Peter Schiff, economist, financial broker/dealer and author, believes that the present economic state of the US is caused not just by the virus, but also by the "bubble that the virus pricked".
Sputnik: In three weeks, nearly 17 million people have lost their jobs, more than the total number of jobs lost in the 2008 recession. What would the ramifications be of this critical labour market recession - both economic and political?
Peter Schiff: Well, I think that the reason that so many jobs are being lost is not only because a lot of businesses were ordered to close, but because the U.S. economy was a gigantic bubble before the coronavirus pin pricked it.
And the United States has a very high percentage of its workers in the service sector.
And many of those employers have a lot of debt because the Fed has kept interest rates so low for so long. That sector has been bloated and we haven't restructured the economy to have more manufacturing and more production. So we've had this big bubble that has been kept afloat on a sea of debt and cheap credit. And what happened was as the economy kind of blew up, a lot of that credit dried up, even though the Fed was printing all this money and Treasury bond yields were falling, corporate yields were rising and small businesses were losing their access to credit.
And so the lifelines were severed. A lot of these businesses are just failing and shutting down, and Americans are living paycheck to paycheck thanks to the cheap money psychology. Nobody has any savings. So if you don't get paid, you can't pay your rent, you can't pay your student loans, you can't make your credit card payment, you can't make your car payment. It's not like Americans own their cars. The bank owns their cars. Americans are just levered up.
And so what the coronavirus did is prick this bubble. And we're really dealing not just with the virus, but the bubble that the virus pricked.
Sputnik: We are witnessing fierce debate about how long the crisis will last, while President Trump claims that America will recover from this crisis quite quickly, his opponents say that the recovery period will drag on for a long time. You managed to predict the global recession of 2008, so who do you think is closer to the truth at the moment?
Peter Schiff: They're both so far off from reality. It doesn't even matter which one is closer. The economy's not going to recover because what's it going to recover to? We can't go back to the bubble. I mean, everybody assumes that we had a healthy economy before we got sick with the virus. We didn't. We had a bubble and the bubble's popped. So even if we get the most optimistic resolution to the medical problem of the сoronavirus, even if somebody cured it tomorrow, we could completely get inoculated. Even if that were to happen, we're still going to be in a recession.
People can't see the bubble for the pin, everybody is so focused on the coronavirus because that's obvious. Yes, it's obvious that that's a problem. It's not as obvious that we had a problem before because people still thought we had this good economy. I've been warning that it was an accident waiting to happen, that we were a bubble in search of a pin. And if it wasn't the Coronavirus, who would have been something else? The problem is this is a more spectacular pin than even I was imagining. And because this is like so crazy, it's making it even harder for people to see the reality. They think, oh, we just got to beat the virus and everything's gonna be great. It's not going to be great because it wasn't great before. It was an illusion. And now the illusion is gone.
Sputnik: The governments of most countries are facing the fact that there are no historical analogies to this crisis, respectively, the rationality and success of the current economic measures will be clear a little later, when the crisis is overcome. How reasonable are the accusations of the Democrats over the direction President Trump is taking regarding the growing unemployment situation?
Peter Schiff: Well, look, I think the Democrats are right to criticize Trump, but they're criticizing him for the wrong reason. I mean, they think he's not doing enough. They think the government should be spending more. The government should be spending less. I mean, well, you said that this is what's happening is unprecedented. It's not unprecedented. There's an old saying that history doesn't repeat, but it rhymes. So what's happening now is the government is reacting improperly to a crisis just like it did in 2008 with the housing market, just like it did in 2001 with the dot com bubble, just like it did in 1929 with the stock market crash that we didn't have to have a depression. Government policy of that era created a depression. And so politicians could never resist the temptation to come to the rescue and to help people by giving out money and trying to prop up businesses and keep people from losing their jobs.
But all of this is counterproductive. And what it does is it turns what would normally be a short and sharp downturn. And it it drags it out into something much worse. People don't realize this. But in 1920, we had a stock market crash and the economy crashed and GDP went down and unemployment went up more in 1920 than it did in 1929. So 1920 got off to a very, very bad start. It was a huge recession, but the reason it didn't become a depression is because the government did nothing. In fact, not only did the government not help, the government actually cut spending during the recession. And that's actually what helped because government is a burden on the economy. Now, during good times, the economy can afford to shoulder the burden.
But when the economy is weak, the best thing the government can do is lighten the load. So what the government should do when an economy is having a tough time is to cut spending and free up those resources back into the private sector to be used productively to get the economy back on track.
But we do the opposite now. Every time there's an economic problem, the government makes it worse by expanding its size and by consuming more resources, taking them out of the private sector where they would be used productively and then using them unproductively through the public sector. So Trump is making the same mistake that Obama made, the same mistake that Bush made, this bailouts of the stimulus are going to worsen the economy. They will push out the recession, the recovery further in time. So the Democrats are right to criticize the president. But for the wrong reason. They're saying we should do more. He should do less. He's doing too much because what he's doing is harmful. But the biggest harm is coming from the Fed. The Fed is what's enabling all this. The Fed is the big bubble blower. So I fault the Fed more than Congress and the president, although I fault everybody, they're all cooperating to do this.
Sputnik: Would there be any difference if Democrats were 'in power' and were facing this crisis?
Peter Schiff: Democrats might be doing it even worse. And the chances are they're going to come to power next year and we're still going to be in a recession. And so they're going to have their chance to do even more damage than Trump did. They're going to inherit a mess and make it worse.
Meanwhile Everybody's talking about a 2 trillion dollar Bill. Well, none of that is helping. That's just inflation. They're just sprinkling money. They just print money and drop it from helicopters, that doesn't do anything. So what needs to be done is the government needs to cut spending and they need to reduce regulations more to ease the regulatory burden on on businesses and individuals. They need to allow companies to restructure. They need to allow companies to go through a normal bankruptcy. That doesn't mean that companies are going to go away. I mean, some of them will. Where we have excess capacity, then industries will contract, but the industries won't go away.
If we don't bailout the airlines, we're not going to not have any airlines. If we don't not bail out the hotels, we're not going to not have any hotels. I mean, the hotels are there, and we're going to use them. So we're going to restructure and have a healthier industry with less debt. We will reward the people who acted prudently and responsibly and punish the people that were reckless in the way it should be. The free market will work and we'll have a stronger economy at the end of the recession. Instead, we're prolonging the recession. We're keeping the companies that should fail in business. So we're weakening the industries by labelling them with even more debt. We're rewarding the incompetent and the reckless and punishing the frugal. We're creating massive moral hazards in the private and public sector, both in the state governments and municipalities that are getting bailed out now and in corporate America.
And we're actually paying people not to work. We're rewarding the people who have lost their jobs by making sure they get more money being unemployed than they made when they were employed. So they have no incentive to get back to work in any capacity. If they're making more money not working, then why should they work? I mean, most people don't like to work. They'd rather just collect the money and skip the work. And so we've made that possible.
Sputnik: Democrats are criticizing the White House measures to tackle the crisis in the US. Can we see Democrats themselves suggest any additional viable options?
Peter Schiff: Well, no. The fact that Democrats are trying to use the crisis as an excuse to implement even more of their socialist agenda, they're saying, oh, we need to have student loan debt forgiveness as part of this crisis.
What do those loans have to do with this? You know what they want. They want to address income inequality. They want to have higher minimum wage laws as part of the rescue bills. What an asinine thing to do. We have all these people that are unemployed and you want to make it even harder for them to get jobs by increasing the minimum wage. It's like a grab bag, and a lot of stuff is getting passed that never could be passed if we didn't have the hysteria around the Coronavirus, because now everybody's got scared that we're all going to catch this virus and we're all going to die.
For all we know, it's just like the flu. I mean, most of us. I'm even fifty seven. I'm pretty healthy. I probably would be fine if I got it. But everybody is so afraid that they're willing to give up all their liberties to the government. And this is when governments usurp more and more power during a crisis, during an emergency, even if it's one that they created. And what the government is doing is horrible for individual liberty and for our economic freedom, too.
Sputnik: To what extent is criticism of Trump's actions by Democrats justified? Aren't they just trying to gain politically by refusing to fast track the introduction of the Trump administration's policies?
Peter Schiff: Well, I think that's true in most cases for politicians in both parties. Their main goal is their own reelection. And so they all say they see this as an opportunity to get reelected and to get things passed that might otherwise not be able to get passed because more people would be opposed to it. And there's one Democrat who said "never let a crisis go to waste", which means "exploit it to the best that you can".
And it's not about doing things that are good for the country. It's about doing things that you wanted to do for yourself or for your party, because it is advancing an agenda. Either you believe in the agenda or it it solidifies your power base and makes it easier for you to maintain your power, to expand your power. So that's what's going on. Are there some people that actually believe in that who went to Washington for more? Yes, there are. But most of those guys don't stay there very long. They get frustrated. Then they leave. And they're not good politicians because they're trying to do what's right. You don't get elected and elected and elected doing what's right. You get elected by doing what's popular, which is usually what's wrong. And you get elected by doing the bidding of the special interest groups that are helping to keep you in power, which is generally not in the national interest.
So, the paycheck protection plan, the bailouts, every single thing the government is doing is wrong. As I said, if they just did the opposite of what they're doing, then it would be right. And it's popular because people don't connect the dots. All they see is, oh, the government's going to give me money. Oh, OK, great. I need money. And the government's going to give it to me as if the government is sitting on this big pile of money that they just stringently haven't given out. People don't understand that the government has nothing. The government only has what it takes. So it can't give us what it doesn't take from us. But nobody is asking the question, what is the government taking in order to give out all this money? And what they're taking is your purchasing power. They are creating inflation.
So the price of everything is going to go way up so that people aren't going to have more stuff. They're just going to have more money. They're not going out. They will have more stuff to buy. They're just going to have more money. And people are familiar with that. And so in the Soviet Union, they printed a lot of money. Everybody had money. No one had anything to buy. You'd have to wait in line for hours with all your money to get some bread. So now we're going to have bread lines in America.
