Schiff: Gold Sell Off Grave Mistake, Economic Catastrophe Ahead

By Money Morning Staff Reports

With gold prices plunging to two year lows, investors everywhere are dumping their bars and bullion.

But these investors are making the biggest mistake of their lifetime, according to Peter Schiff the best- selling author and CEO of Euro Pacific Capital.

In a riveting interview on CNBC, Schiff said a massive economic crisis is quickly approaching - one that will ultimately destroy the dollar and impoverish millions of Americans. And gold is one of the few assets that offer protection for the approaching devastation.

"People talk about how this gold selloff somehow validates that [the U.S. economic crisis of 2008] is over," Schiff said. "Not at all. We're in worse shape now. There's an even bigger crisis coming."

Gold has lost a fifth of its value this year alone, the worst decline in 30 years. A booming stock market and some positive economic data seems to have sparked the sell-off as investors believe U.S. economic troubles are fading.

But Schiff said these investors are "oblivious" to what's really happening.

He said the economic recovery is not real. "It's just an illusion" being created by the Feds never-ending money printing.

"I don't care what the government claims with their doctored up CPI (Consumer Price Index) numbers. Money is being printed... that is the definition of inflation. Prices are rising. Anybody who shops knows that."

According to Schiff, the Feds addiction to money printing, combined with our $16 trillion federal debt, is like a horrific cancer eating away at our economy.

Currently, Bernanke and company is buying $1 trillion of Treasury and mortgage bonds a year. That's about $85 billion per month against a budget deficit that is about the same level.



According to Schiff, these numbers are unsustainable. And the Fed has no credible "exit strategy."

Eventually interest rates will rise... and when they do, Schiff says, stocks will tank and bonds dip to nothing. Massive new tax hikes will be imposed and programs and entitlements will be cut to the bone.

"The crisis is imminent," Schiff said. "I don't think Obama is going to finish his second term without the bottom dropping out."

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"We're broke, Schiff added. "We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out."

Schiff points out that the market gains experienced recently, with the Dow first topping 14,000 on its way to setting record highs, are giving investors a false sense of security.

"It's not that the stock market is gaining value... it's that our money is losing value. And so if you have a debased currency... a devalued currency, the price of everything goes up. Stocks are no exception," he said.

"The Fed knows that the U.S. economy is not recovering," he noted. It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode."

Regarding gold, Schiff believes the yellow metal may "correct" down even further temporarily. But when investors wise up and realize the recovery is not real, gold prices will soar.

Rather than dump gold, Schiff believes investors should accumulate as much as possible "because foreign central banks and the Federal Reserve in particular are going to continue printing money."

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"The U.S. economy is not recovering and the Fed is not going to learn from its mistakes," he said. "It's simply going to increase the size of the monetary stimulus... to try to produce the real recovery that has thus so far eluded them."

"But the more money they print the more damage they do to the economy... and the more money they have to print to try and repair that damage."

A noted economist, Schiff has been a fierce critic of the Fed and its policies for years. And his warnings have proven to be prophetic.

In August 2006, when the Dow was hitting new highs nearly every day, Schiff said in an interview: "The United States is like the Titanic, and I'm here with the lifeboat trying to get people to leave the ship... I see a real financial crisis coming for the United States."

Just over a year later, the meltdown that became the Great Recession began, just as Schiff predicted.

He also predicted the subprime mortgage bubble burst, nearly a year before the real estate market fully crashed.

His recent warnings, however, have been even more alarming. Will they also prove to be true?

In his most recent book, "The Real Crash" How to Save Yourself and Your Country", Schiff writes that when the "real crash" comes," it will be worse than the Great Depression.

Unemployment will skyrocket, credit will dry up, and worse, the dollar will collapse completely, "wiping out all savings and sending consumer prices into the stratosphere."

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Schiff estimates this "cancer" could consume a trillion dollars from consumers this year.

"Today we're the world's greatest debtor nation. Companies, homeowners and banks are so highly leveraged, rising interest rates will be devastating."

According to polls, the average American is indeed sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event.

Is Devastation The Ultimate Cure?

Despite its bleak outlook, Schiff's book has become a real wake-up call for millions of readers.

While Schiff's predictions can be grim, he also offers step-by-step solutions that average Americans can follow to protect their wealth, investments and savings.

According to Schiff, "the crash and what follows" can be beneficial. But only for those who understand beforehand what is happening and have time to prepare for the devastation.

"All we can do now is prepare for the crash," Schiff said. "If we brace ourselves properly and control the impact, we will survive it."

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