Why Peter Schiff is right… about the system
We often tease Peter Schiff for sticking to #gold while its replacement #Bitcoin has already arrived.
And rightly so because by advocating for gold he is doing neither himself, nor his followers a service.
But credit where credit is due: his analysis of the problems in our current financial system are spot on!
He probably influenced countless Bitcoiners in their thinking about the financial system.
In his recent conversation with Jordan Peterson, Peter Schiff made some really good points:
1. Here's what you need to understand about inflation
“Inflation is a bigger threat now than it has ever been because of the fiscal predicament the major governments have put themselves in.”
Government debt is increasing exponentially, and it seems nobody can stop it.
There are just three ways to decrease this debt:
Spend less (which most governments seem incapable of doing),
Increase taxes (which people don't like) or
Reduce the value of money by printing more of it (this makes the debt seem smaller).
The threat Peter Schiff refers to is option 3) because it is the easiest way for governments to get out of their fiscal predicament.
And most people won’t realise it's happening.
2. Gold kept governments honest
“With the gold standard the only way for governments to get money is through taxes or spending less. It couldn’t print it, because gold had to be mined. And was a way to keep the politicians in check.”
Fiat allows politicians to print as much money as they want and use it however they see fit.
This gives them a lot of power to interfere with our lives. The extreme measures taken during the Covid crisis are a recent example.
The problem is, because there's no limit on how much money can be printed, a lot (if not most) gets misallocated.
With the gold standard, governments had to be careful about how they spent their money, which led to better decisions.
3. CPI numbers are being manipulated
“Governments keep their own scorecard on inflation and while the basket of goods to calculate it used to be the same always. Now the basket changes and the government can add and take out products from the basket. And it is no surprise that usually they take out the products that went up in price.”
Because the basket keeps changing, CPI is a terrible way to measure inflation. Its “flexibility” makes it easy to hide the fact that money is being devalued.
Until they can't hide it anymore, even with the changing basket - a situation we're currently in. This is when you'll start to hear talk about changing the basket formula to "more accurately reflect the real situation".
4. People are going to leave
“The trajectory of debasement and money printing we are on means people get less and less benefits from the government and at one point (young) people will simply leave.”
Countries are in competition with each other for capital and the best talent.
Those with good fiscal policies and strong currencies will draw talents (and their money) from countries with bad policies and weak currencies.
What I find hard to believe is that Peter Schiff really thinks they will be taking their life savings in gold. Instead of using a 24-word sentence they memorised…
5. The US’s main export is money
“Where the rest of the world has to produce stuff to import stuff, the US can just print dollars and export these. Therefore Americans leave above their means while the rest of the world lives below their means.”
Most Americans are probably not aware, but the rest of the world is very aware.
This causes a lot of anger towards the US and is an important reason why other countries are trying to find ways to stop using the dollar as their backup money.
We often tease Peter Schiff for sticking to #gold while its replacement #Bitcoin has already arrived.
And rightly so because by advocating for gold he is doing neither himself, nor his followers a service.
But credit where credit is due: his analysis of the problems in our current financial system are spot on!
He probably influenced countless Bitcoiners in their thinking about the financial system.
In his recent conversation with Jordan Peterson, Peter Schiff made some really good points:
1. Here's what you need to understand about inflation
“Inflation is a bigger threat now than it has ever been because of the fiscal predicament the major governments have put themselves in.”
Government debt is increasing exponentially, and it seems nobody can stop it.
There are just three ways to decrease this debt:
Spend less (which most governments seem incapable of doing),
Increase taxes (which people don't like) or
Reduce the value of money by printing more of it (this makes the debt seem smaller).
The threat Peter Schiff refers to is option 3) because it is the easiest way for governments to get out of their fiscal predicament.
And most people won’t realise it's happening.
2. Gold kept governments honest
“With the gold standard the only way for governments to get money is through taxes or spending less. It couldn’t print it, because gold had to be mined. And was a way to keep the politicians in check.”
Fiat allows politicians to print as much money as they want and use it however they see fit.
This gives them a lot of power to interfere with our lives. The extreme measures taken during the Covid crisis are a recent example.
The problem is, because there's no limit on how much money can be printed, a lot (if not most) gets misallocated.
With the gold standard, governments had to be careful about how they spent their money, which led to better decisions.
3. CPI numbers are being manipulated
“Governments keep their own scorecard on inflation and while the basket of goods to calculate it used to be the same always. Now the basket changes and the government can add and take out products from the basket. And it is no surprise that usually they take out the products that went up in price.”
Because the basket keeps changing, CPI is a terrible way to measure inflation. Its “flexibility” makes it easy to hide the fact that money is being devalued.
Until they can't hide it anymore, even with the changing basket - a situation we're currently in. This is when you'll start to hear talk about changing the basket formula to "more accurately reflect the real situation".
4. People are going to leave
“The trajectory of debasement and money printing we are on means people get less and less benefits from the government and at one point (young) people will simply leave.”
Countries are in competition with each other for capital and the best talent.
Those with good fiscal policies and strong currencies will draw talents (and their money) from countries with bad policies and weak currencies.
What I find hard to believe is that Peter Schiff really thinks they will be taking their life savings in gold. Instead of using a 24-word sentence they memorised…
5. The US’s main export is money
“Where the rest of the world has to produce stuff to import stuff, the US can just print dollars and export these. Therefore Americans leave above their means while the rest of the world lives below their means.”
Most Americans are probably not aware, but the rest of the world is very aware.
This causes a lot of anger towards the US and is an important reason why other countries are trying to find ways to stop using the dollar as their backup money.