US Currency Crisis Coming in 2017

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.”

Highlights from the show:

“Everything goes up when you’re measuring in terms of US dollars. Of course, it’s inevitable the Dow will get to 20,000. The question is will it get there right away, and if it doesn’t and it goes down first and we eventually get there because of massive inflation, what will a Dow 20,000 be worth in terms of purchasing power? That’s a whole different story. It’s easy to go up in nominal terms. It’s a whole different thing to go up in real terms.”

“Donald Trump has come out and said ‘the market is going up because of me’ … So he owns it, which means when the rally goes away and we have a bear market, he owns that too. Donald Trump sometimes is able to wiggle out of the things he says, but I think he’s put himself in a tough box here. I don’t know if he can go back to the ‘big ugly bubble’ talk when he’s been tweeting up a storm about how great the stock market rally is. When it goes down … he’s going to own the decline.”

“Gold had an OK year. It lost half its gains in the back end of the year, mostly because of Trump, but it was still up 8.5% this year. It was the first winning year in 4. It was down 3 years in a row, so it was a positive year. It did beat the NASDAQ, which was only up 7.5%. Not many people thought gold was going to beat the NASDAQ this year.”

“I own a lot of energy stocks myself, and I think this energy rally has legs. But I think this financial rally is a massive suckers rally. Nobody really understands what higher interest rates actually mean for the financial systems, what larger budget deficits actually mean. This is a short covering rally. I think people just don’t understand what they’re doing. So the honeymoon is going to end on the financials. They’re not going to have a repeat in 2017. So I would stick with the energy sector, stick with the mining sector, but I would be bailing on the financials.”

“All these people who are optimistic about the dollar in 2017 think we’re going to have lower trade deficits, which I think is ridiculous … They think the trade deficit is going to go down so they think this is going to be good for the dollar. There’s some expectation that when Trump changes the tax code, that one of the things he’s going to do is tax imports and give credits for exports so that it will be a lot more expensive to import goods into the United States, so therefore, we won’t import as much and so the trade deficit will come down.”

“We’re going to get tax cuts and increased spending, but not as big as the market thinks because we’re too broke to afford big tax cuts and big increases in government spending.  That doesn’t mean we’re not going to get some, but we probably won’t get as much as people think. Of course, it’s not going to stimulate the economy. It’s going to be another sedative to the economy, but it will stimulate imports just like it did when Bush came in. We cut taxes and Americans took the money and bought imported products. What else are they going to buy? We don’t make the products ourselves.”

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