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With oil at $100 a barrel and stagflation in the air, Dr. Doom is at it again.

Peter Schiff called dot-com mania a stock market bubble early in the 1990s. He predicted the U.S. housing blow-up years ago. He called the 2003 deflation scare bogus, he recommended oil at $30 and he's been bullish for at least a decade on gold and other commodities that are hitting record highs.

Now, with Wall Street clamoring for lower interest rates to prevent a meltdown in the world's financial markets, Schiff -- who earned his nickname and antipathy from Wall Street peers for his dire prognostications -- is playing the contrarian again. He says the

Federal Reserve

should raise rates dramatically to prevent a catastrophic outbreak of inflation. If he's right this time around, we're all in trouble.

"The people who are saying that inflation is not a problem are the same people who have constantly had the economy and the investing landscape wrong, and now, they're wrong once again," says Schiff, head of Darien, Conn.-based broker-dealer Euro Pacific Capital and the author of

Crash Proof: How to Profit From the Coming Economic Collapse

. "I've gotten it right on all my forecasts. If I'm saying something now, it should be given much higher credibility than those people who have been wrong so consistently and for so long."

The notion that inflation is on the rise has gained credibility lately, with the government's consumer price index climbing 4.3% year over year in January -- its highest reading in over two years. Inflation has long been running above the Fed's perceived comfort zone and, coupled with slowing growth, has some even raising the specter of 1970s-style stagflation. Fed officials have repeatedly sounded warning bells about inflation, but nevertheless, the central bank has slashed its key rate target by 225 basis points since September with a stunning 125 basis points of that move coming in January alone.

The Fed seems willing to flirt with inflation in order to cushion the fallout from a persistent credit crisis that has crippled the world's financial markets for months and threatens to descend into a nasty, consumer-led recession amid the largest declines in U.S. home prices since the Great Depression. Most market watchers say that a likely slowdown in the economy will dampen inflation on its own, so the Fed should now be focused on cushioning the effects of recession with low interest rates.

Schiff calls the notion that slow economic growth will contain inflation "baloney." He points to Zimbabwe, where the national currency just suffered its biggest single-day drop in value ever, even while the country muddles through a 10-year economic slump.

"Obviously, if a weak economy took care of inflation, they would not have any inflation in Zimbabwe," says Schiff. "The greatest inflations throughout world history have come during periods of economic weakness. Economic growth is actually the best antidote for inflation. Real economic growth is a function of increased productivity, and because more is being produced in a growing economy, prices tend to fall. In a weakening economy, there is a decline in the supply of goods available for sale, so you see the biggest increases in prices."

It's hard to compare the U.S. economy with Zimbabwe's, but the last serious inflation scare here does jibe with Schiff's analysis. It came in the 1970s, at a time of economic malaise and high unemployment. With inflation running roughly where it is at now, President Richard Nixon judged it to be such a big problem that he took the disastrous step of imposing wage and price controls on the economy. Finally, Fed chairman Paul Volcker in the early 1980s was forced to raise interest rates into double-digits, despite howls of protest on Wall Street.

Now, Volcker is one of the most admired public servants in modern U.S. history. His successors at the Fed, however, are trying to use easy credit to head off a financial crisis and economic slowdown that many observers say was at least partly created by the Fed's loose money policies in the first place.

"The government doesn't want to admit that the real cause of inflation is the government itself," says Schiff. "They raise revenue with inflation rather than taxing citizens for the money they wish to spend. They create the money out of thin air by printing it. When they do that, they take purchasing power away from the citizens by debasing the currency."

Such views are rarely voiced on Wall Street, but with the value of the U.S. dollar in sharp decline while gold prices soar to new record highs, it's clear that some investors are buying into them. Meanwhile, oil prices have crossed over the once-unthinkable $100-mark, and Schiff says it's because the Fed is printing more money than

Exxon Mobil

(XOM) - Get Free Report

has pumped crude.

"The reason why Wall Street goes along with the Fed is because Wall Street prefers to pretend that everything is good because they're in the business of selling stocks and bonds, and they're likely to sell more stocks and bonds if investors falsely believe that the economy is sound," says Schiff. He notes that polls have shown for years that voters are displeased with economic conditions, despite the rosy view of the stock market and the economic data used on Wall Street, and he attributes the disconnect to the effects of inflation.

Schiff's many critics only begrudgingly acknowledge he has made some good calls. Michael Holland, chairman of Holland & Co., concedes that Schiff looks prescient now amid the downturn in the housing market, but he points out that investors who listened to Schiff throughout the recent bull market missed out on some attractive returns in the stock market.

"A broken clock is right twice a day," says Holland. "If you say things are going to be bad long enough, eventually you're going to be right."

But Schiff also has earned a legion of fans, including U.S. Rep. Ron Paul (R., Texas), who in January tapped Schiff as economic advisor to his longshot presidential campaign. While he has lost handily at the polls to Arizona Senator John McCain in the primaries, Paul's core message of monetary policy reform has garnered a huge and loyal following on


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YouTube, and he raised far more money in the last three months of 2007 than any other Republican candidate.

"The pressure is always there on the Fed to create more inflation by politicians, Wall Street leaders and those who have made mistakes by participating in over-borrowing and over-investing," says Paul. "They never talk about inflation in the true sense of the word. They always talk about the need to spend more money to stimulate the economy or lower interest rates to help out Wall Street and the markets. What they're really saying all the time is crank up the printing presses, crank up new credit and crank up inflation."

Paul rankles some observers as a crank and a conspiracy theorist, but others view him as a rare voice of honesty in Washington that was unfairly silenced by

News Corp.

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, when its

Fox News Channel

left him out of its Republican debate before the New Hampshire primaries without explanation. He attributed that to a corporate media that doesn't like his message.

At the core of that message is an inherent distrust of the Fed and U.S. monetary policy. Paul cites the Fed's decision in 2006 to stop reporting M3, its measure of the total money supply in the U.S., to deflect the public's attention away from its printing of new dollars at an increasing rate. At the time, the Fed explained it made the move because M3 did not play a role in the monetary policy process "for many years" and no longer was worth the cost of collecting the data and publishing it.

"It has allowed them to get away with inflating the money supply longer, but ultimately the market is smarter than that," says Paul. "The markets are insisting now that there are too many dollars out there. They've shifted away from financials into harder assets and commodities. The government just can't hide what is really going on."

Meanwhile, China also has an inflation problem and its economy has been hot for years, but Schiff points out that the Chinese government has also been inflating that nation's money supply by 20% to 25% a year. He says China is using inflation to maintain the value of the greenback.

"The Fed prints a bunch of money, and American consumers take the money and buy Chinese goods at


(WMT) - Get Free Report

," says Schiff. "Chinese manufacturers earn all these dollars and they want to get rid of them, so the Chinese government intervenes in the currency market and buys up all those dollars. Otherwise, the value of the dollar would plummet. The Chinese government buys all the dollars with the yuans they print, so because we print all these dollars, we're forcing the Chinese to print yuans."

In essence, Schiff says the U.S. is exporting inflation to China as well as Saudi Arabia, Japan and many other countries. The European Commission recently cut its forecast for euro-area economic growth and predicted inflation will accelerate to its fastest pace since the currency's debut. At the same time, pressure is growing on the European Commission to lower interest rates.

"When the Chinese finally stop printing all these yuans and let the dollar collapse, Chinese inflation will come to a halt, but U.S. inflation will then kick into high-gear because the dollar will fall like a stone and prices will move up very rapidly," says Schiff. "It's a very dangerous situation to hold U.S. currency because prices are propped up by governments around the world."

To prevent the U.S. economy's Titanic from hitting that iceberg, Schiff says the Fed needs to stop steering the ship away from the rocks.

"The government needs to stop creating inflation, restrain growth in the money supply and move interest rates up to discourage borrowing and encourage savings and restore value and integrity to our money," says Schiff. "To simply try to postpone economic pain that this will cause by creating inflation is the wrong approach. We need to allow a recession to run its course and let the free market purge the excesses and imbalances out of this economy. We're going to have to alter the course we are on eventually, and the longer we wait to do it, the worse it's going to be."