Peter Schiff: This Is the Worst We’ve Ever Done on Trade

What is the ballooning trade deficit telling us about the US economy? Peter Schiff recently appeared on NTD News to talk about it. He said the US has never been worse on trade and it is a sign that we don’t have a recovering economy. In fact, we have a phony economy in danger of collapse.

As Peter put it, the trade numbers for January “were a disaster.” The annual trade deficit for goods came in at an all-time high, increasing $3.4 billion to a record $221.1 billion. This broke the previous record for imported goods of $218.9 billion set in October 2018. The overall trade deficit was up 1.9% to 68.2 billion. That was just shy of the 14-year high of $69 billion reached in November.

This was as Donald Trump was leaving office.

This is the worst we’ve ever done on trade. So, Trump turned over to Biden a much worse trade deficit than the one he inherited from Obama despite the fact that that was a centerpiece of his campaign – was to turn around our trade imbalance. Instead, it got much, much worse.”

So, why had the trade deficit grown so much larger? Peter said it’s a reflection of economic weakness.

The government, or the Federal Reserve, is printing money and just giving it to unemployed people who aren’t making stuff, but they’re spending money. And so what they’re doing is they’re buying the stuff that people in other countries are employed making. So, it’s the productivity of the rest of the world that Americans are living off of, and the trade deficit evidences that and shows you that our whole economy, our whole recovery, is a fraud.”

Peter said Trump never dealt with the root cause of the problem. He tried to cover up the symptoms with tariffs and pushing for new trade deals.

But the reason for the lack of production is America’s lack of competitiveness.”

America is burdened by too many regulations. On top of that, the artificially low interest rates discourage savings. In order to manufacture stuff, you need capital equipment – machines and factories.

To have capital, you need investment. That comes from savings, and we don’t do it. So, the rest of the world is doing the saving and the capital investment and we’re living off that.”

Peter said what Trump needed to do was shrink the size of government so the Fed would stop “stimulating” the economy with cheap money so that Americans would start saving again.

But we didn’t do any of that. All Donald Trump did was encourage the Fed to blow more air into the bubble. And that is not a way to make the deficits smaller. That automatically makes them bigger, because the more dysfunctional our economy, the more production we need to rely on from the rest of the world.”

A lot of people don’t think the trade deficit really matters. They contend that the US economy will remain strong as long as consumers have money to spend. Peter said they’re wrong. The soaring trade deficits haven’t caused a crisis yet, but a crisis is inevitable.

Because the accumulation of all these trade deficits is the problem because America has enormous debts to the rest of the world, and we are basically selling out our country because we have all this debt and the world is going to collect. They’re buying our assets – our real estate, they’re buying our stocks.”

Debt isn’t free. The US has to service it. That will become increasingly difficult to do if interest rates rise.

As Peter pointed out, the US has gone from the world’s biggest creditor to the world’s biggest debtor.

This really gives you a picture of how much America has declined. And at this point, we’re just living off the charity of the rest of the world and there’s a limit to the amount of charity, and I think we’re going to be testing those limits soon.”

The only way to transition from this phony economy to a real economy is to shrink government and allow interest rates to rise. But that means the phony economy collapses. And every time the phony economy starts to teeter, the Fed rushes in to prop it back up again with even more loose monetary policy.

So, they always interfere with the cure by making the economy sicker. And if they do that enough, eventually, the economy dies of the disease, and that’s exactly, I think, what’s going to happen. And we’ll see that in the form of a US dollar crisis and a sovereign debt crisis.”

Given all of this, it would seem to be a good environment for gold. Why haven’t we seen more action in that market?

Well, we have seen some action – mostly to the downside. And that’s not what you would think. But I think the reason is the markets still believe that the Fed’s got inflation under control. Even if they think they’re behind the curve a bit, they believe that once it becomes more obvious to the Fed that inflation’s a problem, they will quickly solve the problem using the tools that they claim to have, which would be raising interest rates. But what the markets seem to not understand yet is it’s impossible for the Fed to do anything about inflation, and so they won’t. Because from their perspective, the cure for inflation is worse than the disease of inflation. And so inflation is going to run out of control. That’s what the markets don’t get. The Fed is not going to fight inflation.  The Fed is going to surrender to inflation without a fight. Inflation is going to win. And so anybody who has dollars is going to lose. And so people should be buying gold as fast as they can, not selling it.”