Peter Schiff: Give the Government an Inch; It Takes a Million Miles

The Joe Biden administration got underway last week. The newly inaugurated president issued a flurry of executive orders, many of them relating to the economy. In his podcast, Peter Schiff talked about the potential impact of these EOs. He said it looks like Americans voted for Joe Biden, but they ended up with Bernie Sanders.

Gold and silver were up last week, but the metals ended Friday on somewhat of a sour note. Gold dropped over $30 Friday morning. It paired those losses later in the day but was still down around $17. As Peter noted, the selling pressure came out of nowhere and was really for no good reason.

All of the macroeconomic fundamentals could not be more positive for gold and silver, so the selloff makes no sense against the backdrop of what’s going on, although this seems to be par for the course that the metals have been following for the entire bull market, and my advice has always been just to take advantage of the dips and use them as an opportunity to buy.”

Peter said some of the most bullish factors for precious metals are Joe Biden’s executive orders. On Friday, Biden went on TV to talk about some of his EOs intended to help the economy during the pandemic. Biden echoed Janet Yellen’s messaging during her Senate Finance Committee confirmation hearing and said the US needs to take advantage of the current low interest rates, borrow more money, and “invest” it in the economy.

Of course, by invest they mean spend. Because the government doesn’t really invest any money. It’s not getting a return. It just spends it. And of course, most of the money the government is spending – it’s giving it to citizens who go out and spend it. So, it’s not an investment. They just like to use the word investment to make it sound like they’re doing something good, but they’re not. They’re just going out and spending the money.”

Peter said there are several problems with this “borrow and spend while interest rates are low” strategy.

In the first place, the US government isn’t locking in these low interest rates long term. Most of the debt is being financed via short-term paper.

What happens when these interest rates rise and the short-term debt matures and we have to roll it over into a much higher interest rate environment? You see, Joe Biden completely ignores that massive risk, because this debt is not going to be financed with 30-year bonds. If the government tried to finance it with 30-year bonds, 30-year rates would rise sharply. The only way to take advantage of these low rates is to borrow in the short-term market, which means we are exposing the taxpayer to the enormous risk that rates go up. So, we’re not really taking advantage of these low rates. We’re simply exploiting them in the short-run, but we’re setting ourselves up for a huge cost when these artificially low rates are a thing of the past.”

Second, the only reason rates are so low right now is because, given the massive national debt already on the books, and the already enormous budget deficits, the Federal Reserve is forced to artificially suppress interest rates in order to finance the enormous national debt.

Now, Biden wants to take advantage of the fact that interest rates are so low by making that enormous debt even bigger when rates are only so low because we can’t afford the debt that we have. So, if we can’t afford the debt that we have, what’s going to happen when we make that debt much bigger because the Fed is keeping rates so low? And see, this is the moral hazard, this is the problem that the Federal Reserve has created by enabling all his debt. The government is further taking advantage of what the Fed has done, right? You give the government an inch and they take a million miles.”

If the Fed did the right thing and let the economy reflect a market rate of interest, rates would rise and it would stop the government from taking on bigger debt. In fact, it would force the government to shrink the debt it already has.

The government would have to be responsible if the Fed did the right thing and allowed interest rates to rise. But because the Fed doesn’t have the guts to do the right thing, because it’s doing the reckless and irresponsible thing by keeping rates artificially low, they’re now creating a situation where now the government is going to take advantage of what the Fed is doing by using that as an opportunity to go even deeper into debt.”

And of course, all of the new debt Joe Biden wants to take on will be monetized by the Fed. The central bank will print even more money to buy you these bonds because the demand for all these Treasuries simply doesn’t exist in the open market.

As I said, this is a great reason to be buying gold or silver. So, why people were selling gold and silver on a day where Joe Biden makes such a reckless announcement makes no sense whatsoever.”

Peter went on in this podcast to talk about some of Joe Biden’s other actions, including an EO that allows people to turn down a job offer for health concerns and still keep their unemployment. Peter said that when you boil it all down, Americans voted for Joe Biden, but they got Bernie Sanders.