A Recession Worse Than 2008? - How To Survive & Thrive The Next Economic Crisis | Peter Schiff

Added: Aug 30, 2023

State of the Economy

According to Peter Schiff, the current state of the economy is not as positive as it may seem. He believes that the economy is actually in a recession, and in the future, it may even be considered a depression. Schiff argues that the government's reported numbers on economic growth are inaccurate and misleading. He suggests that the economy is not truly growing, but rather, people are spending more and going deeper into debt. He points out that the cost of living is increasing, and many individuals are struggling to make ends meet. Schiff highlights the record increase in the number of people holding multiple jobs and the rising levels of credit card and student loan debt. He argues that if the economy were truly growing, people would be getting out of debt and building up their savings, which is not the case.

Inflation

Schiff emphasizes that inflation is a significant concern in the current economic climate. He explains that inflation occurs when the supply of money expands, which is precisely what the government is doing through its policies such as quantitative easing. He criticizes the government for using euphemisms like "quantitative easing" to make inflation sound less harmful. Schiff argues that inflation is essentially a hidden tax imposed on the public, as it reduces the value of the money people already have. He believes that the government manipulates inflation numbers to downplay its impact on the public. Schiff predicts that inflation will continue to rise, and the CPI (Consumer Price Index) will reach double digits in the near future.

Government Policies

Schiff criticizes the government's approach to economic policies, particularly its reliance on debt and inflation to stimulate the economy. He argues that the government's short-term focus on re-election leads to policies that provide immediate benefits but have long-term negative consequences. Schiff believes that the government's excessive spending and money printing are mistakes that will ultimately harm the economy. He points out that the government's actions, such as bailing out banks and implementing stimulus measures during the COVID-19 pandemic, may provide short-term relief, but they create long-term problems. Schiff argues that the government's goal is to numb the public to the pain caused by its policies, rather than addressing the underlying issues.

Hyperinflation

While Schiff acknowledges that hyperinflation is a worst-case scenario, he believes that the possibility of it occurring has increased over time. He warns that the government's continuous money printing and deficit spending could lead to hyperinflation in the future. Schiff argues that the odds of hyperinflation are greater now than when he first started warning about it. However, he clarifies that hyperinflation is not the only concern, as even high inflation rates can have severe consequences for the economy and individuals.

Excessive Government Spending

Schiff highlights the record budget deficits and trade deficits as evidence of excessive government spending. He argues that if the economy were truly strong, the government would be running smaller deficits and collecting more taxes. He points out that the government's spending on government assistance programs has increased, indicating that people are struggling financially. Schiff believes that the government's spending habits are unsustainable and contribute to the economic challenges faced by individuals.

Debt

Schiff emphasizes the growing levels of debt in the economy, including credit card debt and student loan debt. He argues that if the economy were truly growing, people would be getting out of debt and building up their savings. However, he observes that the savings rate has collapsed in recent years, indicating that people are tapping into their savings just to make ends meet. Schiff believes that the increasing levels of debt are a sign of economic weakness rather than strength.

Short-term benefits of US-China trade imbalance

According to Peter Schiff, the US-China trade imbalance has provided short-term benefits for Americans. He argues that Americans get something for nothing, as they receive goods and products from China without having to pay the full cost. On the other hand, the Chinese receive US dollars, which Schiff claims have little value because they are essentially IOUs or claims on US production.

Potential consequences of US production decline

Schiff warns that the US production decline could have severe consequences in the long run. He suggests that if the US continues to rely on imports from China and other countries, it will eventually erode its own production capabilities. This could lead to massive inflation when the world no longer wants US dollars and tries to cash them in for goods. Schiff argues that without domestic production, the US will struggle to meet the demands of its own consumers.

The unsustainable national debt and Ponzi scheme

Schiff criticizes the US national debt, which he describes as a Ponzi scheme. He claims that the US government continues to borrow money to pay off its debt, and when a bond matures, it finds another buyer to purchase it. He argues that this cycle can only continue as long as there are willing lenders. However, if people start demanding their money back, the US government will not be able to repay them, leading to a collapse of the system.

The collapse of the US dollar's reserve currency status

Schiff predicts that the US dollar will lose its status as the world's reserve currency. He argues that as the US continues to accumulate debt and print money, other countries will lose confidence in the dollar. When this happens, Americans will no longer be able to rely on the dollar to consume goods from other countries. Schiff suggests that Americans will have to start producing goods themselves in order to meet their consumption needs.

The need for Americans to produce rather than consume

Schiff emphasizes the importance of Americans shifting from a consumption-based economy to a production-based one. He argues that Americans will have to start working and producing goods in order to sustain their consumption habits. He suggests that many non-productive jobs will no longer be viable in a society where the US is no longer the reserve currency. Schiff believes that Americans will have to adapt to a new economic reality and focus on creating value through production.

Critique of government intervention and the importance of gold

Schiff criticizes government intervention in the economy and argues for the importance of gold as a sound form of money. He suggests that politicians and central bankers manipulate the economy for their own benefit, and that a return to a gold standard would force them to be more honest. Schiff points out that Alan Greenspan, former Chairman of the Federal Reserve, wrote an essay on gold and economic freedom, indicating his belief in the importance of gold. However, Schiff criticizes Greenspan for not taking action to return the US to a gold standard during his tenure as Fed Chairman.

Response to criticisms of capitalism

Schiff responds to criticisms of capitalism, arguing that it is the least evil economic system. He suggests that capitalism is based on voluntary exchange and individual freedom, while socialism relies on government coercion. Schiff believes that capitalism rewards those who improve the lives of others and that wealth distribution is more equitable in a capitalist system. He also argues that private charities are more efficient and effective than government-run programs, as they have a greater incentive to help people and eliminate poverty.

Discrimination

In the podcast, Peter Schiff discusses the topic of discrimination and highlights the distinction between personal preferences and systemic discrimination. He acknowledges that people naturally have preferences when it comes to choosing friends or partners, but emphasizes that systemic discrimination in employment or business is detrimental to the economy. Schiff argues that in a capitalist system, businesses should focus on profitability and efficiency rather than discriminating based on irrelevant characteristics such as race or gender. He believes that the government's intervention in anti-discrimination laws has actually made it more difficult for businesses to hire based on merit, as they fear potential lawsuits. Schiff suggests that tolerance should extend to tolerating other people's intolerance, as long as it does not infringe on the rights of others.

Capitalism vs. Socialism

Schiff expresses his belief that every economy, starting as a capitalist system, will eventually move towards socialism. He argues that as capitalism brings prosperity and a thriving middle class, people start to question the fairness of wealth distribution and desire to alleviate suffering. Schiff sees democracy as a contributing factor to this shift, as politicians exploit people's envy and greed to gain votes. He asserts that capitalism itself is not the problem, but rather the politicians who manipulate the system for their own gain. Schiff also mentions that discrimination can occur in both personal and business contexts, but argues that in a capitalist system, businesses that discriminate based on irrelevant characteristics will not be as competitive as those that focus on relevant factors such as competence and skill level.

Inflation and the devaluation of the US dollar

Schiff discusses the current state of the US economy and expresses his concerns about inflation and the devaluation of the US dollar. He criticizes the Federal Reserve's belief that they can engineer a soft landing and bring inflation down to 2%. Schiff argues that the years of low inflation are over and that there is significant inflation in the pipeline. He predicts that the dollar will start to fall once the Federal Reserve stops hiking interest rates, which will further accelerate the increase in prices. Schiff also mentions the de-dollarization trend, where countries are seeking alternatives to the US dollar as the primary reserve currency. He believes that gold will replace the dollar as the primary monetary reserve asset, as it has historically been the reserve for every currency before the dollar became the reserve currency.

Investing strategies in a changing economic landscape

Schiff advises investors to position themselves against the consensus by buying non-dollar assets and investing in countries that are best positioned to thrive in a post-US dollar reserve currency environment. He suggests investing in dividend-paying stocks in countries with freer economies, smaller welfare states, sound fiscal policies, and trade surpluses. Schiff also recommends owning real resources such as energy-related investments, agriculture, industrial metals, and precious metals. He believes that gold will play a crucial role in replacing the dollar as the primary reserve asset.

The role of government in the economy

Schiff argues that the size of government is inversely proportional to prosperity. He believes that smaller governments lead to more prosperous societies, while bigger governments lead to less prosperity. He mentions examples of countries split into two, such as East Germany and West Germany, South Korea and North Korea, where the more capitalist societies have higher standards of living. Schiff emphasizes that government intervention and regulation hinder economic growth and that the free market is the way out of the economic challenges caused by government mistakes. He expresses concern that if the government reacts to the current economic problems with more regulation and spending, there will be no way out, leading to further impoverishment.

Collapse of Regional Banks and Government Bailouts

Schiff warns that regional banks are at risk of collapse due to their exposure to low-yielding debt. As interest rates rise, these banks will struggle to make higher interest payments on their debt, leading to insolvency. He points out that this is a ticking time bomb that he has been warning about for years. Schiff predicts that the Fed will bail out these banks with inflation, which will devalue the currency and erode people's purchasing power. He emphasizes the need for individuals to protect themselves financially by taking their money out of banks and investing in real assets like gold or quality stocks.

Wave of Defaults in Credit Card Debt

Schiff anticipates a wave of defaults in credit card debt, as interest rates on credit cards are at record highs and many Americans have accumulated significant balances. He suggests that people who are already in debt may choose to run up even more debt before defaulting, as they have nothing to lose. This will result in significant losses for banks and further money printing by the Fed to bail them out. Schiff advises individuals to be prepared for this wave of defaults and to protect themselves by investing in assets that will preserve their purchasing power.

Commercial and Residential Real Estate Market Collapse

Schiff predicts a collapse in both the commercial and residential real estate markets. He attributes this to the impact of rising interest rates on commercial properties, as well as the shift towards online shopping and the oversupply of retail space. Additionally, he points out that many homeowners are unable to sell their homes due to the inability to assume their low-interest mortgages. This lack of supply will eventually lead to a collapse in prices. Schiff also highlights the problem of high levels of debt in the residential market, which will result in defaults as interest rates rise. He believes that the collapse of the real estate market will contribute to the overall financial crisis.

Debt Ceiling Debate and Potential Default

Schiff discusses the issue of the debt ceiling and the potential for a default by the US government. He argues that the government's massive debt, which is currently at $32.7 trillion and rising, is unsustainable. Interest on the national debt is already the third-largest line item in the budget, and it is projected to surpass tax revenue in the near future. Schiff suggests that the only way to avoid default is for the Fed to slash interest rates, but this would lead to even higher inflation. He believes that the government will eventually default, as it cannot afford to make the required payments without massive money printing. Schiff emphasizes the need for individuals to protect themselves by investing in real assets and avoiding the inflation tax.

Youth of the Nation

When asked about his advice to the youth of the nation, Schiff believes that they are in a better position than older generations when it comes to dealing with inflation. He explains that younger people, who have less savings and are still working, can demand higher wages to cover the increased costs caused by inflation. In contrast, older people, especially retirees living off investments, would be severely impacted by inflation. Schiff suggests that the younger generation may ultimately escape the burden of the debt through inflation or by leaving the country to avoid high taxes.

Austerity

Schiff discusses the concept of austerity and whether it is necessary to address the debt crisis. He argues that the government should restructure and cut spending, eliminating unnecessary governmental units. Schiff believes that austerity measures, such as reducing government size and spending, would be beneficial in preventing further economic problems. He also mentions the importance of investing in growing companies that pay dividends and suggests that investing in foreign markets may be more profitable than the overpriced U.S. stocks and bonds.