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There's some major developments in the financial crisis in Europe. An aid package coming to the rescue of Spain, specifically Spain's troubled banks worth as much as $125 billion. Stock markets in Europe initially reacted well, but finished the day mixed and Wall Street today down just a little bit, 33 points in the Dow.
Alarm bells though are also ringing for banks in this country. Moody's is expected to announce this week the downgrade of 17 global banks including some of the biggest US financial firms. Joining us live, Peter Schiff, president of Europacific Capital and author of the new book America's Coming Bankruptcy: How to Save Yourself and Your Country.
On that optimistic note, as always, Peter, nice to have you back with us. Thanks for having me on. Let's talk a little bit about the banks first. Uh I know this has been telegraphed that potentially these downgrades could be coming. What does it mean for us? Well, first of all, I don't think the downgrades will go far enough.
I think the banks are in a lot worse shape than some of these rating agencies appreciate. But we have to understand why is it that banks are in so much trouble. And the reason is because of all the government involvement in the banking sector. It's the government involvement that subsidizes all of their risktaking.
The banks are in so much debt because the government has led them down this primrose path. And then we think bailouts are a solution. It's just a moral hazard. It encourages more of the same bad behavior that government policy created in the first place. So I think we really need to get the government out of the banking sector as much as possible.
But I already believe that they've done so much damage that many of our major banks in this country I believe are going to fail in a more spectacular way than they did in 2008. As soon as the Fed loses control of interest rates and they go a lot higher, I think these big banks are going to fail and there's going to be huge losses as a result.
You're not alone. But we we should point out to our viewers that this is your opinion on the way that you're looking at the financial sector right now. Is there a timeline you have? Is do you see these bank failures happening soon, 5 10 years from now or sooner than that? Well, I think it'll be sooner than that.
I mean, right now we're buying some time based on the problems in Europe because people are so worried about the euro and the euro zone. They're taking refuge in the dollar and the treasury market and that is temporarily keeping our interest rates lower and allowing our government to keep on spending and Americans to keep on borrowing and spending.
But eventually we're not going to be able to do that anymore. People are going to be worried about all the money we're printing, all the inflation we're creating and interest rates I think are going to move up in a very spectacular way. And we are so leveraged we can't handle it. Not only can't the banks handle it, the federal government can't handle it.
I mean, our government can no long more handle a five or a seven or a 10% interest rate than can the government in Greece or or Italy or Spain. Peter, we just had I just want to point out to our viewers, we're trying to get your camera back centered if we can. It's always good to have our guests in the middle of the screen and sometimes it happens and sometimes it doesn't.
But Peter, we we're still listening to what you have to say and and there's been calls, you know, people on the uh maybe sharing a different opinion uh from you say, "Listen, the United States government has to get even more involved in Europe because if we don't get more involved now and jump in uh in whatever way that means, and there's a lack of specifics on that, then then that's going to just crush us uh 62.
How can we get involved when we're already broke? Our government is running a budget deficit of a trillion almost a trillion half dollars a year. We're drowning in debt. All we can do is print money. I mean, so we're printing all this money right now uh to bridge the gap between what we collect in tax and what we spend.
So, are we just going to print even more money and give it to the Europeans? How is that going to help? Let me just ask you real quick cuz I have to run. You know, you're a financial adviser. You give a lot of advice out there. Again, it's your opinion, but what advice do you give to some of your customers and the average person out there on how to protect themselves?
Right? Well, I I outlined a chapter in my latest book, The America's Coming Bankruptcy. you get out of anything that these central banks are printing, particularly dollars. I think you buy gold, you buy silver, you look at some of the emerging economies, buy stocks abroad, buy bonds from in in in in better currencies than the ones that are being run off the printing presses.
We have a huge financial crisis coming. It's not in our past. It's in our future. And these downgrades in the in the banks, this is just the beginning. It's going to get a lot worse. Europe is simply a precursor of what's going to happen in the United States. That's the preview. The show, the main show is going to be playing out here in the United States on this side of the Atlantic and people had better be prepared for it.
Peter, you give us a lot to think about today. That's for sure. On a Monday morning. Thank you again for joining us. We love having you. We look forward to having you back. Thank you. All right. If you think the economy is improving, jobs are growing, and the worst is over, our next guest says sadly you are dead wrong.
Joining us now, the author of The Real Crash, Peter Shiff. Pete, thanks for joining us. Um, what do you mean? The the worst isn't over. We're not turning the corner. Things aren't getting better. Hardly. We've actually made all the problems worse. You know, when I wrote my original book, Crash Proof: How to Profit from the Coming Economic Collapse.
In that book, I forecast the bursting of the housing bubble, uh, the ensuing financial crisis, this great recession. But what I was really concerned about was not that. I thought the crash was going to come from what the government would do to try to revive the economy. That was the real crash. It's still yet to come and it is the subject of this new book.
So, you don't think anything has changed that allowed this crash to happen in in the fall of 2008? No, the problems are much worse. We're much more deeply indebted now than we were then. All the problems have been exacerbated. And what we have now is not a legitimate recovery. All we've done is borrow additional money and spent it.
and we're counting the spending as economic growth when it's not. The debt is growing much faster than the GDP. And ultimately, we're going to have to pay this money back with interest. And the only thing that's keeping us afloat right now is 0% interest rates. And why are they 0%. Well, because the it's counterintuitive that, you know, we keep telling people, you know, this that that debt clock right there is going to come back and bite us in the rear sometime, but it hasn't done it yet.
There's no inflation. Well, well, sure there is. And it's the inflation that's helping keep interest rates so low because the Fed is monetizing debt. It's printing money and buying treasuries. See, the biggest problem with the US economy is that interest rates are too low. Interest rates are probably the most important price in a free market.
They're involved in one side of every transaction. They need to be set by the market. Instead, we're setting interest rates the way the Soviet Union used to set the price of bread. And because they're too low, we borrow too much, we spend too much, we don't save enough, we don't produce enough. You think we have to go bankrupt?
Well, we are bankrupt. But you you want us to declare bankruptcy? Well, what we need to do, we have to let interest rates rise. But the problem is when interest rates go up, the US government can't afford to pay the interest on the debt, let alone principle. Let interest rates rise. Well, the Fed is keeping them down.
Yeah, but you're saying eliminate the Fed then. Well, no. The Fed just has to let interest rates go up. The Fed has to stop buying bonds. They They set it They set a rate and they set the rate at zero right now. So, you're right. But that's too low. Let the market set the rate. How can the rate be zero?
You just said on one hand, let the Fed set the rate, but then on the other hand, let the market say it's either one or the other, right? Well, the Fed the Fed can still be there and not set rates. They can let the market do it or the Fed has to move rates higher because rates are much too low. Nobody can make any money saving.
Nobody's saving. So, we don't have any legitimate capital of financial investment. We have to borrow it all from abroad. But when we let interest rates go up, the US government can't pay its debts. Many of our major banks are going to fail. You think that $2 billion loss at JP Morgan is big. Where do you see how much JP Morgan and Morgan Stanley and Bank of America are going to lose if the Fed let interest rates go to where they need to go?
The name of the book is The Real Crash. Peter Schiff is just getting started. The book just came out uh and he predicted everything that's happened before. And I hope you're wrong, but you seem very confident that you're right now. Peter, thanks so much. Sure. Thank you, Peter. We have Bob Pasani. Rick Santelli is with us.
Europacific capitals Peter Schiff is also with us today as is core states capital adviserss Bill Sparopoulos. Welcome all around Bob Basani. The energy levels high here at the big board today. You know we can't even have a nice boring quiet close into a 3-day weekend. We're standing here all of a sudden a little after 2:00.
Word comes out uh Dow Jones wire that Spankia was getting a lot more money than people anticipated. 23 24 billion. Bottom line is uh markets dropped. We lost several dozen points on that. So, this is the problem, guys. We are just hostages to headlines all of the time. And anytime you think we're stabilizing, and it's been a pretty good week.
The S&P is up 1 and a half% or so, uh, you get little headlines, and you drop a little bit more. Little stabilization. And Peter Schiff, this is exactly what the markets have been focusing on for a while now. It's all about Europe right now, isn't it, Peter Schiff? Oh, I I'm sorry. I I was distracted your name.
It's time for you to talk. In my mind, it's not all about Europe. I think in some people's minds it is. But, you know, I think Europe is is really foreshadowing a bigger problem here in the United States. But, you know, I think there's still some short-term downside risk in the market. But, I think the central banks, unfortunately, are not going to allow a substantial collapse in stock prices.
I think they're going to come in with more money printing and ultimately you're going to see a reversal and nominal stock prices will rise. Uh but but it's not going to be good economic policy. It's not going to be good for the economy. That's exactly what we don't need. And Bill, go ahead. Yeah, let's talk about that though.
I mean, Peter, what is your sort of expectation in terms of how this plays out here? A lot of debate on whether or not we'll have a disorderly or orderly exit of Greece from the Euro or do you expect perhaps the Greece stays in the Euro? You know, I don't even know. I mean, it could there several different ways it could play out.
long term, I think the worst thing that can happen for the Euro zone is for Greece to stay there and the and you to have this moral hazard where everybody is basically subsidizing everybody else's profleacy. The only way that it makes sense for Greece to stay in that Euro zone is if they could force Greece to to undergo more austerity.
Uh but I think that if if those are the choices, the Euro zone would be better off if Greece left. And I think there's more of a long-term threat for Greece remaining in the Euro than leaving. I think that that is overblown. But I don't know, the politics are very strong. I mean, there's a lot of incentives for politicians in Europe to do what's wrong in the long run in order to appease the voters in the short run.
That's exactly what we're doing here. I mean, there's a powerful temptation for politicians uh to to avoid swallowing the bitter tasting medicine that was necessary to to correct the problem. Let me let me get Bobio here. Bob, you trying to say something there? Well, the people keep I'm picking up on Peter's theme.
People keep talking about the mood on the streets of Athens. Peter, what about the mood on the streets of Berlin? How how much longer are the Germans going to be willing to write the checks? Because no matter what scenario I see here, the Germans have got to write a big check. Yeah, Bill, you know, I mean, you've got they're burning these uh these Merkel dolls in effigy in Greece that they should be doing it in in in Berlin.
I mean, they never should have signed on to this deal to have to pick up the tab for the irresponsible governments in Greece and other parts of Europe. They can't do it no more than people in some state in in some states. People in Texas don't want to have to pay for the for the deficits in California, but who knows that might happen.
I'm wondering if next week the focus returns to the US. Rick Santelli, you've got some Fed speak coming out next week. You got the GDP, you've got uh unemployment numbers. What are you seeing ahead of all that? Well, Feds speak they're going to be nervous about Europe and hold out the notion of quantitative easing, but it's a political hot potato.
So, I move that right off. It's about two unemployment data points. ADP on Thursday instead of Wednesday, BLS on Friday, and our second look of first quarter GDP on Thursday. If you were disappointed with 2.2, looks like we're going to end up with 1.8 or 1.9. Uh, you look at the Chinese stock market, you could see the cross trade flows out of Europe are impacting that as well as weak loan demand.
I'll tell you, Maria, I I just can't be optimistic. Even if we are the cleanest dirty shirt, it's still not that clean. Well, be that as I don't think we're the cleanest one. I think we're dirtier. People just haven't figured it out yet. You know, when people say that the problems in Europe are hurting us, they're actually helping us because people are so worried about Europe, they're buying dollars and they're buying treasures, though.
Yeah. Let's bring Bill in here. Go ahead, Bill. What we say? You have to look forward. And I think that the gloomers and the babble and all the negative stuff has been center stage for a long time. We've had just about a one-/ird correction for off of the October lows. I think the news gets better going forward.
There's change coming to America. There's a lot of bullish things. The mambby pami politicians globally are going to get sent home and talk to this Greek. Okay, eight out of 10 Greeks don't want to leave the euro because they know the politicians get a free ride and the quality of life gets a whole lot.
Well, if they don't want to leave the euro bill, why did they vote the way they did on the last election? It's a great Why do people vote the way they do? What? Not everybody goes out and vote. I mean, it's pretty clear that the elections in Greece right now, the Greeks, the elections in Greece right now are a a uh, you know, a proxy on whether they want to stay in the euro or not.
The whether they wanted the bailout money want something for nothing. That's what all voters want. That's what they're voting for. Well, 70 75 Look, let's 75% of the people who were pled this week said they would like to stay in the euro. That's what the people are saying. The problem and I think what you're saying is that yes, they they would like to the idea of staying in the Euro sounds good, but they don't necessarily want to take the cuts and the austerity that come along with it.
Yeah. But but you know, the irony is if they leave the Euro zone and they get the DRAMA, they're going to have even bigger cuts because the DRAMA is going to collapse and real wages in Greece are going to fall a lot more if they leave the Euro than if they stay there and and swallow the austerity. All right, we'll leave it there.
Thanks everybody. We appreciate your time tonight and have a nice weekend. We'll see you soon.
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