The improved economic outlook with the election of President Trump has lead the Fed to raise interest rates for only the third time in 10 years. Peter Schiff joins Stefan Molyneux to discuss the state of the United States economy, the nature of the U.S. debt ceiling limit, why Paul Ryan's Obamacare replacement won't work, how to solve the American health care crisis and why many are salivating at the opportunity to blame President Trump for long existing economic problems.
Peter Schiff, CEO of Euro Pacific Capital, warns savvy investors they should start protecting their assets for a worst-case scenario because there is little hope of economic improvement as President Donald Trump near completion of his first 100 days in office.
“Donald Trump should already be disappointing a lot of people who thought we were going to get change, we were going to make America great again,” Investment Watch quoted Schiff as saying.
“We didn’t repeal Obamacare, that’s here to stay. Major tax reform is dead. We’re dropping bombs,” IW quoted Schiff as telling Future Money Trends.
“I mean it’s the same old same old right? Big government… bigger deficits… more cheap money… keep the air in the bubble. We’re headed for a major major crisis,” Schiff said.
Schiff also investors to keep an eye on the U.S. dollar, which Trump himself last week said was too strong.
“The dollar is living on borrowed time, literally. And so we just don’t know. It’s like a bomb with a fuse, but we just don’t really know how long the fuse is,” Schiff said.
“The dollar, I think is in a major bubble. I think it is in the process of topping out. I think once it completes this top it’s going down. And I think it’s going to take out the lows from 2008,” Schiff said.
“I think it’s going to go down for the count. Because the last time, what saved the dollar was the financial crisis, and that crisis resulted in everybody buying the dollar. But I think the next crisis is not going to be the same crisis that we had in ’08,” Schiff said.
“I think the dollar is going to be the crisis. I don’t think it’s going to be a bread and butter financial crisis. This is going to be a currency crisis. So it’s going to be the US government," Schiff predicted.
"It’s not going to be the mortgage markets that’s blowing up. It’s going to be the Treasury bond market that’s blowing up. It’s going to be the Federal Reserve that’s blowing up. And this is going to be a major major negative for the dollar, not a positive,” Schiff said.
Even Trump's former economic adviser cautions the president about his apparent recent policy reversal on the greenback.
Stephen Moore, one of Donald Trump's economic advisers during the campaign, said he was not concerned about most of the president’s latest policy flip-flops, but disagrees that the U.S. currency is too powerful.
“Advocating a weaker dollar is I don’t think good policy or good politics,” Moore told The Washington Post. “A strong dollar is a strong president, and a weak dollar is a weak president,” the Newsmax Finance Insider said.
Trump earlier this week said he won’t brand China a currency manipulator, retreating from core campaign promise, though he argued that a strong dollar is hampering the ability of American firms to compete.
“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting — that will hurt ultimately,” he told the Wall Street Journal. “It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.”
However, other respected economic gurus are much more optimistic and urge wary investors to keep faith in Trump.
David Horowitz, author of the best-selling book "Big Agenda: President Trump's Plan to Save America," told Newsmax TV that the market rally since Republican Donald Trump won the election has more room for gains as the president pushes his pro-business agenda.
Prior to the FOMC raising the Federal Funds Rate this week, the Atlanta Fed revised its estimate of Q1 GDP from 3.4% to 0.9%, an enormous downward revision that suggests Chairwoman Janet Yellen and FOMC authorities aren't as data dependent as they claim. The serious lack of economic growth indicated by the downward revision should give the Fed pause, but that doesn't seem to be the case, as Peter Schiff pointed out in his latest podcast.
"If anything, you've had a collapse in [economic] growth estimates since the last time the Fed met. Yet that collapse in GDP forecast has not done anything to alter the Fed's path because they've ignored all of the data, and they raised interest rates yet again."
The rate increase now brings the current target range to 0.75 -1.0%, a number so far from any market-set rate it's still worthless for anyone looking to earn anything from their savings.
The Fed's decision to raise rates is still another attempt to instill false hope into consumers that the economy is getting better. But more and more consumers are becoming aware of the reality of sluggish wages and an increase in prices.
"People are tapped out. People are not spending money because the economy is weak. Prices are rising, but their incomes are not," Peter explained.
Peter also criticized Janet Yellen's comments about shrinking the Fed's balance sheet. When asked about it, Yellen stated it would begin winding down the balance sheet until the rate normalization process is "well underway." When asked to clarify what the term meant, the Chairwoman wasn't able to give specific levels of interest or a general timeline.
Beginning with the 2008 crisis, the Federal Reserve began quantitative easing, meaning it began purchasing large quantities of Treasury securities and US-backed mortgage securities. The buying frenzy expanded the Fed's balance sheet from $900 billion to $4.5 trillion.
Yellen's hesitancy to define a timeline or standard for "well underway" is another example of how the Fed keeps its data dependency murky enough to wiggle out of any attempt to hold it accountable. Because higher interest rates mean higher payments on the national debt and possible default on US loans, the Fed is understandably reluctant, but it can't telecast that reluctance or motivation. Instead, it continues to feign interest in raising interest. Yellen claims she's waiting for stronger economic data to give FOMC members confidence, but it's consumer confidence that she's actually hoping to create with too-little-too-late rate increases.
Peter Schiff, a prominent investor of gold and CEO of Euro Pacific Capital, has been criticized by many analysts and experts including Brian Kelly of CNBC for describing Bitcoin as “digital fool’s gold.”
For the most part, Schiff’s ignorance towards Bitcoin stems from his responsibility to protect Euro Pacific Capital’s business model, which almost entirely relies on the performance of gold. Schiff has also found the vast majority of his career success in gold trading and thus, it is essentially instinctive for Schiff to protect gold against Bitcoin.
However, most innovative and successful investors understand that to profit from an ever-changing market, one needs to beat the market. One asset or currency which has beaten the market for three straight years is Bitcoin by outperforming all reserve currencies, stock markets and assets, something gold has failed to do.
Rarity, scarcity, decentralization
Currently, the basis of all criticisms against Bitcoin is the absence of network moderators and the origin of its value. Specifically, conventional economists struggle to understand the purpose of Bitcoin’s fixed supply, as it could theoretically lead to economic issues in the future.
Rarity, scarcity and decentralization, the three characteristics of Bitcoin which conventional economists including Schiff warn investors against, are in fact the strongest advantages of Bitcoin. These characteristics of Bitcoin are why mainstream analysts like Brian Kelly are dedicated to offering fair and balanced coverage on Bitcoin.
“For me, it is Bitcoin. Bitcoin is not just digital gold. It is a technology platform that fintech is being built on top of. It is a once in a life generation investment opportunity similar to the Internet growing just as fast if not faster. It is the Internet of money. Everyone is involved in it. The Federal Reserve released a paper on it. Bank of England is involved in it. 14 of the top 30 banks have active projects.”
Kelly’s statement is factually accurate in that Bitcoin is a technology platform and an open source protocol in which anyone can build anything on top of. Bitcoin as a base protocol is a payment facilitation tool. It facilitates payments between two users without the necessity of a mediator.
On top of that layer one technology, two-layer solutions exist as well as other technologies which will allow Bitcoin to transform itself into a settlement system, digital gold, wealth management product and virtually any financial instrument which investors and traders may need in the future.
Bitcoin’s structure isn’t a replica of gold
Schiff, however, argues that Bitcoin’s structure is a replica of gold, built to act as an alternative to fiat currencies. As mentioned above, Bitcoin isn’t a replica of gold nor the monetary system adopted by governments across the globe. It can operate as gold and a currency but it wasn’t structured to replicate either of those two.
When Schiff states that gold is a more efficient version of Bitcoin, Schiff is considering the commodity aspect of gold. Gold is a commodity and an asset. But, it is not a payment unit and a settlement network. Its value is dependent on an infinite supply, which could exponentially increase if companies manage to find massive sources of gold in the future.
If Bitcoin had a bug which could lead to the creation of Bitcoin out of thin air, Bitcoin’s value wouldn’t be where it is as of current.
If investors and citizens are frustrated with President Donald Trump, they should blame the Federal Reserve, according to Euro Pacific Capital CEO Peter Schiff.
In a recent interview with CNBC's "Futures Now,"the ardent critic of both Trump and the Fed cast doubt on the potential for future rate hikes. He also said that the central bank's easy money policies are partly to blame for Donald Trump's election.
Weak economic data "has been the primary reason the Fed has been able to keep rates so low for so long," said Schiff.
"In fact it's been these low rates that are actually one of the reasons the economy has been so weak," he added— renewing a criticism that the Fed's quantitative easing (QE) have primarily benefited banks and the wealthy.
"This benefits the financial markets, it benefits the stock market, it keeps it propped up at artificially high levels, but it undermines the real economy. That's why so many Americans are hurting and why so many voted for Donald Trump," the investor told CNBC.
According to Schiff, if the economy was really as strong as many believe, "not only would Trump have not been elected, he wouldn't have been the Republican nominee."
Shortly after the election, Schiff appeared on CNBC criticizing Trump, and predicting that his policies could actually have the Fed reversing course on possible rate hikes.
Since then, however, the stock market has continued to hit record highs, while Fed Chair Janet Yellen has suggested that two or more rate hikes may be appropriate this year. Still, that didn't deter Schiff from calling her bluff.
"What's appropriate and what the Fed is going to do are two totally different things. The Fed is going to raise interest rates as slowly as they can possibly get away with, and at some point they're going to have to come up with an excuse why they're going to stop raising rates, and why they're going to cut rates again and why they're going to go back to QE," Schiff argued.
"All of this is inevitable. But even if the Fed does nudge interest rates up a little bit more before they reverse course, it's not going to matter," he told CNBC. Meanwhile, price pressures are building in the economy, with data last week showing inflation rising at the fastest pace in almost four years.
"Inflation is headed up, not just on the consumer level but…inflation rising faster than any rate hikes we might get from the Fed," Schiff said. "So real rates are going to be falling even if the Fed raises nominal rates."
The CME FedWatch Tool currently pegs a March rate increase at 17 percent probability.
Gold has stood the test of time, and now Bitcoin is being compared to gold in many ways, especially for its safe haven qualities. Do you need to own gold, do you need to own Bitcoin? Will they weather the coming storm? Peter Schiff and David Seaman discuss. - Source