Schiff w/ Lin: The Bond Market’s Day of Reckoning is Coming

In a recent interview with David Lin, Peter breaks down the futility of central bank intervention, including Japan’s efforts to prop up the yen to Washington’s inflationary tricks aimed at suppressing bond yields. He also undercuts Treasury Secretary Scott Bessent’s credibility, explains why falling prices are actually a good thing, and warns that decades of artificially low interest rates could unwind in a fraction of the time it took to create them.

Peter starts by looking at Japan’s recent currency intervention, questioning whether propping up the yen through central bank action can really work in the long run:

It worked a little bit because the yen has come off the lows. But I don’t know that it’s going to work in the long run. I think what will eventually work to strengthen the yen is going to be higher rates in Japan and a weaker dollar. And eventually the dollar is going to collapse under its own weight. I think there’s a problem with the dollar. But also to the extent that the yen stops going down, which was the goal of the intervention, that creates a whole different problem, because if the yen isn’t going to go down, it’s probably going to go up.

From there, Peter turns to the US, where he sees the same pattern of policymakers reaching for gimmicks instead of real solutions. He explains that the only thing that would actually help the bond market, serious spending cuts, isn’t even being discussed:

If the government actually did the right thing, which is not even among the possible choices, which would be substantial cuts to government spending. So that would help the bond market. I mean, real meaningful, credible fiscal policy. But that’s not even on the table at the moment. So I think all these gimmicks that they may try are not going to work. In fact, they’re more than likely to backfire and accelerate the process of yields rising because they’re all going to be inflationary. Everything that they do to try to suppress yields involves creating more inflation. But it’s the inflation that is the reason that yields are rising.

Naturally, this leads Peter to Treasury Secretary Scott Bessent, whose public statements Peter treats with outright skepticism. He argues that Bessent’s real job isn’t managing the economy but managing perceptions of Trump’s economic record:

And by the way, I don’t believe anything Scott Bessent says. I mean, I just think he tells one lie after another. He’s too smart to believe most of the stuff he’s saying. So he’s just saying what he knows Trump wants to hear, that that’s really his job, is to sell Trump’s lies, to try to give credibility to his lies. In fact, that’s basically what everybody’s job is in the Trump administration. Doesn’t matter what your title is. Your job is to flatter the president, tell everybody how great he is and how great his policies are and how great everything is because of his great policies and the greatness of the man.

Shifting gears, Peter tackles a common misconception about inflation itself. He explains that inflation doesn’t always show up as rising prices. Sometimes its real damage is simply preventing prices from falling the way they naturally should:

So inflation doesn’t necessarily have to make prices go up. It can prevent them from going down. And so the real impact is not how much prices went up, but how much higher prices than they otherwise would have been if we didn’t create inflation, but people forget about that and they think, well, you know, prices going down are a bad thing. The Fed has to save us from that horror. That’s not a bad thing. Everybody wants the cost of living to go down.

Peter concludes by pivoting back to the bond market, offering a sobering historical comparison. He points out that the decades-long decline in yields could reverse itself far more quickly than it took to unfold:

So if it took 40 years for the yields to get from 16 percent to zero percent, it could probably take 10 years to go from zero percent back up to 16 percent. And we’re already six years into it. So they may not be that many more. The bottom could drop out of the bond market. We could have a crash in the bond market, yields could just go through the roof.