Peter Schiff: We’ve Accelerated the Process of the Dollar’s Demise
Is the US losing its grip on the world? And could the dollar ultimately be dethroned from its spot as the world’s reserve currency?
We’ve reported extensively on countries working to undermine dollar hegemony and reduce the United States’ ability to weaponize the dollar as a foreign policy tool, along with the global gold rush on the part of central banks. Last week, Peter Schiff appeared on RT, along with former Pentagon official Michael Maloof, to talk about the world’s growing frustration with America. Peter said countries worldwide are ready to dump the US.
Maloof started off the segment saying that because the US has engaged in economic warfare with other countries using sanctions and tariffs, many countries are looking for alternatives. He said even strong allies like countries in Western Europe are starting to turn more eastward as a result.
Peter pointed out that the problems for the US started long before Donald Trump.
The real issue for the dollar and what’s going to sink the dollar is our own fiscal profligacy. And these large deficits, budget deficits and trade deficits, were here long before we elected Donald Trump.”
Of course, Trump hasn’t done anything about it.
In fact, the deficits are getting bigger, both trade and budget deficits. What has enabled this over the years has been the world’s willingness to hold US dollars as the primary reserve currency and to continue to loan money to Americans and to the US government so we can continue to live beyond our means. We can have enormous government programs that we don’t pay for and we can consume all kinds of goods that we don’t manufacture, and we can live in an economy based on consumption and debt without having to save or produce. The world has done that for us. And I think this is what’s going to come to an end. I think we’re going to see a collapse in the value of the dollar, and when the dollar does collapse, America’s power is going to dissipate. And Americans are going to have to deal with reality that we’ve hollowed out our infrastructure; we’ve been living beyond our means. And there’s going to be a day of reckoning for these years of excesses.”
Peter said the collapse of the dollar is inevitable.
We’re not going to stop with the profligacy until it collapses. As long as the world is willing to keep lending Americans money, we’ll keep spending it, particularly the government. So, the only thing that is going to cause a change is a crisis. And it’s going to be a dollar crisis. It’s going to be a sovereign debt crisis. It should have already happened. We’ve been able to kick the can down the road for many, many years. But the problem with all the can-kicking is the underlying problems have gotten so much worse. So, now it’s a much bigger problem that we’re going to have to deal with.”
Maloof said the Iran sanctions have backfired and pushed Iran into a closer relationship with China. Peter noted that Iran just entered into a deal with China under which the Chinese will help develop Iranian infrastructure in exchange for oil.
The sanctions that we have been imposing around the world, this is simply giving the world yet another reason to look for an alternative to the US dollar, which they should have been looking for a long time ago. But now, by flexing muscle we really shouldn’t be flexing, we’re in effect biting the hands that have been feeding us, and now they’re questioning whether or not they should continue to do that. And so we’ve accelerated the process of the dollar’s demise by antagonizing so many of the nations around the world that we really need to continue to hold the dollar.”
Peter said despite what Trump says, the US does not have China over a barrel in the trade war.
We have far more to lose. The Chinese simply lose a customer that doesn’t pay, that they have to vendor finance. But we lose a banker; we lose a supplier. The Chinese have been propping up the US economy. We have been screwing up the Chinese economy because in order to maintain this relationship, they have pursued reckless monetary policy. They have inflated bubbles. They have done things in order to artificially prop up the dollar so they can continue to sell products to people who really can’t afford to buy them.”
RT played a clip of Trump downplaying the amount of US debt the Chinese hold – over $1 trillion in US Treasurys. Peter called the president “delusional” saying that $1 trillion is just Treasury bonds. The Chinese also hold a lot of dollar-denominated debt in addition to the Treasury debt.
On the margin, that is a tremendous amount of money. If we lose Chinese lending, if the Chinese want to unload their dollar-denominated debt, President Trump seems to think there’s an ample supply of lenders that really want that debt. I don’t believe that they exist. I don’t know that there’s that many foolish people out there in the world that want to lend so much money to the US at such a low rate of interest.”
Peter said the rising price of gold reveals an unpleasant the truth – people are losing confidence in the dollar.
You can’t see it in the foreign exchange markets. The dollar hasn’t really started to fall against other fiat currencies. But that’s because all fiat currencies are falling against the dollar, against gold. But the strength of gold is showing an underlying weakness in the dollar that the FOREX markets aren’t showing yet. But they will.”
Peter closed out the segment saying the US stock market has much more to worry about than the trade war.
There are other problems that are much more important that are being ignored. This is a big fat, ugly bubble. Donald Trump was right as a candidate, and the air is going to come out of this bubble regardless of what happens with the trade war.”
As the RT anchor put it:
So, we’re not surprised gold is doing so well.”