Peter Schiff: Washington’s Debt is the Crisis, not China

In Monday’s episode of the Peter Schiff Show, Peter calls out the Wall Street celebration of a supposed trade victory over China as nothing more than wishful thinking. He argues that, contrary to the media narrative, there was no real trade deal—just a retreat from an unwinnable war. As he unpacks the realities of the trade spat, Peter also turns his attention to the ballooning federal deficit and the longer-term dangers facing the US economy and currency.

Peter starts by criticizing the mainstream hype about an American victory in the trade war. He argues the markets and media are celebrating a fiction:

The big news of the day was the celebration on Wall Street of the trade deal with China. But the problem is there was no trade deal with China. It’s fake news. Now there was progress. There was a lot of progress, but it wasn’t towards any kind of deal. The only progress was the fact that Trump completely surrendered in the trade war that he started. You know, the way you would hear the Republicans spin it, including the Trump administration, like Donald Trump did what no other president was able to do because he got tough with China. He hit him hard with 145 percent tariffs and then they went crawling on their hands and knees to Switzerland to beg for a deal.

He recounts the tit-for-tat escalation of tariffs between the US and China, showing that China was never intimidated by Washington’s threats:

But when Trump launched these reciprocal tariffs, he challenged the world. He said, ‘Nobody better match these tariffs because if anybody matches them, well, we’re just going to re-match them.’ Right? Well, China said, ‘We don’t care.’ And China immediately responded with tariffs on its own, and it quickly escalated back and forth until Trump got up to 145 percent. And China said, ‘Look, we’re going to 125 percent, but this is ridiculous. We’re not going to go any higher because it’s a joke.’ 

Instead of seeing this as an American win, Peter says the only real benefit was that the US stopped inflicting more damage on itself by backing away from a doomed policy:

Now that doesn’t mean the country didn’t win. The country won something over the weekend because Trump surrendered in a war that he never should have started because he didn’t have the cards. He picked a fight with China and then he folded. And in fact, you know, I was hearing last week all the media reports from the Republicans, ‘China’s economy is collapsing. Their factories are shuttering. People are getting laid off. It’s massive deflation. Like we got them against the ropes. Right. We got them right where we want them.’ If that was true, why did we completely back away?

Peter shifts focus from the narrative of international “victory” to highlight a far more significant threat: runaway deficits and government debt. He notes that even the reported deficit numbers understate the scale of the fiscal problem:

In fact, you know, we got the report for the first seven months of the fiscal year, the deficit was 1.049 trillion, which annualizes to 1.8 trillion. Of course, it’s actually over 2 trillion. That’s the official number. The official number excludes a lot of unofficial stuff that actually counts because we still have to borrow the money. So whether the government wants to officially include an expense in the budget, we still got to borrow the money to pay for it. That’s why I always look at how much the national debt increases, not how much we claim the deficits are.

He points out that markets seem to cheer these superficial victories, but warns that the underlying fundamentals remain weak—and that both deficits and global distrust of the US dollar are set to grow:

But that is great news for the markets. But the markets are still in trouble because the markets are overvalued, the economy is in trouble, the economy is going to weaken, the budget deficits are going to get bigger. I think the trend of de-dollarization is going to continue. Yes, we’ve paused this trade war, but who the hell knows what’s coming? I think we’ve already sent messages loud and clear that if you have big trade surpluses with the United States, you’re in trouble. So you got to move away from the US. You got to move away from US dollars, US treasuries, US mortgage backed securities. Trade amongst yourselves. 

If these deficit figures weren’t bad enough, the Fed doesn’t understand what’s happening in the economy. Check out Peter’s analysis here.