Peter Schiff, president and chief global strategist of Euro Pacific Capital, is more convinced than ever that the U.S. economy is heading off a cliff. Now, he’s even preaching his gospel of gloom and doom weekday mornings on SchiffRadio.com. His biggest concern surrounding all the wrangling about the U.S. debt ceiling in Washington, D.C is that the debt limit gets raised at all. All that will do is make things worse, Schiff says.

So, what’s an investor to do? In his unapologetic manner, he made clear to IndexUniverse.com Managing Editor Olivier Ludwig that the best way to prepare for the day the U.S. economy falls over that cliff is to steer clear of the dollar. That means owning things that will rise against the greenback, including gold and silver, as well as assets denominated in foreign currencies, including bonds and all sorts of stocks, particularly those of natural resources companies.

Ludwig: What’s your reaction to gold going through the ceiling?

Schiff: I don’t think it’s gone through the ceiling yet. I think it will.

The dollar is starting to fall too, although not quite through the floor yet. But it is at a record low today [July 26, 2011] against the Swiss franc, the Japanese yen, the New Zealand dollar and it’s almost at a record low against the Australian dollar.

So the real crisis is coming, not because we fail to raise the debt ceiling, but because we succeed. That’s what the market is worried about—that Congress does raise the debt ceiling and it does so without meaningful reductions in government spending. The world doesn’t want to lend us $2 trillion a year. We can’t afford to pay it back, or pay back what we’ve already borrowed.

Ludwig: So you’re not concerned that the economic blow from putting an end to the borrowing would be so severe that it would stagger the economy? You think the poison is better than the alternative?

Schiff: Absolutely. But there’s no question that there will be some disruptions if we cut $1.5 trillion out of this year’s budget. Certainly a lot of people that have been getting government checks wouldn’t be getting those checks anymore.

It’s like an alcoholic who stops drinking—he’s going to go through withdrawal but then he’s going to feel better; he’s going to get healthy. It would be a very helpful development if we cut $1.5 trillion from the budget. The economy would be in great shape, especially if we accompanied those cuts with a big reduction in government rules and regulation that inhibit the hiring process. Then we could hire all the people who get laid off from government jobs, and get those who aren’t currently working into productive employment. All that would happen if we could chop $1.5 trillion from government spending, because that spending is inhibiting the economy from growing right now.

But there’s always going to be some transitionary pain when you move away from a bubble economy to a real economy. But the bubble’s going to burst eventually anyway, so if we pop it ourselves, it’s better than if we wait for it to happen on its own.

Ludwig: What about on the revenue side? People, looking at bridges and such, say infrastructure in America is starting to look pretty Third World-ish. Does that imply tax increases, or is that pretty much off the table, in your mind?

Schiff: I’d prefer to see these things handled locally. If there is an infrastructure problem—and there very well may be—why not stop the federal spending so that more local governments can handle the infrastructure?

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