Peter Schiff

From Chapter 2 of The Little Book of Bull Moves in Bear Markets

WHEN YOGI BERRA, asked what he thought about the economy, said, “ A nickel ain’t worth a dime anymore, ” he
seemed at least to intuit that sound money should be a top national priority, a point a lot of people in pinstripes
still don’t seem to get.

In Chapter 1, I made the case that the dollar’s vanishing purchasing power is collapsing the American economy. Here
I want to focus on how inflation, which most people think begins and ends with the consumer price index under the
watchful eye of the Federal Reserve, is actually created by the same Federal Reserve wearing another hat. The real
inflation story should alarm you and help you understand the urgency of my advice.

A Little Background

Our government takes considerable pains to reinforce the misconception that the inflation problem is limited to rising
prices well within its control, although the specter of $200-a-barrel oil is making it difficult to defend that fiction. The
fact is that rising consumer prices arejust a symptom of a root malignancy. The basic problem is being exacerbated
daily as the Federal Reserve prints more money to accommodate an administration with a political agenda and no
alternative left other than painful recession or worse.

In its terminal phase, inflation becomes hyperinflation, the scourge that collapsed the Weimar Republic in Germany
in the early 1920s, Argentina’s economy in the early years of the present decade, and Zimbabwe’s economy today,
and that threatens to ravage the American economy in the not too distant future if present monetary policy is not radically
changed.


Hyperinflation has historically been experienced in every society that has used fiat money, the term for currency that,
like the dollar (since the gold standard was abandoned in 1971), has no intrinsic value. With no restraints and many
incentives, the printing presses roll,and eventually currency is devalued to the point where it becomes devoidof purchasing
power and practically worthless. (We are not alone, as every other global currency is now fiat money.)

As inflation gets worse, financial assets denominated in the failing currency and the income they throw off become
progressively less valuable. Ironically, in times this dire, cash and bonds, which are the time - honored safe havens
during stock market crashes, become the worst assets to hold when the dollar is crashing. Cash and cash equivalents
simply become increasingly depreciated in value. Bonds, which are really cash payments that are deferred, pay less
and less in the current market and will lose capital value if sold before maturity as higher rates cause market prices
to decline. I’d reinvest any cash you don ’ t need for walking - around money in a nondollar money market fund or
foreign equity portfolios and would unload bonds right now, while rates are still artificially low and prices artificially high.
That also goes for Treasury Inflation Protected Securities (TIPS), whose return is adjusted using the CPI, a flawed
and inadequate measure of real inflation.