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Crash Proof 2.0 by Peter Schiff

Crash Proof 2.0: How To Profit From The Economic Collapse by Peter D. Schiff

Book Review Rating – 4.5 Stars

Peter Schiff is an American economist and investment manager who believes in the Austrian economic theories and predicted the real estate crash that came close to ruining the world’s economic systems in September 2008.

But he expected the problem in America to be much worse than we’ve seen so far.

The format of Crash Proof 2.0 is interesting. You get the chance to read:

  1. His original thoughts that were published in 2006.
  2. His updated thoughts after the real estate crash that were written in 2009.

This gives you a chance to see how correct his original thinking was and where reality has diverged from what he expected.

The basic thesis is that the United States of America is bankrupt. An economic disaster waiting to happen. The only thing is that the world doesn’t recognise it yet.

That’s partly because extraordinary monetary measures have been taken – record low interest rates, quantitative easing (or the government printing money to buy its own debts) – are storing up future trouble on a massive scale.

The dollar will collapse, interest rates will be forced up. A much bigger depression will occur (and you think things are bad now).

The Recommendations by Peter Schiff

  1. Invest in overseas equity that pays a good dividend
  2. Buy gold and gold mining shares
  3. More extreme measures which make me feel queasy. Read the book if you want to know.

This is subject to the basic investment message of buy low and sell high. Everything has its own cycle and you can lose money by buying the right things at the wrong time.

The Danger Of Closing Your Eyes And Ears To Ideas That You Don’t Want To See And Hear

We all have a built in bias to our brains that means we are attracted to things that confirm our beliefs and we reject ideas that clash with our beliefs.

The message from Peter Schiff is gloomy (things will get much worse) and I must admit (since I believe that the UK has many of the same problems and some even worse than the USA) it is frightening.

Financial Armageddon might be just around the corner.

It’s tempting to dismiss this nightmare scenario along the lines that it will never happen. I certainly hope it doesn’t.

You might have huge belief in the politicians in the major countries around the world to do the right things.

I don’t.

The problems in the EU countries like Greece, Ireland, Portugal and Cyprus that have received bailout money from the European Union and IMF are very real. But, because these giant financial institutions are standing behind them (even though conditions of the bailout are tough) things are much more controlled than they would be.

None of these countries are in anarchy.

But who can afford to prop up the United Kingdom? Even more frightening, there is no one who can do the same for the United States.

If the dies turns, these countries will have to take the bitter medicine.

It’s difficult to get reliable information to see who owes what but there is plenty of information on Wikipedia.

List of government budgets by country – this helps to identify the annual deficits for the various countries

List of countries by public debt – this shows the total national debt for countries

Net international investment position – since countries are both debtors and creditors, they owe and are owed money.  It helps to explain why Greece, Spain, Portugal have particular problems at the moment. This gives you a net position although it may underestimate a country’s problem if there are national defaults.

List of countries by external debt – this combines public and private debt i.e. the money owed by the government and the citizens of the country. The UK looks particularly bad on this measure but so does Switzerland and Luxembourg which helps to show the weakness in this measure – it doesn’t net off assets owned to offset the debt. You may hate to have a £1 million overdraft but if you own a business worth £10 million, you’re in a much better position than if you had no assets.

My Overall Thoughts On The Book

The format of Crash Proof 2.0 is both good and bad, as is its age. 2009 seems a long time ago now although Peter Schiff has written more recent books.

It’s interesting to see the original predictions and what happened but it’s also confusing. That’s why I’ve docked the book half a star. Much of it is talking about a problem as if it is in the future but you know it has already happened.

However the underlying message is very strong.

America (and many other countries in the world) are in a mess.

Our politicians and central bankers are doing extraordinary things to try to plug the leaks in the financial dams but, by distorting the situation and sending out the wrong behavioural messages, it is very likely that the final reckoning will be much worse.

I recommend that you read this book if you are based in America or if you depend on trade with America. It is very much focused on that one country. That may make things easier to understand but at the same time, I was reading it and thinking that terrible things are happening in the EU. I’m very alarmed by what is happening in the UK.

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