Peter Schiff: The Consumer Confidence Con-Job
Consumer confidence was much stronger than expected in the latest report that came out Friday. Consumer sentiment jumped to 102.4, well above the 97.5 that was forecast. This was a 15-year high in this University of Michigan index.
In his podcast Friday, Peter Schiff said he thinks the reason consumers are so optimistic is the constant positive rhetoric they are bombarded with. They are constantly told that the economy is booming. But in reality, they are falling for a big con-job.
I think despite the fact that a lot of American households are not feeling the boom personally, they’re just assuming that’s it’s going to come, that things are going to improve because the economy is so good.”
And of course, they are hearing over and over again that the US is going to kick China’s butt in the trade war.
But Peter said there are a lot of signs that consumer optimism is not matching up with real life on Main Street. He pointed out the surging auto loan delinquency rates.
If this really is a booming economy, and so many people are employed, why can’t they make their car payments?”
And what is going to happen when the economy goes into a recession? If people are already struggling to make their payments in this supposedly booming economy, what will happen when it crashes?
Peter also pointed out that consumers normally pay off debts when the economy is strong. And yet consumer debt continues to climb.
If you’re running up bigger debts when the economy is good, what are you going to do when it turns south? I mean, that’s the whole expression about saving for a rainy day. You’re saving or paying down debts when the sun is shining and then when it rains, well now you’ve got some savings to draw from … But if consumers are saving nothing when it’s sunny, if they’re running max credit cards and auto loans when the sun is shining, what are they going to tap into when it’s a rainy day? There is nothing there.”
And it’s not just the consumer. The US government continues to rack up debt, and corporations are increasingly over-leveraged.
Everybody is making the mistake of levering up during good times, and they’ve got nothing left when the weather turns nasty.”
Peter also pointed out the negative economic news that came out earlier last week that seemed to get lost in the general giddiness. Retail sales and industrial production both came in below expectations.
He also brought up the trade war, once again emphasizing that in the long run, it will likely help the Chinese economy to wean itself off of American consumers who can’t pay off their debts. As he put it, the Chinese have been sending good products after bad money.
Peter touched on some additional subjects in this podcast, discussing some of the money-losing companies doing IPOs, including Pinterest and WeWork. He also talked about a money-losing company that has been public – Tesla.
Peter wrapped up the podcast discussing a proposal by Bernie Sanders and Alexandria Ocasio-Cortez to cap credit card interest rates at 15% and the recent volatility in bitcoin.
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