Schiff on Market Misbehavior: The Economy Needs Rehab
Last week, Peter was in New Orleans for the New Orleans Investment Conference, where he was a featured speaker. During the event, he also appeared on Market Misbehavior with David Keller to talk politics, monetary policy, and America’s future in a changing global landscape.
Wall Street appears to be booming, but something feels off to everyday Americans. Peter explains why this is the case:
“I do believe that the markets are headed higher, but I don’t think that’s going to be a consolation because I think the cost of living will outpace the markets. I think there’s certainly a lot of speculation going on in the markets now especially if you look at some of the names that are still going up. But I think really what we’re seeing is the debasement of fiat currencies.”
The stock market is buoyed by Fed policy that ensures financial assets don’t crash. The flipside of this policy is a continually declining dollar:
“Every time the markets do sell-off, the Fed is going to come back and print even more money to try to stop it, because they’re very focused on asset prices. That’s part of why they create inflation—to keep asset prices from falling. And so the value of the dollar falls instead. And it’s just an illusion that they create. People think they’re richer.”
David asks Peter, how can this possibly end? With trillions in debt and no end in sight, Peter argues everything will be fine… until it isn’t:
“All of a sudden, we wake up and realize this was a really bad idea. Well, it doesn’t end well. There’s a couple of bad ways it can end. There’s no good way. Other than thinking that, well, it’s good if you’re a drug addict or an alcoholic and you finally admit your problem and you go through rehab and withdrawal.”
The “rehab” for the American economy will be severe austerity measures. The only alternative is hopping back on the inflation horse:
“Hyperinflation is obviously one way that it can end, which is the worst possible way. The other way is we stop hyperinflation, but that means we have a complete crash in the stock market, real estate market, and bond market. The government has to slash spending. People are told, ‘You’re not going to get your Social Security, you’re not going to get your Medicare, you’re not going to get your government pension.’ … A lot of people are going to lose a lot of money.”
With debt and inflation at home, other countries’ economies are growing and in some ways separating from the US. Foreign assets may prove to be valuable for diversification:
“The world is getting bigger in relation to the US, but our stock market is going the other way. We’re getting smaller, but stocks are going up, so our stocks are very overvalued. Eventually, that’s not going to be the case—you’re going to, at a minimum, revert to the mean over time. People should be moving money away from US assets. But it’s not just US stocks that are overpriced; it’s the US currency that’s overpriced. So two things will be hitting US stocks in real terms: US stock prices will fall in relation to foreign stocks, particularly emerging markets, and the dollar will fall relative to those currencies.”
Turning to politics, Peter reiterates that debt and inflation are likely to continue under either a Trump or Harris presidency. Despite this, both Peter and the market seem to think Trump will be better for the economy, and there’s a chance he could start turning the national debt around:
“I think either outcome is more inflation. I mean, neither candidate is going to do what it takes to cut government spending. Donald Trump at least talks about it, but talk is cheap. I mean, he talked about it in his first term. He did the opposite. … As an American, I’d prefer Trump.”
For further analysis of last week’s economic news, including the BRICS summit and a notable bank failure in Oklahoma, check out the SchiffGold Gold Wrap podcast from Friday!
