The Rise of China Will Be a Rude Awakening for Americans (Video)

Ben Swann and Peter Schiff discussed the news of China surpassing the United States as the world’s largest economy. Peter explained why it’s only a matter of time before China and many other countries jettison the dollar as the world’s reserve currency. When that day comes, the US is in for a rude awakening.

Peter hopes that crisis will inspire Americans to re-embrace their free market roots and return to a sound currency backed by gold.

Follow along with this transcript of Peter’s responses:

“I wasn’t shocked by it. I’ve been expecting China’s economy to surpass the United States’. Right now, it’s only surpassed it when you adjust for purchasing power parity. But I think over the next ten years or so, it could surpass it without making those adjustments, just on a dollar level. I think that will happen when the Chinese abandon their currency peg, and allow their currency to rise. I think it will rise substantially against the dollar, and that will improve their economy. It will improve the purchasing power of their citizens, and it will allow China to truly surpass the United States. Frankly, they might have already done that if they hadn’t adopted this foolish currency policy years ago.

“I don’t know that we’re getting used to [the idea that China is surpassing the the US on multiple economic levels]. But we’re going to have to. Ultimately, it’s going to mean a big diminishment in the standard of living for Americans when the Chinese reclaim their production for themselves, and stop exporting what they make to America, and stop loaning us all this money. If you look at the most recent trade figures, China just posted its largest trade surplus ever. At the same time, America just posted its biggest trade deficit ever for factory goods.

“China’s economic growth is not thanks to our generosity in accepting all their output. It’s their effort that produced it in the first place. It’s Chinese factories, it’s Chinese capital investment and Chinese labor that is growing the Chinese economy, not American consumption. I think, if anything, we’re a drag on the Chinese economy. I think if China wasn’t foolishly subsidizing American consumption, the Chinese would be enjoying falling domestic prices, and they would be buying all the goods that are turning out from Chinese factories. Their economy and standard of living would be much stronger as a result.

“That’s why I think the Chinese have been accumulating so much gold. Why I think they continue to be big buyers of gold, is because they’re preparing to jettison the dollar as their principle reserve. I think they are going to eliminate the peg. When they do, that’s going to be the birth of a new renaissance in China. You’re going to see China rise to a much greater degree. That’s going to be the sun setting on the American century. Without China’s support, we’re going to have to finally deal with the problems that have been building up in our economy for years. But China has spared us from having to deal with those problems.

“A lot of it is going to depend on how we react to this rude awakening that we’re in store for. But I think young Americans today really have no idea of just how truly prosperous America used to be back in the 1950s, for example. The real wealth of this nation that had been built up over years with free enterprise, limited government, sound money – we were a much stronger economy and we lived a much higher standard of living. Remember, back in the 1950s, a man who didn’t even graduate high school could support a family, support his children, support his wife who didn’t have a job, save for retirement, not have debt. We had a true middle class in this country that had tremendous purchasing power and very little debt. That doesn’t exist today.

“A lot of countries have caught up to America, because we’ve encumbered ourselves with so much government and regulations. I think now some of these countries that have been holding themselves back are really going to increase their lead when they jettison this dollar system. We’re really going to have to come to terms with this. We’re only going to be able to consume in America to the extent that we can produce. Right now we can’t produce, we don’t have the capacity. We’ve got a bloated education sector, and health care sector, and service sector. Meanwhile, we’ve been gutting our industrial sector and we’ve been relying on the generosity and stupidity of the rest of the world to produce the things that we can’t and lend us the money that we don’t save.

“When we have to wake up to that reality, it’s going to be a big change in America. Hopefully it will motivate us to make some key structural political changes that will unleash the free market spirit that originally built this country, and that is going to be so necessary to build it back up again after it collapses.

“I don’t think it’s going to be bitcoin that’s replaces the dollar. But I do believe other currencies will rise, and I do believe that gold will increase in importance, despite the fact that the Swiss unfortunately voted down backing their currency again with gold, which was the case up until 1999. I’m sure that eventually Swiss, like many countries, are going to turn back to gold when the dollar collapses, and people really appreciate the reason that gold has been money for so many centuries, and why fiat currencies have failed every time they’ve been tried. This most recent experiment with the dollar is not going to be the exception to the real. I do believe you’re going to see gold be a much more important reserve asset, and other currencies rise in importance. Especially to the extent that they’re backed by or maybe even redeemable in gold.”

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