Schiff w/ Sachs: The Bubble Needs to Pop

Last week, Peter returned to the Sachs Realty Youtube Channel for a wide-ranging interview with Todd Sachs. The two catch up on all the major events since their last meeting, including the election, the growing fault lines in the economy, Bitcoin’s recent surge, and the nature of Social Security.

Todd starts the interview by asking Peter if Donald Trump’s election victory surprised him:

I wasn’t surprised. I had been predicting it for a long time. And the reason that he won is because I said the economy was bad. And the media’s reports of this booming economy, the Fed, Wall Street, trying to get people to believe that we had a strong economy, that Bidenomics was working. I knew that that wouldn’t resonate with the people who are actually living in the economy. … And I knew that that was also a fiction, and Trump spoke to that and pointed out the fake government statistics and how it didn’t really tell the truth.

Trump’s campaign hinted at the true nature of the economy. Rather than having a solid monetary foundation, much of the economic growth we’ve experienced is nothing more than monetary distortions caused by the Federal Reserve:

We have an economy that really is a bubble, the whole economy. It’s built on the reserve status of the dollar, where we don’t have to produce. We just print money. We ship the money abroad and get a trillion dollars plus worth of goods that we didn’t produce and didn’t have to expend any resources making. … We live beyond our means, while the government gets bigger and bigger and the industrial base gets smaller and smaller.

Trump can at least see this is an issue, but his proposed solutions are not going to cut it. In fact, many of them, like tariffs, will only make things worse for consumers:

The tariffs aren’t the solution. We’ve already got tariffs. Trump put tariffs in the first time. Most of them are still here. The trade deficits are bigger than ever. They got bigger under Trump’s first term and they got even bigger under Biden’s. … More tariffs are just going to drive prices higher.

Turning to Bitcoin, Peter points out how major players in the crypto space are fueling a cycle of asset price increases that is unsustainable and doomed to fail:

MicroStrategy keeps going up and borrowing billions more and buying more Bitcoin with borrowed money, and then pushing up the price of Bitcoin. So the price of their stock goes up so they can borrow more money to buy more Bitcoin and just keep the pyramid going. But this thing is going to come crashing down.

Peter gives textbook analysis of the moral hazard resulting from government control of money and banks. When financial losses are taken on by the taxpayers, big banks can get away with anything:

We need a banking system where people know if the bank fails, there are no bailouts, because then banks will be financially sound; otherwise, they won’t have any customers. They can be completely reckless now because the customers don’t give a damn, because the government said, ‘Hey, don’t worry about the bank. If anything goes wrong, we got you.’ And, you know, capitalism doesn’t work well that way when governments come in and subsidize and guarantee things.

Near the end of the interview, Todd and Peter bluntly discuss the nature of entitlements like Social Security. Contrary to popular belief and government propaganda, Social Security is nothing more than an income tax:

Social Security was a fraud from day one. When the Roosevelt administration concocted it, it was packaged as an insurance product. … You pay premiums, and then you get benefits. … You pay Social Security taxes, they put the money in the trust fund, the government goes and takes the money out of the trust fund and spends it, and then puts an I.O.U. in the trust fund– a government bond. So, it’s really just a tax. The Social Security tax is really just an income tax. 

Be sure to check out Peter’s previous interviews with Todd in March and August of this year!