Schiff on Commodity Culture: The Mainstream is Wrong on China

Yesterday Peter joined host Jesse Day on his show, Commodity Culture, to discuss the upcoming election, the historic decline of the dollar relative to gold, and a possible return to quantitative easing. They also devote time to global affairs, namely recent violence in the Middle East and movement in the Chinese equity market. 

Jesse opens the interview by asking Peter about the possible effects of conflict in the Middle East on global markets. As Peter explains, war is not economically desirable:

“Any type of hostilities is potentially negative for the global economy. Anything that diverts resources away from peaceful enterprises and the production of consumer goods towards warfare and the production of military goods undermines our standard of living, raises prices, ultimately ends up leading to more inflation because governments inevitably finance wars by creating inflation. They don’t want to risk losing support for the war by raising taxes to pay for it. They don’t want to cut back on other spending, so they just create money.”

While discussing America’s post-election future, Peter argues that both parties have their problems, but Kamala Harris will be worse for the country:

“On the margin, Harris is worse than Trump. The deficits are going to go up under either administration, so that’s a negative. We’re probably going to have higher taxes. If it’s Trump, it’ll be through tariffs. … Harris is proposing a big expansion of government spending. She wants the government to give everybody $25,000 to buy a house, $50,000 to start a business, $7,000 to have kids. Where’s that money going to come from? Neither candidate wants to cut Social Security, Medicare, Obamacare, government pensions, defense.”

Moving on to monetary policy, Peter highlights just how far the dollar has fallen since 1913 and the creation of the Federal Reserve:

“When our republic was formed in 1789, you only needed $20 to buy an ounce of gold. When we formed the Federal Reserve well over a hundred years later in 1913, you only needed $20 to buy an ounce of gold. And even as late as 1970, you only needed $35 to buy an ounce of gold. Now you need $2600. Now, it’s not because gold has changed. It’s exactly the same. It’s the dollar that’s changed.”

While silver has likewise appreciated against the dollar, some indicators suggest it’s still quite cheap relative to gold. Peter is convinced:

“Silver is cheap. I’ve thought that for a long time and it’s been cheap for a long time. I mean, if you look at the gold silver ratio, silver is cheap relative to gold. And so the price of silver has got to go up. I mean, there’s nothing guaranteed in life, but to me, this is about as close as you’re going to get. Silver prices are going to go up.”

Despite the mainstream’s bearish take on China, Peter sees China as a strong and growing economic force, especially in emerging markets, where investors are more optimistic:

“If the mainstream media says it’s fact, it’s probably fiction. You know, they generally get it wrong. So if the mainstream media is very critical of China and says, ‘China’s finished, China’s a disaster,’ you probably want to invest in China. They’re talking about how great the U.S. economy is: ‘Everything is perfect. You know, it’s the best of all worlds. It’s Goldilocks.’ It’s because the U.S. is in a lot of trouble, and they just don’t recognize it.”

If China hawks restrict American ownership of Chinese equities (as they did with Russian equities), it would hurt Americans, not the Chinese:

“It’s bad for Americans because they lose the ability to own these assets and are forced to sell them at a fire-sale price. It’s a huge win for whoever gets to buy the stocks from the Americans who are forced by their own government to divest. This keeps prices down because Americans are worried, and many advisors and fiduciaries are concerned about taking these positions and then being forced to sell. … It doesn’t actually hurt China when Americans have to sell Chinese stocks. How is that? This is a market. It may even benefit China if the Chinese can buy those stocks back from Americans cheaply.”

Japan also made headlines last week after elections triggered the Yen’s appreciation. Check out the SchiffGold blog for more details.