December 5, 2022

Peter Schiff: When the Sucker’s Move Ends, the Dollar Will certainly Crash

The US national debt pushed above $31 trillion in early October. And the ALL OF US government continues to pile onto that number. Uncle Sam ran the $1. 3 trillion deficit in fiscal 2022.

The world loves dollars. Whenever there is a problem, people flock to the money as a safe haven. However the US has problems of its own. In a podcast, Peter Schiff said America’s difficulties will eventually catch up to the dollar and at that point, the greenback will crash.

Former Uk Prime Minister Liz Truss blew into office guaranteeing tax cuts in the face of historically high inflation. On the one hand, the financial institution of England has been raising interest rates – a contractionary monetary policy. But tax cuts with no corresponding investing cuts increase budget loss – an inflationary fiscal policy. The British markets recognized this contradiction. The British pound tanked plus plunged to a record lower.

The government quickly backtracked on the tax cuts and Truss ended up stepping down.

This increases a question that US policymakers need to wrestle with. Why exactly were the British markets concerned about tax cuts?

As Peter pointed out, they were concerned about escalating debts. The debt to GROSS DOMESTIC PRODUCT ratio in Great Britain is already around 85%.

“ Now, that is a huge number. It is a number which should cause concern. I think, actually, anything above 50% of GDP is too big a number. So , because these tax slashes threatened to send British financial debt to GDP even higher, investors rightly dumped the particular pound. ”

Yet what did they do?

They bought bucks.

“ They sold pounds with regard to dollars. But they were marketing pounds because Britain includes a debt problem. The paradox is they were buying dollars despite the fact that the United States has an a great deal larger debt problem. ”

The US  national debt pushed above $31 trillion   in early October. As well as the US government continues to pile onto that number.   Uncle Sam ran a $1. 3 trillion deficit in fiscal 2022 . The  debt to GROSS DOMESTIC PRODUCT ratio in the US   is already 125%.

And as Peter pointed out, it really is higher than 125% when you element in state and local debt. When you include state plus municipal debt, the proportion balloons to 140%.

“ We are going to in a much bigger fiscal mess than Great Britain. So , selling pounds and buying dollars because you’re worried that will Britain has too much debt is jumping from the frying pan into the fire. ”

What makes people doing this? Because there is a notion that US debt is not going to matter because the dollar is the global reserve currency. Therefore , the US dollar is the first choice when there is a problem, even if the is actually bigger in the US. Peter recalled that when S& P downgraded US Treasuries, people bought US Treasuries because they were worried about the downgrade.

“ People bought US Treasuries as being a safe haven from ALL OF US Treasuries. That shows you how ridiculous it is. ”

In the same way, it’s dangerous to sell a country’s currency because you’re worried about debt and buy dollars when the US has even more debt.

It’s important to factor state and municipal debt to the equation in the US because most of these governments are funding themselves from the same tax base.

“ These governments are trying to obtain blood from the same turnips. Beacuse Americans are shattered. We have no savings. Therefore , can we possibly repay this debt? Of course not. Repaying the debt is not possible. So , what’s going to happen? We will default. ”

Peter said you can find two possible ways the US can default — the honest way or the deceitful way.

“ But either is a disaster if you own US Treasuries. The honest method is just to admit that individuals can’t pay and we default. We restructure the debt and tell our creditors, ‘ You are not going to get your money. ‘ But I don’t think politicians have the integrity to do that. They’re going to take the coward’s way out. They’re going to print. They’re going to inflate the debt away. That’s the just way out of this problem — monetize that debt and repudiate it through inflation, which is why it’s crazy for anyone to believe that the Fed is certainly going succeed in reducing inflation down again to 2%. It are unable to succeed. ”

The government can’t fill the debt away at 2% per year. They actually need higher inflation to handle the debt.

There’s another issue. The only reason the US government continues to be able to push the debt later on for this long is that rates of interest have been low. As prices go up,   the issue gets bigger .

This is why Peter calls this a sucker’s rally. And when it ends, the particular dollar will crash.

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