Peter Schiff: Economic Crisis Is Here – Consumer Confidence, Debt & the Dollar

[00:00:00] Speaker 1: hi everyone and welcome back we are joined again by peter schiff the ceo of euro pacific asset management and also the host of the very popular peter schiff show uh thank you for coming back on the program i want to start off with the health of the u.s economy as well as the world economy because um well there tends to be a lot of distortions and we often use indicators that have been manipulated as well but well to start off we were told that the economy is doing well the stock markets are up in trump's war awards it's hotter than it's ever been before but i also see this new current condition index the cci which has been released which measures you know how people or businesses perceive the well the state of the economy and it disappears to be the worst ever in again since 51 how do you make sense of this well you know first of all you know whatever trump says [00:01:03] Speaker 2: is irrelevant trump's gonna say whatever the hell he wants the the facts or the data don't make a difference to trump in fact he let you know how he thinks uh just a few days ago when he was asked about this deal that he claimed was made between russia and the ukraine on a energy ceasefire and after both sides denied having made a deal a reporter asked the president well mr president trump um you said there was a deal but you know the russians and the ukrainians say they never made a deal and then trump said well there is a deal uh there's a deal because i said there's a deal that's why um so the economy is the hottest ever because trump says it is that's it i mean that's the only evidence that's the only proof it's whatever trump says so he says we have a booming economy we have a booming economy even if it's a complete bust so you've got the lowest consumer confidence in current conditions in 75 years and that's how long they've been collecting the data so we've gone through a lot of difficult time periods we've gone through wars we've gone through recession financial crises pandemics all kinds of bad things have happened yet through it all the consumer was you know more optimistic than he is right now uh so there's no way that you could claim that we have this great economy because if we did the people who are living in the great economy uh would would appreciate that and the republicans would be getting credit for that instead they're getting the blame and the reason they're getting to blame is because it is a bad economy and getting worse but but how do we how do you explain the economy in this [00:03:04] Speaker 1: current state though if the stock market is doing so well yet the average american is now beginning to [00:03:11] Speaker 2: well really feel the pain well the stock market is always doing well we're at 52 000 right the stock market keeps going up that doesn't mean anything um you know the in fact the the bad policies that are hurting the economy are propping up the stock market we had record high stock prices under biden uh yet trump claims that under biden we had the worst economy in the history of the world so apparently the stock prices can go up whether we have the best economy or the worst economy so it's irrelevant to the stock market but what it is ultimately going to be relevant is going to be a financial crisis you know a sovereign debt crisis a currency crisis that's what's coming because interest rates are normalizing now and they have a long way to rise to get to normal and the current economy that we have will not be able to withstand uh normal interest rates let alone high interest rates which is what what we're going to end up with [00:04:14] Speaker 1: but uh how how did we end up here though the sovereign debt crisis the currency crisis uh again you say the interest rates has to be adjusted they have to go up furthermore [00:04:26] Speaker 2: but yeah yeah we well we got here as a result of decades of uh extravagance and living beyond our means running large deficits and maintaining artificially low interest rates and that allowed our economy to transition or morph from a production-based economy to a service sector consumption-based economy it allowed everybody to take on too much debt from governments to uh corporations and consumers and we've been living in a in a fool's paradise that has not really been that much of a paradise for a lot of us um who have uh seen a decline in uh standard of living but i think we're about to see uh the final payback you know they they say that the piper has to be paid well you know it's been a long time since we've had a pony up and i think that's going to happen i know there are people that think we're going to get out of jail free card based on ai we'll see you know i don't know if we're going to get that lucky i think i think ai is going to deliver substantial benefits over time to mankind but whether or not it's going to happen uh quickly enough to get us out of this mess that seems like a long shot well for decades [00:05:47] Speaker 1: though we were told about uh at least since the 90s about this successful transition from a manufacturing economy to a service economy but uh at the same time as this transition happened we saw the debt levels going through the roof uh i mean was this essentially a failed transition uh or you know yeah in other words what what what is the solution should the us well it wasn't it wasn't it wasn't a viable [00:06:14] Speaker 2: transition because we were running massive trade deficits so we didn't really you know get to a point where we can run the economy on services we we couldn't we needed to import all the goods that we couldn't produce now maybe if we had such a surplus in services if we could have sold the world our services and use that income to import all the goods then it may have been a viable transition but when you're running more than a trillion dollar a year trade deficit back now it's probably closer to 1.2 trillion we're having the biggest trade deficits in history under president trump we're also having the biggest budget deficits in history under president trump uh so the twin deficits have never been bigger than they are right now uh and again that that proves that the the the strong economy is a figment of donald trump's imagination because if we really had a strong economy those deficits would be going down [00:07:18] Speaker 1: but uh can there be a return to this uh more again the physical economy the industries because i know in europe there's a you know they're de-industrializing quickly and they would like to re-industrialize but they see now that they can't compete with the chinese so many are not talking about emulating trump's tariff subsidies to try to well find a way of creating a competitive space for their [00:07:43] Speaker 2: own well at least their strategic industries i don't know why you would want to emulate a failed policy trump's tariffs have not delivered what they've promised that the trade deficits are higher with the tariffs our imports are at an all-time record high we're importing more with the tariffs than we ever imported without the tariffs all that's happened is we have to pay more money for the imports so americans are paying higher prices because the tariffs are embedded in those prices but they haven't you know revived anything we haven't on short anything uh so the tariffs have accomplished nothing other than raising revenue for the u.s government by raising taxes on the american people that's always done [00:08:30] Speaker 1: you know so what's so great about a tax hike no that doesn't help i don't live with the competitiveness um but on on the topic though of uh i guess distorting uh or manipulating the indicators of how the economy is doing how do you see the federal reserve uh having distorted economy well the federal reserve [00:08:52] Speaker 2: has been distorting the economy for decades uh by constantly expanding the money supply and artificially suppressing interest rates it's because of the feds uh interference in the markets that everything is so distorted uh you know that's why we don't save as much as we should that's why we borrow too much that's why we have too much debt that's why we don't manufacture as much all of these you know as much as as much as we should because of the distortions that have been introduced into the economy by the feds monetary policy and of course you know we have a reckless fiscal policy so i don't want to let congress or the president off the hook for those distortions because uh they're also culpable and both parties share in this blame it's hard to say you know to say oh the democrats should get more of the blame than the republicans when you're looking at what the republicans are doing right now when they have the white house and for now the house and the senate they won't they won't have those bodies for long but they've had it for you know uh a year and three quarters and they've made the problems worse so you know it's going to continue and of course regulation it's not just a fiscal policy it's regulatory policy that has distorted uh you know what otherwise would have occurred had we had freer markets and and the most efficient markets the best way to allocate resources is without government interference whenever the government gets in the way with either regulation or taxation you get a less than optimal outcome and so you have a lower standard of living than otherwise would have been the case absent that government interference [00:10:39] Speaker 1: i remember for well at least about 20 years ago there was common to push forward the argument that the amount of debt the u.s was taking on was actually not a problem it was an indication of of the strength of the u.s because it indicated that the world trusted the u.s economy that kind of has that argument you [00:10:58] Speaker 2: don't hear anymore but we're all i never i never bought into the idea that going into debt is um is a sign of of of of uh strength or uh of wealth uh when people are um experiencing an increase in their work their worth in their income um they would they would pay down their debt and people aspire to be out of debt to be debt free um you know that that that that that's a sign of affluence that you don't have that you don't have debt but if you if you're constantly going into debt and you owe more and more money you know you're you're you're you're going backwards you're not you're not going forwards now i mean i would have to differentiate certain types of debt so if you accumulate debt you know as a business you're borrowing money to make capital investments well that's that's okay um or if you're you know developing you know you know rental properties commercial or in residential and you're borrowing to finance that but their cash flow that's generated from the the real estate the rents that you collect if that exceeds the interest that you pay to borrow the money well then that's that's fine but when you're talking about consumer-based debt you're talking about borrowing money to buy stuff you know whether it's credit card debt auto loans a residential home mortgage that's not good you know taking out a third loan on your home isn't a sign that things are doing well people aspire to pay off their home mortgage pay off their credit card debt own their car free and clear right and so those those those are good those are good things uh you know going deep into debt is is a sign that you're struggling that you that you can't get by and so you're you're resorting uh to borrowing to keep your economic uh head above water and so you know all of that stuff was just rationalization they were looking at a problem and instead of acknowledging it they rationalized it as if it was something good right so they turned a bad thing into a good thing because they didn't want to deal with the bad thing or admit that there was a problem because they didn't want to try to solve it because solving the problem creates an even bigger problem for the politicians but they kind of had a similar argument for [00:13:41] Speaker 1: the for the inflation that is you know we're sticking on our two percent inflation targets uh this is under under control uh but uh again it appears that that narrative is also faltering a bit but they still suggest i guess that this is a transitional period that will stabilize on its own how do you see this i mean what is fueling the debt and why why would it stabilize itself or will it spiral out of control [00:14:08] Speaker 2: well it's not going to stabilize it i mean the only thing that will eventually do it would be interest rates rising so much that the government has no choice but the federal reserve may step in to spare the government of having to make that choice because the fed could just buy up all the bonds to artificially suppress the interest rates but then we get runaway inflation so it's not like it's really uh you know a get out of jail free card uh for all the debt because americans are going to pay the price uh with uh inflation and higher consumer prices but you know that's going to happen i mean so far it hasn't quite happened i mean rates have backed up yields are above five percent now 5.3 on a 10 year 5.6 on a 30 year but they're still historically low relative to you know where they were in the 70s 80s 90s and i think we're we're headed back to the types of rates that we had back then only even higher because we're in a lot worse a financial shape than we were during those decades but we have a lot more debt than we had back then so we we can't handle uh the debt service but if we're settling [00:15:30] Speaker 1: into a conflict now in terms of the bonds uh well here which includes the debts uh the u.s dollar might also be questioned you know the the u.s economy doesn't exist in isolation i mean it is the the whole world economy has been organized around it for over the decades how do you see this car this economic crisis playing out i mean will it yeah sorry yeah well i do think that the [00:16:00] Speaker 2: global economic order needs to rebalance as a result of the monetary and fiscal policies and the dollars reserve status americans have been able to consume a far greater percentage of the world's economic output than they really would otherwise be entitled to to consume and so too many goods have been headed towards america and too few goods have been consumed outside america um foreigners have accumulated too much of our liabilities so we owe the world a lot more than we could actually repay and the world has you know misinvested a lot of that capital instead of lending money to americans who can't repay they should have lent money someplace else or invest in someplace else so all of this is going to change and the result will be a substantial decline in the standard of living of americans because we're going to lose that global subsidy that we've enjoyed and so as a result of that consumer goods will be far more expensive and therefore much less available to americans and interest rates will be much higher so that is a big game changer again the only way that that might change would be if ai is able to transform the economy rapidly enough so that we can produce for ourselves using computers and robots what we now rely on china and the rest of the world to produce uh we'll see [00:17:37] Speaker 1: but uh on the topic of china though i uh you know if they wanted to create a rival to the u.s dollar you know they could enjoy some of these uh exorbitant privileges if you will to to manage the world currency but but uh yeah that i was also told that the chinese don't really want this that they see it as a burden that they don't want to go down that that that road well it's not about not wanting [00:18:03] Speaker 2: to i don't really think they have the option of just offering like the rmb as a replacement for the dollar i mean you don't have to create an alternative for the dollar an alternative already exists and that's gold and and that's where foreign central banks are headed they're divesting of u.s dollars and they're buying gold that's been going on for years now and i think that trade is going to continue and i expect it to accelerate uh as the dollar really starts to fall against its fiat counterparts something that it hasn't happened yet the dollar even though gold prices have gone up although recently they've pulled back around 4 000 but they you know they double from 2000 but during that time period the dollar held its own against the euro and the pound and the yen in fact it went up against the yen maybe it backed off a bit against the swiss franc but overall the dollar has held up against other fiat currencies it hasn't held up against gold and it hasn't held up against goods and services and it's lost purchasing power even as its relative exchange rate has been stable but i think that's going to change i think you're going to start to see a a dollar depreciation against other currencies and that's going to really accelerate the movement in the gold well in terms of foreign powers [00:19:26] Speaker 1: there's been some reports that the chinese are really stocking up on gold buying a lot of it uh do you how would you interpret this do they see a a crash coming a crisis i mean i know we don't have a window into the heads of their central bankers but uh uh how do you assess this kind of should both i think [00:19:46] Speaker 2: i think they i think they do you know especially if they watch my podcast right they know it's coming uh but you know they could figure it out on my on their own they don't necessarily need me uh uh to shed light on something that uh is pretty well illuminated so i think they understand that but you know politically they don't want to be beholden i mean we've made it clear that china is our enemy well why would they want to hold all these treasuries and hand us a weapon because we can always you know sanction them or pull the rug out from under their holdings uh default on their treasuries maybe uh kick them off of the u.s dollar switch system so uh i think that china has a lot of incentives to move away from the u.s and the u.s dollar so that america doesn't have that financial leverage anymore and also they want to reduce trade with the united states which is happening i mean one of the things that trump has accomplished by heavily targeting china's goods with high tariffs is that our trade deficit with china has gone way down maybe by about 30 percent but our trade deficit with everybody else has gone up even more so it's not like you know he's solved the problem he's just rearranged the deck chairs but for china china's surplus is at an all-time record high even though it has a smaller surplus with america so china is developing more trading relationships with other countries and that's good for china because that means they're less uh dependent i mean their businesses are on the american consumer which means that it's not a big deal to them if the american consumer is broke uh because they've got other consumers to trade with in other countries who are better positioned to buy their stuff uh because they have goods uh that that the chinese want they don't have to vendor [00:21:46] Speaker 1: finance them like they are with us yeah i thought about that with the chinese as well as the russians so if they hold a lot of dollars and the u.s prints a lot of dollars to finance its military you know that that is effectively is the taxation on them though by creating new money and reducing the value of the money they have so they would actually finance their own containment and uh yes yeah [00:22:11] Speaker 2: inflation taxes everybody who holds dollars and so if the russians don't want to pay for our military for our social security you know for our medicare then they shouldn't hold any dollars because the inflation tax is going to be the the source of revenue that the government relies more on in the future because there's no real appetite for tax hikes other than on the very rich and and even then they have a hard time hiking taxes but that doesn't raise that much money when you raise taxes on the rich um there is zero appetite for cutting spending they won't even cut waste fraud and abuse i mean they'll talk about it but they won't actually do it but they're not going to cut uh entitlements which are skyrocketing and interest on the national debt which is now the biggest entitlement right because if you own a bond you're entitled to your interest and you know that's going to be the biggest line item in the budget right now it's number two behind social security but by next year it's going to pass social security um so how is the government going to handle these debts that are going to be skyrocketing our annual budget absolutely to go from two and a half trillion a year to three trillion to four trillion to five trillion you know where's the money going to come from it's going to come from inflation the fed is going to create it and and so uh if you hold dollars you're going to be picking up the tab so if you don't want to pay it you get rid of dollars and then you know then the bill gets concentrated uh in the in the people who still have dollars but then more and more people want to get rid of dollars to escape the inflation tax and then it just becomes a bigger and bigger tax on the people [00:24:01] Speaker 1: who still hold dollars but with this problem you described though there's a debt this keeps growing the interest rates must also come up it's impossible to service the debt i mean how will the u.s get out of this debt problem will they default do you think or they will they print their way out uh by yeah well [00:24:19] Speaker 2: exactly those are the two uh ways you they can either be honest and default or they can create inflation and default dishonestly but that's those are the only options i mean there's no way we're going to repay the debt that's not even a viable uh solution so forget about that the question is how do we repudiate it how do we default on it and and and those are the only two ways to go yeah so scott peasant was [00:24:51] Speaker 1: asked how do we pay this 40 trillion and he said we'll grow our way out of it uh i was not i was not [00:24:57] Speaker 2: reassured by that yeah well initially you know when he first got the job he was talking about reducing the deficit you know cutting government spending and now it's all about growing our way out of it but politicians have been promising that we would grow our way out of the deficits for as long as we've had deficits yet the national debt is over 40 trillion so it's not going to work and in fact the debt is now growing at a pace that's much faster than the economy um so there's no way to grow our way out of a debt problem when the gret when the debt is growing faster than the economy we'd have to get the economy to grow faster than the debt which is very very difficult now given how big the debt is and and how rapidly it's it's rising [00:25:49] Speaker 1: well i think everyone sees us heading into some serious problems in the economy the only issue is the timing when does happen but uh but it's also common to compare it by looking back at the former crisis and the last big one being the global financial crisis of 2008 and 9. uh yeah to what extent do you think they will have something similar that is a housing crash and uh well how would you compare it what we're heading into now vis-a-vis 2008. well i mean i think that the [00:26:20] Speaker 2: problems now are much bigger than they were in 2008. you know in 2008 you know the national debt was under 10 trillion i forget exactly what it was 7 trillion 8 trillion i am so it's more than four times as large um all the big banks that we decided were too big to fail are much bigger now and they're probably even more insolvent than they were then so i think we have a real uh problem on our hands that's that's that's larger in in size than the one that that blew up in 2008. and i think the big difference between the crisis that we're heading to and the crisis that we had is that in the coming crisis the government is not going to be able to bail anybody out so it's going to be far worse because there won't be that that safety net of a bailout because the government is going to be at the epicenter of the crisis it's not just going to be you know people not paying their mortgage and there may be a lot of those too uh or corporations defaulting or banks failing it's going to be the u.s government itself that can't pay the u.s government is going to be in need of a bailout but you know the only uh way to bail out the government is through the fed but if the fed does it then they destroy the dollar so we got to pick our poison [00:27:45] Speaker 1: so we do in germany the the economic mismanagement uh is now well i would say fueling growing political illegitimacy of the leaders but in france you have outright uh well protest or riots which are spiraling out of control so it's not just political instability you also see growing social instability do you see [00:28:07] Speaker 2: any similar indicators coming to the united states yeah i mean this is going to happen around the world when when you create a society of government dependency and entitlement the public begins to believe that they they are owed things that they are due things uh simply because they exist and as governments go broke because they've already you know over promised and and and overpaid um the public in exchange for their votes um they they get upset they get mad they you know and and they take to the streets and they and they protest and they want more they want more from the government because you know they they don't understand that the government doesn't have anything they think the government is just you know sitting on all this stuff that he could just give the people the government doesn't have any stuff they go the government can only take stuff but when you run out of stuff to take well you know there's nothing to give when you're broke right when you know when you run out of other people's money there's there's nothing to redistribute and and so that's where a lot of these uh democracies are are are headed or are in this predicament now where it's too much and they have to deliver the bad news to the public that has no idea the news is coming and doesn't understand that there's any limits [00:29:40] Speaker 1: on what the government can provide them well in i remember back in 2006 i i bought your book on the coming global financial crisis uh oh there god that's 20 years ago yeah anyways uh i remember well i based on that i bought a lot of gold and uh that that did very well during this uh coming crisis which you foresaw uh but i always stayed away from the cryptos like bitcoin but it it doesn't seem to crash though how do you make sense of this i because i i don't disagree with the assessment that it has no foundation but how can we explain that bitcoin and the digital currencies continue to well do somewhat well [00:30:25] Speaker 2: yeah well you know i was just commenting about that myself a little earlier today on x that i don't know what's holding bitcoin up i mean it's 81 800 you know and change as we're speaking it should be a lot lower than that i think uh you know given uh the fact that a lot of speculative assets other than a lot of bitcoin um a lot of bitcoin um a lot of bitcoin um but i would think that the rising interest rates and uh a bear market in 60 percent of the s p 500 i think that would weigh on bitcoin plus the specter of the democrats taking congress because a lot of the wind in the bitcoin sale was provided by a friendly congress the republicans were very much uh backing the bitcoin and crypto agenda but the democrats are going to have a very hostile regulatory agenda to that industry and and so that's going to be very difficult and of course they'll still have the trump administration but trump's political capital is going to be dramatically diminished after this big loss in the midterms so he's going to even lose uh his power within his own party and he may be fighting impeachment or other kinds of criminal investigations so i don't know that he's going to have time to be pumping up bitcoin and then of course he's a lame duck and in two years he'll be gone and we could have a democratic president and one of the first things they may do is raid the bitcoin strategic reserve and just sell all those bitcoin because the government needs money so uh i there's a lot of reasons to uh be worried uh and so i don't know why bitcoin isn't lower well i would have assumed now given that the [00:32:31] Speaker 1: u.s is in this very unique situation where you got this massive debt and growing debt and growing interest like there's no way to well to seemingly get out of this it looks like the logical thing would be to start to transition into metals but what do you see then being the how much growth potential do you think it has gold well versus silver i mean where do you see the well the smart money going [00:32:58] Speaker 2: well i mean i i you know i think i'm the smart money and you know yeah i mean i have it in in in metals and a lot of other things precious metals but i do think that you know the dollar stays as the reserve currency are numbered and i don't believe that what we're seeing now with the fed hiking rates and bond yields rising i don't see that as bearish for gold i i see it as bullish for gold i don't believe the fed is an aggressive inflation fighter the fed is an inflation enabler i don't care what kevin warsch wants to say i i look at what he does and despite all of his tough talk he's only hiked interest rates once by 25 basis points they should have been hiked by a lot more than that by now the balance sheet continues to expand the money supply continues to expand so he is running an expansionary uh inflationary monetary policy he's a dove in in hawk's clothing i suppose um so i i i i think that you know gold should be bought silver should be bought commodities in general are going to keep rising and i think that the investment opportunities in emerging markets and abroad are going to deliver better returns as the air comes out of the bubble here in the u.s [00:34:22] Speaker 1: uh just the last question and where where can people find their work because i you know you've been one of the best ones spot on in terms of predicting uh uh where the economy is headed is so especially yeah the well especially the housing crisis you're very spot on on this one as well so where where can people follow your work well first of all if you want to follow my investment [00:34:44] Speaker 2: strategy we're happy to have you as a client at europe pacific asset management we manage individual portfolios uh for clients both in individual stocks and in our proprietary mutual funds so you can get information about how to set up an account you can speak with one of our representatives by going to our website at europac.com you could fill out you know an online contact form or just call the 800 number and you know you'll get to talk to one of my one of my representatives if you're more of a do-it-yourselfer you can get the information on my five mutual funds from the europac.com website and they can be bought no load at any discount brokerage firm so if you're with schwab or fidelity or one of those companies you can have my funds i've got a gold fund an emerging market fund an international dividend pairs fund an international valium fund and a foreign bond fund so five different funds that i think will do well in a environment of sagflation you know weak u.s stocks rising inflation falling u.s bonds if you just want to stay informed if it's not just about protecting your wealth oh and by the way you know if you want to get some gold and silver i got a business shift gold so uh become a customer there as well go to shiftgold.com today's a great day you know with gold back down near four thousand silver silver is about 55 that's a great buy i think i didn't actually think it would get back down this low you know got up to 125 000 so it's i mean 125 an ounce and it's had a big big pullback i don't expect it to get all the way back down to 50. so you know you're within 10 percent of a low i think so great time to buy gold and silver in particular so go to shift gold and uh and get in on it before the prices reverse but if you just want to follow follow me get my take on things on the economic news on the economy financial markets on politics i'm constantly posting about that on x i'm getting close to 1.8 million uh followers on x so a lot of people are now paying attention and you could be one of them and you can help me by reposting my content that's very important don't just read what i post but repost it so that more and more people get an opportunity to read it subscribe to my youtube channel um you know it's got about 630 or 40 000 subscribers i put my my podcast i do usually two podcasts a week on shiftradio.com and on my youtube channel so make sure and sign up there but you can also i'm on instagram i'm on facebook i'm on tick tock so i'm putting out you know content everywhere uh so not only should you uh you know try to or listen to that content but you should help me disseminate it on all those platforms so that more people get a chance to benefit from what i'm saying and learn the truth because there's so many lies that are being told by everybody you know the republicans the democrats uh you know financial news and you're getting misinformation and fake news and just about every uh major mainstream uh outlet so the way to get the real deal and know what's actually happening is to seek out alternative sources of information like me [00:38:11] Speaker 1: well thanks again i really appreciate your insights here yeah go ahead hey thanks a lot nice seeing you [00:38:35] Speaker ?: Thank you.