Peter Schiff: Great Depression 2.0 Is Incoming

Peter Schiff appeared on First TV’s I’m Right with Jesse Kelly to talk about the state of the economy, inflation, and the unfolding financial crisis. Peter warned that we’re heading straight toward Great Depression 2.0.

Jesse opened the show by noting that the CPI fell to 4.9% in April. That’s an improvement, right? Peter responded, “I guess it’s not quite as bad as it was, but it’s not good.”

If you thought prices were high before, they just went up another 4.9% from where they were a year ago, and that was up a lot from where they were a year before that.”

And Peter reminded the audience that these government CPI numbers are not honest.

You basically have to double the official numbers to get a better idea of what’s actually happening with prices. So, if the government says they’re up 4.9%, they’re probably up closer to 9.8%. That is a better read on what Americans are struggling with.”

Peter explained that the method for calculating the CPI was designed to produce a lower number.

The government doesn’t have to lie. The CPI does it for them.”

Jesse said the Fed is facing a “devil’s bargain.” It has to choose between high interest rates and high inflation. Peter said we’re going to get both.

Interest rates are prices. It’s the price you pay when you borrow money. The price is going up, just like the price of everything else. And in fact, interest expense is a major part of every business. … As interest goes up, well, that’s just another cost that you need to pass on to your customers through higher prices. So, it’s a self-perpetuating spiral.”

Peter said what we really need to tackle inflation is lower government spending.

Government needs to cut spending, but that’s not happening. In fact, they’re doing the opposite. Under Biden, the government is increasing spending, so they are throwing gasoline on an inflation fire.”

So, how does this end in anything other than disaster?

It doesn’t.

That’s the only way it will end because as long as there is no disaster, we’ll keep kicking the can down the road.”

Peter said the crisis is going to come in the form of a sovereign debt and currency crisis.

So, much worse than just the garden variety financial crisis we had in 2008. Because this time, it’s not just going to be subprime mortgages that are the problem. It’s going to be US Treasury debt that’s the problem. Nobody is going to want to own our sovereign debt because of how high inflation is. And that’s also going to create a dollar crisis. There is where we’re heading and it’s a big disaster.”

Peter said everybody is pretending that we’re going to have a crisis if Congress doesn’t raise the debt ceiling.

No! We’re going to have a crisis because we do raise the debt ceiling. Because we’ve continued to raise that debt ceiling instead of dealing with the real problem, which is not the ceiling, but the debt. The ceiling would be the solution to the problem if they only stopped raising it.”

Peter went on to explain how a currency crisis would impact the average American, pointing out that we enjoy a higher standard of living because of the dollar’s role as the reserve currency. As a result, US trading partners are willing to accept the dollars it prints. Then they loan those dollars back to the US by purchasing Treasuries and other American debt.

We basically get to buy stuff at lower prices and then borrow money at lower interest rates.”

If the world stops wanting US dollars because they no longer have confidence in the US currency’s future purchasing power in the exchange rate of the dollar versus their own currencies, it will cause the prices of everything Americans want to buy to go way up. Meanwhile, the cost of borrowing money will also go way up.

So, Americans see their standard of living go way down. Because if the price of everything goes up, they can’t afford to buy anymore. So now, a lot of the things we take for granted we can no longer afford. And to the extent that we need to borrow money, we can’t afford that either. So, the entire economy just collapses, and that is the disaster that we are heading for.”

Jesse said, “That sounds like a Great Depression or worse to me.” And Peter agreed.

Yeah, it’s probably going to be worse. It is a depression, but unlike the depression of the 1930s, where the people at least got the benefit of falling prices that provided some relief. During the depression, you lost your job, but at least the cost of living went down. And if you didn’t lose your job, you were actually better off because you had your paycheck and your paycheck went further because consumer prices fell during the 1930s. But this time, even the people who don’t lose their jobs are going to suffer because they’re going to lose the value of their paychecks. They’re going to lose the value of their savings. Because everything that you need to buy is going to be a lot more expensive. And that’s going to compound the burden for the unemployed. Because not only are they going to be without jobs, but their savings are going to be destroyed. And even if they get checks from the government, it’s not going to be enough to afford the basic necessities.”

Why can’t the powers that be see this coming? Peter said they never do. Or if they do, they lie about it.

Why couldn’t they see 2008 coming? That was obvious. Why couldn’t they see this inflation problem? I mean, they were claiming it was transitory when it was obvious that it wasn’t. It’s all about spin when it comes to the government. They’re never going to be honest. They’re either going to lie about what’s going to happen, or maybe they’re just so ignorant that they really can’t see what is clearly apparent to anybody who objectively looks at the facts. So, you’ve got to think for yourself and recognize that the government is never going to tell you about a crisis. You just need to prepare for it yourself.”