We’re Living Through 1971 All Over Again — Peter Schiff on the Death of the Dollar

More broadly, Schiff sees the rising gold price as a symptom of a global loss of confidence in the U.S. dollar. He argues that foreign central banks and governments are increasingly divesting from dollars due to doubts about U.S. fiscal responsibility and the independence of the Federal Reserve. The last time gold prices experienced such dramatic increases was during the 1970s, a period marked by the end of the gold standard and a collapse of the dollar's value. According to Schiff, the world may now be witnessing a similarly historic transition—only this time, the dollar's reserve status, not the gold standard, is at risk.

From the Gold Standard to Fiat Currency

Delving into history, Schiff traces the evolution of the U.S. dollar from its founding days under the Coinage Act of 1792, when each dollar was legally defined as a specific weight of gold or silver. Back then, the dollar literally was gold or silver. Paper money was essentially a promissory note redeemable in specie (gold or silver coins). This convertibility persisted until 1933, when President Franklin D. Roosevelt outlawed private gold ownership and suspended convertibility to help finance New Deal stimulus efforts amid the Great Depression. The government confiscated gold from citizens at $20 an ounce and then devalued it to $35, effectively debasing the dollar.

Despite these domestic changes, the U.S. upheld gold convertibility for foreign holders of Federal Reserve notes through the Bretton Woods system established after WWII. This arrangement made the dollar the world's reserve currency, convertible into gold at a fixed price. However, by the late 1960s, escalating U.S. budget deficits—fueled by the Vietnam War, Great Society programs, and the space race—and corresponding monetary expansion eroded confidence in the dollar's gold backing. Other countries started redeeming their dollar reserves for gold, draining U.S. gold stocks and forcing President Nixon in 1971 to "close the gold window," ending dollar convertibility and effectively defaulting on this commitment. Schiff points out that Nixon's action was supposed to be temporary, but it marked the definitive shift to a fiat currency system.

The Dollar's Collapse

Schiff explains that the severing of the gold standard triggered a severe collapse of the dollar's value throughout the 1970s. Against other major fiat currencies such as the Deutsche Mark and the British Pound, the dollar lost roughly two-thirds of its value. The collapse against gold was even more dramatic, with gold soaring from $35 to $850 an ounce by 1980. This currency debasement drove up commodity and oil prices, exemplified by oil increasing from $3 to $40 a barrel in that decade. Schiff contends that much of the blame placed on Arab oil producers for spiking prices misrepresents the true cause—it was fundamentally the breakdown of the dollar-gold link and the resultant inflation that forced producers to demand higher dollars for oil.

This economic turmoil had profound social impacts. Schiff points out that the erosion of real wages meant many American men could no longer support a family on a single income, leading to a rise in dual-income households. Inflation outpaced wage increases, and combined with higher taxes and losses in purchasing power, this shift reshaped American family dynamics and livelihoods. The decade's inflationary pressures and policy responses fueled a cascade of economic distortions and societal consequences that would echo for decades.

Inflation

A significant portion of the discussion revolves around inflation and how governments intentionally obscure its true nature. Schiff stresses that inflation properly means an expansion of the money supply or credit creation, not merely rising prices. Traditional inflation measures like the Consumer Price Index (CPI) are deliberately flawed and understate true increases in the cost of living. Governments deliberately redefine inflation to focus only on price levels to enable blame-shifting onto speculators, labor unions, or foreign adversaries rather than accepting their role in causing inflation through excessive money printing.

He argues that price increases are a consequence, not the definition, of inflation. By concealing the extent of monetary inflation, governments create a disconnect between public perception and economic reality. This misinformation benefits government interests because inflation erodes real debt burdens and finances public spending but impoverishes wage earners and savers. As a result, ordinary citizens suffer from hidden wealth transfers financed by inflation while government officials avoid accountability.

The Shift Away from the U.S. Dollar

The conversation turns to the global realignment of currency reserves and financial flows. Schiff observes that foreign central banks and governments are steadily divesting from dollar-denominated assets such as U.S. Treasury bonds and mortgage-backed securities. This process is happening gradually but gaining momentum, as foreign countries increase their gold reserves, especially emerging markets like China and India, which had previously held predominantly dollars.

Gold is becoming the new reserve asset as confidence in the dollar wanes. Schiff predicts that the dollar's value will soon decline sharply against other major fiat currencies, a shift not yet fully reflected in forex markets. The withdrawal by foreign holders of U.S. debt is expected to lead to higher U.S. interest rates and soaring import prices. This dynamic intensifies the risk of stagflation—a simultaneous rise in inflation and economic stagnation—forcing the Federal Reserve into a difficult position. Instead of curbing inflation with higher rates, they may resort to more money printing, worsening the inflationary spiral.

America's Fiscal Crisis

Peter Schiff highlights the root causes behind America's deteriorating fiscal and monetary outlook. He explains that the root problem lies in a chronic lack of savings, insufficient production, and reckless fiscal and monetary policies over decades. The U.S. has been able to postpone collapse because foreign demand for the dollar allowed continuous issuance of debt, with new borrowings servicing old liabilities. However, this "magic money" trick depends entirely on the dollar's reserve currency status, which is rapidly eroding.

Without the reserve status, the government will be unable to roll over its mounting debt, causing an inevitable default or massive inflation. Schiff describes the entire U.S. financial model as an unsustainable Ponzi scheme where consumption is fueled by importing goods paid for with paper money that then needs to be supported by selling debt to foreigners. Once this cycle breaks, it will trigger one of the greatest economic collapses in history, far surpassing the 2008 crisis. He warns that the inflationary consequences and loss of foreign financing will devastate the standard of living and plunge the economy into a severe recession.

Avoiding Fiscal Responsibility

Schiff is explicit in outlining why political leaders avoid taking the necessary, though painful, steps to restore fiscal health. Politicians consistently choose the path of least resistance for short-term gain, kicking the can down the road with more spending, bailouts, and chronically low interest rates. He notes how Nixon chose to close the gold window rather than cut spending, balance budgets, or be fiscally responsible. Today, the same mindset prevails, with many elected officials prioritizing upcoming elections over honest governance.

Instead of reducing spending or allowing market forces to restructure debt and asset markets, governments will likely resort to price and wage controls, capital controls, and other ineffective band-aids to slow the collapse. Schiff paints a grim picture where inflation acts as a hidden tax to default on obligations, destroying savings and social welfare benefits like Social Security. He stresses that this inflationary approach benefits no one but entrenched political interests while devastating ordinary Americans.

Gold and Silver

Investors and individuals should heed Schiff's admonition to own real money, primarily gold and silver, to protect their wealth amid the impending monetary reckoning. He reveals he has been advocating gold ownership for over two decades and reminds that gold and silver have historically outperformed stocks and other assets over long periods. Despite its current high price, Schiff argues gold is not expensive relative to the enormous debts and inflation risks facing the dollar.

He also recommends investing in gold and silver mining stocks, which are in the early stages of what he calls a "generational bull market." While Bitcoin and other cryptocurrencies have attracted speculative money recently, Schiff emphasizes gold's unique role as real money with intrinsic uses and long-standing trust. Investors should diversify their portfolios with precious metals as insurance against the collapse of fiat currencies and bond markets.

The Bitcoin Debate

Despite recognizing Bitcoin's appeal, Schiff is skeptical of its long-term viability as a store of value. He admits many of his personal acquaintances are committed Bitcoin advocates, but Schiff underscores that Bitcoin generates no cash flow or intrinsic value—unlike gold, which has industrial uses and central-bank demand. He points to recent Bitcoin price declines against gold and highlights risks from speculative excess, leveraged positions, and institutional selling.

Schiff likens Bitcoin to a tech stock bubble rather than a reliable safe haven. He predicts a potentially massive price crash could occur first in crypto before the dollar crisis fully materializes. Schiff advises investors in crypto to hedge with physical gold and silver, warning of liquidity risks and a lack of fundamental backing for cryptocurrencies. The discussion captures the friction between emerging digital asset paradigms and traditional understanding of money and value.

The Difference Between a Republic and a Democracy

Shifting from economic to political theory, Schiff delves into the distinctions between a republic and a democracy. He explains that the United States was founded as a republic—a system designed to protect minority rights and constitutional limits against the tyranny of majority rule. The original structure included mechanisms such as the Electoral College, appointed Senators, and staggered terms intended to temper populist impulses. Voting rights were initially highly restricted, emphasizing qualified, informed participation rather than universal suffrage.

Over time, America has become more of a direct democracy where majority rule increasingly dominates, often resulting in policies Schiff characterizes as economically destructive and socially destabilizing. He warns that expansive democratic power leads to demands for government handouts, socialism, and regulatory overreach. Historical examples like the rise of the Nazi Party during the Weimar Republic illustrate how economic turmoil can fuel dangerous populism and radical political shifts when unchecked democracy is combined with mass disenchantment.

China

Finally, Schiff offers his analysis of China's position in the emerging global order, contrasting it sharply with America's faltering economic and fiscal landscape. Despite challenges within China, he argues that structurally China is better prepared with higher savings rates, production capacity, and demographic advantages. China is broadening its trade relationships beyond the U.S., strengthening economic ties with Africa, South America, and Europe, signaling a diversification away from dependence on the American consumer.

Schiff predicts China will surpass the U.S. as the dominant economic and military power for much of the 21st century. He warns that escalating U.S.-China tensions and the prospect of conflict over Taiwan could exacerbate economic instability. Although some view the U.S. as irreplaceable, Schiff posits that America is following the path of historic great powers in decline, while China rises to fill the void. He sees the eventual outcome as a reshaping of global economic leadership consistent with historical cycles.