Peter Schiff on the Economic Impact of The Coronavirus Shutdowns

Do you think that, first of all, we had to do something to stop the spread of COVID-19? Do you think... I agree. Yes. I agree. But hold on. But hold on. We didn't have to bail anybody out. We have a problem. We have to deal with our issues. Peter, Peter, Peter, Peter. We have a problem listening to each other. Let me explain it to the people that are listening. We're on Skype. And unfortunately, when you talk and I talk, we can't kind of hear each other. And you're not wearing headphones, so it's weird. I got an earpiece. Okay. But there's a little bit of a delay. This is one of the reasons why I stress it's so much better to do these things in person. And I understand that it's impossible for you to do that right now. When you have a situation like COVID-19 and these medical experts say, hey, we've got to do something. We've got to shut down most of what we do. We've got to shut down a lot of businesses. We've got to shut down schools and make things remotely. There's going to be a situation where there's going to be a lot of people that are not going to be able to work, but we want to keep these businesses alive. This is a very unique situation. And this is not like any situation we've ever faced in my lifetime. What do you think could have been done that would have been a better solution than what the government did in terms of bailouts, in terms of telling people to stay home? Like what could have been done? Yeah. Well, first of all, you have to remember that the government doesn't have any money, right? The government only has money it takes from the people one way or another. Right. Grover Cleveland, who is a president in the late 19th century, he was quoted, he had a good quote. He said, while the people must support the government, the government should never support the people. And so I agree. Let's say we have to shut down the economy temporarily. People should have enough savings to weather the storm. Businesses should have enough savings to weather the storm like they did in 1940. Average Americans had lots of money in the bank. They weren't loaded up with debt. They didn't have credit card debt. They didn't have student loans. They didn't have car loans. They were they were solvent. Even after a Great Depression, they were solvent. We lived in a bubble economy. Everybody was paycheck to paycheck. Nobody had anything. Businesses couldn't survive if their revenue stopped. Workers couldn't pay their rent if they didn't get their salary. That's not right. That's part of the bubble. Right. So the fact that we were so ill prepared for a rainy day is because we had no rainy day fund. You should have been able to deal with this on our own. Right now. We're not getting a free me from the government. Peter, we're at now we basically locked down somewhere around March. We're four and a half months in or four months in now. That's a long rainy day. Four months is a third of a year. There's very few human beings that have enough money to last four months. I'm sure you do and I do. But most folks out there listening don't have enough money to live and feed their families and pay their mortgage or pay their rent and pay their car payments for four months. That's a long fucking time. Right. But they're going to end up suffering much more in a year or two or three as a result of the massive inflation that has been unleashed to finance all the bailouts and the stimulus. But don't you agree that it's a good idea to do something just to keep everyone alive, just to keep businesses alive, just to keep people in their homes, just to keep... First of all, a lot of the businesses should have failed even before. The Fed has been keeping a lot of businesses afloat. They should have failed years ago. Hold on, let's talk about... And maybe COVID would have been the final nail in their coffins and now they've got another lifeline. But these businesses are damaging the economy. See businesses that are not profitable in a free market should shut down because they're squandering resources. Can I pause you? Let's talk about my business. I'm in the business of comedy. Comedy clubs are suffering terribly right now because there's very few states that are allowing people to go out, wear masks, socially distance and go to comedy clubs. LA is not allowing any of that and they haven't since March. The Comedy Store, which is my home, has been shut down since March. All these clubs have been shut down all across the country through no fault of their own. It's not like these people... Oh, I know that. It doesn't matter that it's not their fault. I understand that. But it's not like they've done anything wrong. It's the state of California. If the state of California is going to order businesses shut down and then the state of California wants to provide some kind of economical relief, let California do it and let California impose higher taxes on whoever they think should fund it. We can't just use the Federal Reserve as a piggy bank. The Federal Reserve cure is going to do more damage than the coronavirus disease. And I think if the states knew that they would have to bear the economic consequences of their own decision making, they would do a better cost benefit analysis on what they shut down and how they do it. Right now, every state is like, oh, let's shut everything down and the federal government is going to bail everybody out. So we don't care if we put people out of work because they're going to get these enhanced benefits from the US government. Oh, we don't care if we shut down businesses because they're going to get these PPP grants from the government. But if the federal government let every state know, look, you make a decision. You handle this the way you want and you pay for it. So you do a cost benefit analysis because thinking that everything is free, that is the problem. I understand. We are doing so much damage to the economy. People have no idea. We are going to get such a massive economic collapse, far worse than what I thought was coming when I did your show last few times. This is going to be much worse. We are compounding the mistakes of the past with much bigger mistakes. I mean, if you think it's bad now with the civil unrest, it's going to get a lot worse when there's no food. I agree. When we run out of stuff. Can I pause you? Yeah. Last time you were on, you were predicting the bubble of commercial real estate and a lot of other issues. What do you think is different about that situation now and how much does that compound what we're dealing with currently? Well obviously the coronavirus has made, you know, the problem worse for commercial real estate. I mean, commercial real estate is going to get killed for so many reasons. It was devastating. It was in trouble, I think, before COVID. But COVID again just accelerated the process. But obviously if you are a retailer, you know, no one's coming into your store, your restaurant, if you've got a gym, if you've got a movie theater. So you're not collecting any rent. So you want to default. And so now your landlord's not getting paid and he might have a mortgage and now he can't pay because he's not getting rent. You've got all these office buildings where a lot of offices now, like my company, almost all my people are working from home now. I mean, I got some people that come into the office, but I got a lot of people working from home. And so a lot of companies are thinking, hey, I don't need all this commercial space. I don't need as big an office anymore because more of my people are working from home. So now you have pressure on the rent. So that was already happening. You know, you had WeWork that blew up and they had, you know, they had rented all this space that was now, you know, on the market for sublease. But all this was inflated by the Fed, keeping interest rates artificially low to prop up these bubbles made that real estate bubble very, very big. And so now it's going to be far more disruptive when it pops. But it's got to pop, you know, trying to prevent bubbles from deflating by trying to blow more air into them just makes it worse. Maybe you delay the day of reckoning a little bit, but you make the day of reckoning much worse because now you have additional mistakes that you need to reckon with. I understand. So it's essentially like a pull off the Band-Aid situation. And we have to have a healing moment. You have to let things collapse that need to collapse that should have been done a long time ago because of mismanagement. Yeah. And you have to understand that we're ripping the Band-Aid off a wound that the government inflicted us with in the first place. Yes. The free market never would have screwed us up this much. It was government interference in the free market. That's why, you know, capitalism gets a bad name. That's why, you know, we talk about on one of these earlier podcasts about when I went to Occupy Wall Street years ago and I went down to Zaccotti Park because you had all these young protesters who were blaming Wall Street for the bailouts and for the financial crisis. And I would say, no, it's not Wall Street that took the bailouts, blame the government for providing the bailouts, for making them available, blame the Federal Reserve for funding all this and inflating the bubble. Yes. Interesting thing, if I tried to do that today, if I tried to go to one of these protests, one of these Black Lives Matter protests or anything, you think they'd be civil? You think I could do that? You think I could walk into a crowd of hundreds of people and take the opposite position and walk out of there? They would beat you to death. They would beat you to death, 100%. Yeah. So, I mean, it really shows you the loss of civility in just, you know, 10 years. Well, it's not just a loss of civility. It's a loss of opportunity and the loss of faith in the system and the future if we stay on the same path. That's part of the problem. People don't believe that if we keep going the way we are going, that things will work out in an equitable, fair and balanced way. And that's where young people today... Yeah, but the important point I wanted to make, though, too, when I went back to America in 1940 was to show that the American middle class was real strong. They could afford to pay for World War II and to provide for their own families, you know, because now they keep comparing World War II now because we're running up as much debt now as we ran up during World War II. But we had the capacity to pay it back back then. That was the point. The debt went way down. Debt to GDP went way down in the decades after World War II because Americans had the capacity to pay back what they borrowed to fight the war. We don't have that capacity now. I mean, the debt's never going to go down. The debt's going to keep on rising and rising and rising until the dollar implodes. See, that is the real crisis that we're headed for. It's going to be a collapse in the value of the dollar because right now we're printing money, right? And the government is sending it out and people are able to buy stuff with it, right? But that's going to come to an end because the world is no longer going to accept U.S. dollars as the reserve currency. See, that's the unique privilege that we've enjoyed for several generations now and that we've been used to the point where we're going to lose it. See, right now we're able to print money and we use that money we print to buy all sorts of stuff that the rest of the world produces that we didn't have to produce ourselves. But producing goods requires capital. It requires labor. It requires land. It requires real resources. But we get all this stuff for free. We just create money and here you go and they send us stuff. And then to make it even better for us, they take the money that we send them, the paper, and they loan it right back to us at very low rates of interest. They buy our bonds. They buy our mortgage-backed securities. So Americans get to spend all this borrowed money that they didn't save. We get to consume all this stuff that we didn't produce. And so we have an artificially elevated standard of living. We live beyond our means. That's going to come to an end because foreigners are going to realize that we're never going to stop printing money, that the deficits are never going to be brought under control, that we're going to have QE infinity, zero percentage of trades in perpetuity, and then they're not going to want the dollar anymore. And then the dollar is going to crash and we're not going to be able to import anything anymore. And the only things we're going to be able to buy is the stuff we make ourselves, except we don't make much stuff anymore. So prices are going to go through the roof. That is the real economic consequences. And so it's not going to matter that the government sends you a stimulus check if you can't buy anything with it because the government can't create purchasing power. They can print all the money they want, but none of that printed money adds any purchasing power. They don't grow any food. They don't produce any products, nothing. They just print money. Right. But there is, if the government gives money to people, they will be able to buy things and people still are making things. But now, but when the dollar's value collapses. See, you can't keep printing trillions and trillions of dollars and expect the dollars not to lose purchasing power. Right. Because paper money, all that does is that allows us to divvy up what we produce. Right. You have all these Americans now who used to be working, doing something, right? They were helping to produce a product. They were providing a service. And now they're just at home collecting a check. Right. So they're getting money for nothing. They didn't put anything into the pot. Can I pause you? They can't take out of the pot with their money. Well, there's nothing in the pot. Right. So now the prices of everything in that pot have to go up because there's no extra stuff. There's just more buying. Peter, as I'm sorry, as an economic expert, what would you have done differently if you could have advised this government and we were let's let's go back to March when everything was shutting down. What would you have advised differently? Again, first of all, I would allow I would allow the states to be responsible for their own policy. So you you decide what you want to do in your own state as far as, you know, what do you want, what businesses you want to close, you know, what what you want to do and you pay for it. And if you think that certain businesses or individuals need to get money, then the state will provide it based on local taxpayers. But what I would have done on the federal level is I would have dramatically cut government spending. You know, even after covid-19, because government spending is a drain on the private sector. It's a drag on the economy. It's the government taking resources away from the private sector where they would be used efficiently and squander them into public sector. I understand. Can I pause you for a second? It's a burden. Can I pause you? I would have lightened the burden. What would you have? What would you have when you say lighten the burden? What would you have cut? And how would you do that? When you think about all the different aspects of the government that are essential to think about things that need to be in place, what would you have cut? Most of most of the government money is is transfer payments where the government takes money from one person and gives it to somebody else. I mean, the government shouldn't be doing that. That's not why we have a government in America. Government is here to secure our rights, explain that, protect our property, not steal it. Can you explain that? What do you mean by transfer payments? Well, that's when the government takes money from one person through taxation and just hands it to somebody else or now through inflation. The government just prints money and gives it to people that it thinks needs it. But what do you do? That's not what government. But let's look at the PPP. Let's let's look at that or the CARES Act. Right. OK. Look at all the damage that the CARES Act did to the economy. So first of all, let's look at the payroll protection plan that everybody wants to brag about. Right. What a complete fraud this was. I said from day one, this would be a cesspool of fraud. You know, we found out last week that there were six hundred approximately hedge funds, private equity funds, asset management companies that got PPP loans. And they're not even loans because you don't have to pay them back. So it's free money. Right. And I could have gotten one of those loans if I wanted to. I just didn't want to lie to qualify. Can you stop right there? Can you stop right there? Six hundred firms did. Can you stop right there? Most people don't know that these hedge funds got this money. Most people think this money went out to American businesses to keep these businesses from collapsing because we need restaurants. We need, you know, movie theaters and all these all these various American businesses that we assume this money went to prevent from collapsing. Explain that, please. Yeah. Well, you didn't have to. All you had to do is apply. And according to the small business administration, as long as the money you asked for was less than two million, they didn't ask any question because in theory you were supposed to need the money. Right. You were supposed to have some disruption. Like if you ran a restaurant and your restaurant is shut down, you don't have any revenue. There's nobody eating in your restaurant. So you have no money coming in. So how do you pay your waiters? How do you pay your busboys? You have no money. So the government was like, oh, we'll give you some money as long as you don't fire your workers. We'll give you some money to pay your workers. But a company like mine, right, Mike, I have a story. Two or three companies that I could have taken money from. And I didn't. But you look at my like my asset management company, your Pacific asset management, I'm making more money now than I was before COVID. And I assume that that's the case with most firms that are in my industry. Can you explain how that's possible? Because our revenue was never shut down. How is that possible? How are you making more money? Because all I do is charge fees to manage people's money. I didn't stop managing their money because of COVID. I mean, we just keep on managing it and we keep on billing for our fees. We bill every quarter. We weren't even shut down. Even in Puerto Rico where they were shutting down everything. I mean, I was considered an essential business financial services. So I you know, people can come to my office, even though I let a lot of them work from home. And remember, all of our customers, they talk to us on the phone. So when I want to talk to a customer, the customer doesn't drive down to my office. You know, they just call me on the phone. And so there's no physical contact. So there isn't any disruption. All of the revenues that the hedge funds were getting at the asset management companies, all that revenue continued unabated. Not a single job was in jeopardy. Right. All these companies that got government money, see that the government wants to pretend that these loans saved jobs. They didn't save these jobs. These jobs were never in jeopardy of being lost. So all that happened is that it's a windfall. The asset management companies, the hedge funds, they got extra money from the government to make their profits even bigger on top of the fact that the Federal Reserve printed all this money, which inflated asset prices. We charge fees on those assets. And so as the Fed inflates assets, Wall Street has inflated fees. We make more money. It was a double bailout for a lot of these Wall Street firms. So that was one of the frauds. But even in the case where the government is actually giving companies, giving money to companies that need it right, that otherwise would have fired their workers. Look, we don't know what the future demand for restaurants and bars and theaters is going to be. I personally believe that demand is going to be diminished for a long time. It's not just a temporary thing. I don't think it's going to come back to the way it was, especially since the way it was was a bubble. See, that's what people don't get. They say we want to go back to the way it was before COVID. We can't reflate that bubble. We have to start spending less. We have to save more. And that means we can't go out as often. We need to build up our savings again because we've depleted it. So there's going to be less demand for restaurants. There's going to be less demand for a lot of things. We have to let these companies downsize. Look at the airlines. Americans are going to be flying less. There's no question in my mind that domestic air travel is going to be down for many, many years, even after COVID is cured. So the airlines have to shrink. They have to lay people off. They have to be profitable. They have to effectively utilize resources. So to the extent that the government prevents businesses from laying off workers that really should be laid off, they ultimately compromise the viability of those businesses. And in the long run, they may end up putting people out of business that would have stayed in business. Maybe somebody had 100 employees, and maybe they could have downsized to 30 employees, and at least those 30 employees would have a job. But instead, they keep those employees on the payroll for long enough to the point where the whole company has to go out of business, and now everybody loses their job. Now, when you say hedge funds were able to receive PPE, and you're saying that they did so while they were still earning profits, and there wasn't any diminishment of their income, why were they able to receive PPP? Well, that's the problem with government programs. There's always fraud. Whenever the government is giving out free money, people try to qualify for it. Now, you can read the fine print, and I know a lot of other people could say, hey, Peter had said as long as your business was affected by COVID, and look, yes, my business was affected. I mean, people worked at home that used to work in the office. But you had to basically testify or certify that the money was necessary to support the ongoing operations of your business, which for most of these firms, it wasn't. And you also had to say that you had no other source of capital, which again, people were lying. But the government basically said, if you ask for less than $2 million, we're going to look the other way. We're not going to vet these loans. But hold on, hold on. Did they actually say that? Did they actually say that? That they're non-recourse, there's no collateral. So a lot of businesses that were going to fail anyway, and that were going to lay off all their workers took the money. They're still going to lay off all their workers, but now they're not going to have to pay the money back because they're going to bankrupt their business. And once your business is bankrupt, even though you fire all your workers, you're under no obligation to repay the loan. Okay. Did they actually say that if you ask for less than $2 million, we're going to look the other way? Like, where are you taking this from? What it says is we'll assume that you're filing an honest claim, right? Because they're saying that if you ask for more than $2 million, we're going to vet the claim and we're going to take a look at your situation. But it's set on the small business administration that we'll just assume you're being honest, right? So if you ask for less than $2 million, we'll assume you're being honest. Well, the minute they say it, I'm going to lie. That's the problem. So many people lie. Whenever the government has a program, it gets abused. That's part of the problem with government spending, right? Everybody tries to qualify, like just like the unemployment benefits, this crazy deal with the enhanced unemployment benefits. You have a lot of people now who are being paid twice as much not to work as they were earning when they were working. Now you create that kind of incentive. You have a lot of people now. The last thing they want is to go back to work because they're making so much more money not working than they were when they were working. And most of these people, if you have a job where you're making, you know, $10, $15 an hour, $20 an hour, chances are you don't love your job. I mean, you're not working because you enjoy what you're doing. You're working because you need the money. You need to pay the bills. Well, if you can make the same amount of money or more without working, I mean, who's not going to go for that? I mean, I don't blame anybody for not wanting to work if the government is paying you more not to work than what your boss was paying you to work. And of course, you know, there's more than just working. You have to get up early in the morning. You got to fight traffic. You know, you know, you got other expenses. Maybe you got to, you know, put your kids in daycare. You got to, you know, laundry, you know, dry clean your clothes. Women, women could spend an hour in the morning doing their hair, doing makeup. They don't get paid for that. But they got to do all that, you know, and add all that to commute time. I mean, so there's a big cost of working. And then, of course, you give up all your leisure. When you're at work, you can't have fun. The government now has created a situation where people are getting paid to have fun. So I mean, how do you end that? Politician is now going to take this away.