Schiff on “Let’s Talk Geopolitics:” The Debt Trap Springs Shut

Last week, Peter joined Cyrus and Alex on the “Let’s Talk Geopolitics” podcast to lay out why he believes America’s fiscal and monetary situation has reached a point of no return. He walks through the choice between hyperinflation and outright default, criticizes Trump’s handling of the economy heading into the midterms, and explains why gold, not a rival currency, is poised to replace the dollar as the world’s reserve asset.

Peter opens by describing the dead-end policymakers have backed themselves into. He argues that bond markets will eventually force the issue, no matter what the Federal Reserve or Treasury try to do about it:

So either way, there is going to be a crisis here. And I think lenders are going to start to connect these dots if they haven’t already begun connecting them and just run away from treasuries, which is going to accelerate the collapse in bond prices and the rise in bond yields, which ultimately bring about one of these two alternatives, which is hyperinflation or default.

Turning to politics, Peter takes aim at Trump’s messaging around the economy. He predicts voters will punish Republicans in the midterms, not just for the bad economic data but for the administration’s refusal to admit there’s a problem in the first place:

No, he hasn’t fixed anything. Everything has gotten worse under his stewardship. That’s why, you know, the Republicans are going to take a beating in these midterm elections because voters are going to blame Trump not only for the problems, but for his failure to acknowledge the problems because it’s very frustrating when you’re a voter and your economic circumstances have deteriorated dramatically over the last couple of years. And Donald Trump is trying to convince you how great it is and that you’re living in the greatest boom in world history.

From there, Peter draws a direct parallel between today’s housing market and the complacency that preceded the 2008 financial crisis. He recalls how difficult it was to convince anyone that real estate could fall back then, and warns that the setup looks even more dangerous now:

I’m seeing as much complacency now with respect to real estate, as I saw in the years leading up to 2008, because I was pointing out all the obvious problems that would result in lower real estate prices and nobody would believe me. That was one of the reasons that I had a hard time convincing people to short the subprime market because the entire trade was premised on a decline in real estate prices, which everybody thought was never going to happen. And of course, it did happen. And real estate is more overpriced now than it was at any point prior to the oh, eight financial crisis.

Peter then shifts back to the Fed, explaining that the central bank’s current predicament isn’t some unfortunate accident. He insists that the institution engineered its own box, one where raising rates risks a financial collapse while failing to raise them guarantees inflation gets out of control:

Well, first of all, it’s not like they just find themselves in this trap. They laid the trap. They created it. They put themselves in this box. I was warning about this for years, that they would eventually get to that damned if you do and damned if you don’t situation where they have to raise rates, but they can’t raise rates because if they don’t raise rates substantially and shrink the balance sheet, inflation is going to run away.

Given that backdrop, Peter explains what he sees as the inevitable outcome for the global monetary order. Rather than another fiat currency taking the dollar’s place, he expects gold to reassert itself as the preferred reserve asset among central banks:

So I think that is what is going to ultimately supplant the dollar. It’s not going to be the euro or the yen or the pound or R&B. It’s going to be gold. Foreign central banks are going to hold more gold and fewer dollars and fewer treasuries. So that is going to be a big game changer because, you know, now we’re going to have to finance our debts domestically, which we can’t do because we have such a low amount of domestic savings.

Finally, Peter circles back to the political dimension of financial regulation, zeroing in on the conflicts of interest he sees running through the Trump administration’s approach to crypto. He suggests that the very people responsible for oversight have every incentive to look the other way:

Trump controls the regulators. And so, you’ve got the fox in charge of the hen house. I mean, that’s what’s going on because some of the biggest, you know, violators are the Trump family themselves and all their friends. I mean, they are manipulating the markets to their own financial gain. One of the reasons that the crypto industry gets away with what they get away with is because that’s Trump’s family business.