Speaking in an exclusive interview with Dan Mangru of www.Moneynews.com Schiff said: "As painful as it is, this recession is necessary.”
“We’re never going to have a vibrant economy if we keep concentrating on reflating a busted bubble".
“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,” said Schiff.
“Why should successful companies be punished to bail out unsuccessful companies?”
Capitalism is about the survival of the fittest, but government stimulus are making it the survival of the unfit, he said.
Can anything be done to save the US economy? We will go through a serious retrenchement brought about by the sins of the past, but the US can rebound.
"Capitalism is a dynamic system," but we need to unleash it, Schiff said.
"We need to get the governement out of the way," he says because their acions are digging a deeper hole rather than allowing the market to fill the hole up.
“We stimulated our way out of that (2001-2002) recession into this depression,” he says.
Schiff said the theory that the world economies are linked like a train and that the US is the engine, is wrong. “I think the world represents the engine and the US the caboose,” he said.
Why? Because the US takes more out than it puts in.
“The world has been spending a lot of energy dragging a caboose that consumes more than it produces and borrows more than it saves.” The rest of the world gives subsidies to the US, Schiff said.
Schiff says the stock market is in a bear market rally. The recent bull run is driven by the fact that shares reached insanely cheap valuations in the period up to March 2009, so we are making up ground now.
Cash was king in 2008, but Cash is trash in 2009, said Schiff, as inflationary fears rise and investors move out of cash into something more tangible.
The current equities run 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.