Peter Schiff flags a worst-case scenario, a depression with rising prices, known as stagflation.
Monetary policymakers have spent what little credibility they have left and have no policy solution with a favourable outcome for what lies ahead.
The worst credit bubble in the history of the treasury bond market is imploding.
Ominous warnings of an imbalance in the treasury market became apparent to market watchers during the 2023 treasury bond market crash, the worst in history, resulting in at least five known bank collapses that year.
Risk aversion in the market is high, but there has been no knee-jerk reaction to the perceived safety of USD or treasuries, which is the anomaly of this current credit crisis.
Is the majesty of US assets waning?
US paper is no shelter in the impending credit crisis in the treasury market.
The Magnificent Seven stocks are no longer magnificent, losing 1.5 trillion dollars since 2025.
Peter Schiff flags a worst-case scenario, believing this is a continuation of the 2008 financial crisis.
“The Great Recession started in 2007, but few people called it only until 2008,” said Peter Schiff.
He believes dollar weakness will push up the US trade deficits because it increases the cost of US imports.
He argues that Q3 economic data was supported by selling strategic oil reserves and the strong dollar.
Peter Schiff believes those tailwinds in Q3 have gone.
“It is going to be hard for the recession deniers to put a positive spin on this economy, but they are going to have to admit we are in a recession,” he said.
Peter Schiff flags a worst-case scenario, so what will the Fed do?
Will the Fed change course when it admits recession, or will it continue with relatively high rates and quantitative tightening?
Peter Schiff notes the economy has been running on relatively low interest rates and easy money policies for decades and can’t sustain this level of interest rates.
Peter Schiff flags a worst-case scenario where rate hikes add to inflation
“The real reason the dollar rose was that the market believed rate hikes would work and the Fed would bring down the inflation rate“
– Peter Schiff
“The real reason the dollar rose was that the market believed rate hikes would work and the Fed would bring down the inflation rate.
The Fed’s mandate was for an inflation rate of 2% and to do whatever was necessary to make that happen.
The reality is inflation is heading higher with economic contraction, in other stagflation,” he said.
Peter Schiff believes that negative interest rates, when factoring in inflation, will cause investors to dump dollars and weaken the dollar, leading to higher inflation.
“Higher interest rates are part of a business’s costs, which gets factored into, paying interest on debt, to pay for plant and machinery input costs.
When interest rates remain high, business costs increase, so businesses raise prices. The same applies to landlords who purchased property with debt. When interest rates are high, landlords may have to raise rents to compensate for the higher interest rate so they can service the loan.
So as the Fed raises interest rates, it also raises prices,” he said.
