Schiff on Triangle Investor: The Dollar is on the Decline

Last week Peter appeared on Triangle Investor to discuss the latest economic news, including last week’s 2.4% CPI figure. Over the course of the interview he connects rising precious metal demand to central bank behavior, warns that runaway interest costs are about to reshape federal finances, critiques crypto’s fragile dynamics, and explains how artificially low rates have warped real estate values.

He starts by explaining why gold is the ultimate refuge when central banks turn away from the dollar and fiat money in general:

When you’re looking at gold above 5,000, obviously there’s a major loss of confidence in the US, in the dollar, in the Fed, you know, in the ability of the US government to get its fiscal house in order. I think central banks are moving away from the dollar. And when they move out of the dollar, they have to move into something else. And what they’re moving into, what they’ve been moving into is gold.  

He clarifies that the really extreme gold prices—into five or six figures per ounce—won’t happen in a vacuum, but as a function of a deep dollar devaluation:

But I mean, if you’re talking about more, you know, much higher prices, $10,000, $20,000, I mean, those prices are coming. But I think that’s going to happen in the context of a major US dollar devaluation. We haven’t really seen that yet. The dollar has drifted lower over the past year, but not that much lower. I mean, it’s hit a record low against the Swiss franc, but it’s still well above record lows against pretty much every other currency.

Peter also flags silver as an underappreciated beneficiary of technological demand. He notes that industrial uses—especially with new technologies—create a genuine bid for physical metal at the same time supply is constrained:

But with what’s going on now, let’s say with AI and the big build out there, there’s a lot of demand for silver. So silver is used in a lot more things today than it was used in a few years ago. Yet we don’t have a lot more silver to go around. All we have is a high price that could try to free up some silver by getting people to sell some of the silver that they may own. So it could be used someplace else.

Turning to fiscal arithmetic, Peter warns that interest costs on the national debt are on track to outpace even the largest entitlement program. That shift, he suggests, will compress policy options and deepen the case for sound money:

The only thing that we spend more money on is Social Security. And interest on the debt is going to overtake Social Security soon, over the next few years. And not because Social Security spending slows down. No, it’s going to continue to grow too. It’s just that the interest on the debt is going to grow even faster because interest rates rise and then you have to refinance all the maturing debt.

On cryptocurrencies, Peter reads the market structure and finds it fragile: value depends on new buyers continually stepping in to absorb supply, not on production of real goods or cash flows. He argues that this makes crypto uniquely vulnerable to a self-reinforcing collapse when demand tails off:

Well, I think what’s going to cause Bitcoin to collapse is going to be a lot of people who own it wanting to get rid of it and just not having enough new people who want to buy it. So the dynamic is basically unique to Bitcoin and crypto. And so I don’t know what ultimately is going to trigger the exodus, but I think that Bitcoin has already reached a point where it doesn’t go up anymore.  

Finally, he ties several asset bubbles back to central bank policy, saying cheap money made commercial real estate look attractive by inflating the present value of future rents. When rates normalize, those lofty valuations come unstuck:

I think all of it, because all of it was a function of artificially low interest rates, because real estate is highly dependent on interest rates. Commercial real estate is valued like a bond. You look at the rental income, the cash flow, and then you discount it by whatever the interest rate is. So the lower interest rates, the more valuable a piece of real estate is because the present value of the cash flow is a lot higher when interest rates are low than when interest rates are higher. So by artificially suppressing interest rates, commercial real estate was overpriced.