Peter Schiff President of Euro Pacific Capital (Full Bio)

Bruce Norris is joined this week by President of Euro Pacific Capital and author of Crash Proof 2.0, How to profit from the Economic Collapse, Peter Schiff. Peter is currently campaigning for the Connecticut Senate seat to replace Senator Dodd.

Europac.net is Peter’s website and the number to reach his group is 800-727-7922.

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, including The Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and appears regularly on CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V. His best-selling book, “Crash Proof: How to Profit from the Coming Economic Collapse” was published by Wiley & Sons in February of 2007. His second book, “The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down” was published by Wiley & Sons in October of 2008.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign. He holds FINRA Series 4,7,24,27,53,55, & 63 licenses.

In 2007, the crash was not obvious to many, but it was to Peter. Peter thinks he understood the economy better than most of the people in Wall Street and the government. Peter was better prepared because he was writing books about the economy, and he was working in the brokerage industry. He received many emails from other people who agreed with his views.

Peter believes the problem is that too many people learned Keynesian economics, and as a result, they had no understanding of how economies truly work. It is hard to see a bubble when you are inside one. Peter saw people buying houses at prices they couldn’t afford. He knew that lenders were letting people buy homes with no down payment, they were letting people lie about their income, and they weren’t documenting their assets. He knew the government was guaranteeing all that debt through Fannie and Freddie, and he understood the moral hazard of that behavior. He knew the Federal Reserve had interest rates much too low. He knew that the economy was in a mess, and that we were simply inflating a bubble. Peter claims you didn’t have to be a rocket scientist to see this problem coming; you just had to be an idiot, or too immersed in the bubble to see it coming.

Bruce saw many of the people who Peter debated, and they were very confident when they claimed Peter was wrong, and they still do. Many of these people still think that the economy is recovering right now, and that Ben Bernanke made the right choice by stimulating the economy. Peter thinks Bernanke made the problem worse. We are trying to reinflate a bubble, but this behavior is just going to make problems worse.

Bruce asks Schiff what he would label his State of the Union speech, if he was to give one. Peter does not think that the Union is currently sound. Right now, he is running for Senate in Connecticut as a Republican nominee. Peter believes that Chris Dodd enabled the housing bubble by giving support for Fannie and Freddie while they were making bad decisions. Schiff thinks we need to restructure our government, because it is spending too much and it is too big. Right now, the government is actually trying to expand rather than shrink, and that causes an increase in spending. We need to change our tax policy. Right now we are punishing hard work, savings and investment. We need to raise revenue through consumer spending. We need to remove many of the regulations that are distorting the free market. We cannot pretend that we can buy everything from China and Japan, and then pay for those products by borrowing money.

For inflation to occur, you need to have a central bank creating a lot of money. Typically, the catalyst for inflation is government spending. When governments spend more money than they collect in taxes, they often get the difference from their central bank, and this is happening right now. Not only do we have all the ingredients for inflation, but we also have the ingredients for hyper inflation. Unless the government makes changes, we will have hyper inflation.

Inflation has not been a big factor yet, but Peter believes that this is because we cannot see it. We should be currently experiencing deflation but we are not. Prices should be falling, which would be helpful to the economy, but the government is preventing price reduction through inflation. One thing that Keynesians don’t understand is that high unemployment causes high inflation. Keynesians think there is a trade off between high unemployment and low inflation; this is actually the opposite of the truth. Generally speaking, most countries will low levels of employment have low levels of inflation. When you have fewer people working and producing goods, governments print more money to stimulate the weak economy.

In the 60s and 70s, we believed in the Philip’s curve, which got us in trouble. Bruce asks if the path to hyper inflation will take over a decade. Peter says it is up to the Chinese and Japanese. They have to decide when they will stop loaning us money that we cannot pay back. Peter doubts that this inflation process will take a decade. He thinks it will most likely happen over the next several years.

When the world stops buying our debt, we will either have the Federal Reserve print money to buy our debt, or we will make radical cuts in government spending. Peter hopes that we choose to cut our spending, but based on the current officials we have in congress, he believes we will choose to print money. Many countries throughout history have made the mistake of hyper inflation, and it has led them to disaster. Unfortunately, our government officials have learned nothing from history.

Peter does not think that our generation will see another politician like Paul Volcker; someone who is willing to take the necessary actions to save us from more trouble. In the 80s, we were lucky to have the support of Volcker and Reagan. Reagan understood that the government was too big, and he understood the importance of the dollar value. When Volcker was raising interest rates, politicians were calling for his resignation, but Reagan supported him. Right now, the person who occupies the White House is the complete opposite of Reagan. Obama believes that the free market is causing problems, and that the government is the solution. Bernanke is also the complete opposite of Volcker, because Ben supports mass amounts of government spending.

Home prices in California are firming, but this is occurring because the government is sustaining those prices. Right now, the government is actually making the problem worse. Builders are still making new homes, because the government is making it easy for people to buy homes with 3 percent down payments and low interest rates. If the market were in charge, prices would be falling so low that no one would want to buy and no one would be building new homes. What builders are doing is adding more homes to the incredible supply we already have. Once the government removes its influence, the collapse will be even bigger. We are still suckering people into buying homes that they cannot afford, and they are still able to extract equity from their homes which will soon disappear.

Peter believes that real estate prices need to fall, because the prices need to reflect a true market. In a true market, the average person should be able to put down 20 percent on a house, and then qualify for a mortgage without government guarantees. Also, people should have enough savings to pay for the other costs that come with owning a house. You need to have a reserve of cash for when emergencies, such as job loss, emerge. Prices need to fall to the point where people can do that, and Peter believes that this appropriate price rating is far away in California.

Keeping real estate prices artificially high is hurting the economy, because in order to inflate real estate prices, interest rates must remain artificially low. To do this, capital has to be sucked out of the real economy, which means that businesses cannot grow and expand. The more we keep home prices inflated, the more Americans will lose their job. Eventually, we will have higher real estate prices, but more Americans will be unemployed.

Right now, there are a lot of people who own houses who should not. For example, in California, renters were sucked into the market based on the expectation of making profit. The principal motivation for buying a house, for many of these people, was to make money. People will eventually realize that owning a home is not like owning a lottery ticket. There are many home owners who need to go back to renting. It is more flexible to rent, and it is typically less expensive.

Peter also thinks that many people bought larger homes they did not need during the real estate bubble, because they expected home prices to double. People expected their houses to appreciate to twice their purchasing amount. Once prices stop going up, people stop buying huge homes based on speculation, and they will simply buy what they need. Because of this market speculation, builders built too many mcmansions.

Peter also believes that California’s other big problem is that it is bankrupt. Companies are leaving, so the unemployment rate will be much higher in a couple years. When you are unemployed you cannot buy a home.

The only thing Peter believes will save California real estate is hyper inflation. However, Peter would not consider that to be a realistic solution. Hyper inflation may allow people to live in their expensive homes, but their other expenses, like air conditioning and eating, will become more expensive as well. Peter thinks that houses will still have their value, but people will be huddled in blankets; looking pathetic.

Bruce asks Peter, “When you get to the senate, can you change certain real estate policies, which will allow investors to receive financing? Investors are willing to put 20 to 30 percent down, but they cannot currently get financing for investing.”

This is because the government is directing all it’s financing to homebuyers and college student. Peter wants to stop the government from subsidizing anyone’s mortgage. This way, loans will go to the most credible borrowers, and the investors will surely be the most credible borrower. Peter would prefer to have an investor, who has the money, buy a property and maintain it, rather than keep an individual in his or her property when they don’t have the equity to maintain it.

Renting makes sense for a lot of people. Peter was a renter for nearly his entire life, because he made plenty of money and he felt it made more sense. In Florida, he rented a nice place for much cheaper than what he could have owned. He recently decided to buy for multiple reasons: 1) He was tired of moving around; 2) He paid 40 percent less than the owner who bought it in 2002. 3) It was 60 percent less than what the property was listed for 2 years ago. It would have cost him more money to build the home.

People ask Peter if they should buy real estate for financial reasons, and he tells them “absolutely not”. If you are thinking about real estate as an investment, then Peter thinks you should rent.

Peter believes that interest rates will increase at some point, because the government is artificially suppressing them right now. The longer we keep interest rates low, the higher they will end up. Many people feel encouraged to buy homes when interest rates are low, but Peter has the opposite perspective. Peter would rather buy interest rates when they are high, because prices are typically low when interest rates are high.

Bruce mentions that last time, prices did not decrease as the interest rates increased. Peter claims that this happened as a result of government interference. The Federal Reserve kept rates low in order to allow people to overpay for houses. Lenders also allowed people to buy a home without a down payment. These two factors encouraged people to buy, and as a result, people gained a positively speculative mentality towards real estate prices. The mania of real estate profit further encouraged home purchases.

You can no longer get an ARM, and only qualify at the teaser level. People were once able to get loans with 2 or 3 percent payments.

Peter’s website is www.europac.net

You can learn about his brokerage business at that website. Peter can help you invest your money around the world.

Peter’s recently published book is “Crash Proof 2.0”.

If you want to help Peter get to senate, his campaign website is www.schiffforsenate.com

Robert J. Samuelson Author and Columnist (Full Bio)

This week Bruce is joined again this week by Robert J. Samuelson. Robert is an award winning columnist and author. He has been writing a column for The Washington Post since 1977, and for Newsweek since 1984. He has recently published a book named The Great Inflation and Its Aftermath: The Past and Future of American Influence.

One of the main claims in Samuelson’s recent book is that the rise and fall of inflation was the most significant event in the past 50 years. When most people think of the fall of inflation, they think of a very short time. One of Samuelson’s key points is that there was nothing usual about the last 25 years. Samuelson thinks the fall of inflation was even more important than the rise of inflation.

In the early 80s, inflation was reaching 15 percent, mortgage rates were around 15 percent, and the prime rate for good bank customers was over 20 percent. When inflation came down, interest rates came down slowly, because no one believed that inflation would come down. Asset prices, beginning with the stock market, began to increase during this time. The Dow Jones industrial average was between 800 and 900. There was an explosion in the stock market over the next 20 years. By 2000, the Dow was over 10,000. Stock market wealth within households went from about $1 trillion in the 80s to over $11 trillion at the end of the 90s.

Later, this increase in stock values lead to an increase in real estate values. For many years, consumers spent more of their income and borrowed more. There were only 2 modest recessions during this time in 1991 and 2001. This increase in wealth made people very careless. It conditioned them to take risks which they should not have taken, because they believed the economy had entered into a state of prolonged prosperity.

If you have a feeling of preordained success about an investment, you are probably ignoring a lot of the risk factors you would normally pay attention too. People thought that risk had gone down because of lower inflation. They also felt that they understood risk better. People then began to take more risks because of these two false assumptions. Lenders began to lend money to people with high levels of debt, and they did it with silly and destructive interest rates. People assumed that stock prices would increase forever. For many years, Samuelson warned people that things would not continue to increase forever. Some of those people looked at Samuelson with pity, because he wasn’t taking part in the stock market increase.

Great gains inspire perverse behavior. There were people who owned 50 and 60 homes, who did not have a normal job, with a $30,000 negative cash flow per month. They would show you their list of properties with pride, because they were worth $4 million. They assumed they would be able to sell all their properties to people who were even dumber than they were. These kinds of people were sure that their investments couldn’t go wrong.

Before the bubble burst, people had high expectations for success, which allowed them to grumble about things not being good enough. The paradox at that time was that they could only have grumbled if they expected themselves to be heading towards paradise. The fact that things had been so good for them allowed them to criticize the actual conditions. When historians look back at this time, they will likely conclude that the times were not that good, even thought they really were; the times just weren’t as good as people thought they should be.

Roughly 2/3 of today’s population are too young in 1980. They were either not alive, or they were in their pre-adult years. They were not aware of the 70s and the high inflation, but even the people who lived during that time forgot about it.

Samuelson knows a columnist who wrote about Reagan’s leadership qualities. Samuelson does think that Reagan was a good leader, but the columnist did not address inflation at all. This history is the lost history. Professional historians and economists have engaged in an act of amnesia. This is scary because people will be more likely to make the same mistakes in the future. Samuelson thinks it is good to have the truth for the sake of truth, but also because if we don’t know the truth we will likely repeat our mistakes. There are prominent economists who are claiming that a little more inflation would be okay. Samuelson believes that if we encourage a little inflation, we will end up with a lot of it.

When society is used to good times, it can be difficult to ask for sacrifices, depending on what sacrifice you are asking for and why. Today, we have made more promises to people than we can afford to keep. Most of these promises are to retirees through social security, Medicare, and Medicaid. The cost of paying for those programs, when the baby boomers retire, will be staggering. Our children will be saddled with very high taxes, high budget deficits, or great cuts in other services. If we explain this to people, perhaps they would be willing to make some sacrifices. They may have to cut back on benefits for retirees, and raise the eligibility age for those programs. There may also be some sort of tax increase. None of our political leaders have made the case for sacrificing for our own interest. They seem to be waiting for a crisis to happen, which will force them to do things they should have done on their own.

There seems to be a popular conception that hyperinflation will likely occur in the next 20 years. However, based on our current scenario, Bruce does not see this occurring any time soon. Bruce and Samuelson are more considered with short term deflation. Samuelson doesn’t understand how you get higher inflation when you have empty shopping malls, 10 percent unemployment, and surplus factory capacity. As long as the people running economic policy in this country don’t come to the conclusion that higher inflation is better, we shouldn’t have it in the near future. When Samuelson says near future, he means 3 to 5 years.

In the long term, some people say that we will have to inflate because we have so much debt. The problem is that it is not easy to inflate your way out of debt. Forty percent of inflation turns over in a year or two. If you raise the inflation rate, you don’t really erode the debt, because you just have to refinance it at higher interest rates. In theory it seems like a practical choice, but in reality, it is not realistic.

Economists make the mistake of assuming that the economy responds in a mechanical way to credit, interest rates, government spending, and taxes. These things are significant, but Samuelson doesn’t think they are everything.

What happened in Japan was that they had an economic model, from the 50s to the middle 80s, which worked well for them. They had an export led economy, and they had an undervalued exchange rate. Their domestic economy was not very dynamic, but their exports kept growth and investment high. That model didn’t work in 80s because the exchange rate appreciated dramatically, and their exports became less competitive. This caused the Japanese to settle into a low growth mode, and they haven’t found a different economic model that works better. Contrary to what people learn in college economics, monetary and fiscal policy cannot change that kind of problem. The Japanese efforts to expand their economy through large budget deficits and loose monetary policy didn’t work. Their policy was dynamic internationally, but not domestically, and Samuelson thinks that is the problem in Japan.

If deflation became anticipated, it would be very destructive. Samuelson doesn’t think that modest price decreases would be that bad for a little while. However, if people think that prices will decrease forever, then they won’t borrow money, because their debt burdens will rise. They will postpone buying because the car they could buy today will be expected to fall even more in the future. This mentality will reduce demand, and then unemployment will increase.

Bruce asks Samuelson about what has changed in the baby boom generation’s expectation for retirement. Samuelson claims that this question is a little above his competence, because he is at the very edge of the baby boom generation. Samuelson feels that his retirement has become much less certain. He has saved a fair amount of money, but one thing he has learned is that markets don’t always increase. For example, if you have $100,000 on Thursday, six months from Thursday you may only have $100,000 minus 30 percent of its value. If you thought that money amount would be adequate to supply you through retirement, you may discover later on that it isn’t. That whole generation is probably feeling that same way about their retirement savings. Bruce thinks this mentality will cause a scenario that will not be inflationary. The economists that Samuelson talks to claim that people have short memories, so if we get into a fast growing economy for a few years, then their mentality of fear will disappear. However, Samuelson tends to agree with Bruce in his belief that these setbacks will leave people with a scarred mentality.

Samuelson wrote that the baby boom generation was the benefactor of large chunks of profit. They had the stock market increase, and then they had the real estate increase. This caused the baby boom generation to accumulate a lot of equity. Most of the GDP growth after 2002 came from equity growth and the extraction of it. Bruce wonders what is going to fuel the GDP growth going forward. This makes Bruce think, “How will we get inflation if we will have difficulty obtaining a moderate GDP growth?” Samuelson says that in an ideal world, the source of growth for the next 10 years would come from higher exports, fewer imports, and investment related to those thins. Also, more investment into our energy infrastructure might help as well. Specifically, natural gas could help us a lot now that we know we have more than we previously thought. Also, oil production can make a big difference for our potential economic growth.

After the Great Depression, a pact was made between the government and big business. Bruce asks if Samuelson sees another pact being made today. Samuelson does not see another pact being made today. The pact that occurred in the past was informal and unstable. After World War II, businesses did not want to be reviled in the same way they had been during the Great Depression. Because of this, businesses submitted to social and economic regulation in return for continued market freedom. What we should have today is a generational pact in which the baby boomers agree to reduce their benefits, so that we can take those burdens off of the young. This will allow them to start businesses, have children, and live in such a way so that a significant chunk of their income isn’t being drained to support their grandparents. Bruce completely agrees with this. There are plenty of people who can afford to pay for their own retirement, instead of having their grandchildren be taxed for it.

Robert Samuelson has created one heck of a book: The Great Inflation and Its Aftermath: The Past and Future of American Influence.

Robert J. Samuelson Author and Columnist (Full Bio)

This week Bruce is joined by Robert J. Samuelson. He is an award winning columnist and author. He has been writing a column for The Washington Post since 1977, and for Newsweek since 1984. He has recently published a book named The Great Inflation and Its Aftermath: The Past and Future of American Influence.

In discussing the similarities between the Great Depression and the great inflation, Samuelson wrote, “What ultimately governed their decisions was the conventional wisdom at the time. The policies had been set with egos at stake. They were presumed to be correct.”

Bruce asks what the conventional wisdom in the 1960s was in regards to creating a healthy economy. The conventional wisdom in the 60s was called Keynesianism. This term was coined from John Maynard Keynes; a British economist who died in 1946. Keynesianism lead people to believe that professional economists had concurred the business cycle. Economists had figured out how to forecast the economy, and they had the tools to counteract recessions. Economists believed they could maximize economic growth, and keep unemployment at very low levels. This mentality lead people to believe that they could bring about endless prosperity.

The Philips Curve was named after the Australian economist A.W. Philips. Philips postulated that there was a fixed trade off between higher inflation and lower employment. You could pick which poison/benefit you desired to receive by raising one and lowering the other.

Walter Heller was chairman of Kennedy’s council of economic advisors. Kennedy was a person who truly listed to his advisors. Bruce asks if the economic thought of the time was played out in Kennedy’s policy. Although Kennedy was a practical politician, he was open to new ideas. His advisors argued that the policies which Eisenhower followed in the 1950s were behind the times. Heller argued that economists could prevent recessions, keep unemployment lower, and maximize economic growth. Kennedy was a skeptic at first because he had been raised to believe that the government should balance its budget, and inflation was a bad thing. Heller argued that we could use federal budget deficits to manipulate the economy, and even if a little inflation resulted, it wasn’t a terrible thing because you would have lower unemployment and people would adjust to it. Since the economy of Kennedy’s first two years did not do incredibly well, and because he was genuinely curious, he was open to the idea of inflation. The ideas that Heller sold to Kennedy were embraced by most economists.

This theory of a stable trade off between inflation and unemployment was obviously wrong. Economists could not create a fixed rate of inflation. In fact, we got an ever-accelerating rate of inflation. When Kennedy first became president, the inflation rate was between 1 and 2 percent, but by the end of the 60s, it was 6 percent, and by the end of the 70s, it was 14 percent. Having this rising inflation made the economy less stable. Between the end of the 60s and the early 80s, we had 4 recessions of increasing severity. The recession of the early 80s had a peak unemployment rate of 10.8 percent. The net result of this economic experiment was that everything turned out to be completely the opposite of what the economists had promised. It promised stable inflation, but didn’t get stable inflation. It promised fewer business cycles and recessions, but we got more business cycles and recessions. It promised lower average unemployment, but we got higher unemployment.

The general idea of inflation is starting to become popular again. The chief economist of the International Monetary Fund recently put out a paper saying, “Maybe a little bit of higher inflation is okay.” Hearing this, Samuelson thought, “Haven’t they learned anything in the last 50 years?”

We were in a desperate position in 2008, and the idea of the economic stimulus program was desirable. However, Samuelson does not think that this program was executed well. The economy was in the process of falling off the edge. The idea of people being able to manipulate the business cycle seems ultimately self defeating. We have to intervene, but we have to be more restrained in our interventions. When interventions succeed, they create conditions that strike back at us.

If Robert wanted to make a formula for creating inflation, the most important ingredient would be to not care about inflation; to not care about keeping the money supply stable. This old fashioned idea that stable money is a responsibility of the government seems to be an ancient relic of the barbarian past. Robert thinks that responsibility is extremely important. The mindset of decision of makers, and the public, is the most important thing. Also, creating too much easy credit is a precondition for most sustained inflations. You can have easy credit, an easy monetary policy, and an expansive money supply, and not get inflation if there are other things off-setting the monetary stimuli. However, if you have people in charge who don’t care about inflation then you are preconditioned to have higher inflation.

Bruce will return to this topic in the next segment.

Samuelson remarked that the learning curve of successive presidents and their advisors is remarkably flat. It amazes Bruce that we have very intelligent people running our government, yet there has been no progressive learning curve. The same mistakes were made as new presidents came into power. Bruce wonders what role politics played in swaying the economic policy of the 70s. In the 60s, economists persuaded political leaders that it was possible to have sustained economic growth, with few recessions, and low unemployment. Once those ideas were accepted by political leaders, it became a part of the fabric of the public’s expectation. When these ideas did not accomplish their purpose, other people tried to achieve the same goal using different policies. Essentially, they continued to use bad policies to prop up a structure which was already collapsing. Unfortunately, our leaders were not able to admit and act as thought they were incapable of solving our financial problems. It fell to Ronal Reagan to deliver the news that their promises could not be fulfilled.

Arthur Burns was the Federal Reserve chairman from 1970 to 1979. He was an economist from Colombia University. He was also the head of the National Bureau of Economic Research. His major mistake was that he bought into Keynesianism. Once he bought into it, he did not take the actions he needed to prevent inflation. In Samuelson’s book, he stated, “What was politically convenient, was also rationalized intellectually.” He was pressured from Nixon, and he was politically expected to fulfill the goal of constant economic growth with no business cycles. At some point, the Federal Reserve would have to stop the rising inflation, so they would tighten credit and reduce the money supply. This would cause a recession, which made the people upset, and so they would start the inflation process again. The Federal Reserve couldn’t decide how to solve the financial problem, and they ended up choosing to do nothing constructively.

Samuelson believes that if you have expectations of higher inflation, then you will get higher inflation. This kind of thinking makes businesses and workers act in such a way as to produce it. Businesses start thinking that they can pass on any price increases, and workers assume that they can get increased wages to pay for their higher cost of living. This mentality causes a wage/price spiral. Unless the government steps in and stops this mentality, it will continue.

At the end of World War II, there was a huge burst of inflation, because during the war we had wage/price controls. As soon as the artificial suppression of the wages and prices was removed, there was a huge increase in inflation. However, we did not get double digit inflation in the late 40s or the 50s. This makes Samuelson ask the question, “Why didn’t that happen?” This wasn’t because policy became oppressive; it was because people didn’t expect the wages and prices to continue to increase. People at that point in time didn’t think that the U.S. was going to have inflation for forever, so they didn’t act that way.

At the end of the 70s, people were scared by inflation. They feared that the government could not control inflation, and they didn’t understand inflation. They didn’t know whether their wages would keep up with rising prices, they didn’t know if their savings would be eroded by rising prices, and they didn’t know how high interest rates were going to go. In the early 80s, mortgage rates got up to 15 percent.

Bruce Norris refinanced his house to become a real estate investor at age 17. People didn’t know if that kind of inflation would continue. Opinion polls showed that people did not think the future would be better than the past. The fears then, and the fears now, are not that much different from each other.

Samuelson believes that the fear, anxiety, and pessimism induced by inflation were the main reasons Ronal Reagan was voted as president in 1980. The vote wasn’t about conservative vs. liberal politics. They didn’t know if Reagan could fix the problem, but they certainly knew that Carter couldn’t. This change in public perspective gave Volcker and Reagan a chance to try something new. They were the right pair to make those changes. Volcker was chairman of the Federal Reserve board at the end of the 1970s. Volcker was chosen to be chairman of the Federal Reserve, because Carter had hired the previous chairman to take the position of Treasury Secretary.

Volcker and Reagan shared the belief that the country could not prosper with double digit inflation. Volcker decided that the government was not going to pump out money and credit. After that decision, interest rates increased, inflation slowed down, and the economy went into a horrific recession. Reagan did something that no politician would have done at the time; he supported Volcker’s decision. This caused Reagan’s popularity to plummet, but he continued to give Volcker his support, because he thought Volcker was making the right decision.

What was unique about Reagan and Volcker’s policy was that all of the adverse consequences were up front. No politician likes to have the news filled with negative information related to their presidency. From Samuelson’s perspective, any other politician who had been president would have told Volcker to stop. If Volcker did not stop, then they would have created legislation to change the nature of the Federal Reserve, so that it would be more accountable to its political masters.

Bruce encourages everyone to get “The Great Inflation and Its Aftermath: The Past and Future of American Influence”. Roger will be on The Norris Group’s Radio Show during the next segment.

Christopher Thornberg Principal at Beacon Economics (Full Bio)

This week Bruce is joined by Christopher Thornberg. Christopher is an expert in the study of regional economies, real estate dynamics, and business forecasting. In 2006, he co-founded Beacon Economics which is an  economic research and consulting firm that specializes in real estate markets, local economic development, and public and private policy issues. Christopher has also been part of the Norris Group’s award-winning fundraising series, I Survived Real Estate.

Christopher and Bruce discuss the current state of the market and whether the market is truly experiencing a comeback or is it completely manufactured.  Christopher goes into detail about Bernanke and his current handling of the market.  Government actions has delayed the inevitable and Christopher and Bruce discuss what the different strategies have been and how effective they have been and how much longer we should expect to see these manipulations.

Bruce and Christopher talk about Fannie Mae and FHA and the growing issues with FHA’s portfolio. The Mortgage Bankers Association estimates 20% of the their loan portfolio is in trouble.

A complete transcription of the show coming soon.

The national unemployment rate remained at 10 percent during December. LPS reports that 1 in every 7.5 fell into foreclosure or delinquency during November. According to Fitch Ratings, 2009 commercial delinquency rates ended at 4.71%.

In The news:

Bloomberg - “Shrinking U.S. Labor Force Keeps Unemployment Rate From Rising” (1-9-09)

“An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December, economists said.”

Housing Wire – “More than 13% of Mortgages Delinquent or Foreclosed in November: LPS” (1-11-09)

“One in every 7.5 homeowners either fell into delinquency or foreclosure as of November 30, 2009, according to the December mortgage monitor report from Lender Processing Services (LPS), a mortgage data provider. The total amount of delinquencies reached a record high 9.97%, a 5.46% increase from the previous month and a 21.29% increase from November 2008. In a sign that homeowners continue their struggle to meet their monthly mortgage payments, loans falling into more severe delinquent categories reached 5.01% through November, compared to 1.52% of loans improved toward a current status.”

Housing Wire – “$47bn of Interest-Only RMBS Loans to Recast This Year, Fitch Says” (1-11-09)

“More than $47bn of collateral backing prime and Alt-A residential mortgage-backed securities (RMBS) is scheduled to recast over the next 12 months from an interest-only (IO) payment to a fully amortizing payment, Fitch Ratings said in market commentary Monday.”

Housing Wire – “Financial, Mortgage Hirings Up as Overall Employment Dips” (1-11-09)

“The DOL’s Bureau of Labor Statistics (BLS) on Friday said the national unemployment rate was 10% in December, unchanged from November. Despite the overall loss, the financial-activities sector gained a net 4,000 jobs in December, the first gain since summer 2007, according to a search of the Bureau of Labor Statistics online database. Jobs increased from November (7,691,000) to 7,695,00 in December.”

Housing Wire – “Q409 Losses on the Way for Banks: Citi” (1-11-09)

“Citigroup (C: 3.63 +1.11%) analysts expect Q409 losses for Morgan Stanley (MS: 32.04 -0.65%), Goldman Sachs (GS: 171.56 -1.58%), Bank of America (BAC: 16.93 +0.89%) and JPMorgan Chase (JPM: 44.53 -0.34%) due to a “substantial” decline in fixed-income, commodities and currencies (FICC) trading, according to a 2010 Outlook report.”

Housing Wire – “CMBS Delinquencies May Double by 2012, Says Fitch” (1-11-09)

“An increase in defaults across property types pushed total commercial mortgage-backed securities (CMBS) delinquencies 42 bps higher, closing 2009 at 4.71% delinquent, according to credit-rating agency Fitch Ratings. The rate of growth in delinquent CMBS looks set to continue in coming years, with a potential peak at 12% in 2012.”

Housing Wire - “Redefault Rates ‘Tragic’, Says Amherst” (1-11-09)

“According to Amherst Securities Group, default and prepayment rates on non-agency, private-label mortgage-backed securities (MBS) were constant in November. However, re-performance rates, where payments return to less than two months delinquent, were down and re-default rates “tragic” in November, according to market commentary provided by the firm.”

Bloomberg - “Fed’s Bullard Says Asset-Purchase Adjustments Main Policy Issue” (1-11-09)

“Federal Reserve Bank of St. Louis President James Bullard said the main challenge for U.S. policy makers will be to adjust the asset-purchase program so as to continue supporting economic growth without stoking inflation. ”

Looking Back:

One year ago, some Realtors forecasted that condo prices would not bottom in 2009. Congressional budget analysts anticipated a $1.2 trillion deficit for 2009.

The MBA’s survey shows that mortgage applications decreased by 4.5 on a seasonally adjusted basis from last week. Freddie Mac’s survey shows that the 30-year FRM decreased by 0.7 points from the previous week. Standard & Poor’s, Moody’s, and Fitch are being sued for inflating ratings.

In The News:

Mortgage Bankers Association - “Mortgage Applications Decrease in Latest MBA Weekly Survey” (11-25-09)

“The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending November 20, 2009.  The Market Composite Index, a measure of mortgage loan application volume, decreased 4.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5.8 percent compared with the previous week.”

Housing Wire – “30-Year Fixed Mortgage Rates at Historic Lows” (11-25-09)

“Freddie Mac’s (FRE: 1.12 -0.88%) weekly survey put the 30-year FRM at 4.78% with a 0.7 point, down from last week when it was 4.83% and one year ago when it was 5.97%. This week’s rate ties the record for lowest ever in the weekly survey’s history, which was previously reached twice in April this year.”

Housing Wire – “Fannie’s MBS Issuance Slides 31% in October” (11-25-09)

“Fannie’s gross mortgage portfolio declined at an annualized rate of 27.8% and stood at $771.4m at the end of the month, according to the monthly summary”

DSNews - “Rating Agencies Face Lawsuit for Allegedly Misleading MBS Investors” (11-24-09)

“Cordray is suing Standard & Poor’s, Moody’s, and Fitch for allegedly providing inflated ratings of mortgage-backed securities (MBS) in exchange for lucrative fees from the securities issuers the agencies say they were objectively evaluating. The lawsuit was filed Friday in a U. S. District Court on behalf of five Ohio public employee retirement and pension funds. Cordray says the case is not intended to take on the status of a class-action lawsuit.”

DSNews - “Bank of America Helps 100,000 Homeowners Avoid Foreclosure” (11-24-09)

“In an effort to help borrowers with Countrywide subprime and option-ARM mortgages avoid foreclosure, Bank of America created its National Homeownership Retention Program (NHRP), providing mortgage relief to 100,000 eligible homeowners in just 10 months. In the third quarter alone, more than 31,000 customers received assistant through the NHRP, according to the bank’s quarterly progress report.”

Bloomberg - “Sales of New Homes in U.S. Rise to Highest Since 2008″ (11-25-09)

“Purchases of new homes in the U.S. rebounded more than anticipated in October as buyers rushed to take advantage of a government tax credit before it expired. Sales rose 6.2 percent to an annual pace of 430,000, the highest level since September 2008, the Commerce Department said today in Washington. The median sales price fell 0.5 percent and the number of unsold homes reached a four-decade low. ”

Bloomberg - “Fed Officials Watch Asset Prices for Signs of ‘Excessive Risk’” (11-25-09)

“Federal Reserve policy makers said for the first time that their decision to cut interest rates to zero may be fueling undue financial-market speculation even as they called the dollar’s decline ‘orderly.’ The Federal Open Market Committee said its policy of keeping rates low might cause ‘excessive risk-taking’ or an ‘unanchoring of inflation expectations,’ according to minutes of its Nov. 3-4 meeting released yesterday.”

Bloomberg - “First American Flips Real Estate Stocks to Beat Fund Rivals” (11-25-09)

“John Wenker and Jay Rosenberg, managers of First American Real Estate Fund, buy and sell stocks more often than their peers, a strategy that helped them outperform 98 percent of rivals in the past decade. The $1.1 billion fund’s turnover ratio, a measure of how often its holdings are traded, is 150 percent, according to data from Morningstar Inc. That compares with an average of 104 percent for all real estate funds. ”

Realty Times – “Internet Stealth Auctions Protect Brand, Generate New Homes Sales” (11-25-09)

“Brown needed to sell his five models. He hired an internet marketing company to help him, then challenged them to design a program around a ‘call to action.’ The company, SaleAMP, suggested the developer give new home buyers what resale real estate thrives on: the opportunity to make an offer- but to do it quietly, fast and with internet marketing thrust at full throttle.”

Realty Times – “Short Sale Sellers Need To Guard Against ‘Double Whammy’ By Bank and I.R.S.” (11-25-09)

“Bad enough that a short sale involves the loss of one’s home with no equity to show for it, and a credit negative that may last for years; it also has the potential to produce two very bad after-effects. One is that the lender, or the lender’s assignee, may continue to pursue the beleaguered seller for the remainder of the debt. The other is that the I.R.S. may come knocking on the seller’s door, seeking tax on the amount of debt that was unpaid. ”

Looking Back:

One year ago, a survey from AARP showed that 25 percent of baby boomers desired to move from their current home. The MBA reported that 32.9 percent of all mortgage applications were government-insured. Total home sales in 2008 increased by 17 percent from 2007.

Peter Schiff President of Euro Pacific Capital (Full Bio)

Bruce Norris is joined by economist and President of Euro Pacific Capital, Peter Schiff. Peter is author of “Crash Proof: How to Profit From the Coming Economic Collapse” and “The Little Book of Bull Moves in Bear Markets.”

Bruce starts off by asking if the media and nonbelievers are now sending apologies since Peter had taken such heat for his views. Peter says they have not and doesn’t think many people understand the situation at hand.

Peter sees what the government is only going to make things worse. Although some are taking this week’s erratic behavior as the start of the next bull market, Peter says bear markets are well known for extreme fluctuations.

Bruce asks Peter what has surprised him most in the past 30 days. Peter is surprised that the government has stepped in and pretty much done whatever they want with what remains of our financial market. No one is challenging them.

Peter feels the financial system is in trouble and that we’re broke. Lending institutions loaned money to people who should have never had it. Instead of the banks failing, we’re going to fail.

Peter says that we should expect major inflation. By 2009, we’ll be seeing much bigger, phony CPI numbers. He doesn’t think the government will fess up to the numbers but the consumer will feel it.

Bruce asks about unemployment rate. Peter doesn’t think our wages will increase because we’re not competitive. Home prices will go down but other consumer staples will go up.

Bruce asks if Peter was in charge what he would do. Peter says there’s no solution. The US had a party and now we have a giant hang over. There’s no magic bullet. Peter would let the painful recession run its course. Peter would make government smaller and would slash government spending, military spending, and other drains on savings. We need savings.

Bruce talks about 70% of US GDP being consumer spending and asks what it will be in the future since we can’t keep that up. Since we’ve been borrowing all that money, Peter thinks people should only be spending what they have. We have to get back to basics. He feels we’re setting up a great depression combined with massive inflation.

Foreign investors will lose a lot of money and learn their lesson. No country will want US money and that will worsen inflation. Peter says he’s been surprised the dollar has done so well in the short run. He feels once the selling is over, the dollar is going to take a big hit.

Bruce asks about gold, silver, interest rates and oil and where Peter sees them in the coming year. Peter thinks by next year we’ll be over $100 a barrel. Peter says since the government is in control, it will be hard to say where interest rates will be.

Bruce asks if Peter sees a gold standard coming back and how that might help. Bruce says that we’ve nationalized Fannie, Freddie, and some of the banks, what’s next? Peter is looking to car manufacturers, states, and utilities. The issue is we can’t bail out everyone. FDIC doesn’t insure value, only quantity.

Bruce asks about the people about to retire. Peter thinks people we will be back in the work force and that things are drastically going to change. People will not be able to retire. Peter says his books really addressed how consumers could and can protect assets.

Bruce asks about tax changes. Peter sees tax increases for rich under Obama but the increases will further undermine the ability to create employment opportunities. The middle class will get tax cuts but they won’t do anything. The extra money won’t buy anything. Government will increase spending. If you have no income, the tax cuts don’t matter.

Bruce plays devil’s advocate and asks what a few more trillion would mean. Nobody would be poor if economic wealth could occur by printing money.

Peter strongly believes we need a new solid foundation built on savings and manufacturing. Anyone holding US debt will not get paid. They will get paid but the money will be worth less.

Bruce asks about two specific moves the audience can implement. Peter says to buy gold and silver and says move out of US stocks and go to global stocks. He also says there is a lot of value outside of the Unites States. Bruce says the global markets haven’t done so well in the past three months. Peter doesn’t think those will stay down long term and that most of this is emotional reaction.

Europac.net is Peter’s website and the number to reach his group is 800-727-7922.

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, including The Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and appears regularly on CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V. His best-selling book, “Crash Proof: How to Profit from the Coming Economic Collapse” was published by Wiley & Sons in February of 2007. His second book, “The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down” was published by Wiley & Sons in October of 2008.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign. He holds FINRA Series 4,7,24,27,53,55, & 63 licenses.

I Survived Real Estate 2008 Part Eight (Full Bio)

Part eight of “I Survived Real Estate 2008” picks up with Rick Sharga of RealtyTrac talking about a discussion he had with a man who handled the REO assets at a credit union. The man was wondering if RealtyTrac could supply him a list of who owned the firsts on a list properties. Rick was surprised since he thought that would have been information that was gathered. The man said they did not have the information as little information was gathered on the first mortgage and little was taken on the homebuyer.

Rick says this downturn is different from others in that other downturns were preceded by an economic downturn. RealtyTrac feels this kicked in first quarter of 2006. Unemployment was historically low as were interest rates. Rick sees we saw capitalism at its worst. We saw Realtors and mortgage brokers getting greedy along with Wall Street. Tools were being used in ways they never should have been used. The wheels this time all came off at once.

Bruce says there are a lot of new people in business. The greatest bull run got more and more people in and they rationalized that it would continue. Bruce talks about the discussions people make in a boom market and why it’s unwinding. Bruce also mentions a bet with a friend he made where he thought oil prices would be at $50 before they hit $150. This was when the price was $142.

Bruce asks Richard Lambros how the building industry looks at this market and the possibility of building. Richard talks about the builder journey through the last few years. This is a housing crisis combined with a credit crisis. Richard brings up how most people don’t like the solutions being presented but feels the solutions may be less painful then letting it correct on its own. He says builders are really in a position of waiting and the core issues are still an issue. California homes are very expensive to create and the government doesn’t seem to realize that.

Bruce asks Richard if when building resumes if the size of the homes will decline. Richard says the average went from 2,200 to 2,500 square feet and builders were looking at demand.

Bruce says he thinks this is an unusual event and this might never been happen again in our lifetime. Prices might skew so low that it will eventually attract mass migration. Once our home prices dip below those of neighboring states, we win the climate and coast battle and win migration. Once we get the migration, building will really be up and running again.

Tommy chimes in and says there are other states that had the same inventory for half the price of the states that got overheated. Overheated states have to come back to “normal.”

Bruce says he agrees but says that’s part of the reason he loves California real estate. California wins so many tie breakers. There’s exciting volatility you don’t get in other states.

Bruce talks about Fannie and Freddie and if we’ll see them stay in private ownership.

Christopher Thornberg says they are clearly insolvent and he doesn’t know what they will do or how they will react. Typically they overact.

Bruce asks the panel if the government writing these big checks will increase inflation and if we’ll see much different interest rates three years from now.

Christopher describes the two ways our government pays the bills; issue debt or printing money. Christopher says our government assumes that investors have confidence in the system. If investors see the bottom drop out of the public bond market and the treasuries go crazy then there’s a problem but he says we’re far from that. Christopher says interest rates are now adjusting for the increased risk. Eventually they’ll come down when this crisis passes.

Bruce talks about when he became an investor he refinanced his house at 17% interest. Many people were telling him at the time he’d never see single digit interest rates again. Bruce says interest rates can be very high as long as the income to median price ratio makes sense. There could still be a healthy market.

Rick talks about market psychology and how nervous buyers and lenders are at the moment.

Bruce talks about the velocity of price drops in the market being historical and some are unaware. 35-50% price declines are shocking.

Joel discusses a Zillow study where 7 out of 10 people thought their home was still appreciating. Christopher Thornberg calls that homo-illucination and what it stands for.

Bruce asks Phil Tirone if lenders are skewing too conservative and not making loans at all. The automated underwriting was such a blessing at the time because it made things ease and now it’s making it worse. Phil describes people putting 50% down and he still can’t get financing because his client’s credit score is low.

Christopher says those automated systems were a disaster and that lenders knew how to manipulate the systems. Philip says these systems did help cause the problem. Christopher says once the price gets down low everyone will qualify.

Bruce touches on affordability. Bruce describes affordability and what it solves and does not solve. He describes past cycles and what he looks for in a turned around market.

More in the last and final show. See also the video on YouTube or Google video.

The following partners and sponsors without whom the event would not have been possible:

Platinum Sponsors:

The San Diego Creative Investors Association (SDCIA): sdcia.com

Investors Workshops: investorsworkshops.com

Frye Wiles: fryewiles.com

Proxibid: proxibid.com

White House Catering: whcatering.com

MVT Productions: mvtpro.com

Pechanga Resort and Casino: pechanga.com

The Denver Nuggets: nba.com nuggets

The Chicago Bulls: nba.com bulls

The Cleveland Cavaliers: nba.com cavaliers

Gold Sponsors:

7 Steps to a 720 Credit Score and Philip X. Tirone – 7stepsto720.com

Chicago Title – ctic.com

Elite Auctions – sellwithauction.com

Foreclosure Trackers – foreclosuretrackers.com

Investors Resource Center of America LA and Steve and Robyn Love – irca-losangeles.com

Las Brisas Escrow – lasbrisasescrow.com

National Club of Real Estate Investors and Sam Saddat – ncrei.com

Northern California Real Estate Investors Association (Norcalreia) and David Granzella – norcalreia.com

North San Diego Real Estate Investors and Linda Wessels – nsdrei.org

RealtyTrac – realtytrac.com

RE Ventures and Michael Pines – reventuresrealty.com

Real Estate Investors Club of Los Angeles and Phyllis Rockower – realestateclubla.com

Real Wealth Investor and Scott Whaley – realwealthinvestor.com

Saddleback Valley Communities – svc4.com

Silverstar Finance and Janet French – silverstarfinance.com

Sunset Hills Memorial Park and Mortuary – sunsethills.cc

The Mission Inn – missioninn.com

The Mortgage Equity Group – http: themeg.net

The Naked Real Estate Investor Club – Rosie Nieto – nakedrealestateinvestorsclub.com

The Short Sale Processor and Nick Manfredi – theshortsaleprocessor.com

Virtual Real Estate Tour and Layla Tusko – 1wealthcreation.com

Wholesale Capital Corporation – wccmtg.com

Nicholas Manfredi President & CEO, The Short Sale Processor LLC (Full Bio)

Bruce Norris is joined by short sales expert and President of the Short Sale Processor, Nicholas Manfredi. Bruce and Nick discuss how hard prices have been hit in the Inland Empire, different ways to evaluate homes, why Nick likes Corona as an investment area, what areas of the housing market are safe, inflation and interest rates and their effect on investment decisions, percentage of homes in Corona in a negative equity position, what conversations are like with current sellers, the journey of someone facing potential foreclosure and the option of a short sale, California and a possible depression, rent drops in the Inland Empire, the choices for someone in default, what some home owners have been spending per month on a home payment, the willingness for lenders to really help people to save their home, misconceptions on short sales, Realtors and the misunderstanding of taxation and debt relief, the Debt Relief Act of 2008, if you need to be licensed to do short sales, retail value and short sales, working with a Realtor who understands the process, reasons why lenders decline short sales, the MERS system, lenders position on borrower being behind before short sale consideration, how to attract people to short sales if not through mailers, how the Short Sale Processor works, the money to be made by helping sellers and lenders, how brokers can make just as much money with short sales as they can with a regular transaction, and finally, theshortsaleprocessor.com.

Nick Manfredi is a real estate investor, speaker and corporate business owner. He has been featured in Fortune Magazine and The LA Times, and contributed to articles in the news media including CNN Money Magazine, The Press Enterprise, and RISmedia.

In 2002 Nick established one of Southern California’s most respected real estate investment club’s The Inland Empire Investors Forum. Focused on volume, he continues to wholesale 80% of his acquisitions.

Eager to capitalize on California’s changing market Nick co-founded The Short Sale Processor LLC. As CEO of Forum Real Estate Investments Inc

Nick continues buy residential & commercial property in California and Texas. Nick resides in Southern California with his wife Susan and 3 boys Gabriel, Nathan and Jacob.