Peter Schiff: This Is a Record We Don’t Want to Break

A surge of imported services drove the trade deficit to a new record in August. Peter Schiff appeared on NTD News to talk about the trade imbalance. He said it is not a sign of a strong economy and not the kind of records we want to be breaking.

The August trade deficit came in at $73.25 billion, 4.2% higher than the July trade deficit of $70.3 billion. The August deficit set a new record edging out the previous high of $73.23 billion set in June.

Imported goods came in at -$239.11 just below the June value of -$239.17. While the trade deficit in goods is negative, the US runs a services surplus, but it has been shrinking rapidly in recent months. In August, the services surplus plunged 7.7%.

A lot of pundits say the increasing trade deficit is a good sign because it shows Americans are spending again on imported goods and services. But Peter said this is not a sign of a strengthening economy.

Strengthening economies have lower trade deficits, because when you have a strong economy, that strong economy produces more stuff, and so you don’t need to import as much. And in fact, you produce extra stuff that you’re able to export. So, these massive trade deficits are a sign that we have too much stimulus – that we’re just printing too much money that people are spending. In the meantime, we’re not producing the goods that they’re buying.”

Peter emphasized that the August trade deficit was the largest in US history.

It’s a record that you don’t want to break. The problem is we’re going to break it again, probably next month. We’re going to have a string of record-breaking trade deficits that indicate just how weak the US economy structurally is.”

When talking about stimulus, Peter said he’s not just talking about government stimulus checks. Consumers also have a lot of borrowing power.

But the transfer payments continue. A lot of people are still unemployed and they have more income unemployed than when they had jobs. And they’re using that income to buy more imported goods because we simply don’t make the goods ourselves.”

But how long can the stimulus last?

I think they’re going to keep providing stimulus until we die of an overdose. That’s the problem. I mean, they can never take it away because then we’ll go into withdrawal. So, in order to prevent the withdrawal, they constantly supply us with stimulus. But because the more stimulus we get, the more we need, it’s like our tolerance goes up. And so, the fact that we had stimulus in the past means we need even more stimulus in the future. So, you can never give up the habit because of the addiction. But because the addiction requires ever-larger doses to work, eventually you overdose.”

What will that overdose look like?

The overdose would take the form of a dollar crisis, sovereign debt crisis, runaway inflation. And we’re already starting to see the beginnings of that in consumer prices. Look at oil prices … look at other commodity prices across the board that have been strong. Look at cotton prices that have more than doubled recently. But, you know, these prices still have a long way to go up. And they’re going to go up a lot I think in the year ahead.”