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Trump’s Administration Holds Weak Dollar Policy

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In podcast 221, Peter Schiff shows how Trump’s policies seem to be over before they even get started, and takes the New York Fed President to task for reckless advice to homeowners.

Peter said he sees the President-Elect’s recent comments to the Wall Street Journal about the overvaluation of the dollar as representing an unstated “falling dollar” policy—one that candidate Trump espoused his entire campaign.

“Donald Trump always talked about the overvalued dollar when he was a candidate. He didn’t always say, ‘the dollar is overvalued.’ He would say, ‘foreign currencies are undervalued,’ which is basically like saying the same thing only using different words … If he wants foreign currencies to appreciate, then by definition, he wants the dollar to depreciate.”

As expected, the dollar tumbled 1.2% shortly thereafter Trump’s statements. It’s currently down nearly 1% against the Japanese yen and Mexican peso, according to MSN.

Trump’s comments also targeted China’s currency manipulation as the major cause for the dollar’s strength. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” Trump said.

As Trump sees it, the US’s trade imbalance with China stems from the valuation gap between the dollar and the yuan. Typically, the weaker a nation’s currency, the cheaper and more competitive their exports will be. Nations like Venezuela are now fighting hyperinflation after leaders made moves to devalue the bolivar for the same reasons. When mixed huge trade deficits and artificially low interest rates, such a “weak dollar” approach could help create a similar currency crisis for the US.

Peter also took New York Fed President, William Dudley to task for his recent entreaty to homeowners to leverage their equity for consumer spending. Sadly, the suggestion echoes those of Alan Greenspan’s during the George W. Bush era before the housing bubble burst.

In March of 2003, Greenspan admitted to a group of Independent Community Bankers of America that “the frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services.”

In the same speech, the former US Federal Reserve Chairman said “the large flows of mortgage funds” were seen by some as “symptomatic of an emerging housing bubble, not unlike the stock marketing bubble.” However, Greenspan quickly discounted such worries, noting the lack of a national housing market and the dominance of local pricing as insulating factors.  Ultimately, his denial transformed into a lack of imagination as he characterized the comparison of the housing market to the stock market bubble as a “rather large stretch.”

It was this rate of “equity extraction” that contributed to the housing bubble and financial crisis only five years later. At the advice of the Fed, homeowners squander their savings and investment on consumer goods and services, leaving themselves exposed to falling housing prices and underwater in their mortgage. It’s a scenario Peter said he sees history repeating itself.

“This is a central banker going out there and telling people, ‘Yeah, lever up the house. Go out and mortgage your house and go shopping. Buy stuff that you probably don’t even need, stuff that you can’t afford because you’re borrowing money and go buy it anyway.’”

What’s behind such a suggestion made by the nation’s top monetary policy makers? It’s simple: The Fed is trying to prop up a fake economy built with artificial interest rates and supported by skewed inflation numbers.

A weak dollar is coming. Trump wants it, the Fed wants it, and there’s little to be done about it. However, a struggling dollar almost always means a bull run for gold. Get ahead now while the dollar’s reeling on its heels. Buy gold and silver today.

 

Highlights from the show:

“The dollar continues to decline again today. Gold continues to rise confounding the experts who, at the beginning of the year, predicted the opposite.”

“Gold, although it hasn’t recovered everything, is still up almost 6% so far year-to-date. I think silver’s up better than 7% year-to-date. Gold stocks: look at the GDX. We’re up 12% so far this year. That means that gold stocks by far are the top-performing sector in 2017. They were by far the top performing stock sector in 2016. I actually think the outperformance in 2017 is going to be even greater than what the outperformance was in 2016.”

“This is what happened to the dollar when George Bush replaced Bill Clinton, and I think the same thing, only worse, will happen now that Trump is about to replace Obama because I believe the dollar is actually more overvalued now than it was then. I believe the US economy’s in much worse shape now than it was then, and I believe the deficit that we’re going to have under Trump will be much greater than the deficits that we had under Bush. These deficits are going to weigh heavily on the value of the US dollar.”

“If you have big trade deficits, if you have artificially low interest rates, if you’re creating a lot of money, all of that will weaken the dollar, and that’s what we’re doing. If the dollar can weaken when we have a strong dollar policy, imagine how much weaker the dollar could go when we actually have a weak dollar policy to go along with all the weak dollar things that we’re doing.”

“Now you have New York Fed president William Dudley today coming out and saying the exact same thing. He says that it would be ‘prudent’ if homeowners were to tap into their equity and then go shopping. Prudent? I don’t know how this guy defines ‘prudent’. How about ‘reckless’? He’s actually lamenting the fact that more consumers are not doing this.”

“This is a central banker going out there and telling people, ‘yeah, lever up the house. Go out and mortgage your house and go shopping. Buy stuff that you probably don’t even need stuff, stuff that you can’t afford because you’re borrowing money and go buy it anyway.’”

“You think these idiots learned anything from their prior mistakes? No, they just want homeowners to do exactly what they did in the last bubble because they’re desperate to try to keep consumer spending. So, they’ve run out of money, and so these guys at the Fed say, ‘Hey wait a minute you still have some equity in your house. Forget about the fact that it is a bubble and all that equity might evaporate. Just tap into it now while banks are still dumb enough to make you the loan. Go out and borrow the money and buy some depreciating consumer goods. Just go buy some more stuff that was made in China so that we can import it and run up our trade deficit so we can goose the GDP a little bit. This is what these morons at the Federal Reserve were saying.”

“I think [Trump] focuses more on the replacement part then the repeal part. Trump’s saying, ‘we’re going to replace it with something great, something bigger and better. He’s now saying that everybody is going to have coverage. Nobody is going to lose their coverage, and the co-pays and deductibles are going to be much lower.’ Everybody is going to have more insurance for less thanks to the government? Thanks to some government plan? What are we going to call it? Trumpcare? This is scary stuff and Donald Trump is afraid to tell people that they have to buy their own insurance, and they’re not going to get something for nothing.”

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
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