Peter Schiff Versus Dave Ramsey

I had always liked documentaries and even before I began my quest for economic knowledge, I had stumbled across Dave Ramsey who was featured in two 2006 documentaries, ‘In Debt We Trust’ [trailer] and ‘Maxed Out’ [trailer], which both focused on how the credit card industry is bankrupting people, and I liked that he was trying to help people improve their economic education by teaching them economic responsibility. He runs his own radio show and previously ran a TV show on the Fox Business Network until June 2010. I later stumbled upon his videos on youtube for ‘The Total Money Makeover Workout’, as well as a 5-minute extra clip he did after filming in ‘Maxed Out’. I liked his concept of ‘7 baby steps’ to getting out of debt and have recommended a number of my indebted friends to watch his ‘Financial Peace University’ DVDs that came out in 2006. I even watched some of the DVD with some of my friends, as he was very amusing and energetic, but I did detect a number of issues I disagreed with him on, which included term insurance (luckily not life insurance), which I told my friends to ignore.

More recently I came across a video on youtube, which was an audio excerpt from Dave Ramsey’s show from January 2008, where a woman called in saying that her father read Peter Schiff’s book ‘Crash Proof’ and was pulling his money out of his 401k (retirement plan) and stock market as it was going to crash and she wanted to hear his thoughts. He basically decided to discredit Peter because Peter’s father, Irwin Schiff, is in jail for his beliefs that the income tax is unconstitutionally and simply calls the two of them kooks. He then went on to say that stock market crash books come out each year and its unlikely the stock market will crash, and he couldn’t see a world where some major companies (Home Depot, Microsoft, Ford, GM, Alcoa, General Electric, Whirlpool) could go out of business. Then he states that gold is stupid and he only keeps his money in the FDIC deposit insured bank, mutual funds, and fully paid for real estate.

Peter brought up the issue on his radio show on April 25 [13:35-17:10] after he came across a video on youtube by filmmaker Jimmy Morrison for his upcoming documentary called ‘The Panic of 2008’ in which Peter would be featured. The video includes Peter’s response to Dave’s conversation with the woman, their predictions for 2008, the stock market crash of the major companies he mentioned, gold, money printing, and real estate wealth.

The following day I was listening to Peter again (April 26 [68.45-73.20]) and a caller said they saw a youtube video with Dave saying that gold didn’t keep up to inflation and Peter’s response was, “Of course there isn’t any truth to that. First of all, when guys like Dave Ramsey look at gold, they always want to compare it to stocks. You don’t compare gold to stocks, you compare gold to dollars. You compare gold to euros, or yen, other currencies. Its a medium of exchange, its a form of money, its a way to save, and obviously gold does much better during inflation than dollars, than paper money, its not even close. Now if your going to compare gold to the stock market, then a lot of it depends on the time period in which you choose to measure. When people try to discredit gold, they generally like to start at 1980, when gold was at an absurd $ 800 and the DOW was down at 800. When it was a 1 to 1 ratio between gold and the DOW. Obviously any comparison of the stock market to gold that begins in 1980, is going make the gold market look bad and the stock market look good. If they simply started in 1970 when the DOW was like 1,000 and gold was $ 35, then you get a very opposite conclusion with respect to gold versus the stock market. Now of course, if you start at the year 2000, when the DOW was at 11,000 and gold was $ 250, then you get again a very different perspective, where gold looks a lot better than stocks. So if Dave Ramsey is making the case that gold doesn’t keep pace with inflation as well as stocks, you gotta look at the time period in which he is choosing, cause generally that time period is chosen to make gold look bad.” The caller then states that Dave compares the early 1800s to the 1920s, which Peter responds with “There was no inflation back then, there was deflation, prices were falling, and we were on a gold standard, so gold was money at that point, so you cant compare gold at that period of time to stocks because stocks were businesses that were growing, that were generating income, stocks should outperform gold, gold just sits there, but what gold is there to do is to preserve value, to be stable, stocks are meant to enhance value. So you cant compare a hunk of gold with an actual company that is generating profits, you should make more. Now of course, there are periods of time when stocks are overpriced and it doesn’t make sense to buy them and then gold will do better. But over the long run, if your buying stocks at the right price, stocks should do better than gold because your producing wealth, your growing a business, that’s a reason that a gold mining company is different than gold, that is a business, and if its producing a profit, its mining gold and it costs alot lower than what its selling it and its growing its reserves, than gold mining is a business that could outperform the price of gold over time.” Then the caller discusses Dave’s issue of gold not being used as barter in Hurricane Katrina, which Peter responds with, “Well during Hurricane Katrina, yeah. How many people in New Orleans were sitting on gold, I doubt that many people had gold coins, with which to barter, but I wouldn’t pay much attention to what Dave Ramsey has to say, particularly about gold because been clueless about gold, he said it was a stupid investment and that he’s never owned any gold. Well look what gold has done over the last 10 years. What’s stupid? Gold or not owning it for the last 10 year. I think somebody who didn’t own any gold or silver for the last 10 years, that’s what’s stupid, not gold and silver.”

I checked youtube after listening to Peter’s show and found two videos of Dave talking about gold, one posted in December 2009 where he is answering a letter about someone asking about gold, and one posted in January 2010 that was recorded in 2008 when a caller was on the phone with him. I then stumbled upon a video entitled ‘Republican Senatorial Candidate Peter Schiff slams Dave Ramsey’s “Dr. Doom” comments’ where Peter discussed Dave’s comments on What’s It Worth? Live on 103.5 WMUZ Detroit during his senate race and also stumbled across another video entitled ‘Dave Ramsey is wrong about gold’.

So Dave stated in the January 2010 posted video that “When an economy collapses, since the roman empire anyway, gold hasn’t been used as a medium of exchange. Prior to the Roman Empire, gold was used as a medium of exchange, but when an economy collapses in the current day world, a new government arises, a new currency arises, and in the mean times, we use a black market barter economy.” Well first of all, he must not know his history as the Roman Empire ended in the end of the 15th century and British Empire used the pound sterling (12 troy ounces of silver), sterling silver pennies (92.5% silver) and the British sovereign (8g 22k gold) as currencies and a medium of exchange until the late 1920s. I believe Dave has heard about the Weimar Republic of Germany in the 1910s, and if so then he knows that hyperinflation took place. People who had money in gold marks or ounces of gold protected their wealth from being inflated to the moon and though I haven’t heard that gold was used as a black market bartering mechanism (medium of exchange), other currencies were used. The other good thing about gold is that once his predicted new currency arrives, people will still be able to convert their gold to that currency. You have to also remember that countries throughout most of the 20th century would settle their debts in gold, so gold was a medium of exchange between governments. He brings up the example of New Orleans, which is a city not a state or country, and its true that they went to barter for the time period of calamity and in a situation like that, the best thing you can barter would be essentials like food, shelter, clothes, etc. But in a functioning society, similar to Weimar Republic, where the currency is being inflated by continuous money printing (also referred to as money supply expansion or quantitative easing), which is currently happening in every country of the world, you have to have your wealth in assets that will not loose value, and that doesn’t include real estate which Dave speaks so highly of. On the other hand, in the December 2009 video, Dave states that gold doesn’t have intrinsic value. Well I’d trust the track record of gold and silver having intrinsic value for the last 5 to 6 thousand years before I believe Dave. Just to prove that gold can be used as a medium of exchange in a hyperinflationary event, please have a look at this 7-minute documentary about Zimbabwe, I came across last year.

Useful Links

Pearls of Wisdom from Dave Ramsey: “Gold is a Stupid Investment” – FTM Daily
“If you want to pay off debt, there are few better motivators than Dave Ramsey. But when it comes to the economy and real financial planning, it’s best to ignore Mr. Ramsey, as his track record is dismal at best.”

Dave Ramsey: So Wrong On Gold, For So Long… – Dont Tread On Me
“Take 3 minutes to listen to this clip from Dave Ramsey on his thoughts on Gold. I know it might be painful, but I think this is a perfect example of how the masses are manipulated. … The masses listen to him because they figure if he has a radio show he must know what he is talking about, and he also speaks to them in a language they can relate too.”

Don’t Buy Gold…Sell It! – Dave Ramsey
“From 1833 to 2001, the compound annual growth rate of gold was only 1.54%. That’s pretty rotten. Since September 11, the value of gold has definitely increased. It’s looking better right now. But you can’t deny nearly two centuries of consistently poor performance.”