Economist Peter Schiff Forecasts Second Crisis to Hit Around 2013

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So what do you do when one of the very few economic analysts to predict the financial crisis would strike in ’07 or ’08 says another, even more catastrophic economic collapse will hit the United States economy in 2013 or 2014?


If you’re smart, you’ll listen– at least to hear him out. Forbes reported this spring that the ever-bearish and independent Schiff is forecasting another economic crisis that will strike at the very heart of the U.S. economy, sweeping through the monetary system itself and precipitating a massive U.S. dollar and Treasury bond crisis. His analysis of the underlying economic problem and solution is essentially the same as it was when he predicted the 2007-2008 financial crisis.

Again, Schiff has a view on what the problem is: “We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back.” Not only that, but Schiff says when the economic crisis hits, your money might not be safe.

While most major banks have passed the Federal Reserve’s strenuous stress tests to ensure their viability in the event of another economic catastrophe, Schiff says those tests are predicated on another massive decline in home equity and real estate prices, which was the last bubble to pop, not the next one: “The Fed didn’t ask the banks to stress test a big drop in the bond market because that’s what coming, and the banks would fail that.”

His solution? “The more you delay it, the bigger it will be, so we need to raise interest rates during the recession to confront the inefficiencies.” It’s not just unconventional, it’s the exact opposite of what most analysts on both sides of the partisan divide would recommend and flies in the face of the Federal Reserve’s management of the crisis by frantically holding interest rates down to what is functionally a zero percent rate.

Schiff argues the easy money policies and the debt-based economy is what caused the problem in the first place and more of the same will only make it worse. Instead, Schiff believes a recession is a necessary transition of the economy from a debt and consumption-based economy to a production-based economy that creates real wealth and real jobs. He even suggests that the bad medicine doesn’t have to be all bad: “In a deflation[ary recession], real wages will rise because the cost of goods will fall faster.”

Peter Schiff’s advice may be unconventional, but his record of remarkable economic prescience makes him an independent voice worth listening to and he isn’t shy about saying so:

“All of the people who were 100% wrong [back in ‘08] are saying that everything’s OK [now]. I am telling them they didn’t solve the problem and are making it so much worse. I didn’t get lucky, I just understood the problem, and we are going to get another big one coming soon.”

The question is: Do you think Peter Schiff will be right again?

What do you think?

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