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And look at the US economy. We're loaded up with debt. We have record auto loans, record mortgage debt, record student debt, record credit card debt. The US government has record amounts of debt. Corporations are loaded up with record amounts of debt. Why do we all have so much debt? Well, because interest rates were too low, and so we had a lot of borrowing that would not have taken place if the cost of money was higher.
The flip side, the savings rate is near an all-time record low. Most Americans don't have enough savings just to cover, you know, a few hundred dollar emergency expense that comes up. How did an America go from a nation of savers to a nation of proflegate spenders? Well, low interest rates. Peter Schiff said that the US economy is loaded up with debt higher than ever.
Cheap interest rates in the 2020 era have encouraged many companies to take out massive loans that caught themselves up when the party is over and the Federal Reserve finally raises it. Most Americans will get wiped out because they have a ton of credit card debts, auto loans, mortgage loans, etc. They don't even have $400 to cover emergency expenses if something bad happens, let alone have a saving for a rainy day or for the future of their kids.
Peter Schiff warned us that the low interest rates party will be very painful once it ends. Stocks like Tesla went up to the roof, and sure anyone remembers that in April 2021, Bitcoin went to $60,000. A bunch of my friends bought it and lost their savings. Now the cheap rates era is over. The Fed has raised the interest rates fastest in history from zero in March 2022 to 5.25% in September this year.
Massive layoffs are coming. Unemployment will go up and therefore the economy will slow down or maybe go into recession. So what should you do to protect yourself? Let's hear from Peter Schiff. So had we had a marketbased rate, we would have a lot more savings, a lot more economic growth and capital investment.
uh we wouldn't be loaded up with debt and we wouldn't have had all of these asset bubbles. That's another consequence of keeping interest rates too low. Assets are mispriced. So you get, you know, tech stocks in the stratosphere or, you know, cryptocurrencies or all kinds of crazy things happen in an environment where interest rates are too low.
I mean, we saw that with the housing bubble. That wasn't an accident that that bubble was inflated. The Fed lowered rates to 1%. That was an unnaturally low rate of interest and a lot of people took advantage of that cheap money and they bought houses and so home prices kept uh kept going up. You know, as the Fed uh raises rates, people start to sober up and you know, and they start dumping a lot of these overpriced assets that they bought during a mania, but rates are going a lot higher over time.
And in reality, even though we've had all these rate hikes, interest rates are still below the inflation rate. So, uh, we're still encouraging people to borrow by providing them with a negative rate. And so, rates are too low. Rates need to be positive. The free market would not set real interest rates negative because nobody in their right mind is going to loan money to get back less than they loan because all loans have a degree of risk associated with them.
And you're not going to risk your money for a negative rate of return. you might as well just keep your money and at least break even, right? But of course, if there is uh a lot of inflation, then people will look for alternative ways to store their purchasing power because they can't do it in the currency that's being inflated.
So, they'll look at alternatives. Oh, well, there are a lot of things that you can do to uh protect yourself and limit the damage. And yeah, you need to own assets when you have a lot of inflation. You don't want to own debt instruments because inflation is going to erode away the value, but you also don't want to own highly speculative companies that were bit up in price because of the 0% rate environment.
So certain types of assets won't do well during inflation and those were the ones that were already inflated. The prices were pumped up by the cheap money and so they became very overpriced. And so as the air comes out of those bubbles, even in an inflationary environment, the price of those assets is going to fall.
So you want to avoid what benefited when rates were at zero. And you want to look at different assets that will provide protection because one of the things that inflation does other than act as a tax for the government because that's how the government generates the income it needs to pay its for its spending.
we just had that $1.7 trillion uh spending bill. Nobody's taxes are getting raised to cover those costs. So, everyone's going to pay the cost through higher prices. But also, when you have inflation, you transfer wealth from creditors to debtors. Because the people who loan money, when they get paid back, they're not getting paid back the same value that they loan.
The flip side is the people who borrowed money when they have to repay the debt, they're not paying back as much value as they originally got. If you look at a stock, for example, there are stockholders and there are bond holders. So during inflation, the bond holders lose at the stockholders a gain, right?
So it's the bond holders loss is the stockholders gain. But you don't want to buy a stock that's, you know, 40, 50, 100 times earnings or has no earnings because then there can be a big loss. But if you buy a real company that's trading at, you know, five to 15 times earnings somewhere in there, has a good dividend yield, they they've been around, they're selling products and services that people really need to buy, and they'll keep buying them.
And even if the price goes up, they'll still buy. Maybe they'll buy a little bit less, but they're going to keep on buying. They'll give up other things in order to keep buying what you've got. Those are the companies that you want to own as a way to beat inflation, to have a dividend yield that will rise as fast or faster than your cost of living.
And you want to own real things. You want to own commodities. Gold is one of the commodities that people will own. It's obviously the easiest commodity to own because the storage costs are so low. You can get a lot of value in a small space compared to other commodities. So in highly inflationary times, gold is an instrument of choice not just for individuals but for governments.
I mean you can already see that now major central banks around the world have been adding to their holdings of gold which are still relatively low compared to where those holdings have been in the past. So I think central banks still have a lot of gold to buy but the average investor particularly the institutions are way underinvested in gold compared to where they would have been 30 40 years ago.
So there's a lot of room for gold to be purchased by investors and there's not a lot of gold. So if if if uh more companies uh more investors, more governments are going to want to gain or increase their exposure to gold, it's only going to be because the price goes way up. It can't it can't happen without that without prices going up because there's just not enough gold there to buy at the current price.
So the price has to has to rise. Peter Schiff has said that two things that you can do to protect yourself are to buy value stocks and commodities, especially gold. Because the central banks around the world are massively buying it. But why you should buy it? A lot of people who hate gold say things like gold is just a useless shiny rock because it doesn't give you any dividends and you need a place to store it.
But Peter Schiff has a good logical reason for why you should buy gold. Here's why. I think that's because they recognize that we are in a inflationary environment worldwide. All the major economies, not just the United States, but the European Union, you know, the UK, Japan, I mean, everybody has kept interest rates too low.
Everybody, every government rather has run up debt. Not not to the degree that our government has, but they've still run it up. And there's no political courage anywhere to level with voters and deliver the bad news that hey, we've overpromised and we've either got to cut your benefits or raise your taxes.
Nobody wants to fess up. Nobody wants to uh default on their debt because obviously, you know, you don't look too good when you default. That's pretty embarrassing to have to admit that you can't pay your bills. And so everybody's going to inflate. Everyone's going to print money. And so the value of currencies is going to fall.
Inflation is going to increase worldwide and persist. And I think central banks know that the dollar's days are numbered. The dollar acts as the primary reserve. If you want to know, hey, why does particular currency have value? Say, hey, why does the New Zealand dollar have value? Well, it's backed up by our reserves.
What what are your reserves? Well, they're US dollars. All right. Well, what if the US dollar doesn't have any value? Well, then what? You've got nothing. You're backed by nothing. But I think these central banks recognize, okay, if there's going to be a dollar crisis, a loss of confidence in the dollar, then this could be a uh a crisis in the monetary system.
Um, so what do we do? How are we going to back up our currency? How are we going to convince people that there's real value here? Well, let's back it up with gold. Let's have gold reserves because that's
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