Peter Schiff: A Very Dangerous Road to Go Down

As if there weren’t enough headwinds for the economy already, the Washington Post reported the Trump administration was exploring the possibility of canceling some US debt obligations to China.  President Trump denied it but floated the idea of tariffs on Chinese imports as punishments for that country’s handling of the coronavirus. Peter Schiff appeared on RT Boom Bust to talk about the economic saber-rattling and the possible impacts on the US stock market.

Peter said even threatening to default or selectively cancel US debt obligations that the Chinese own is “a very dangerous road to go down.”

Not only could that scare the Chinese into selling, but it might scare other creditors into thinking that we may do the same thing down the line to them.”

As far as punishing China with tariffs, Peter said the Chinese don’t pay the tariffs.

Any tariffs put on Chinese imports are paid by American consumers. So, if that’s Trump’s plan, it’s the Americans who are going to pay, not the Chinese.”

Boom Bust cohost Christy Ai reiterated Peter’s point, saying nobody wins in a trade war. She said even talking about the idea will harm business sentiment and productivity, especially in an economic environment that is already extremely fragile, wrecked and weakened due to the government lockdowns in response to coronavirus.

It has the potential to completely flatten any hope of a U-shaped recovery.”

She said ultimately, we could see a decoupling between the US and Chinese economies. This would significantly disrupt supply chains and result in higher consumer prices in the US.

Could the growing tensions with China lead to another round of volatility in the stock market and take it back to the lows we saw in March? Peter said we could take out those lows. After all, the rally in stocks in April was just a function of central bank stimulus.

The rally was simply a function of the Fed. The Fed bought this rally with inflation. They printed a lot of money and they’re buying up a lot of debt and that’s what’s pushing up the market. But also, the market began to anticipate a rebound in the economy when we turn the light switch back on and everybody goes back to work, and I think the markets have overestimated what we’re going to recover to. Because I think we’re just going to recover from a depression to a severe recession, and I think the market is going to sell off as investors really start to realize just how bad the economy is going to be even after everybody gets the green light to go back to work.”

Ai said China has already shown simply reopening is not enough to revive consumer spending, and consumption makes up about 2/3 of US economic activity. She said the markets are starting to realize we got too optimistic, just floating up on hope, optimism, the Fed, and the possibility of reopening. She noted that US stocks suffered a big selloff on Friday. The Dow was down over 600 points.

Treasuries were up Friday with the elevated risk-on sentiment. What does all of this mean for gold?

In the first place, Peter said nobody should be buying Treasuries.

We’re basically warning people against the added dangers of owning Treasuries. People should be buying gold. Gold was up today too, but it should be up a lot more. And it’s going a lot higher as people start to really appreciate the risk in US Treasuries and the US dollar.”