How to Profit from the present Economic Collapse

 

Since closing the gold window in 1971, the Fed’s inflation of the money supply has been tempered somewhat by the unique position of the United States; foreigners, especially other governments, were willing to accumulate large reserves of dollar-denominated assets.

But once the illusion is broken, the game will be over. The only thing that buoys a fiat currency’s market value is the widespread belief in its future market value. Once that belief is questioned, the green pieces of paper can become worthless.

Schiff is president of Euro Pacific Capital, a broker-dealer specializing in foreign markets. He is very well read in Austrian economics, and his pessimistic analyses on CNBC and other outlets have earned him the nickname “Dr. Doom.” 

Schiff is a staunch proponent of honest commodity money. He believes that the US dollar is poised for a significant fall versus other currencies but in particular against real goods and services.

As Schiff puts it in one of his clever analogies:

Remember when Iron Mike Tyson wore the heavyweight crown, was knocking out everybody in sight, and was so fearsome it seemed inconceivable he could lose? Well, as always happens eventually, he finally met his match. Buster Douglas beat him, and after that he just kept getting beaten. It was the same Mike Tyson, but Buster had broken a psychological barrier.

Any reality check that pierces the myth that the American economy is too big to fail could begin the process of unraveling. (pp. 5–6)

Schiff then goes on to give his own knockout prediction:

Our days as the dominant economic power are numbered. The dollar is going to collapse, and Americans are going to experience stagflation on an unprecedented scale in the form of recession and hyperinflation. Those of you who act smartly and quickly by taking measures I outline later in this book not only will avoid loss of wealth but also will have positioned yourselves to prosper while your neighbors suffer a painful period of reconstruction and reform. (p. 6, italics original)

Investment Advice

The important thing is that the US transformation from the largest creditor to the largest debtor nation is the result of our fiat money system, and is not at all a sign of economic strength.

So even though I wouldn’t recommend Schiff’s ultimate purpose is to guide investors through the storm. This is really where Schiff shines. Of course he recommends getting out of dollar-denominated assets. But Schiff goes much further. He takes the reader step-by-step through the process of selecting foreign assets, and also gives pointers on buying gold.

I don’t want to hurt his sales, so I won’t reveal all of the secrets. But let me give a great example that illustrates the sophistication of his analysis. It’s really a lot more than simply, “The US is going to hell in a handbasket!” In a section entitled “SHORT THE MARKET?” Schiff writes:

It’s not everybody’s cup of tea, but an investor of above-average sophistication might reasonably ask, “If the U.S. stock market is a train wreck waiting to happen, why not just sell it short?”…

Here’s why I would recommend against doing this.

Retail brokers normally require investors to hold any short-sale proceeds in U.S. dollars usually earning no interest. The dollar, seen through my famously jaundiced eye, could lose more purchasing power than the security you sold short lost value…

I’ve got a much better idea, which is to borrow dollars and spend them to acquire foreign income-producing assets, using the income to pay the interest. Short selling accomplishes the opposite, as you end up borrowing assets, which will probably have some intrinsic value, and acquiring dollars, which may have none. (pp. 112–113)

Miscellaneous

Beyond his diagnosis of the American economy, and the nuts and bolts of how to ride out the storm, Schiff’s book is filled with all sorts of interesting tidbits.

For example, he says that China’s advantage is that it is not a democracy, and this is precisely why it will be so successful in the coming decades (p. 177). On the matter of supposedly communist China, Schiff asks if the reader remembers seeing “MADE IN THE USSR” on all sorts of products during the Cold War? Of course not. Schiff’s conclusion is that “in ‘communist China’ entrepreneurs have more freedom than they do in America. It is far easier to go into business there than here.” (p. 176)

Another interesting part of the book is Schiff’s graph of the Dow Jones Industrial Average divided by the gold price. After peaking in both 1929 and 1966, this ratio returned both times to about 1 to 1. If that were to happen today, it would mean a tremendous fall in the stock market and a huge rise in gold. Even if the ratio returned only to 2 to 1 or even 3 to 1, it would still spell a large fall for stocks and a large upswing in gold. (Schiff pp. 220–222)

Finally, to give a taste of the passion in the book, I will close with Schiff’s chilling warning of the looming choice that Americans will face:

For years the United States has been traveling a course the Nobel Prize-winning Austrian economist Friedrich von Hayek set forth in a book self-descriptively titled The Road to Serfdom. The coming economic collapse may finally bring Americans to that grim destination. But it is also possible that the same dire economic conditions will inspire a return to the country’s constitutional traditions of sound money and limited government, the foundation upon which a viable economy can be rebuilt. There is a fork in the road to serfdom. One choice leads back to freedom, and it is my fervent hope that Americans will take it. (p. 259)

EXTRACTS FROM_A Review of Peter Schiff’s Crash Proof: How to Profit from the Coming Economic Collapse

by Bob Murphy, Bob Murphy [send him mail] has a Ph.D. in economics from New York University, and is the author of The Politically Incorrect Guide to Capitalism. He has a personal website at ConsultingByRPM.com

Book Review: Crash Proof – How to Profit from the Coming Economic Collapse by Peter D. Schiff with John Downes, Written by

Clarence Yu

I have to admit that I discovered author Peter D. Schiff the new-fashioned way: via YouTube. A friend of mine insistently kept sending me links to his televised appearances on Fox News and CNBC, so, one day, I finally relented and watched a clip. His words were enough to make me go out and buy the book Crash Proof, which he wrote with John Downes (also by Schiff: The Little Book of Bull Moves In Bear Markets: How to Keep Your Portfolio Up When the Market is Down).

Crash Proof is a book about economics, specifically sub-titled as How to Profit from the Coming Economic Collapse, and was published in 2007, way before the current worldwide economic crisis hit us. If you’re thinking that this was a book that should have been bought and read in 2007, think again. This book has way too much information in it to be treated just as a “how to” guide, and offers plenty of invaluable advice, whether or not we are in a crisis situation. 

In Crash Proof, Mr. Schiff gives the reader a back-to-basics lesson in fundamental economics, dispensing with technical economic jargon and instead using conventional day to day conversational language. Mr. Schiff doesn’t pretend that you know everything, nor does he spoon feed you with perfect information, so the layperson reading the book is able to stop once in a while and think before continuing on.

Slowly but surely, the reader is treated to doses of common sensical insight and concepts about the mysterious world of economics—for example, carefully explaining what the trade deficit is about and why a capital surplus isn’t always that good, among other things. Or what the gold standard was, and what the Fiat system currently is. I never learned that when I was taking up economics in college (perhaps I wasn’t listening), but the point I’m making is that I wouldn’t be able to explain this to you now had I not read this book. On that point alone, this book is worth its price, and more.

Building from this momentum, Schiff argues on several points on why and how the U.S. economy is in its current state, and offers specific strategies on how to protect yourself from the real estate debacle that already happened (again, the book was published in 2007), what to buy, what not to buy, but most importantly, he presents the logic on which he builds his strategies with a simplicity that is so understandable, until there is absolutely nothing left to explain.  In my case, I had to check Wikipedia a few times to check out some definitions in the book, but not nearly as much as when I read the newspapers or when I inadvertently happen to find myself in the middle of a conversation on economics (not my favorite topic, now and forever).

But what is most admirable and noteworthy about Mr. Schiff’s approach is his apparent ideology: he advocates a shift in American economic policy back to manufacturing goods (production), living beneath your means, saving your hard earned money, and emphasizes, in so many words, the value of hard work, as opposed to borrowing to fund your needs. Work and use common sense, Schiff seems to be saying, and you will reap. Followers and worshippers of the Federal Reserve, Allan Greenspan, and Ben Bernanke may have trouble reading this book, but nonetheless, it can’t be denied that the advice Schiff dispenses is invaluable and logical. 

The title Crash Proof: How to Profit from the Coming Economic Collapse doesn’t really do the book enough justice, for the content is more than just about that.  And though most of the scenarios painted within the book aren’t exactly all about sunshine and rainbows, the context in which Mr. Schiff writes — the worldwide economic crisis — allows for him to explain economic concepts which are much more understandable to the reader, because of the immediate urgency of this context.   

For anyone who has always wanted a solid, easy to read and practical book about economics, but has always been put off by the usual difficult economic terminology, have no fear. Crash Proof will not exactly show you the way out of the tunnel, but it will enlighten you, amuse you and inform you along the way.