Peter Schiff: Trump Tweets the Stimulus Rug Out from Under the Markets
As Peter Schiff put it in his podcast, President Donald Trump tweeted the fiscal stimulus rug out from under the markets when he abruptly announced he was ordering his representatives “to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
The Dow tumbled just over 375 points and the NASDAQ fell 1.6%. Gold also dropped, falling back below $1,900 an ounce.
Peter noted that the election is just four weeks away.
Can the drug addicts on Wall Street hold off for another four weeks without going into stimulus withdrawal? So far, it doesn’t look that way. Because, you know, when you’ve got a drug habit as big as the one Wall Street has, anything that delays the next fix could really send you over the edge.”
In one of his tweets, Trump insisted “the economy is doing very well.” He noted that the stock market is at record levels and insisted that jobs are coming back. The implication seemed to be that stimulus can wait. But Peter said stimulus is the only reason the stock market is at record highs.
In fact, one of the few things the stimulus actually stimulates is the stock market. Trump is trying to claim that the stock market is strong because the economy is strong. It’s actually the reverse. The stock market is strong because the economy is weak. It’s the weak economy that’s driving the stimulus. And without the stimulus, the stock market would actually be much lower to reflect the weakness of the economy. Because again, the stimulus can’t make a weak economy strong. But it can provide more air into a stock market bubble, and that’s what’s been going on.”
Trump later eased off the rhetoric somewhat and said he would support a standalone bill including $1,200 stimulus checks, $25 billion in airline relief and paycheck protection program funds. Peter said he doesn’t particularly like Trump’s strategy. The president’s argument is that Nancy Pelosi wants stimulus that’s too big and includes a “bailout” for “poorly run, high-crime, Democrat sates.” But the president is willing to sign on to a $1.6 trillion stimulus bill.
The problem is once you accept the false premise that government stimulus actually helps the economy – that it really is a stimulus – then you’ve kind of lost the argument. Because if borrowing and printing $1.6 trillion, if that’s a good thing, why isn’t borrowing and printing $2.4 trillion a better thing? Because you put the Republicans in the position of arguing that 2.4 trillion is too much of a good thing — that somehow, if we just create 1.6 trillion out of thin air and spend it, that’s really going to help. But if we push it to 2.4, it’s actually going to hurt. Why? I mean, when does something good suddenly become something bad?”
Even accepting the argument that the extra $600 billion is a bailout for poorly run Democrat states, the people in those states would still take the money and spend it.
And if just spending money is good for the economy, then why isn’t that good? What difference does it make why the money is being doled out? If it just benefits the economy the minute it’s being spent, then what is the real rationale? Is it all partisan? Is it all political? I mean, that’s kind of how it looks.”
Peter said it would be better if the Republicans took a principled stance against stimulus.
If they said, ‘We are not going to print money and run up the debt in order to artificially boost the economy now, with long-term negative consequences.’ If they told the voters the truth and stood on principle, then at least their position would make sense and it wouldn’t look partisan. It would look like they were standing for something. But by agreeing in principle that we need more stimulus, well then, you just look stingy by not being willing to provide it, or you just look like you’re putting your own political interests ahead of the interests of the country.”
You certainly can’t argue against $2.4 trillion in stimulus because it unnecessarily runs up the debt when you’ve conceded $1.6 trillion in stimulus would be great.
What’s an extra $600 billion? What difference does it make?”
Speaking of the debt, on Oct. 1, the national debt topped $27 trillion. But as Peter said, “No one gives a damn about the national debt.”
So, it doesn’t make any sense that the Republicans are not compromising with the Democrats given that they’ve already compromised and agreed with the Democrats on principle anyway.”
As Peter noted, it’s not that stimulus money doesn’t help individuals in the short-term. It puts money in their pockets that they can spend. But it doesn’t benefit the economy in the long-term. It’s kind of like a quick sugar-high that’s inevitably followed by a crash.
The stimulus doesn’t make for a more vibrant economy. It doesn’t lead to more production of wealth. We don’t get more goods produced, more services provided because we crank up the printing presses.”
Ultimately, it pushes the trade deficit up.
Because more people are buying stuff, but fewer people are producing the stuff that everybody is buying. So, we have to rely more heavily on stuff that the rest of the world is producing and allowing us to buy on credit.”
In fact, the US ran a $67.1 billion trade deficit in August. It was the largest trade deficit in 14 years and the second-biggest in history. And the merchandise deficit (manufactured goods) came in at an all-time high of 83.9 billion. And it’s important to note, this is not just about COVID-19. The trade balance was deteriorating before the pandemic.
In this podcast, Peter goes on to provide some more analysis on trade and talked a bit about 2020 electoral politics and the possible impact of the election on the markets. He also talked about Fed Chair Jerome Powell’s insistence that the economy needs stimulus and his economic ignorance.