Peter Schiff’s bearish forecast probably comes as no surprises to his followers.
Peter Schiff, CEO and chief global strategist of Euro Pacific Capital is doubling down on his bearish forecast.
“What the Fed is worried about is a repeat of the 2008 financial crisis. What they don’t realize is the next crisis is not going to look like the 2008 crisis” said the permabear.
Peter Schiff’s bearish forecast was aired in his latest podcast. The gold bug investors believe that the next financial crisis is going to be much worse than that experienced in 2008.
“What the Fed is worried about is a repeat of the 2008 financial crisis. What they don’t realize is the next crisis is not going to look like the 2008 crisis”
A loss of confidence in the USD as the world’s reserve currency is the crux of Peter Schiff’s bearish forecast
“The dollar going up in 2008 helped the Fed bail everyone out” said Peter Schiff.
That option will not be available for the Fed in the next financial crisis argues Peter Schiff.
“It’s going to be impossible for the Fed to do the same thing when the dollar collapses during the next financial crisis” claims Peter Schiff.
Peter Schiff’s bearish forecast is based on the Fed raising rates in a paradigm shift in the global financial system (where the USD is no longer the world’s reserve currency).
Peter Schiff’s argues that the USD is being dethroned as the world’s reserve currency which will ultimately force the Fed’s hand to continue raising rates.
“The dollar going up in 2008 helped the Fed bail everyone out”
But with the US government debt now estimated to be $21.48 trillion, higher interest rates will raise the burden of government interest payments on the debt. So Peter Schiff’s bearish forecast is based on the US government defaulting on its debt.
But a US default would be the endgame. A collapse of confidence in the world’s reserve currency would shatter USD hegemony and the dollar as the world’s reserve currency and that would mark the beginning of the end of the US Empire.
Moreover, US Treasuries are pledged as prime collateral among the big commercial banks for making loans. So a run on US Treasuries would blow the collateral chains off the entire western banking system. Put another way, a US government default also means that few banks would be solvent. A USD collapse would trigger a crisis of confidence in all fiat currencies, it would be a mad max scenario.
“Peter Schiff’s bearish forecast makes precious metals, gold desirable as an asset class because it is not connected to shaky debt”
But is Peter Schiff’s bearish forecast just fear porn?
Peter Schiff’s bearish forecast makes precious metals, gold desirable as an asset class because it is not connected to shaky debt.
Perhaps we are approaching a global crisis. Maybe the bubble will find its pin.
But if we examine previous financial crisis we will notice that in every previous global crisis safe-haven capital flows into US assets.
The dynamics of a shift to US assets in times of trouble is in play and intact today
The USD continues to strengthen amongst its rivals. Capital is flowing out of emerging markets into the USD. Moreover, when Treasury yields rise investors demand also rises.
Until there is no alternative the USD sits comfortably on the throne. China’s attempt to take on USD hegemony is under attack. Dollar hegemony fight back is now in full swing. The US-inspired trade war with China is a killer claw piecing the heart of China’s export-driven economy. The bald eagle is on the assault. Will the red dragon blow fire at its 1.2 trillion USD holding of US government debt and send investors scrambling for the exit?
US-China war has already started.
“Giving money to be used for consumption will merely diminish the value of money and not increase the size of the pie” – Ray Dalio
In short, there doesn’t seem anything that is likely to halt the continuing downward trajectory of middle-class real wages, disposable income and living standards in advanced economies. In fact, an emergency monetary policy which includes quantitative easing QE and near-zero interest rate policy ZIRP is actually widening the wealth gap and accelerating the decline of the middle class in G7 economies, even the central bankers admit this publicly now. On the other hand, for the middle class in emerging economies, the situation looks brighter.
Is this being financially engineered? If the goal is to standardize wages globally then wages in G7 economies would need to fall and wages in emerging economies would need to rise and that precisely is what is happening.
Moreover, why would the Fed disrupt the current dynamic in play, after all the Fed is a multinational corporation, its product is debt. So with a younger more dynamic market in emerging economies to exploit that probably suites their business model just fine.
So the Brady Bunch trade short the middle class, poor in advanced economies and long the rich is likely to play out going forward.
‘Leonardo da Vinci artwork’ sells for record $450m, meanwhile the middle class has been downgraded to pound/dollar store discount shoppers.
Can you see the picture emerging?