Peter Schiff: free marketeer who predicted the crisis

Peter Schiff appeared on America's national stage just as the credit bubble was set to pop, with a devastating critique of the USA's unsustainable debt-fuelled economic trajectory.

Peter Schiff is loud, reckons Time. And it's hard to get him to stop talking. Ask a simple question and you get a ten-minute harangue featuring libertarian political opinions that some may think pretty extreme. Yet Schiff is far from being an opinionated boor. He did a better job than most of forecasting what would happen in financial markets, storming onto the national stage just as the credit bubble was set to pop, with a devastating critique of America's unsustainable debt-fuelled economic trajectory.

Back then, he was widely mocked; but when markets collapsed, Schiff, 46, achieved cult status when a ten-minute YouTube clip of his predictions, complete with smirking rebuttals from eminent critics, became an instant hit. "What makes that clip so good is not so much me as everybody else," he says. "People like laughing at people." Now, having acted as economic adviser to fellow libertarian Ron Paul during his 2008 presidential campaign, Schiff hopes to stand in Connecticut as Republican candidate for the Senate in 2010. Some claim he's got the drive and charisma to go all the way to the top. You would certainly be hard pushed to find a more deeply convinced, articulate opponent of Big Government in America.

It's no surprise that Schiff grew up with "an unconventional outlook", says Fortune. His father, Irwin Schiff, is a long-time tax protestor who has published several books arguing the illegality of federal taxes. At 81, he is serving a 13-year prison sentence for tax crimes. Failing health means he spends much of his time shackled to a hospital bed. "My dad has basically taken a certain principled stance unfortunately to his detriment," says Schiff. "I pay my taxes," he adds, clearly wistful about his failure to follow his father's crusade to the full. "I'm taking the easy way out."

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Schiff attended college at the University of California at Berkeley not the obvious choice for a rabid free-marketeer. But he'd already gained a solid grounding in "libertarian icons" such as Ayn Rand and Ludwig von Mises from his father. After graduating in 1987, he joined Shearson Lehman as a broker, but never got on well with his bosses. In 1996 he bought his own broker-dealer business with a partner, which they renamed Euro Pacific Capital. He spent those early days "cold-calling potential clients with warnings about a growing bubble in tech stocks". The business has since grown to accommodate 60 brokers in six US offices and has about $1bn invested (see box).

In person, Schiff a divorced, but hands-on father of a seven-year-old son is "less bombastic and more analytical" than his public image, says the Hartford Courant. Unlike most politicians, his hero Ronald Reagan included, he refuses to traffic in unbridled optimism. "It's twilight in Peter Schiff's America and, if painful and drastic changes aren't made soon, he foresees an economic depression lasting a decade." His prescription is tough: shrink the government, cancel all bail-outs and let the free market do its job. Opponents denounce him as defeatist and anti-American. But his "eat-your-spinach ethos" is gaining ground in the grass-roots of Connecticut and across the internet. Dismiss him again at your peril.

'In the end the fundamentals are going to prevail'

The problem with staying true to one message is that people may tire of hearing it, says Time. Schiff hasn't changed his message about America's "phony economy", and it isn't pleasant to listen to, which may explain why his TV bookings are down 75%-85% this year, according to his younger brother Andrew, who handles his PR. But it's his investment performance that gives his critics the most ammunition. The year that saw Schiff became a TV star was also one of the worst periods ever for his clients. As blogger Michael (Mish) Shedlock points out, Euro Pacific Capital's recommendations were money losers in 2008. "How could a bear have managed to lose money last year?"

Schiff's current advice is the same as it has been for years, says Fortune. "Get out of the US dollar and into more fundamentally sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy foreign, dividend-paying stocks, with an emphasis on natural-resources companies." What he failed to anticipate was that global investors would pile into dollars and US government bonds during the panic last autumn. But Schiff has no doubts.

He still believes the US economy is based on the same principles as Bernie Madoff's investments. "It's a Ponzi economy. It's not real. The markets might not validate what I'm saying. But they will eventually. In the end the fundamentals are going to prevail." In an earlier interview with the Canadian Globe & Mail, Schiff outlined his hopes for "giant global renaissance". But that will only happen if "the world comes to its senses and allows America to collapse". That might well prove a piece of rhetoric too far for US voters.