Schiff on Reinvent Money: It’s Time for an Honest Default

Last week, Peter appeared for the second time on the Reinvent Money podcast with Paul Buitink. They discuss the rising tensions at the BRICS summit in Russia, highlighting the drive among member nations to reduce reliance on the U.S. dollar, which could drastically impact the American economy. He also weighed in on the Fed’s rate cuts and the soaring debt crisis, warning that inflation is likely to surge, fueled by the U.S. government’s choice to inflate debt rather than pursue an ‘honest default’—a move he suggests would better serve the economy in the long run.

The big news last week was the BRICS summit, which boasted four new members. Peter summarizes the logic behind abandoning the dollar and moving towards something more stable, like gold:

“Geopolitics certainly plays a role. … To the extent that foreign central banks are too beholden to the dollar, they’re vulnerable to sanctions and other ways that the U.S. may retaliate against countries or leaders that are doing something that the president disagrees with. … If you’re going to get out of the dollar, you have to get into something. And the most logical something to get into is gold.”

Paul and Peter discuss the media’s lack of coverage of gold’s recent all-time highs. The mainstream press prefers covering Bitcoin, which has not performed as well as gold recently:

“Even the financial media doesn’t really pay attention to it [gold]. You know, they’ll talk about Bitcoin every day, even though it hasn’t made a new high since March, so it’s been trading sideways for six months. Yet every day the financial media obsesses over Bitcoin. Yet every day they ignore gold, when gold is far more significant, and it’s making new highs.”

The United States is too used to debt-fueled spending. It’s time we spend money earned from productive economic activity instead:

“We’ve been reliant on the productivity of the rest of the world and the savings of the rest of the world. It’d be better if we were self-reliant. It would be better if we had a viable economy where we produced the stuff that we consume. We don’t have to produce everything that we consume… but we have to produce something that we can export to import.”

If we don’t curtail the debt, the nation will face a difficult choice: print even more money, or implement painful austerity measures. Peter argues an honest default is preferable to hyperinflation:

“We don’t have to screw everybody completely and say, ‘Hey, you bought a U.S. Treasury, you’re going to get zero.’ We don’t have to do that, right? We could say, ‘Look, we’re going to give everybody 40 cents on the dollar.’ … If we just create inflation instead, they lose purchasing power. So they end up in the same place. I just think that if we take the approach of inflating the debt away, that we’re actually going to impose even greater losses… on our creditors than what they would be hit with if we restructured with a partial default.”

The Fed is currently exercising the “print money” option by cutting rates despite the fact that this will only worsen a future crisis:

“We need much higher interest rates. And I understand that we have too much debt for that; there’s no way that the debt can be serviced at a much higher interest rate. But that is not a reason to keep interest rates suppressed because now you’re exacerbating the imbalances that underlie the economy.”

Finally, Paul asks Peter about central banks electing to purchase shares of Microstrategy stock. The strategy, which aims to gain indirect exposure to bitcoin, is fundamentally misguided:

“It just shows you how ridiculous these portfolio managers are. They’re just probably putting a model in, and they see MicroStrategy stock has gone up, so they’re buying it. I mean, that’s what they own—they own large-cap U.S. stocks. MicroStrategy isn’t even part of the S&P 500, but it’s been a top-performing stock. So, I guess in these wealth funds, they’ve included it. I think it’s probably the most overvalued major company out there.”

For more analysis of global economic news, listen to the most recent episode of the Peter Schiff Show.