Peter Schiff: Every Country Has Let the Inflation Horses Out of the Barn
Americans continue to deal with rising prices even as the economy deteriorates. But the US isn’t the only country with an inflation problem. As Peter Schiff explained in a recent podcast, every country has let the inflation horses out of the barn. When you couple that with the de-dollarization trend, it’s bullish for gold.
More and more economic indicators signal a looming recession. The Leading Economic Index is now lower than in the early stages of the 2008 recession. In a recent interview, Peter said we’d be lucky to escape with just a recession.
Now, we don’t just have a weak economy, we have strong inflation. We have stagflation. This is a problem that is global, and it’s not because it’s just a coincidence that all of these countries are experiencing inflation and therefore we can’t blame anybody for it because everybody is suffering from it. No. Everybody made the same mistake. All these central banks printed too much money. They all kept their interest rates too low.”
Peter singled out England. Consumer prices in that country were up over 10% on an annual basis in March, despite aggressive rate hikes in recent months.
They have a long way to go in the UK. Rates have to go a lot higher. Government spending needs to be substantially cut. None of that is happening.”
In the past, Bank of England officials worried that inflation was “too low.” Peter said nobody over there will be talking about that again anytime soon — probably for the rest of our lives.
It’s never going to be too low. It never was too low. That was just made up. That was a pretense. But now, it’s clearly much too high, and there is no way they’re going to get that inflation rate back down below 2%. They’re probably not going to get even close to 2%. And the same thing is true with all these other countries in Europe. Everybody has let the inflation horses out of the barn.”
Peter also pointed out Japan. That country has some of the lowest price inflation in the world, but it is still higher than 2% (3.2% year-over-year).
It’s not the 10% that they’ve got in the UK, but remember, not too long ago, the Japanese had stable prices. They even had a few years where prices dropped slightly. But now they’re rising. They’re rising a lot more than 2%. And these numbers are going to go up. Why? Because interest rates are still negative.”
Even with rising prices, the Bank of Japan is targeting the yield on the 10-year Japanese Government Bond at 50 basis points. Price inflation is over 300 basis points.
This requires a lot of inflation. A lot of yen has to be printed to buy up all these bonds, because who in their right mind would want to lend money to the Japanese government at half a percent if inflation is 3%? And of course, it’s not going to stay at 3%. It’s going to go up.”
The bottom line is that we didn’t have this global inflation problem that we have now during the Great Recession – the last time economic numbers were this bad.
When you couple global inflation with the continued trend toward de-dollarization, it’s bullish for gold.
If the dollar isn’t the reserve currency, if [other countries] don’t need dollars to buy oil anymore, or other commodities because nations are now de-dollarizing and setting up mechanisms for bilateral trade in other currencies, then what is everybody going to do with these dollars? Get rid of them! And what are you going to do with the proceeds of the sale? I think most sellers of dollars would rather own gold than just pick another random fiat currency. … Just look at a chart of the price of gold. Gold is in a bull market in every single currency on the planet. So, whatever currency you’re looking at, if you compare it to gold, gold is still better. And interest rates everywhere around the world, despite the fact that they’ve gone up, pretty much every country has interest rates lower than the inflation rate. So, every country is offering negative [real] interest rates. Well, how does that compete with gold?”
In effect, central banks globally are incentivizing everybody to buy gold.
Even if you factor in the cost of storing your gold and figure, OK, it’s 15 basis points per year, so I’ve got a negative yield of .15; that’s still a higher yield than any of these currencies. … Central banks around the world are divesting [dollars] and they are building up their gold reserves. That’s why you don’t have a lot of downside risk in the price of gold. There are too many buyers beneath the market looking to buy and they will take advantage of any opportunities.”