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Tea Party Prophet

Peter Schiff foretold the financial collapse. Now he wants to go to Washington to prevent the next one.

By 7.13.10

While other Tea Party insurgents have taken to dreamily insisting they can see Ronald Reagan's city upon a hill shining in the distance just beyond November 2, 2010, Peter Schiff looks at those same distant glints and sees instead something akin to a state Leviathan economic death ray.

"Oh no, 2008 was the overture," Schiff answers with a rueful smile when asked if the worst of the past two years' tribulations are behind us. "We haven't even heard the opera yet let alone the fat lady." 

This is not a prognostication to take lightly. With his 2007 book Crash Proof Schiff proved himself a more authentic clairvoyant than Alan Greenspan, Art Laffer, or Nostradamus, correctly predicting not only the shortly-thereafter ensuing sudden economic collapse in uncanny detail, but also the ham-handed, meddlesome Big Government response that would exacerbate the crisis.

In CEO of the Sofa, P.J. O'Rourke wrote that he read Hillary Clinton's It Takes a Village because he recognized "Neville Chamberlain made a famous mistake by not bringing a copy of Mein Kampf with him on the plane ride to Munich." Similarly, Crash Proof is the book you wish Ben Bernanke had taken in the car en route to testify before the Senate Banking Committee in 2007.

So dire is the situation, Schiff has decided to add to his busy schedule of writing financial bestsellers and guiding his Euro Pacific Capital fund a run for the Republican U.S. Senate nomination in Connecticut, a race in which, bizarrely, the man whose YouTube greatest hits includes the remarkable video "Peter Schiff Was Right" is considered an underdog against former World Wrestling Entertainment CEO Linda McMahon, a woman now perhaps as well known for her willingness to spend $50 million of her own money to become a senator as she is for her ability to take a piledriver and nonchalance about shin to groin combat.

"I'm going there to fix the problem, not to be a senator," Schiff says, laying out his planned approach to membership in what state power fetishists and senators (but I repeat myself?) insist on calling the world's greatest deliberative body. "The Senate is a means to an end. And the end is to reverse the damage government has done. I'm going to Washington to dismantle it." He pauses for a moment as if to reconsider, then adds, "Not completely, just the lion's share."

"The financial crisis does not result from a lack of regulation, but an excess of regulation," he continues. "We need to stop distorting price signals, stop distorting resource allocations. We need to allow these decisions to be made collectively through the marketplace, not by government bureaucrats centrally planning our economy based on what they think should happen, because they're almost always wrong. That path has been tried time and time again, and it has never succeeded. Obama will not succeed where Castro failed. It's just not going to happen."

For those unfamiliar with Schiff and inclined to presume this is the same sort of Road to Obamascus moment profligate Republicans of the majority Bush years seem to be having left and right while mired in the minority, rest assured Schiff has never been a water-carrier for statism, and he has the scars to prove it.

"For years, I was going on financial television shows…arguing with all the conservatives," Schiff -- who is no shrinking violet with media liberals, either, incidentally -- says, chuckling softly. "They thought we had a genuine prosperity because of the Bush tax cuts. I would argue with these free market guys and they would compare me to Michael Moore. They figured I was this bleeding heart liberal because I was being so critical. They did not understand the phony nature of our economy...

"Blindly defending Bush set the stage for Obama. You give capitalism a bad name by labeling Bush a capitalist when he's not. He was not a free market guy. The left was critical for the wrong reasons, but they're the ones who got credit for saying, 'Hey, we warned you!'"

Schiff's electioneering roots as a financial advisor on Ron Paul's 2008 presidential campaign are not difficult to divine from the unadulterated, Austrian-school-saturated agenda on his campaign website: End all bailouts, a "hard cap" on the national debt, "fight against backdoor regulations on global warming," eliminate the Department of Education, "allow interstate health care competition," "a policy of national defense, not national offense," end weak dollar policies, and "Personal preferences aside, U.S. Senators must not interfere with a state's rights to self-govern."

"Congress can't handle the problems currently in front of them," the site fumes. "Yet, that hasn't stopped President Obama and the Democrats from plotting new expansions into every aspect of our daily lives."

It isn't exactly sunny optimism, but Schiff allows he has the audacity to hope that while the end is indeed nigh, it is not quite here yet.

"The pendulum is either going to swing in the complete opposite direction of Obama, which is what we need, or it's going to be stuck," he says. "We are at a fork in the 'road to serfdom' Hayek wrote about…We're either going to bite the bullet so things can improve or we're going to embrace this ideology and things will never improve -- they will get much, much weaker, and that will pave the way to turn this country into a totalitarian society, a giant banana republic. Where is the tipping point? I don't know. I don't think we're there yet, but we are moving in that direction, and we're moving in that direction fast."

Typical of a seasoned investor, Schiff has diversified the baskets in which he holds his freedom fighter eggs. In addition to the Senate race, Schiff recently released a new book with a less investor-centric, more generally accessible, bent, How an Economy Grows and Why It Crashes, updating for the present day an allegory of three island fishermen his father, the jailed tax protester Irwin Schiff, employed decades ago to teach his young sons about economics.

"The best defense we have against government tyranny and creeping socialism is to educate the public so they wake up and understand the lie the government is selling them so they don't buy it," Schiff explains.

SCHIFF'S ACCURATE PREDICTIONS and uncompromising defenses of individual and economic liberty have gained him many fans. At FreedomFest in Las Vegas where he sat with TAS for this interview Schiff was approached by a fairly constant stream of well-wishers and admirers. A young fund manager told me he went into finance specifically because he was inspired by Schiff's example of integrity and the possibility that armed with the right philosophy and foreknowledge he could help prepare clients to survive the economic cataclysm that potentially looms.

He also said his views on the nation's shaky economic trajectory made him a complete outlier among even those colleagues who admit Schiff should have been heeded rather than laughed at three or four years ago. The downside has apparently not gained popularity as a conversational topic in the world of finance, despite all the water under the barely aloft bridge. 

At the moment -- and, essentially, throughout the race -- chances of a Schiff upset have seemed slim at best. "Connecticut Republicans now have a alternative: a wrestling promoter or a businessman and economist," Schiff told USA Today when he qualified for the primary ballot. "Given the state of our economy, I think the choice is clear." Not quite as clear as Schiff would likely prefer. While he polls as well against Democratic nominee Richard Blumenthal as Linda McMahon -- both are behind -- a June poll showed a daunting primary deficit.

Nevertheless, although the fight for name recognition has been much tougher and slower than he'd prefer, and though he's disappointed his candidacy rarely comes up in media discussions of Tea Party candidacies, Schiff likes the way his favorable/unfavorable numbers break as voters continue to learn about his candidacy.

"I'm behind," he acknowledges, "but it's not insurmountable" -- and, as we now understand perhaps too well, people ignore Schiff's forecasts at their own peril. A grassroots surge in these final weeks of the campaign is explicitly not out of the question during such a volatile time. (This is the part where we say Remember Scott Brown.) There will, however, be no meandering across the finish line. Something big must break, and soon, for Schiff to have a shot at winning the August 10 primary against McMahon. And Schiff recognizes that is largely out of his hands.

"It's not just about wanting freedom -- you've got to fight for it," Schiff says. "Fortunately we don't have to risk our lives for it. I'm not asking people to pick up a bayonet and storm a hill. I'm just asking them to pick up the telephone and make a few calls. And maybe write a check."

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