Peter Schiff: Hyperinflation Risk High, Stocks Will Crater

Euro-Pacific Capital President Peter Schiff that the U.S. could see double-digit inflation within the next two to three years, and potential Zimbabwe style hyperinflation within the next five to 10 years, “depending on how the government reacts to high inflation.”

In the period from October 2008 through May 2009 the Federal Reserve doubled the monetary base, in part to help increase money supply to provide for all of the new government programs, including TARP, TALF, and the Obama and Bush stimulus packages.

According to Schiff, government stimulus is the problem, not the solution.

“As painful as it is, this recession is necessary,” Schiff told Moneynews.com’s Dan Mangru in an exclusive interview. Schiff is author of the book “Crash Proof: How to Profit From The Coming Economic Collapse.”

“We’re never going to have a vibrant economy if we keep concentrating on reflating a busted bubble.”

In 2001 to 2002, Schiff notes, interest rates were slashed and the federal budget surplus became a budget deficit.

“We stimulated our way out of that recession into this depression,” he says.

Whenever the government becomes involved, runaway costs result, notes Schiff, a potential candidate for the U.S. Senate.

“If we cancelled student loan programs, universities would charge a lot less,” he says.

“Prices for insured medical procedures are rising three times as fast as those for uninsured procedures,” Schiff observes.

“With insured procedures and low co-pays, no one cares what the procedures cost.”

Moreover, Washington’s tactics of keeping interest rates artificially low and encouraging consumers to buy more then bailing out troubled companies only makes problems worse.

“The government is taking money away from people who are doing it right and giving it to people who are doing it wrong. That’s a recipe for disaster,” Schiff says.

“Why should successful companies be punished to bail out unsuccessful companies?”

Schiff points to the “cash for clunkers” car rebate program as another example of government intervention gone wrong.

“We are spending money to take an asset that works … and destroy it,” he says.

“What’s probably going to happen in a couple of years is we’ll need a bailout for all the people who bought cars with their cash for clunkers money and can’t afford to make their payments.”

The theory that the world’s economies are linked like a train and that the United States is the engine is 180 degrees wrong, according to Schiff.

“I think the world represents the engine and the U.S. the caboose,” he says. “The world has been spending a lot of energy dragging a caboose that consumes more than it produces and borrows more than it saves.”

Schiff says the stock market is in a bear market rally that will probably end as the dollar reaches new lows, bond prices fall farther and interest rates spike.

“I think the bear market has been here since 2000 and will be with us for another five to 10 years,” he says, adding that he expects U.S. stocks will lose a lot of value relative to gold and other currencies.

“If you look at 2008 and 2009 together, people who invested outside the United States are in far better shape than people who invested inside, Schiff says.

“I expect that to continue.”