stable than, let’s say, a well-managed or even a badly managed fiat currency. Why is it that gold has proved itself, let’s say over centuries or millennia, as a storehouse of value? What is it about gold intrinsically, let’s say, that seems to have given it that edge?
PETER SCHIFF: The idea that gold doesn’t have any intrinsic value is just pure nonsense. It’s obviously politicians have a vested interest in trying to diminish gold as a monetary alternative to the fiat system. And even now, you have a lot of cryptocurrency enthusiasts who say the same thing. Well, you know, gold has no value because they want to justify something like Bitcoin, which also has no value, and say, well, gold worked as money, and it has no value, so Bitcoin could work.
Well, it’s not true that gold has no value. Gold is the most valuable, the most useful metal on the periodic table. Gold became money because it was such a valuable commodity. But gold has a lot of properties that make it uniquely qualified to be money more so than other commodities. That’s why gold was so successful over the centuries as money because people preferred to use it as money. It wasn’t governments that decided gold is going to be money. The people decided that gold was going to be money.
And once the people decided that gold was going to be money, if you were a king, you know, well, you would tax people in gold because if you wanted to pay your soldiers to protect you, your soldiers wanted gold, right? So it was the money created in the free market, and it beat out all other forms of money because gold, you know, a gold coin, they’re all the same. You can melt gold down and you can make it into coins. It’s fungible, it’s portable, it’s divisible.
But the other aspect of gold, that is the key. You can save gold because if I have an ounce of gold in a hundred years, in a thousand years, it’s exactly the same. It doesn’t lose any of its properties. And in fact, even if I take my gold and I make, you know, I make a ring out of it or I use it to make a watch, right? You can melt this ring down and you get your gold back and it’s exactly the way it was. You could do something else with it. There’s really no other metal. You can keep using it over and over and over again. I mean, they fill teeth with gold. If you find somebody buried in the ground, you know, you could take their fillings and, you know, the gold’s still there.
THREE CONDITIONS FOR MONEY TO WORK
You know, treasure ships from the 1400s, 1500s, they sink. If they recover the wreckage, the only thing that’s still there is the gold. And it looks exactly the way it looked when the ship sank 500 years ago. So from a point of savings, because money has to satisfy three primary conditions. Two of them are a unit of account and a medium of exchange. But the third one is a store of value. And that’s important because it’s also makes it possible to do loans that I can borrow money. You can lend money and you can be repaid. And you know that the money that you’re going to get repaid is going to retain its value. And so that’s something that gold does better than other metals.
But the value of gold, even if I’m not using my gold today as a metal, let’s say I have gold stored in a safe and you say, well, you know, you’re not using it for anything. That’s true. But I’m preserving the future use of that gold. Somebody in the future is going to need that gold. And so I’m storing it right now because, you know, there are more uses for gold that are discovered all the time because of its very unique properties. I’m sure in a hundred years or a thousand years, there will be more uses for gold than there are now.
CRYPTO, BITCOIN, THE STORE OF VALUE
DR. JORDAN B. PETERSON: And so let me push you on the crypto front for a second. So, you know, I’ve been contemplating permanent storehouses of value concerned about such phenomenon that we’ve been discussing as inflation and potentially hyperinflation, which is far from rare, even among developed countries. I think you have a 1% chance if you live in a developed country of hyperinflation incident at some point in your life. It’s something like that.
But anyways, the cryptocurrency people, and I think the Bitcoin people have made this case the best, is that they’ve managed to duplicate gold in its important elements in that they’ve produced a storehouse of value that can’t be corrupted because it’s blockchained and distributed. And that’s a nice argument that also gets more scarce with time, which was quite the brilliant technological innovation that requires work to obtain. And so that’s the Bitcoin mining, but that is also easily distributable digitally.
And so it’s out of the hands of governments. It’s an uncorruptible store of value. It’s widely distributed and it’s easily moved. And so that accounts for a fair number of the properties that you described a monetary unit had to possess. So what do you think of crypto in general, but more specifically about Bitcoin? Because I think it’s king of the cryptos. And do you think there’s a case to be made that gold has an advantage that crypto cannot duplicate? And then we might ask, well, what if you had a gold-backed crypto? Because maybe then you could have the best of both worlds. So what are your thoughts about the… I mean, Bitcoin’s done pretty well for a currency that doesn’t exist, that’s not government mandated, et cetera. It’s stored its value. There’s a lot of variability.
PETER SCHIFF: First of all, Bitcoin isn’t a store of value because you can’t store something that you don’t have. First, you have to have the value. So as I said, gold’s value is its use as a metal. That’s what you’re storing is the future use of gold and metal, whether you’re going to use it in jewelry or as a doctor in electronics or in medicine, whatever it is, you’re storing that. Bitcoin only has a price, doesn’t have value. Price is something that you pay. Value is something that you get. When you buy Bitcoin, you pay a price, but you get no real value.
And now I agree, the price of Bitcoin has gone way up from when it was first started, where you could get multiple Bitcoins for a fraction of a penny or a dollar, whatever they started next to nothing. And at one point, people were paying almost $70,000 for Bitcoin. Currently, it’s around 27,000 as we’re recording this. So depending on when you bought, you potentially made a lot of money if you sold. If you bought during the mania hysteria of 2021, you’ve lost a lot of your money if you get out.
But looking at Bitcoin, Bitcoin did an excellent job of replicating the qualities that gold has that made it better money than cattle or salt or other commodities that have been money, right? Gold has certain properties, and Bitcoin captured those properties. But the most important property of all of all is gold’s metallic properties, gold as a commodity. Bitcoin has none of that.
And so Bitcoin, just like a fiat currency — what gives a fiat currency its value? Just confidence. People just believe that it has value. They believe that people will accept it. Now, part of that belief is driven by governments, which declare it legal tender and which require it for payment of taxes. And so there is some real demand for dollars if you live in America; there’s a demand for euros if you’re in Europe, because you have to pay taxes. And if you don’t pay taxes, they could put you in jail. And so in order to avoid jail, you need the currency that the government demands.
But Bitcoin is similar to fiat in that all of its value comes from faith and confidence. People just believe that people in the future will want it and they’ll pay a higher price for it. Except there is no legal currency status. There is no government really, maybe other than El Salvador, I don’t know what’s going on over there, but there’s no government that is accepting tax payments in Bitcoin. So there’s no natural demand other than the speculative demand from people who think they’re going to get rich. I mean, people who buy Bitcoin are buying it because they expect the price to go up. And the people who buy it from them thinks the price is going to go up. So it’s this greater fool theory that the price is going to go up and that’s what’s driving people to buy it.
WHY WE DON’T HAVE A GOLD-BACKED DIGITAL CURRENCY
It’s very cumbersome if you want to use it as a medium of exchange or a unit of account. It’s too volatile to be a unit of account. It’s too expensive to be a medium of exchange and it can’t be a store of value. So it’s not gold. It’s digital fool’s gold. But you hit the nail on the head when you talked about a crypto that’s actually backed by gold. That works. That solves all the problems that Bitcoiners claim gold has.
Well, you know, I can’t send my gold around the world. I can’t use my gold to buy a cup of coffee. Well, yes, you can. It’s a lot better than Bitcoin. If I have gold stored with any third party, it could be a government, it could be a private company, it could be anybody. You could tokenize that gold and have a Bitcoin, similar cryptocurrency, that is a digital representation of that actual gold. It’s like a warehouse receipt, an IOU for gold.
And then if I wanted to give you some of my gold, I wouldn’t have to ship you my bar. I could just send you my tokens, you know, over the internet. And now the ownership goes from me to you. You know, it’s an improvement on paper money. Because again, initially, paper money came as a substitute for gold. I had my gold stored with a blacksmith. And instead of lugging my gold around, my blacksmith gave me an IOU. And then I can circulate that IOU because everybody knows the gold is there. And instead of having to get it, they just circulate the IOU in paper terms.
Well, it’s much more efficient to do it crypto digitally. And you can take an ounce of gold or a gram of gold and divide it, you know, to tiny little pieces so that I could buy a cup of coffee and pay the barista with my gold using the token. And it would be faster and cheaper than Bitcoin. And the difference is when I’m paying with gold, I’m paying with something real. I’m getting one commodity for another. I’m getting coffee. And the guy that sold me coffee is getting gold. And you can actually denominate the price in gold because gold is stable. I mean, it can function much better as a monetary instrument.
The only thing that you have, you have to trust the third party. But I mean, capitalism is all about trusting third parties. I mean, private third parties, we buy an insurance policy. People buy life insurance, fire insurance, health insurance. It’s all a third party that’s selling you that policy. The policy is only as good as the third party’s ability to pay, you know, how do you, you know, we have rating agencies, we have capitalism, we have competition for reputation. There is no reason that you can’t have third parties to store your gold. And then you could use it. You don’t have to store all of your gold that way. You can keep a lot of your gold yourself. But the gold that you want to use as a medium of exchange, you can use that digitally. And that works much better than Bitcoin. You have real value. You have real-
DR. JORDAN B. PETERSON: Well, I’ve talked to people who have attempted to produce gold-backed cryptocurrencies and they’ve run into, from my understanding, a variety of legal impediments on that front. Do you know of anybody who’s doing that successfully? And if so, why aren’t they prime competitors, let’s say, in the international market for Bitcoin? I mean, the argument you laid out seems to make sense. And so you’d think, well, you’d think two things. You’d think, given that governments are rushing to digital currencies and that some governments would like to displace the US dollar as the reserve currency, that the logical thing to do for some enterprising country would be to produce a digital currency that was gold-backed. And so what’s happening on that front?
PETER SCHIFF: Okay, so there’s two things. First of all, the demand that is mainly coming in cryptocurrencies, including Bitcoin, is to get rich, right? People want to buy Bitcoin because they think it’s going to go to the moon. And so that’s really the demand for cryptocurrencies. It’s not to have an alternative as a medium of exchange and as a unit of account. Most people that are buying Bitcoin, they still use dollars or euros or pounds in their transactions. They just hoard their Bitcoin because they think they’re going to get rich.
And so there’s no real demand yet for a cryptocurrency that’s backed by gold to be used as a medium of exchange. People are still content to use their fiat currencies for that role. But I think that once this crypto bubble really pops and the losses stack up and people get burned and they’re no longer interested in these get-rich-quick schemes, and they really start to focus on an alternative not to get rich, but to preserve what they have, right? Because that’s what gold is, right? Physical gold is not about getting rich. It’s about avoiding becoming poor. It’s about avoiding the inflation tax.
And so I think as the inflation rates get worse throughout the world, there will be more of a demand for an alternative medium of exchange to these fiat currencies that can also store value.
THE FREE MARKET COMBATS GOV MONOPOLIES
DR. JORDAN B. PETERSON: You said some of that is happening already. You said that many countries around the world, the central banks are buying gold. And many of those central banks are also starting to experiment with the idea of an imposed digital currency. There’s flirting on the margins.
PETER SCHIFF: But what they’re talking about is a digital fiat currency that just gives them more control. And if they want to eliminate cash, it’s just inherently a very oppressive monetary system that concentrates even more power in government and diminishes individual liberty and makes it easier for governments to become more tyrannical. So that’s a whole different topic.
But staying on a gold-backed crypto, so one reason is that there’s not a lot of demand for it yet. The other problem, though, is that to the extent that there is some demand, there is such a huge regulatory impediment. And I think it’s deliberate on the part of governments. Governments don’t want to have to compete with gold. And so the barrier that a lot of companies face, because it’s very easy to tokenize gold. This is not a hard process. It’s the regulatory environment. It’s the money laundering laws that are there that make it very expensive to get into this business because you have to comply with all these rules and regulations. And also you have the potential for governments to declare these token securities, which they’re not.
But some government can say, no, it’s a security and now it’s got to be registered. And you’ve got to comply with all these other rules and regulations. So government makes it very expensive to compete with their fiat currencies. So what has to happen is the advantage of a gold-backed crypto has to be so large that it can absorb those costs. And that’s going to happen because the inflation is going to be so high. But also, you’re going to have sovereign nations potentially coming out with gold-backed cryptos. In the United States, you may have state governments coming out with their own official gold-backed cryptos. All of this is going to happen. The market is going to find solutions to this problem.
Whenever the government has some type of service that it provides, and of course, all government services are going to be flawed. We talked about how capitalism lowers prices. Governments raise prices. Whenever you look at an industry that’s heavily regulated, education, right? Prices go up all the time because the government is so involved. That’s why it keeps getting more expensive. And the quality goes down. The quality of education.
I mean, a high school degree 50 years ago is way more valuable than a college degree today, even a master’s degree. So governments have destroyed the value.
DR. JORDAN B. PETERSON: Especially a master’s degree.
PETER SCHIFF: The governments have destroyed the value of degrees while dramatically increasing the price to get one. So government drives quality down and price up. The free market does the reverse. It drives quality up and price down.
Government, let’s say the post office, right? Post office was a problem. And so then FedEx came along, right? And okay, we can avoid the post office. More recently, governments create monopolies in taxi cabs. Well, Uber comes along. Lyft comes along and creates some competition to these government monopolies. So the same thing is going to happen with money. Government money is so bad and it’s going to get worse that the market is going to offer alternatives. And yes, the government is going to try to put up roadblocks to protect its monopoly. But ultimately, it won’t work. And the people will find ways around it.
LOOK AT GOLD AS MONEY
DR. JORDAN B. PETERSON: Okay. Okay. So well, let’s turn on the recommendation front now. And we can talk a little bit about your particular business as well. So I would say that one of the threads running through our conversation is, well, first of all, you’re cautioning people against the immense danger, not only of inflation, but of potential hyperinflation. And you’re making the case that fiat currencies, including the American dollar, are intrinsically weak and getting weaker for a variety of reasons. And that’s true systemically, not only in the US, and that that’s going to inevitably increase inflationary pressure.
Now, we’ve seen a fair bit of that in the last two years, let’s say. And it’s certainly, I think, evident to anyone who’s thinking that the actual inflation rate is much higher than the pronounced inflation rate.
Okay. So now, hypothetically, people are going to want to know how to protect themselves against inflation if they’re trying to store wealth in the long run, trying to maintain their savings at minimum, let’s say. And you make a strong case that gold is the proper medium in which to invest savings that you wish to maintain. Now, you broker gold purchasing services. We can walk through that a little bit. And so someone could say, well, you know, you have an iron in the fire. You have a stake in the outcome here. It’s not surprising that you’re putting forward the pro-gold vision. But I presume the reason you’re doing that is because you actually believe it and are invested that way yourself.
So what would you recommend to people who are listening? And these would be people of a moderate income, let’s say, or perhaps on the lower side. What would you recommend to them to be doing in order to protect themselves against the threat of inflation as the future rolls forward?
PETER SCHIFF: Yeah, well, first of all, absolutely right. I don’t promote gold because I have a bunch of gold I’m looking to unload. I mean, I went into that business because I believe that people need to own it. And in fact, I started SchiffGold, I owned a broker-dealer. And a lot of my customers wanted gold because I promoted gold. I talked about it, but I didn’t sell it at the time. I was just, you know, I was a stock broker and I was helping people with their stock portfolios. But I also recommended that they go and buy some gold and they would go and buy it from other companies.
But what was happening is people were getting ripped off. A lot of these gold merchants were overpricing their products. They were pushing them into numismatics or these collectibles. And I didn’t like what was going on. And so in order to make sure that my customers didn’t get ripped off, I started my own business just so that they could buy gold from me. And I can make sure that they weren’t pushed into these other products and that they bought bullion and that they paid a low price for it. So that’s how I got into the business because I believed in it.
Now, I don’t look at gold, though, as an investment. I look at gold as money. So to the extent that you want to keep liquidity, you don’t want to make an investment, right? You don’t want to buy real estate. You don’t want to buy stocks. You don’t want to buy bonds. You just want to keep some cash. That’s where I see gold as a place in the portfolio, right? And not the cash that you might need. I mean, at least now. I mean, when we’re starting to use gold-backed crypto, then you could keep everything in gold. But for now, you want to pay your rent. Your landlord isn’t taking gold yet. I mean, he probably will in the future. But right now, he wants, you know, dollars or euros. So you got to keep some cash to pay your bills.
But if you’re talking about cash that you’re going to hold on to that you might use in a few years, maybe to make an investment, maybe you think real estate is going to go down. Maybe you think stocks are going to go down. And so you want to have some dry powder to buy. That’s where you want to keep gold instead of currency. Because currency could lose so much value that, you know, stocks can go down in value but still go up in price. You know, so let’s say stocks could go down 10 or 20% in terms of gold. But they can go up in terms of dollars or euros. So it’s better to hold your dry powder in honest money. And especially now, because if you look around the world, interest rates in almost every country are still below the official inflation rates, which means rates are negative.
And of course, the real inflation rates are much higher than the official rates. So you’re losing a lot in cash. Maybe 10, 20 years ago, that wasn’t the case. You could get an interest rate that exceeded the rate of inflation. And so you were paid for the loss of purchasing power. And people would say, hey, you don’t want to own gold because you’re giving up that interest. Well, now there is no interest. There’s negative interest. Gold actually lets you avoid that negative interest. Because negative interest is a loss that’s imposed on you by holding a currency. So you avoid that loss by owning gold.
So gold is a substitute for money. But you want to make investments. You don’t want to just leave all your money in gold. Gold is a metal. It’s not doing anything. It’s not producing anything. You’re going to do better over time investing in productive assets. And that’s what I do.
SHOULD YOU INVEST IN INDEX FUNDS?
DR. JORDAN B. PETERSON: If you can identify them.
PETER SCHIFF: Yes. And if you don’t overpay for them. I mean, that’s a mistake that a lot of people make. They look at a company that has a good product. And they think, oh, let me buy that stock. Well, the stock could be way overpriced. So it’s not just buying a good company. It’s paying the right price. Right? Because that’s what’s going to determine your long-term return. If you overpay for an asset, you’re probably going to lose money eventually.
Now, you can…
DR. JORDAN B. PETERSON: So how would you… How do you view… How do you view, let’s say, the relative importance of something like a good… So there are these funds, which I’ll just outline this for people who are listening, that allow you to purchase a basket of stocks, essentially. And often those stocks are weighted to… The index is used to assess stock market performance. And so you can buy shares in a mutual fund, in a fund, let’s say, that owns a basket of stocks, a large basket of stocks. And so then you average your risk across many companies. And you benefit, in principle, from the average increase in productivity across that basket of stellar companies.
And so those index portfolios have proved to be a pretty good alternative to actively managed money. And how do you see investing in gold in relationship to something like investing in an index fund?
PETER SCHIFF: Well, I mean, they’re very different. So first of all, the idea of just indexing and just say, look, I’m just going to buy the market. I’m going to buy all these stocks. You know, in certain periods of time, that could work out, right? Because if a lot of money is flowing into those indexes, it’s going to push up the price of the stocks that are included in those indexes. But right now, because so many people have indexed, the stocks in those indexes, by and large, are overpriced.
And if you overpay for an asset, as I said, you’re going to lose eventually. Now, you can overpay for an asset. And you can make money if you can sell it to somebody who overpays by an even greater amount. And so you could trade overpriced assets if you’re nimble and make money. But if you’re a long-term investor, the way to make money is to buy something cheap. Buy it when it’s undervalued, especially if it pays a good dividend. Because now you can collect your dividends while you’re waiting for the asset that you bought cheap to become expensive. And I don’t like passive investing.
You know, what I do for my clients and what I do personally is I actively invest. And over the long run, that is much better than indexing. Over certain periods of time, indexing can do better. And then it becomes a self-fulfilling prophecy because the money gets sucked in chasing the performance.
DR. JORDAN B. PETERSON: How do you know that your active investing is allowing you to accurately identify stocks that are properly or underpriced? I mean, that’s the million-dollar question.
PETER SCHIFF: Well, there are some basic truths to assessing value of a business. You can look at a business, because that’s what a stock is. When you’re buying a stock, you’re buying a piece of a business. So you look at the business, and you can look at the revenues, the profits, the debt. You can look at all these metrics, and you can tell, is it cheap? Am I buying the income potential of this business? Am I getting a good price? You can look at ratios historically that show you that something is cheap or expensive.
Now, the problem that a lot of people have is their time horizons are so short. Because yes, an asset can stay cheap for a while before the price goes up. And usually, when you get something cheap, it’s because there’s a problem. Something’s got to be going wrong that’s causing people to sell. So what you have to be able to do is do your homework and decide, is this problem that is hurting the price of this stock, is it fixable? Is it long-term? Can we see beyond this problem to the solution? And is the market getting something wrong, and I’m getting a good price?
Conversely, when stocks are expensive, it’s because they’re doing great, and everybody loves them. And then what you have to decide is, well, are people being too optimistic about this company that’s doing really well? Are there problems that the market is not paying attention to that are likely to come up in several years? So there are ways to do this. And if you’re smart and you have basic principles, over the long run, I think you’re going to outperform just a static basket of stocks where you’re just going to pay whatever price the market is demanding.
DR. JORDAN B. PETERSON: And you’re saying that’s partly because these index stocks, they also tend to be somewhat inflated in value because so many people have dumped money into them.
PETER SCHIFF: Exactly.
DR. JORDAN B. PETERSON: So that’s artificially inflating the price of the entire basket, right? Then that rubs at counter-purposes to the idea of random sampling. It’s no longer random if you’re buying a preferentially priced basket of stocks.
PETER SCHIFF: And then it’s going to work in reverse. When a lot of people want to get out of the indexes, all these stocks are going to get sold. Because a lot of these stocks don’t even pay dividends. I mean, the problem is, let’s say you’re buying a bunch of stocks. They don’t pay dividends. If you retire and you have all these stocks, and now you need money to pay your bills because you don’t have a job, you’ve got to start selling your stocks. And that puts downward pressure.
DR. JORDAN B. PETERSON: So by placing those stocks in an index, they’re no longer independent either, right? You bundle them together. And so the presumption of independence that was there to begin with is violated by the bundling of the stocks in the index.
PETER SCHIFF: But the other point I’m trying to make is, if I’m building a portfolio for my clients of companies that I’m buying cheap, and because I’m buying them cheap, I’m getting a high dividend. I’m getting a lot of income on my stock. Because see, if you’re just buying a stock because you think the price is going to go up, that’s just speculating. You could be wrong. The price could go down.
I’m buying stocks that even if the price never goes up, I still make a good return. Because I’m getting a dividend right now, regardless of what happens to the stock price. So if you build a big portfolio of good dividend-paying stocks, while you’re still working and you don’t need the income, you could take those dividends and buy more stocks and build up your portfolio. But then when you retire, you don’t have to sell your stocks. You just take your checks, your dividends, and you start spending those. You stop reinvesting. And so that’s not a Ponzi mentality. That’s legitimate investing in the market by buying companies.
The most important thing, though, that I think people could do now is recognize, though, if I’m right about what’s going to happen to the dollar and the US economy, the companies I’m buying are international. And their customers are outside the United States. And these are the customers that are going to benefit when the dollar declines and the US loses that reserve status. And Americans can no longer live above their means. That means a lot of other people who are living beneath their means, they’re going to get a reward from the dollar’s loss of status.
And those consumers in those other countries are now going to be in better shape. I want to own businesses that have those customers. I want businesses whose customers are going to get richer, not whose customers are going to get poor. I want customers who have a lot of savings, not a lot of debt. So I own businesses that are going to be able to thrive where the US economy is in a lot of trouble, where it’s in stagflation. And I also own companies that sell products and provide services that people need. And they’re going to continue to buy those goods and services, even if they have to cut back on other things to afford it. You don’t want to have a portfolio where consumers can easily do without what you’re selling.
Or if you’re not even selling anything. A lot of these tech companies, all their income is from advertising. They give away the products and they have advertisers. But if the consumers can’t afford to buy products that the advertisers are advertising, then all that ad revenue goes away. And a lot of these tech companies that have these really high multiples, they’re going to come crashing down.
ADVICE FOR INVESTMENT BEGINNERS
DR. JORDAN B. PETERSON: Okay, so we’re starting to come to near the end of the time for our discussion. If you were giving people advice who are beginning to invest, let’s say these are people who might say have $100 to $5,000 a month to invest. What would you recommend? When do you think people should start doing that? At what level of income should you start to consider putting away some of your money? How much should you put away? And then what concrete steps could you take to start doing this, broken down in a very simple manner? Because lots of people have no idea how to start doing this.
PETER SCHIFF: When it comes to investing, I mean, the earlier you start the better because you get the compounding effects of that. Now, if you allow inflation to destroy the value of what you’ve invested, then, you know, that’s no good. But if somebody only has, you know, $500 to $1,000 a month to invest, I mean, what I would recommend is that they use my mutual funds. I mean, you could go to my website, europac.com.
Now, I think the minimum is $2,500 to get your account going, right? So you have to have at least that amount. That’s not a lot, but you can go on my website and just buy my funds. Now, my funds are also available at all the discount brokers. So if you have an account at Schwab or Fidelity or Ameritrade or, you know, all these, you know, my funds are on their platforms. But then I think the incremental investment, you can invest $100 or $500 at a time. You know, you can have small investments once you’ve established the portfolio.
But then you do get the benefit of professional management and diversification. You get a big portfolio of stocks that are actively managed by me and my team, where we are looking for good opportunities, buying stocks when they’re cheap, selling them if they get too expensive, and constantly evaluating our holdings, making sure that the stocks that we thought were cheap, because they had a problem, that those problems are being solved and that we’re right on our research. And if something comes up and we think we’ve made a mistake, we can sell a stock and redeploy the money. Or if we find an opportunity that we like better than one that we have, we can, you know, we can make the changes. That’s something that you can’t do when you’re just in a static model.
You know, and that’s why my funds, the performance has been so fantastic recently in the last one, three and five years relative to our peers is because we’ve done such a good job of stock picking and sector allocation. I mean, not only are we way ahead of our benchmarks, which would be an index, but we’re way ahead of everybody else who’s trying to beat the indexes. But I think the time period where my funds are going to do the best, and I have a value fund, a dividend payer fund, an emerging market fund, a gold fund and an international bond fund, it’s going to be in the future years when the dollar is really weakening.
THE TIMELINE FOR THE US DOLLAR’S COLLAPSE
I mean, the dollar hasn’t weakened dramatically yet. I mean, in terms of purchasing power, it has. I mean, that’s clear. I mean, you need more dollars to buy everything. But in terms of euros or yen or pounds, that’s not the case. But that’s coming. I think we’re going to see a substantial decline in the dollar relative to these other currencies. And that is the environment where my funds are going to do the best. And as inflation rates pick up and we see bigger increases in commodity prices, that’s going to really benefit my investment strategy.
DR. JORDAN B. PETERSON: OK, so let’s close with this, perhaps. So the devil, to some degree, is always in time frame, you know. And you’ve made a case for the inevitable weakening of the American dollar as a reserve currency and of its value as a fiat currency. That’s in keeping, the latter in particular, in keeping with its gradual descent into comparative lack of value against gold since 1971. But so the devil is always timing.
And so over what period of time do you think this unfolding into a more inflationary period is going to occur? And what makes you reasonably convinced, let’s say, of your timing?
PETER SCHIFF: Well, timing is always difficult. I mean, I know what’s going to happen. I’ve known what’s going to happen for a long time. That might be the problem. But where we are right now is exactly where I’ve been forecasting we would be, even going back to my predictions of the 2008 financial crisis. I knew that crisis was coming because I understood the mistakes that the Federal Reserve made to create that housing bubble. And I knew the consequences for the financial system when it popped.
But even before the bubble popped, I knew the mistakes the government was going to make. I predicted QE before I even knew the word. I knew they would do this. And I knew they would inflate an even bigger bubble that has finally popped. Because I knew that eventually the Fed would be in a position and other central banks where they would have created so much inflation that they would now be under pressure to do something about the inflation problem. But they couldn’t do that without creating a worse financial crisis than the one that they used inflation to mitigate in 2008. And that financial crisis has already started.
We saw that with the failure of Silicon Valley Bank and Signature Bank. And a lot more banks would have already failed had they not been bailed out. The government came in and propped them up and printed more money and came to the rescue, which is another mistake.
But we’re at a point now where inflation is going to start to run out of control because the Fed has started to return to inflationary monetary policies when inflation has already tripled its 2% target. We’re starting another recession from the weakest financial position that we’ve ever been in. And all the stuff that’s been happening is stuff that I predicted. In fact, even when COVID first started and everybody was saying, oh, this is very deflationary. I said, no, it’s not. It’s massively inflationary because people are not working. They’re not producing. And we’re printing even more money than ever. We’re actually paying people more to stay home than they earned when they actually were productive. I said, this is creating even more inflation.
And so we’re at this ticking point. And in fact, when the central banks had to keep interest rates at zero for so long, they did that for a reason. That was because they didn’t want the whole thing imploding. So they kept it on life support until they couldn’t do it anymore because of the outbursts of consumer prices. But I think we’ve passed that point. And so this is happening. This is the timeframe where the air is coming out of this bubble. It’s still early.
If you remember in 2007 when the subprime market blew up and I was very active there, we had shorted the subprime market. I mean, they wrote a book. They made a movie about that trade. Well, I lived that trade. We did that trade. So I was predicting subprime. I mean, you can go. One of my videos on YouTube is mortgage banker speech I gave in 2006 in front of 3,000 mortgage bankers. I went there to promote this hedge fund that was shorting subprime. But you can still watch my talk.
What you don’t have on the internet is the smaller talk that I gave later specifically on that fund. This was the larger talk. I had about maybe 50 people that came to the smaller presentation about the fund. But I knew at that time that the bursting of that bubble would create this crisis. But when the subprime problem initially reared its head, everybody said, don’t worry about it. The Federal Reserve said it was contained. Ben Bernanke said, don’t worry about subprime. It’s contained.
Well, I was on television at that time all the time. I used to be on cable news every week back then. I said, no, it’s not contained. This is the tip of an iceberg. This is a huge problem in the entire mortgage market. We’re headed for a financial crisis. It’s anything but contained.
Well, the government got that wrong. Then when inflation really burst out as far as high prices in 2021, what did they say? Oh, don’t worry about it. It’s transitory. Well, I said, no, it’s not transitory. It’s permanent. It’s here to stay. They were wrong again. Well, they’re ignoring the warning signs again, just like they ignored the subprime problem, just like they ignored the outbreak of the CPI. They’re ignoring all the early warning signs of the financial crisis that we’re in now and the Great Recession that’s beginning that is much worse than the last one.
And so the significant thing is going to be the difference, because I think this time we’re headed for a currency crisis. That’s going to be the end result of — this next collapse is going to be the end of the dollar status in a currency crisis. And so you have to have a very different investment portfolio than the one you had in the prior decade. Just hiding out in tech stocks isn’t going to work. Those stocks are going to go down. You have to have the international value, the dividend paying, the commodity exposure, old-fashioned type investing, gold. And that’s what I’m doing.
And again, for wealthier people, you don’t necessarily have to buy my funds. You can buy my funds, but we have separately managed accounts. So if you contact Europe Pacific Asset Management, we manage portfolios, individual portfolios of stocks that I think will perform extremely well during the economic environment that we’re in and that we’re going to continue to be in. Most people, unfortunately, are going to get wiped out. People are going to lose a lot in this environment.
But there’s going to be a small percentage of people, there always are, who will make money during this time period. And I just prefer to be among those people. Just like not everybody made money off the subprime collapse. There were a number of people who understood the problem and bet against the conventional wisdom, and they made money.
And the conventional wisdom is generally wrong, and it’s wrong right now. They expect things to happen that aren’t going to happen. They have a lot of confidence and faith in central banks and the Fed, and they’re wrong. This is not going to end the way they believe. There is a huge mispricing of assets now, just like there was for mortgages back then. A lot of people don’t understand this, and they’re going to suffer. But the people who understand it are going to profit.
And I’m hoping that as many people as possible, I can help them profit by getting them properly positioned with their portfolios.
DR. JORDAN B. PETERSON: All right. Well, that’s an excellent place to stop, I would say. We’re pretty much right on time there. And so for everybody who’s watching and listening, thank you very much for your time and attention. And Peter Schiff, thank you very much for talking to me today and walking me through a lot of this somewhat elementary material. But it’s very good for people to hear exactly how these things work, right?
Because we’re not well taught on the financial front, and many of the terms that are bandied about inflation, debt, deficit, investment for that matter, gold standard, fiat, people don’t understand these things. And to provide people with that information is extremely helpful. We will link to all of the opportunities that Peter described in the description of the video, so you can check that out if you want. And I’m going to switch over to the Daily Wire Plus side now and talk to Peter for another half an hour. I do that with all my guests to get a little bit more biographical information to find out how he got where he is, and maybe to delve a bit more deeply into his ability to have prognosticated accurately regarding the 2008 financial crisis, which was quite the interesting catastrophe and which he seemed to get right when very few people did.
So for all of you who are watching and listening, maybe you can direct your interest to the Daily Wire Plus side and offer them some support in doing so. They make these podcasts, for example, possible, and at least at the quality that they’re now being broadcast. And Peter, thank you very much for agreeing to talk to me today and for sharing what you know with everybody who’s listening. And we’ll talk again right away, and hopefully we’ll have a chance to meet at some point in the future.
PETER SCHIFF: Jordan, it’s been my pleasure to be here. I really appreciate the opportunity to speak with your audience, and hopefully I can come back and we can expand on these principles. And yeah, if you’re ever out here in Puerto Rico or Connecticut, I’m there once in a while, but happy to meet you.
DR. JORDAN B. PETERSON: Yeah, well, hopefully that’ll happen in the not-too-distant future. And once again, oh, and to everybody here, I’m in Monastery at the moment. [Heligan Croy] is just outside of Vienna taping this podcast and to the crew here, thank you very much for your help. To the Daily Wire Plus people for setting this up, that’s always much appreciated. And Peter, thanks again. Everyone watching, ciao. Thanks for participating, and we’ll see you on the next podcast.
For Further Reading:
The Natural Order of Money: Roy Sebag (Transcript)
Chamath Palihapitiya on Money as an Instrument of Change (Full Transcript)
Full Transcript: Money As Debt – Full Length Documentary
The Downfall of the Ivy League: Victor Davis Hanson (Transcript)