Peter Schiff: Will 2021 Be the Year the Chickens Come Home to Roost?
There aren’t many people sad to see 2020 in the rearview mirror. But there’s no guarantee that 2021 is going to be any better. In his podcast final podcast of 2020, Peter Schiff said that hopefully, the upcoming year will be better healthwise in terms of COVID-19, but economically, this could be the year the chickens come home to roost.
Not just the ones that we let out in 2020 but the ones we have been letting out for the years and years and years that preceded 2020.”
Looking back at 2020, Peter said the dollar is probably the most significant thing to look at in terms of economic indicators. The dollar index was down nearly 7% on the year. But the decline is even more significant if you look at it from the peak last spring when the dollar index climbed to about 103.
As the COVID pandemic unfolded, there was a lot of bullishness on the dollar. Most pundits expected investors to rush into the greenback as the port in the coronavirus storm. There was an initial rush into the dollar, but at the time, Peter said it was basically a head-fake and wouldn’t last.
The dollar’s safe-haven status maybe lasted for a month, a little bit more, and then it was gone. And it was a shadow of the type of rally the dollar enjoyed following the 2008 financial crisis. So, I thought the fact that it was such a small safe-haven bounce was a harbinger of some bad things to come for the dollar if that was the biggest rally it could muster given how bad things looked at the time and how small the rally ultimately ended up being.”
That said, the dollar index closed the year just under 90.
The dollar index has been a lot lower than that in the past, so there’s nothing particularly scary about an 89 handle on the dollar index. When things are going to start to get scary is when there’s a handle below 70. … We’ve never seen the dollar index below 70. In fact, 71, I think, is about the low from 2008, and then we almost touched that low again in 2011. But when we take out that double bottom, and we’re really in no man’s land, and the dollar is set for freefall, that’s when it’s going to get a lot scarier. But I think that could be another year or two away. So, I think for a while, people are going to start to enjoy the dollar’s decline because at least it’s going to help push up asset prices like stocks. But eventually, people are going to realize it’s too much of something that never was a good thing, and we’re going to have a real crisis in the dollar.”
We’re already seeing the impacts of a weakening dollar. For instance, import costs have doubled and in some cases tripled. Commodity and agricultural prices are up.
We are really going to reap the whirlwind of the inflation winds that we have been sowing for years, but particularly ever since COVID.”
As weak as the dollar was against other fiat currencies in 2020, it was even weaker in terms of real money. Gold was up about 24% on the year and silver was up some 48%.
You need more dollars if you want to buy euros or if you want to buy Swiss francs, or Japanese yen or Australian dollars, or any of these other fiat currencies. But if you want to buy an ounce of gold or you want to buy an ounce of silver, well then you need even more money. Because all fiat currencies are losing value. It’s just that the dollar is losing it even faster than most of the other ones. And that is the trend that is really going to accelerate in 2021.”
Stocks had a good year in 2020 despite the ravages of COVID-19, especially given the massive selloff we saw in March.
Of course, had the Fed’s cavalry not ridden to the rescue with all their printing presses, it would be a much different story for the stock market. But of course, it would be a much better story for the economy. Not that the economy would have just boomed had the Fed not done the wrong thing and bailed everybody out. But at least we would have addressed the problems sooner and prevented them from getting worse. Instead, the Fed put a lot more air into a bubble that was already much too big and starting to deflate. And we kicked the can down the road as we made that bubble much bigger.”
The NASDAQ saw the biggest gains of all the stock indexes. The FANG stocks led the way and the NASDAQ got a big boost from high-profile IPOs.
But you can’t look at the big stock market gains and ignore the other side of the balance sheet – the massive amount of debt accumulated not only by corporations buying back their own stock but also by the federal government. The national debt eclipsed $27 trillion in 2020 and continues to skyrocket upward. The national debt rose $3.75 trillion just last year.
Donald Trump failed to drain the swamp and now he’s about to turn it over, along with an even bigger economic bubble, to Joe Biden. It seems highly unlikely that Biden will slow down the borrowing and spending.
The US economy is on an unsustainable trajectory. It’s been on one for years, with the Fed driving it along. But what is unsustainable eventually collapses. And as Peter says, 2021 may well be the year we start to see these chickens coming home to roost.
In this podcast, Peter also offers some analysis of the big gains in bitcoin.