Peter Schiff's "Crash Proof 2.0" is an alarming book - not because its conclusions are shocking, but because they are highly logical. And they paint a troubling picture about the US economy.
Schiff, who ran unsuccessfully for a US Senate seat in Connecticut last year, argues that current government economic policy punishes savers and encourages debt. By holding intererst rates down to artificially low levels, Schiff argues that the US is doing whatever it takes to keep Americans spending at a time when they should be pulling back and retrenching.
With over $2 trillion of stimulus spending since the economy soured in 2008, Schiff believes that rapid and uncontrollable inflation is a very real possibility, and that investments in precious metals like gold and silver will be a better store of value that the US dollar, which is being deflated through mass circulation.
Schiff also looks at the historical path of the US dollar, from the famous "Bretton Woods" agreement that established the dollar as the world's currency after World War II to Kennedy's incorporation of Keynesian economic theory (expanding the money supply) in the 1960s to Nixon's decision to take the US off the gold standard in 1971 to deal with the country's rising debt problems.
Today, in Schiff's view, the US needs to turn its attention away from spending and back toward increasing our capacity for the production of goods. An overleveraged credit bubble has created artificial demand by allowing people to purchase and acquire goods without first creating or saving wealth. We are entering an era of "forced austerity" where we will need to rebalance our capacity to produce with our propensity to consume.
One interesting concept in Schiff's book... the author's recommendation that current homeowners pull as much money out of their homes as possible by taking out a 30-year fixed rate loan at today's historic low interest rates. Future dollars will be cheaper to repay than today's dollars, as inflation devalues the currency and prices rise. Schiff argues for investing some of those funds in overseas economies that will benefit from a US recession as global markets develop to replace the demand artificially created through the US credit bubble era.
While extreme in places, Schiff's worldview overall is worthy of consideration. If dollars are going to be devalued going forward, fixed return investments will not be a good vehicle for funding retirement. And if your dollars today will be worth more than dollars ten years from now, there are reasons to consider leveraging yourself into today's low fixed interest payments.
If an investor can purchase a rental property which cash flows today, with a low fixed rate payment, how much more powerfully will that investment cash flow ten years from now when rents have doubled but payments remain the same?
Peter Schiff's Crash Proof 2.0 serves as a valuable reminder that we are all responsible for our own economic well being. To have a better portfolio in the future, we need to make better decisions today. And understanding the trends and policies that will impact our wealth portfolio ten years from now is an essential part of planning for the future.