Peter Schiff's "The Real Crash"

Anyone who knows anything about my regular media consumption habits probably has a good basis for suspecting that Peter Schiff is my favorite pundit, radio show host, and writer.  (That suspicion would probably be correct, although I hesitate to pick favorites.)  I don't remember where I first heard of Peter Schiff, but I think it was when he ran for Senate in Connecticut in 2010.  He was one of the few Republican senate candidates across the country in that election that I thought was really carrying the banner of liberty.  I ended up donating some money to his campaign and also making a few hundred phone calls on his behalf as a volunteer.  Yeah, I guess you could call me a regular "Schiff-head."

Peter's most remarkable quality has been his ability to speak what he thinks is the truth to any audience, without any fear of conflict, and without any regard for hurt feelings (although he rarely, if ever, makes it personal).  This has lead to some hilarious interviews, congressional testimony, and speeches.  Probably my favorite was his speech before the Mortgage Bankers Conference in Las Vegas in 2006.  He laid out, in stunning detail, exactly why most of the members of the audience were about to go belly up financially.  In the Q&A period one of the questioners even asked, "So are you just saying I should slit my wrists?"  Obviously Peter wasn't advocating suicide, but his thesis was proven correct a year later.  The housing market collapsed, and we're still (unfortunately and unnecessarily) reeling from that shock.

But Peter doesn't think that the housing bubble was the worst of what's in store for America's troubled economy.  Not even close.  In the first two chapters of his latest book, "The Real Crash:  America's Coming Bankruptcy, How to Save Yourself and Your Country," Peter argues that the government's actions in response to the housing bubble (TARP, Stimulus I and II, Quantitative Easing I, II, and potentially III, etc.) have led to unsustainable levels of government debt, and that either the banking sector will be wiped out when the government defaults on it's debt if interest rates rise, or the economy will be wiped out by hyper-inflation if the Fed decides to fix interest rates at perpetually low levels.

The next nine chapters are focused on what the government can do in order to fix the economy with minimal pain.  I say "minimal" pain, because the fact is there is going to be a lot of pain no matter which course we choose to go.  We may have more or less pain, sooner or later, but the pain is unavoidable at this point.  Peter's prescriptions for the economy are more or less the standard laissez-faire policies that any free market type would advocate:  sound money, deregulation, and better tax policy.  He specifically advocates for the FairTax, which would throw out the entire federal tax code and all the taxes within it in favor of a single national sales tax.  I like that idea a lot.

Peter takes special care in advocating the destruction of the "third-rails" of politics:  Medicare and Social Security.  It's obvious, to anyone who has bothered to look at the numbers, that these programs are unsustainable.  They simply can't continue as they are currently structured forever, or even much longer.  Medicare alone will bankrupt this country in short order if it is not changed.  Peter advocates means testing these benefits so that they only apply to the people who really need them, instead of feathering the nests of well-off seniors.  As he points out, the benefits end up as just a subsidy for whoever inherits these wealthy seniors' wealth since the seniors themselves can afford to pay for their medical expenses out of pocket or purchase some kind of insurance product (and if they can't, means testing obviously wouldn't apply to them).

The final chapter, as well as little blurbs throughout the book, focuses on how to position your investments to prepare for the collapse that Peter thinks  is coming.  I don't really have any assets to invest so this is not really applicable in my case, but it was a really interesting read.  He recommends a "three-legged stool" of quality dividend paying stocks chosen for their ability to profit from the collapse, cash and bonds in countries with sound monetary and fiscal policy, and gold and gold mining stocks.

Perhaps the most interesting part in this book was an appendix which briefly reviewed the history of monetary policy in the United States, including numerous Supreme Court citations.  There's been a huge argument lately over whether it is even legal for the government to produce paper money, since the constitution declares that states can only make gold and silver legal tender and prohibits government from emitting "bills of credit."  I think Peter shows conclusively and indisputably that paper currency is illegal according to the constitution.  Of course, it doesn't matter because the Constitution today says whatever a few robed political appointees say it says.  Ah well...

As (I think) with all books I read, I have a couple areas of disagreement with this book.  The biggest one was on the issue of birthright citizenship.  Peter went through advocating a bunch of great reforms that would move the US much closer to an open and rational immigration policy, and then in a final paragraph he decided to just throw in (what felt to me like) "Oh, and by the way, we should end birthright citizenship."  He doesn't really defend it at all, or even argue why it's necessary.  It's just thrown in there as a solution without a problem, and I happen to think that government solutions to non-existent problems are very dangerous.  Ending birthright citizenship would visit massive bureaucracy on every birth in the US.  It would be a boon for attorneys.  We'd need to have a national registry of citizens and/or a national ID card.  We'd end up spending a fortune to figure out who is and who is not a citizen.  And for what?  No benefit whatsoever that I can see.  A lot of people, I think Peter included but I don't remember for certain, argue that the 14th Amendment made birthright citizenship the law of the land.  This is just not true. There has been a long tradition of birthright citizenship in the US before the 14th Amendment, and going back to the common law of England and continental Europe.  It's a wonderful, unambiguous, bright line rule.  It needs to stay.  Check out this presentation at the Cato Institute for more information on the pitfalls of ending birthright citizenship.

But despite that minor criticism, I thought the book was very sound.  For someone who likes their public policy reading spiced with a little bit of investment advice, I think it's probably the only way to go.  And, by the way, Peter's dad, Irwin Schiff, wrote a fantastic comic book decades ago that you can now get online for free here.  So if you don't have money to pick up "The Real Crash," be sure to at least check that out.