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Peter Schiff Keynote Speech: Everything Feels Good Until the Party’s Over

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On May 15, Peter Schiff delivered the keynote address at the Cambridge House International Mining Investment Conference. Peter titled his speech “The Calm Before the Storm.” People are still generally optimistic about the economy, but as Peter said, everything feels great until you realize the party is over. 

Peter opened his talk highlighting the current state of affairs. Economic growth has slowed, prices are rising – especially the price of oil – government debt and spending has exploded, the trade deficit is rising, and despite the current bear market rally, the dollar has been weakening.

All of this has weighed on the bond market which in turn has created a great deal of stock market volatility. Bond yields have pushed passed the 3% level. Nevertheless, most people aren’t concerned. There’s still a lot of optimism about the future.

Peter said people are missing two key points when it comes to interest rates.

First, interest rates are going to rise much higher than anybody thinks.

If the Fed is going to continue with its tightening policy, and if the Fed is going to shrink its balance sheet and sell Treasuries, or allow Treasuries to mature forcing the Treasury to not only sell debt to finance the deficits, but to sell additional debt to repay the Fed, if that is going to happen, interest rates are going to go much, much higher. They’re not going to stop at 3%. They’re not going to stop at four. They’re not going to stop and five. They’re not going to stop at six. They’re going to keep rising.”

Second, those higher rates are going to have a much more depressing impact on the economy than anybody understands.

When you build up a debt-based economy and then the cost of carrying that debt goes up, then the economy comes collapsing down. It’s only sustainable if interest rates are at rock-bottom levels.”

As a result, we’re going to see any economic sector that is a function of credit come crashing down. That includes the housing and auto markets. And of course, the stock record stock prices have also been a function of easy money.

You have record high stock market valuations. They’ve only been supported by record-low bond yields. When you take away those record-low bond yields, you no longer have that prop for the stock market.”

So, what does all this mean? Ultimately, the Fed is not going to do what it says it’s going to do – keep raising rates.

If rising interest rates push the economy into recession and push the stock market into a bear market, what is the Fed going to do? They’re not going to sit back and just watch that recession run its course. They’re not just going to sit back and allow that bear market to play out. I mean, who knows how big it’s going to be? Will the Dow go down 50%? 60%? 70%?”

But everybody is prepared for the exact opposite. They are expecting the Fed to keep tightening. They are expecting the Fed to shrink its balance sheet.

But what is going to happen is the reverse. The Fed is going to start cutting rates again. They’re never going to succeed in normalization. And they’re not going to shrink their balance sheet. They’re going to have to launch another round of quantitative easing. Because if they don’t do that, rates will rise to the point where everything is going to collapse.”

But more QE is also going to have an impact. Peter said ultimately, it’s going to spark a currency crisis and destroy the dollar.

That is going to be the politically expedient route for the central bankers to take because they never want to do what’s right. They always want to do what’s easy. And it’s much easier to print money than admit that you’re broke. It’s much easier to try to screw all your creditors with inflation than to honestly admit you’re not going to pay.”

Of course, we can’t know for sure when things will completely unravel. But if you understand the economics, it’s clear we’re heading for a disaster.

Everything feels good until the party’s over. And nobody wants to question it. Nobody wants to rain on the parade.”

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