This segment was taped at the American Stock Exchange, which offers trading across a full range of equities, options and exchange-traded funds.

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Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everyone, I’m Mike Norman, Founder of the Economic Contrarian Update and anchor of the HardAssetsInvestor.com video series. Here with me today is Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse.

Peter, we’re going to do something a little bit different today: You and I are going to have a debate. I know you have been a very big proponent, indeed in your book, telling investors how to protect themselves against an economic collapse. One of the main things you talk about is gold.

However, I will say to you people who looked at gold the last time we had strong inflation, back in the 1970s, had they purchased gold then in real terms, they’re really down a bunch of money. They have not recovered anything. So how can you go out there talking about gold?

Peter Schiff, author, Crash Proof: How to Profit from the Coming Economic Collapse (Schiff): Well, it depends. The people that were out in front that bought gold in the late-1960s/early-1970s made a lot of money. People who understood the problems in the late-1990s and bought gold then have made a tremendous amount of money, and I still think there are huge gains to come for people who are in now.

Norman: Well, Peter, people couldn’t buy gold in the 1960s. It was not until 1973 that Americans were again allowed to buy gold, and even when you look at that period in time, it wasn’t obvious there was a big inflation until late in the 1970s. Had you bought gold as a protection, as a hedge, again, you’d be down 50% on your money.

Schiff: No, it was obvious to people who understood what caused inflation. [While] it was illegal for Americans to buy gold during the 1960s, they could’ve bought silver very easily. All they had to do was take the quarters and dimes that were in circulation and hold on to them, and $1,000 worth of U.S. coins in 1969 and 1970 were worth $40,000 by 1980. People made 40 times their money just on the change in their pockets, as opposed to holding government paper money.

Norman: Well Peter, you know that gold was held down at an artificial price for 50 years, so there was a natural pent-up demand in there. It had to catch up to a certain level, which it did. But once it did, the performance has not been astounding; it has in fact not protected anyone against inflation.

Schiff: Well, I think if you look back since we went off the gold standard in 1971 or 1972, the average compounded annual return for gold since that day is close to 10%. So it actually hasn’t done that bad. I think it’s going to do a lot better in the next few years.

Norman: Actually, for stocks, the annual compounded rate of return is over 10%, and on an inflation-adjusted basis, stocks outperform. Look, from 1980, the Dow Jones Industrial Average on an inflation-adjusted basis is up over 600% and gold is down 50%.

Schiff: Right, but I’m not comparing gold to stocks. Let’s compare gold to the dollar. What’s a better source of stored value? Whereas if you don’t want to be in stocks, where are you better off? Being in a paper currency that’s being inflated to death or being in something scarce and real like gold? If you compare the return on gold to the return on dollars, gold wins.

Norman: The fact is, gold is a commodity, Peter. It does not pay you any dividends; it does not pay you any interest; and indeed, with all commodities, the historical returns when adjusted for inflation have been very, very poor. You tell people to own commodities. Indeed, I will not argue that in the last six years or five years it’s been a good place. But five years from a historical standpoint, and as an investor, that’s a small slice of time.

Schiff: Well, it’s not my intention to stay in commodities for the next 20 years. At some point I’m going to look for an opportunity to buy financial assets cheap. But gold is just not a commodity; gold is money. I think more and more people around the world are going to lose confidence in fiat currencies, not just the dollar, but other currencies, and they’re going to want to store their savings in something tangible, and people are going to rediscover gold. And when they do, it will trade to several thousand dollars an ounce.

Norman: When you say gold is money, Peter, we don’t actually go and use gold to purchase things. You don’t go to the supermarket with a bunch of gold coins, and indeed, even in some of these countries where gold traditionally has been money - like India - they’re moving more to a credit-based money the same as what we have here in the United States.

Schiff: Our whole credit-based economy is imploding around us. We need the discipline of gold. We just can’t keep printing money; that’s how we got into this mess. We have a giant credit bubble that has now burst. Americans have been borrowing and spending money they didn’t have; we’ve been buying products we didn’t make. This whole thing is collapsing and it’s going to show the fallacy of the central banker and why we need the discipline of gold.

Norman: Peter, you know very well that in 1930, after the stock market crashed in 1929, the Feds’ hands were tied. It was not able to loosen up monetary policy precisely because it was concerned about an outflow of gold. We were on a gold standard and that constrained us; that kept us from turning the economy around. We don’t have that problem anymore.

Schiff: Mike, you’ve got it wrong. What kept us from turning the economy around was all the Hoover and Roosevelt interference in a free market, like our [Fed] governor [Ben Bernanke] is doing now. If we had Ben Bernanke at the Fed in 1929, we would have had something worse than the Great Depression; we would have had hyperinflation and America would have turned into Argentina.

Norman: Hoover interference? Many people say that Hoover did nothing. In fact, his Treasury secretary, Andrew Mellon, at the time said, liquidate the farmers, liquidate the businessmen, liquidate this, liquidate that. It was the recipe of disaster. In fact, what’s interesting is that now a lot of people say, let the market solve everything. You talk about an implosion … I think that’s what would bring on an implosion.

Schiff: Well, we have to have an implosion, but the government created the problem. It was the funny money; it was Alan Greenspan and now Ben Bernanke setting interest rates below the rate that the free market would put them. That created the bubble in the economy. It’s now burst. We need a recession to purge all of these imbalances. Unfortunately the government is not letting it happen and they’re going to make this situation much, much worse.

Norman: Ah, the idea of the cleansing recession. Yes, I’ve heard that one before. All right, Peter, we’re going to have to follow it. I know so far you’ve been very correct in your view on gold, as well as the dollar and other commodities. We’ll come back and visit some of these other topics later. This is Mike Norman. We’ll be back.