Schiff on CapitalCosm: Gold Shines as the Dollar Falters

On his latest appearance on “Capital Cosm,” Peter shares his perspective on the mounting pressures facing the U.S. economy, especially as America’s debt situation grows more dire. He unpacks the consequences of persistent trade deficits, the shifting global appetite for U.S. financial assets, and the implications for the U.S. dollar’s reserve status. 

Peter opens with a dose of humility, addressing critics who suggest he’s eager to celebrate a long-awaited crisis. Instead, he explains, the stakes are far too serious for celebration:

Well, I don’t want to necessarily describe it as a Super Bowl in that the Super Bowl is a fun thing, a celebration. It’s not really that I want to celebrate the fact that I think we’re going to have an economic crisis. I mean, it’s something that I’ve been predicting for a long time, and it hasn’t even totally happened yet. So it’s even premature to really say I told you so. But I’m not necessarily going to celebrate the fact that I was right. … In a way I want to be wrong.

While the crisis Peter has forecast isn’t in full swing, he argues that the warning signs are undeniable. Federal Reserve Chair Jerome Powell’s recent comments on debt sustainability draw skepticism from Peter, who points out the faulty logic behind official reassurances:

It’s not happening yet, but I think that we’ve set into motion the forces that will ultimately produce a sovereign debt and US dollar crisis. Powell said again yesterday, or he talked, and he said, we’re on an unsustainable path. He said the debt is not unsustainable, just the path, which I think is BS because if the path is unsustainable, then the debt is unsustainable because that’s the path the debt is on and it’s not changing. The path is the path. If anything, we’re picking up the pace.

A critical shift is already unfolding in the global marketplace. The long-standing pattern of foreign nations recycling their U.S. trade surpluses back into American government debt is beginning to unravel, posing a serious challenge to the dollar’s status as the world’s reserve currency:

But what I think is significant about what’s happening is that we’ve begun the exodus out of U.S. financial assets, where the U.S. dollar is no longer the primary reserve and our trading partners are not recycling their trade surpluses into U.S. financial assets. Donald Trump has made it clear that a goal of his presidency is lower trade deficits. And the only way that’s going to happen is if Americans import less. And since we don’t have the capacity to produce more, we’re not going to close the hole with exports. It’s going to be with lower consumption and a weaker U.S. economy, and more of our inflation is going to stay within our own borders.

Turning to U.S. trade policy, Peter remains unconvinced that current political strategies will bring meaningful change. He believes that cosmetic victories may be announced, but the underlying structural issues won’t be fixed by symbolic deals or negotiation theatrics:

Well, I think it’s difficult. I think Trump is going to try to dig himself out of this hole by kind of pretending that this is all part of his master plan, and it’s all going exactly the way he planned it in his 4D chess game that nobody else can understand because he is the greatest negotiator in the world. And none of us can really understand the method of his madness because that’s how smart he is. But I think they will announce some deals with various countries that they will tout as being this major win, but they’ll really be insignificant, just cosmetic victories. 

In light of these broad systemic risks, Peter draws attention to gold’s renewed appeal. With mounting uncertainty and a visible move away from the dollar’s hegemony, he cites gold’s recent price action as a signal that the world is seeking genuine safe havens:

Yeah, gold had one dip below 3,000, and then it made a new high. I think the record I saw was above 3,360, and that was last night it made a new record. It’s pulled back a little bit now, but it’s still above 3,300. So we’re 10% above 3,000. Yeah, I think it’s becoming clear to people who didn’t see it before that gold is the new safe haven.