In podcast 221, Peter Schiff shows how Trump’s policies seem to be over before they even get started, and takes the New York Fed President to task for reckless advice to homeowners.
Peter said he sees the President-Elect’s recent comments to the Wall Street Journal about the overvaluation of the dollar as representing an unstated “falling dollar” policy—one that candidate Trump espoused his entire campaign.
“Donald Trump always talked about the overvalued dollar when he was a candidate. He didn’t always say, ‘the dollar is overvalued.’ He would say, ‘foreign currencies are undervalued,’ which is basically like saying the same thing only using different words … If he wants foreign currencies to appreciate, then by definition, he wants the dollar to depreciate.”
As expected, the dollar tumbled 1.2% shortly thereafter Trump’s statements. It’s currently down nearly 1% against the Japanese yen and Mexican peso, according to MSN.
Trump’s comments also targeted China’s currency manipulation as the major cause for the dollar’s strength. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” Trump said.
As Trump sees it, the US’s trade imbalance with China stems from the valuation gap between the dollar and the yuan. Typically, the weaker a nation’s currency, the cheaper and more competitive their exports will be. Nations like Venezuela are now fighting hyperinflation after leaders made moves to devalue the bolivar for the same reasons. When mixed huge trade deficits and artificially low interest rates, such a “weak dollar” approach could help create a similar currency crisis for the US.
Peter also took New York Fed President, William Dudley to task for his recent entreaty to homeowners to leverage their equity for consumer spending. Sadly, the suggestion echoes those of Alan Greenspan’s during the George W. Bush era before the housing bubble burst.
In March of 2003, Greenspan admitted to a group of Independent Community Bankers of America that “the frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services.”
In the same speech, the former US Federal Reserve Chairman said “the large flows of mortgage funds” were seen by some as “symptomatic of an emerging housing bubble, not unlike the stock marketing bubble.” However, Greenspan quickly discounted such worries, noting the lack of a national housing market and the dominance of local pricing as insulating factors. Ultimately, his denial transformed into a lack of imagination as he characterized the comparison of the housing market to the stock market bubble as a “rather large stretch.”
It was this rate of “equity extraction” that contributed to the housing bubble and financial crisis only five years later. At the advice of the Fed, homeowners squander their savings and investment on consumer goods and services, leaving themselves exposed to falling housing prices and underwater in their mortgage. It’s a scenario Peter said he sees history repeating itself.
“This is a central banker going out there and telling people, ‘Yeah, lever up the house. Go out and mortgage your house and go shopping. Buy stuff that you probably don’t even need, stuff that you can’t afford because you’re borrowing money and go buy it anyway.’”
What’s behind such a suggestion made by the nation’s top monetary policy makers? It’s simple: The Fed is trying to prop up a fake economy built with artificial interest rates and supported by skewed inflation numbers.
A weak dollar is coming. Trump wants it, the Fed wants it, and there’s little to be done about it. However, a struggling dollar almost always means a bull run for gold. Get ahead now while the dollar’s reeling on its heels. Buy gold and silver today.
Highlights from the show:
“The dollar continues to decline again today. Gold continues to rise confounding the experts who, at the beginning of the year, predicted the opposite.”
“Gold, although it hasn’t recovered everything, is still up almost 6% so far year-to-date. I think silver’s up better than 7% year-to-date. Gold stocks: look at the GDX. We’re up 12% so far this year. That means that gold stocks by far are the top-performing sector in 2017. They were by far the top performing stock sector in 2016. I actually think the outperformance in 2017 is going to be even greater than what the outperformance was in 2016.”
“This is what happened to the dollar when George Bush replaced Bill Clinton, and I think the same thing, only worse, will happen now that Trump is about to replace Obama because I believe the dollar is actually more overvalued now than it was then. I believe the US economy’s in much worse shape now than it was then, and I believe the deficit that we’re going to have under Trump will be much greater than the deficits that we had under Bush. These deficits are going to weigh heavily on the value of the US dollar.”
“If you have big trade deficits, if you have artificially low interest rates, if you’re creating a lot of money, all of that will weaken the dollar, and that’s what we’re doing. If the dollar can weaken when we have a strong dollar policy, imagine how much weaker the dollar could go when we actually have a weak dollar policy to go along with all the weak dollar things that we’re doing.”
“Now you have New York Fed president William Dudley today coming out and saying the exact same thing. He says that it would be ‘prudent’ if homeowners were to tap into their equity and then go shopping. Prudent? I don’t know how this guy defines ‘prudent’. How about ‘reckless’? He’s actually lamenting the fact that more consumers are not doing this.”
“This is a central banker going out there and telling people, ‘yeah, lever up the house. Go out and mortgage your house and go shopping. Buy stuff that you probably don’t even need stuff, stuff that you can’t afford because you’re borrowing money and go buy it anyway.’”
“You think these idiots learned anything from their prior mistakes? No, they just want homeowners to do exactly what they did in the last bubble because they’re desperate to try to keep consumer spending. So, they’ve run out of money, and so these guys at the Fed say, ‘Hey wait a minute you still have some equity in your house. Forget about the fact that it is a bubble and all that equity might evaporate. Just tap into it now while banks are still dumb enough to make you the loan. Go out and borrow the money and buy some depreciating consumer goods. Just go buy some more stuff that was made in China so that we can import it and run up our trade deficit so we can goose the GDP a little bit. This is what these morons at the Federal Reserve were saying.”
“I think [Trump] focuses more on the replacement part then the repeal part. Trump’s saying, ‘we’re going to replace it with something great, something bigger and better. He’s now saying that everybody is going to have coverage. Nobody is going to lose their coverage, and the co-pays and deductibles are going to be much lower.’ Everybody is going to have more insurance for less thanks to the government? Thanks to some government plan? What are we going to call it? Trumpcare? This is scary stuff and Donald Trump is afraid to tell people that they have to buy their own insurance, and they’re not going to get something for nothing.”
The geopolitical uncertainty of Brexit and Trump’s approaching inauguration are sending precious metals on an early rally for the year.
Britain’s Prime Minister Theresa May is clarifying her plans to ensure the UK makes a clean break from the EU’s single market, expressing the desire to remain a “good friend and neighbor in every way,” according to Bloomberg. However, her diplomatic tone is also backed by warnings about any attempts to punish the UK for its decision to leave the European bloc.
In his weekly radio address to his citizens, Venezuela’s post-Hugo Chavez leader, President Nicolas Maduro, announced he would raise the minimum wage for the fifth time over the last year. The bump puts the minimum salary at 40,683 bolivars or $60 per month, according to Reuters.
The new minimum wage represents a 322% cumulative increase since February 2016 and is an attempt to protect citizens’ wages from “mafia attacks,” according to Maduro. The President attributed his country’s woes to anti-socialist political opponents and capitalists who have created an “economic war” to foment disorder and unrest.
In his latest podcast, Peter Schiff illustrates the important differences between cryptocurrencies like Bitcoin and a gold transaction account like Goldmoney when it comes to convenience and preserving wealth. Essentially, it comes down to the technological risks and the price volatility of the underlying currencies. Here’s a breakdown of Peter’s major points:
One advantage cryptocurrencies have over physical precious metals is the ease of transaction, but it comes at a cost. Bitcoin is a completely digital currency, so you can spend or transfer it just like cash. However, with a Goldmoney account, gold owners can now enjoy the same convenience, whether they’re depositing, sending or receiving transfers through an app or paying with a Goldmoney MasterCard.
“It’s not about Goldmoney being the substituted for Bitcoin,” Peter explains. “It’s gold itself. Gold is what you want to own, not Bitcoin. Goldmoney makes gold as convenient to use as Bitcoin. In fact, I think more convenient to use when it comes to commerce because you can deposit some of your gold in your Goldmoney account and now it takes all of those liquid characteristics that so many people like about Bitcoin.”
This week, the national debt edged closer to $20 trillion, double what it was at the beginning of Obama’s presidency. The FOMC minutes were also released from their latest meeting. As it turns out, the Federal Reserve just doesn’t know how Trump’s incoming presidency will affect the economy.
Trump is Stumping the Federal Reserve
Some are calling it a “climate of uncertainty” for the economy this year, and the Fed doesn’t seem to know what to expect from Trump when he takes office in a few weeks. FOMC expectations are high that the president-elect’s tax cuts and fiscal spending will goad inflation to rise, increasing the need for interest rate increases. At this point, some Fed members can’t decide if Trump’s going to grow the economy or balloon inflation. Given the abundance of uncertainty in European politics and policies at home, the Fed’s path to three rate increases this year will be a rocky one.
Oil prices rose and the dollar weakened Wednesday as gold futures maintained a three-week high even as the release of FOMC minutes seemed to suggest a more aggressive rate hike schedule was being considered, according to MarketWatch.
After its vote last month to raise the Federal funds rate 25 basis points, the Fed estimated three quarter-point rate increases for 2017. However, the FOMC minutes suggested there were a “number of risks” that would necessitate a “different path of policy” than they expected. One of those “risks” was clearly Trump’s stimulus plan, and the “uncertainty regarding fiscal and other economic policies.”
In his latest podcast, Peter Schiff lays out why optimism for the US dollar in 2017 is just wishful thinking. Trump’s tax cuts and increased spending are likely to create only a fraction of the stimulus most people expect, given the budget deficits and national debt we face. Investor hopes also reside with Trump’s tax plan to include an import tax that would correct US trade deficits with China. However, taxing imported goods will only drive up the cost of consumer goods, negate any increase in consumer spending, and diminish the purchasing power of the dollar. Peter explains:
“When the cost of importing goes up, it’s not like Americans are just going to switch from buying goods made in China to goods make in America. No, they’re just going to have to pay more to buy the goods made in China. If they don’t have the extra money, they just won’t buy as much. So, what’s going to happen as a result of increasing the cost of importing is that consumers will spend less and the bubble economy will deflate. There will be less consumer spending because consumers won’t have as much money or won’t be able to afford the higher prices. It’s going to have a negative effect on GDP.”
Along with its string of celebrity deaths, presidential comebacks, and populist political movements around the globe, 2016 will also be remembered as full of dramatic market changes. Because history tends to repeat itself, here’s a look back at the top five most popular Schiff gold blog posts of 2016 that may prove beneficial for investors in 2017.
Peter Schiff explains that higher rates would mean a stronger return on the dollar as the cost of borrowing increases. This reasoning only works if you ignore these three realities of our current economy: Fiscal Stimulus Needs Monetary Stimulus, US Debt Increase, and Bursting the Bubble Economy.
The World Gold Council, a leading market development organization, released a study on global gold markets showing the retail investment market is “well positioned” for future growth. The study looked into four major markets: China, India, Germany, and the US and found healthy latent demand within every market. It also identified some interesting purchasing distinctions between developed and emerging economies.
Despite all the recent news concerning falling gold prices, world demand for gold bars and coins is still booming. Since 2006, global demand has gone from 430 tons to 1,051 tons in 2015, which is a monetary move from $10 billion to almost $40 billion, according to the study.
According to a recent Financial Times survey, a majority of top economists predict the Fed won’t be as aggressive on raising interest rates as it suggests. After last week’s rate hike announcement, the Fed’s own dot plot showed it had planned for three federal funds increases for 2017, according to MarketWatch. However, the majority of economists in the Financial Times survey were confident with only one hike in June.