now from freedom fest the annual libertarian conference held in las vegas. booktv sits down with peter, ceo and chief global strategist at the pacific capital incorporated and argues that his book the crash that we replaced the housing bubble with a government inflated a bubble that will eventually top and caused another economic collapse. this is about 25 minutes. >> now joining us on booktv is peter schiff, he is the author of the real crash, america's coming bankruptcy. how to save yourself and your country. here is the cover of the book published by st. martin's press. what do you think when you talk about a government goebel? >> let's go back. we had two big bubbles, we had the stock market bubble because initially the chief money supplied to the economy by the fed and the stock market has had a lot of the crazy stock is
replaced by a larger bubble in the real estate in which we expanded this economy based on all of the false rules while people were spending money that they don't have come in and we have a lot of consumption and employment that was a function of the wealth. that bubble burst and now all of the achieved money that the fed was creating was going into the government through the bond market. the government was able to borrow enormous amounts of money and all true low interest rates thanks to the fed coming and now we have an economy that is dependent on all of this excess government spending in the cheap money and you can see it in the price of the bond but like the two prior bubbles it is going to burst and unfortunately what it does, the consequences for the economy are going to be much worse than they were when either the real estate bubble burst or the stock market bubble.
>> and again, the 21st, the so-called private sector baubles, what was the federal government role in your view in creating those? >> they did create them. they supplied all of the air that blew them up. for the stock market bubble if you remember the 1990's when he was the chairman, every time there was a problem in the world, whether it was asian debt crisis, russian debt crisis, bankruptcy of orange county, long term capital management, yankee's the market got nervous and the stocks started to fall it was that money by keeping the rates low during the nineties even though they are higher than they were now there were still lower than the market. and you have able and when it burst the same data monetary policies that inflated the stock market bubble in the real-estate
bubble only that one was worse because did the supply of cheap funding that middle of the rates possible in the sub prime lending possible when it compound of the government era when you have things like fannie mae, freddie mac, the fha putting the taxpayer guarantees on mortgages that never would have been originated in the free market because in the free market people would have been worried about not getting paid back. but the government basically told the banks you can lend money to people even though you know they are not going to pay you back because the taxpayer will. as we have a bubble based on that moral hazard and based on cheap money, and of course it burst. a lot of people like to blame the market for that. they like to blame wall street. it's not wall street's fault. i'm not saying they are completely innocent. they drank a lot of the alcohol that the fed was pouring and
they acted irresponsibly under the influence. but you have to look to the source. you have to look at why were so many people so foolish simultaneously not just on wall street. plenty of people on main street were lying about their income and buying houses they couldn't afford. but unfortunately, instead of learning from its mistakes, they just keep repeating them on a bigger scale. the bad monetary policy that we have now are so much worse than greenspan. we have 0% interest rates that is even more damage than the one person that we have at the lowest under greenspan and this government bubble is enormous, and when it pops all of the banks that we bailed out of t.a.r.p. they are going to fail again and they're probably going to lose this time, not just the bondholders. the government itself might have to default a restructured and not pay 100 cents on the dollar on treasurys.
they still at a long way to fall when the government bubble pops and the scary part is it is so enormous that the government might try to prevent it from popping as long as possible which means we will have massive inflation before that happens, and if the government never pops that bubble then we've read debate could destroy the bubble and have a currency crisis that would be far worse than the financial crisis we would have based on a government fault. >> politically can you foresee the government not popping the bubble that you see? >> hopefully they will because not popping it is worse. if you try to inflate it as big as you can, it's the dollar that collapses. what the government wants to do right now is avert losses. the government doesn't want let's say bondholders to lose their money. the government doesn't want the depositors and financial institutions to boost their
money all they can do is change their form and right now they are going to do is change it into the purchasing power creating inflation so that you don't lose your money but your money loses its value instead. in order to do this at some point it has to lose so much value that it would be better off with a restructuring. i would rather get 50 cents on the dollar than to be paid in full of 10 cents of purchasing power or 5 cents for the purchasing power. >> so, peter, if you could walk us through the time frame of how you perceive this government bubble bursting, and exactly what is going to happen? >> it's similar to the government bubble that is bursting now increase. or maybe that's bursting in spain. other countries in europe think back two or three years ago. was just as broke as it is today. yet they were able to borrow money and they paid a lower interest rates and everything was fine. it wasn't fine. it's just the bond holders were
asleep. they were oblivious to the circumstances. and eventually they woke up and they demanded a higher rate of interest to compensate for the risk of holding the paper and now the government can't afford a higher interest rate, and now people realize that so they want their money back. so now there is a crisis. the only reason that we can service our debt is because the rate is so low. we can't be pay our debt. that's not even possible. all we can do is service the debt but of course once our creditors realize we can't, then they are going to want their money back and we can't pay it back. we can print it but then it isn't going to be worth very much. the key is going to be when are the creditors going to wake up and demand a rate of return on the dollar's? because right now the rate is zero and because there is a lot of demand for dollars right now as a safe haven even though the dollar is not a safe haven it is in worse shape than europe collectively than the u.s.
states are in worse shape collectively in the federal government and the year rose own economy. we might not be in worse shape than greece but when you take germany and everybody else and put them in one community we are in worse shape than they are and we get the benefit of the doubt. we are the safe haven and people think that everything is okay because they know that we aren't going to defend because you can print money. when they realize printing is worse than defaulting because the potential for the loss is even greater then we are going to see a big spike in the interest rates and that is when we have our crisis because either the fed allows the rates to go up, and who knows how high they might have to go. let's say 10 percent in order to stop the implosion of the dollar and put an end to inflation. if we have a $20 trillion national debt when that happens that would require us to shell out $2 trillion a year of interest payments. where are we going to get that? that all of the tax. >> you mentioned the creditors.
who are the creditors? especially for the united states right now. >> some are other americans who own treasury and large insurance companies and banks in america who own treasurys. the federal reserve owns a lot of treasuries, so we as taxpayers even though we are not buying them with our own money the fed is the largest by year of the treasury's right now. but the foreign central banks, banks all around the world, china is a huge creditor. we owe them over a trillion, we'll japan over a trillion. governments are holding on to this debt. you know, there is a story. i forget where it was run that mentioned from the peak of the housing double until now they said the average american household net worth was down about 40%. it's actually down a lot more than that when you factor in each share of the debt that has been accumulated in their name by the federal government. so americans are basically already broke. that's why we have to just admit that we are insolvent because
the american families cannot repay the money that's been borrowed in their name. so we admit that we are insolvent. greece imposed a hair cut at 50% of the bondholders. we tell people that have one-year treasury bills we can't pay you back in a year. you have to extend the maturity beebee ten years. america has to tell people who are collecting social security right now or who are expecting to collect it they aren't going to get as much money as they were promised. we have to cut the pensions of the retired amid workers it's not that everybody gets paid but they get paid money of the minimal value. and we have to look at the reasons the economy got so screwed up in the first place
and restructure and reform. we have to stop the federal is the interest rates are too low. interest rates have to be much higher so that we have savings. no one is going to say that the return is zero. and there is no capital investment we can to grow an economy, raise our living standards and provide productive employment opportunities so they let the chips fall where they may and what insolvent institutions fail and let people who invested in those institutions lose money and we need to restructure. we need to shrink the government and get rid of this government spending in the departments and a lot of regulations that have made us uncompetitive and unproductive and create a market economy that was the source of our life. the real crashes how to end bailouts you to stop bailing
people out and removed the m+r or explicit guarantee that some institution is to big to fail. capitalism doesn't work if you take the risk out. people have to be accountable for their actions. they have to weigh the risk and reward. if you privatize and socialize the loss is you get a disaster. sweet and that perception once and for all in the capitol markets. including the government. if you loan money to an institution, individual or sovereign government, if they can't pay you back their granted default and you are not going to get your money back. we've to face a high rate of interest but it isn't just further and banks. we have to end the subsidy for the students borrowing money to go to college, for individuals who are borrowing money to buy a house. if you want to buy a house there should be no government guarantee. no bail out for the bank if you don't repeat that mortgage. therefore the banks will be more
money they make the loan they will make sure the person that's adequate down payment and has the income to repay that loan. right now you have all of this hazard and what about the bank's? i don't want the government bailing out a bank account. i don't want the government injured bank account. if you put your money in at think you better make sure that think it's safe because if it fails, don't look to the taxpayer to bail you out and once the bank knows the depositors are to be concerned about solvency and you're going to act a lot more responsibly as well. right now banks are reckless because the government has told them to be reckless because they have eliminated all of the free market regulation that would have prevented them from being reckless and force them to be responsible. >> do you think monetary policy is too complicated for most americans to get excited about? tickets kaput could you don't understand it. the government doesn't want
people to know what they're doing that we can up with the word quantitative easing. its inflation, its printing money, it's monetizing debt. that's what it is. but they don't want us to know that such a complicated about so they don't understand what they are doing. inflation is what happens when the government expands the money supply. and basically that is all we are doing right now is creating inflation coming and we need to stop doing that. and the monetary policy as i said is the source of the boom and bust. it is a function of the bad of monetary policy. it's manipulation. that's why we need to be on the gold standard. if we are on a gold standard we would have discipline, we would have intrinsic value in our money and we wouldn't have all these big makarov and mcginn and balances. the government couldn't run up this debt if we had to repay it so the government would be much smaller if we had a gold standard. that's why the politicians oppose the gold standard if we want to grow and leslie it
protects individuals from the growth that's why they put on the gold standard from usurping power. >> isn't our entire economy based on consumer spending? bergues based on the production going on in other countries. you can buy something that's been produced. you have to produce it before it can be consumed. the economy is based on production and supply and it comes from the under consumption savings investment and right now what's keeping our economy afloat is that the rest of the world as lending us money and resources but this can't last indefinitely because it is like a ponzi scheme because we can't pay back all of the money that we borrowed and eventually or
foreign suppliers and foreign creditors are due to figure this out and cut us off and then we just implode and if we don't have anything you can show that wal-mart with all the paper money that you want but if the shelves are empty, you know, you're just going to go home with what you brought so we have built up this phony economy based on this keynesian met that demand in spending drives and economy it doesn't and that isn't what we aren't doing enough of. >> peter schiff is the author of the crash had to save yourself in the country. he's also the ceo and chief global strategist at euro pacific capital which is what? >> it's also an asset management company and for people who are interested, to use me as a broker we do specialize in international investing.
we have the funds that i run. we can manage your money on a discretionary basis and the separate account. also have a precious metals company in their u.s. for people who want physical delivery of bullying as well. >> he's also a radio talk-show host, schiffradio dhaka, is the website for that and the author of two other rokes, crash 2.0. >> how the economy grows is the best book to start with the cause of this kind of like a fable. you can read it into to three hours. it's quite funny but it really breaks down the economics into the simplest form and it is a good primer to understand the problems with keynesian as some and the austrian school coming and even children can understand it. i wrote for the level of the child. >> and also for office.
>> i ran for the senate. >> i ran in the republican primary. so i never made it out of the primary but i did it pretty respectively for a first-time candidate seeking statewide office. >> would you run again as a republican? >> i have no plans in the immediate future to run for anything. but i certainly might. >> we are here at freedom fest, the libertarian gathering and this is a theme that we've heard from a lot of wheat spoken to here. >> you use the word moral two or three times. what you mean by that? >> meaning honest, principled, fair. what would be immoral if the government is going to force me to subsidize to bail somebody
out things need to be above the board and honest about what be obligated to something aside voluntarily choose to do it and that's not fair if the government said we know all individually for take money from you against your will but if we involve the third party like the government and by convince somebody i vote for somebody to take your money and give it to me how does that not make itself? you're not in favor of it. i'm taking money against your will and they are going to put you in jail. so that isn't morrill. capitalism is a very moral system of the government because it is based on voluntary exchange. people -- to trade one another without any collision from the third party but right now what we have unfortunately involves conversion one other thing in
your book america spends too much time and money on college and you were kids go to college. >> absolutely pitted we have the highest percentage with college degrees that we ever had. there've been waiting tables, driving taxis, working as janitors and maids. not everybody needs to go to college, number one. we know that. and there are colleges teaching remedial math and reading we can read and do math by the time to graduate you are wasting your time in college the best skills people acquire or on the job. you can learn by somebody that's doing something. you can be an apprentice and get a lower paying job and acquire skills on the job we have a good public education because the government subsidizes student loans. students are able to acquire
tremendous amounts of money so the colleges can keep jacking up tuition every year because they know they will get the money from the government. so unfortunately we have destroyed a generation of americans because we have made them borrow a tremendous amount of money they are going to struggle to repay to get the liberal arts degree is that have no relevance in the employment world pity and now they are broke and they've learned nothing. they squandered five or six years of their lives that could have been used productively to use money and to acquire skills that would have provided them with a comfortable living. there are certain things going to college makes a lot of sense that the vast majority of college graduates do jobs that high school graduates could do. they drop out of high school, so this is all a myth that everybody has to go to college, that the solution is to spend more money. it's all left the leave come myth.
the biggest losers are the kids that squander their youth and adult acquire real skills. they acquire mortgages but no houses and the society, society is poor because we are wasting all these resources. one of the reasons the college graduates graduate into an economy with no jobs is because all of the capitol that would have gone to the businesses to employ them is directed to the universities to educate them and they are not really educated. they are more indoctrinated and they just party and now because money went to universities instead of businesses they graduate and they can't get a job so we are broke right now as a nation. we have to recognize we are broke and stop wasting all this money and get rid of all of the government guaranteed loans. colleges compete for students and a free market where they have to put the price down and then prices will collapse and the people that can benefit from a college degree can actually go and people will choose majors are more likely to enhance their earning power because maybe he
was a major and engineering it might be able to the private sector alone because you will be able to pay its back. you need market discipline coming into education and we need to free of our resources and we spend too much on education. we spend too much on health care, too much on health housing and to many things the government subsidizes and not enough money on all of the things the government taxes. >> america's coming bankruptcy, the front of your book says. is there a way to prevent this? >> we are already broke. it's just the question of acknowledging and how we deal with it. ely of a plan for dealing with it as productively as possible. it's not painless. we are sick. we need this medicine. it doesn't taste good but will cure us but because it tastes bad we refuse to swallow it and we are glad to get sicker and sicker and eventually we have to
swallow it and its wittiest that much worse because we waited so long and we allowed the underlying illness to get worse but ultimately if we never do the right thing is going to be a complete financial meltdown. it's going to be a currency crisis, the bond crisis, and it is going to make 2008 look like a poem, look like the sunday school picnic smith it's not capitalism that caused it is a lack of capitalism and we need to get the government out of this economy since the start of immeasurably and get free market forces back in because we are in a gigantic hole and we have to get out of it and we aren't going to get out of it with government. the way we are going to get out of it is with free-market capitalism was a fair. we need to cage the government and the back of in the constitution the way the founding fathers envisioned it and force those enumerated powers and make the government as small as possible and unleash the entrepreneurial spirit that
i know is there we can unleash that economy that the government isn't going to get it to us we have to get it to ourselves. >> we have been talking with peter schiff the real class is the name of the book and we are watching book tv on c-span2 >> the program began under one of the advisers to president franklin roosevelt to document the conditions under which people were living. this was back when we didn't have television. we have a radio, but a lot of places didn't have electricity so they couldn't listen to the
radio broadcast to find out what was going on in other parts of the country. he was an economist from columbia university. she was the head of this project in 1939 when kodak introduced ascent stryker to have his photography's out to see what they could do. kodak was trying to establish a new market product to people that would know how to use it effectively to publicize it.