There was not a more courageous person in the fight to warn everyone of the coming collapse in the U.S. dollar well before it became apparent now that a collapse is indeed possible—not necessarily against other fiat currencies, but against gold.

No less than five books later on the subject of the financial crisis, Peter Schiff is again out with a warning, this time a dire warning of an accelerated drop in the U.S. dollar and inverse rise in the price of gold.

“My thinking is that, at the end of the day, all this deflation talk is a red herring,” Schiff states in his latest missive entitled, Keep Your Head above Dollar.

“The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.”

Schiff argues that further “liquidity” won’t help an ailing U.S. economy when the problem is structural, and has been masked by easy money policies at the Fed. And the Fed isn’t stupid, Schiff insists. It knows exactly what it is doing, but doesn’t want to panic the markets.

“If the truth were known, a real panic would ensue. So, the Fed pretends buying treasuries is simply part of its master plan to boost the economy, even though, in reality, it is simply acting as the buyer of last resort,” Schiff adds.

In July 2004, Schiff said on his Internet radio show that the U.S. Fed is in trouble (back then) and at some point the Fed’s money infusions won’t work any more, relegating it to monetizing the rapidly accumulating debt in an effort to prevent a collapse in the U.S. Treasury market.

Schiff suggested then that the Fed should just raise rates and allow the economy to clear all the mal-investment riddled throughout the economy and start again at square one before it creates more insurmountable problems down the road.

But the Fed is in a no-win situation, Schiff asserted. Politically, it can’t allow the economy to collapse on anyone’s watch, that is, the Congress’ and the president’s.

“We know that they [Fed] can’t do that [raise rates], because the real estate bubble would burst, the stock market would collapse, the bond market would collapse, we’d get bankruptcies in government entities like Fannie Mae and Freddie Mac . . ,” Schiff said of all the financial trouble that would ensue from a Fed rate-raising campaign.

“And then all the money that the Federal Reserve would have to print to monetize all these catastrophes would guarantee even more inflation and even more rapid declines in the dollar,” he continued.

“The point is: The Federal Reserve is caught in a situation that it can’t do anything,” Schiff concluded.

And here we are six years later, and Schiff was right all along.  Too bad CNBC tried to talk him down, make him look foolish, and denigrated his plea to investors to buy some gold throughout the years he appeared on the network. Maybe more investors would have taken Schiff’s advice, because it’s all playing out as he predicted at least six years ago. And according to Schiff, the crisis at the Fed isn’t over yet.

Gold and other metals surged in this morning’s early trading session:

SPDR Gold Shares (NYSE: GLD) $134.46, +2.20%
iShares Silver Trust (NYSE: SLV) $24.97, +2.97%
ETFS Physical Palladium Shares (NYSE: PALL) $66.54, +3.40%
ETFS Physical Platinum Shares (NYSE: PPLT) $173.55, +2.38%

As of 10:15 ET:

Yamana Gold Inc. (NYSE: AUY) gained 6.22% to $11.44

AngloGold Ashanti Ltd. (NYSE: AU) spiked 3.61% to $48.27

Goldcorp Inc. (NYSE: GG) gained 2.74% to $45.80

Kinross Gold Corp. (NYSE: KGC) rose 2.81% to $18.31

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