Hard-Core Free-Marketeer
A Conversation With Peter Schiff: Investor, Critic, Candidate

Sunday, October 4, 2009

Peter Schiff's day job is running Euro Pacific Capital, a Connecticut-based investment fund. But he's better known as the guy who called the housing collapse and recession back in 2006. Schiff, a hard-core free-marketeer and an adviser to Rep. Ron Paul (R-Tex.) during his 2008 presidential run, now moonlights as a cable news analyst and has become a YouTube fixture, thanks to the "Peter Schiff Was Right" mashups of his predictions. His latest job: seeking the Republican nomination to run against Sen. Chris Dodd (D-Conn.), chairman of the banking committee. Washington Post business reporter Frank Ahrens spoke with Schiff about abolishing the Fed, why housing prices must fall further and how many millions he'd spend to win a Senate seat. Excerpts:

What made you step off the sidelines of politics and decide to run for office?

About 5,000 people contributed to this Web site that was set up by a few kids in California. And then I set up my own exploratory site and said: "Well, you know, I'm thinking about running. If anyone wants me to run, send me some money and maybe I'll run." And over 10,000 people sent me money. I got a lot of e-mails from people, too, especially from young people, not just from America, all around the world.

People had seen you on TV?

Well, I think most of the young people, it's not even so much on TV because I don't even think they watch CNBC. They're seeing me on YouTube. I spoke in Poland at an economic conference, and people were coming up to me wanting a picture with me. I was the only person, really, that got any applause. And my applause was when I was talking about capitalism and the beauties of the free market. I got applause from people who were born in a communist country.

Well, that plays well in a young democracy, right?

I really do believe that this country is headed for a major crisis. We didn't just have the crisis. The crisis is still in front of us, and I think it's going to be horrific. And my fear is that the government is going to continue to make the same mistakes that have made this crisis inevitable. Every time there's any kind of crisis, the government responds to it by seizing more power, and we surrender more liberties, and more of the Constitution is shredded, all in the name of trying to solve problems.

There's nobody on Capitol Hill whom you can point to as a defender of liberty?

Well, Ron Paul is there, but he's one congressman. And he's an old guy. If I can take a Senate seat, there's a lot more power in a Senate seat than a House seat. And most of the other senators spend 90 percent of their time trying to get reelected -- raising money, doing what it takes to stay in the Senate, right? I'm not going to spend any of my time on that. So I'll be, like, 10 senators all by myself.

That could be your motto: "Elect Peter Schiff to get nine more senators."

I'm interrupting my career. It's not like I want my new career in politics. But I'm willing to interrupt it the same way that somebody interrupted their career and joined World War II and went off to fight the Nazis. I don't think that I'm that heroic, and I don't think I'm risking as much as a soldier. But it's the same principle.

How much of your own money are you going to kick in? How is the fundraising going so far?

I've raised over $1 million so far in the draft effort. I think I can raise a lot of money. How much money I'm going to put in of my own, it's hard to say. I put in a little bit of money to get it started, $50,000 initially. But it's really going to depend on how the race is progressing. Obviously if it gets to the point where it's really close and it's like, "Hey, if I just put an extra million dollars this weekend on media," I have the money to throw in. It could be in the millions, but it's not going to be in the tens of millions. I'm not a billionaire.

Your Washington Post op-ed last year was a "don't give up on capitalism yet" call. But if the Treasury and the Fed and even the White House hadn't done what they did, wouldn't we have been facing deflation, and isn't that a lot scarier?

The prices that would've come down would've been real estate prices, stock prices. We wouldn't have had a big drop in food prices and clothing prices and health-care costs. So when I'm talking about a deflation, we're talking about the deflation of an asset bubble. Real estate prices are much too high still. The government is still trying to keep them from falling. Interest rates are in the zero range right now in order to artificially levitate asset prices, but this is causing real problems underneath the economy. Interest rates can't be zero. That's not right. But the problem is that to have interest rates at the level that's appropriate would bring down housing prices, which would bankrupt a lot of financial institutions that have real estate as collateral. But we have to let that happen. We can't try to preserve artificial prices in a market economy.

So you fear debt- and deficit-driven problems?

Our economy as it is currently structured does not work. It's an abomination. It functions because we go around the world and borrow money from the Chinese and the Japanese and the Saudis, and then we spend it on products that we import. So 70 percent of our GDP is composed of consumer spending. And so how can you have an economy that runs like this?

You have said you want to abolish the Federal Reserve.

I'm a little leery. The Fed has done a horrific job; if any agency deserves to be abolished, it's the Fed. But you've got to be careful what you wish for. I think it's probably better to try to reform the Fed. I want to strip some of the powers and bring it back to the way it used to be.

Should it be setting interest rates?

I think the market should be setting interest rates. Let the Fed worry about money supply, and let the market set the interest rates.

Where do you stand on health-care reform?

Nobody asks: "Why are health-care costs rising? Why aren't they falling?" Cellphones are cheaper; why don't we get the same result in medicine? Look at Lasik surgery: It's getting cheaper and better every year. What's the difference between that and what other doctors do? The difference is, there's a free market in Lasik surgery, and there's not a free market in everything else.

President Obama has said the United States should move away from this boom-and-bust cycle. But aren't booms and busts part of the market?

They're not part of the market until the government blows up the bubble. So whenever you really have a bubble, generally speaking, the government is blowing the air into it. To say that we have to stop the booms and busts, you'd have to stop the booms. If you don't stop the booms, the busts are inevitable. So where do booms come from? They come from cheap money. They come from interest rates too low. We need the government to stop inflating bubbles. We don't need a super regulator. We already have a super regulator. It's called the free market. The free market regulates if it's left alone. The problem is, if it's not left alone, it doesn't work.

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