Peter Schiff, the now well-known author of Crash Proof, visited the IFC earlier this week to talk about the future of the dollar as the reserve currency. Schiff has gotten famous by correctly predicting the financial crisis well before we found ourselves in our present predicament. (See, for example, this Youtube video of Schiff going head-to-head with Art Laffer in August 2006.) Coming off of one prescient call, Schiff is now arguing that the U.S. dollar will very likely lose its reserve status - soon and very suddenly.
So, does lightning strike twice? I can't say there was anything new in Schiff's presentation that convinced me. Essentially, Schiff argues that it won't be long before the rest of the world is unwilling to purchase any more U.S. debt. But where will investors looking for safe assets go? No prediction on that one, even though this seems to be the crux of the issue.
Schiff is also extraordinarily skeptical of the Keynesian measures being taken to stimulate economies around the world, particularly in the U.S. This seems to drive his view that the dollar is in trouble - if all that money is simply wasteful expense that doesn't promote growth, then investors will grow wary. But the U.S. is due for investments in certain public goods, particularly infrastructure (which in turn can help improve the business environment to generate the taxes to pay off the debt.)
Other phrases I scribbled down during the presentation:
- "There's no intrinsic value to paper money."
- "Everything that is produced gets consumed."
- "If you're an investor, you want to be in assets that will gain value."
All I can say is that it's hard to disagree with statements like that.
Update: Perhaps lightning didn't even strike once. Check out this extended post from Mish's Global Economic Trend Analysis. Money quote:
Schiff was correct...The US equity markets crashed. That was a very good call. Unfortunately, his investment thesis centered on shorting the dollar in a hyperinflation bet, and buying foreign equities rather than shorting US equities.
Furthermore, Schiff made no allowances for being wrong and had no exit strategy whatsoever.
What happened in 2008 was that foreign equities sold off much harder than US equities, and a strengthening US dollar compounded the situation.
In other words, Schiff failed where it matters most: Peter Schiff did not protect his client's assets.