Peter Schiff: Real Incomes Collapsing at an Unprecedented Rate

Americans are earning more, but inflation is eating up their rising wages and then some.

In his podcast, Peter Schiff talked about the unprecedented collapse in real incomes and how it will trickle down through the economy.

Year-over-year, average hourly wages for production and nonsupervisory employees were up 6.7% in March. That sounds great – until you factor in inflation.

With CPI at 8.5% (according to official government numbers), real wages for these workers have dropped nearly two percent. Their bigger paychecks aren’t even covering rising prices.

Overall, wages are rising at around 4 to 5%. That means in aggregate, real wages are dropping even faster.

Peter says it’s even worse than that.

The wage numbers are real. Those are actual numbers because they’re easy to measure. There is no hedonics. There is no substitution. The wage increases are accurate. It’s the price increases that are not. Because if inflation is actually 17 or 18%, not 8.5% but wages are only growing by four or five percent, real incomes are collapsing at an unprecedented rate.”

We can see the impact of falling real wages on American savings. The US household savings rate has imploded in 2022. It’s now lower than it was prior to all of the COVID stimulus and PPP checks going out.

In late 2020 and into 2021, there was a big jump in savings because the government sent everybody a bunch of money. People paid down credit cards and stashed some money in the bank. Now we’re seeing savings depleted and people are running up credit cards at a blistering pace. Consumer debt is rising at the fastest pace since 2001.

Now, not only is [savings] completely gone, they actually have less savings than they had before they got that government slush fund because they spent that money on rising prices. Now, that money is gone, and they’re relying on credit cards to fill the gap between what they earn and what they spend.”

Peter reiterated that this is an “unprecedented” decline in real earnings for American households. And it’s going to impact the broader economy.

They have to cut back everywhere they can.”

In other words, people will try to spend less. They will cancel the Netflix subscription. They won’t go on vacation. They won’t eat out as much. This is bad news for an economy that is predicated on people spending money on stuff.

Peter said this will trickle over into the stock market, particularly in the NASDAQ where companies are priced for growth.

Not only are they not going to get growth; they’re actually going to see a reduction in their business. And so, the stocks are priced for perfection, and what we’re actually getting is the opposite of that. There is still a long way down to go for all these stocks because they were overpriced. But the fact that earnings are not even coming close to expectations, these stocks need to be marked down in a much bigger way.”

In this podcast, Peter also talks about the bear market in bonds, rising yields, Netflix losing subscribers, the slow-motion disaster playing out in Japan, and why sanctions might actually help Russia in the long term.