Over and above allegations of mismanagement and outright fraud, the failure of the FTX cryptocurrency trade reveals a more fundamental problem — the power of risky manias fueled by central-bank easy money.
Peter Schiff lately appeared on NTD Capital Report to talk about the fall of FTX, saying ultimately it was the Federal Reserve’s fault. And it is a warning sign for the broader economy.
When FTX submitted for bankruptcy, it delivered shockwaves through the crypto world. As Mises Institute senior editor Ryan McMaken put it , “ FTX’s collapse has exposed just how little due diligence is actually happening among investors who are evidently willing to put large amounts associated with cash in whatever place seems like the hottest new thing and promises— without convincing evidence— big-time returns. ”
Peter said this individual wished he had taken a deeper look into Sam Bankman-Fried earlier because he thinks he’d have been able to ferret away the fraud pretty rapidly. Peter pointed out that he called out Alex Mashinsky (CEO of the crypto lending and staking platform Celcius) just for running a Ponzi scheme within a debate. Celcius filed intended for bankruptcy back in July. SchiffGold analyst Tony a2z called Celcius the “ canary within the coal mine” and mentioned FTX was the coal mine — and it just flattened.
Peter pointed out that Celcius was paying produce on cryptocurrency, as had been FTX.
“ How could you do that? Cryptos don’t generate yield. The only way to generate yield is to consider tremendous risk, which is precisely what [Mashinsky] did, except the people who were adding their crypto didn’t prefer the risk that was being taken. Of course , they were taking a large amount of risks themselves just owning crypto because all of these foreign currencies are basically worthless. Could possibly be not even really currencies. These people collectible tokens. But soon, nobody is going to want a bitcoin collection, or any of these selections, and the prices are going to implode. ”
Some people have got expressed sympathy for Bankman-Fried, saying his naivete got him in trouble, and that he or she wasn’t intentionally trying to deceive people. Peter said he or she doesn’t know whether Bankman-Fried’s actions were criminal or simply the result of gross incompetence plus negligence.
“ But you would think some of these hedge fund supervisors who invested with him would have done a little bit of due diligence. But this just teaches you the way investors will react when they’re drunk on cheap money. So , I might blame the Federal Reserve for a lot of people acting as foolishly as they did. Since maybe he was a child, but there were a lot of adults who were giving him money. ”
McMaken wrote that the FTX collapse was a canary within the coal mine for the wider economy and that it could foreshadow the fate associated with other segments in the economy that have been pumped up by the easy money policies of the Federal government Reserve over the last decade-plus.
Peter also discussed the overall state of the US economy during his job interview, calling it “ an absolute disaster. ”
“ Thanks to Given policy over the last decade or so, we have a gigantic bubble. We never had a real recovery. We just a new financial bubble. And we dug ourselves into a much deeper opening than the one the Fed put us in back in 2008 following the financial crisis they also created with the same type of monetary policy that is creating the crisis that we are heading for, which is going to become far worse than what we experienced in 2008. Not just is inflation going to get much worse than it already is, but we’ll have a worse financial crisis than the one we had in 2008. This is going to be the worst economic downturn that the US has actually experienced. It may even end up being worse than the Great Depression. It will certainly feel worse for most people because in the Depression, people at least got the relief of falling prices. This time, people are going to feel the sting associated with dramatically higher prices. ”
So just why did we have solid GDP growth in the third quarter? Peter said it was only a function of the big improvement in the trade deficit. While the trade deficit was still huge, it wasn’t as large as it was in the previous quarters.
“ That was thanks to two factors. One – the strong money, which is now reversing. The dollar just had its worse month in twelve years. … So , which is going to push the trade deficit up. In fact , the industry deficit in November swelled by 10%. It was a huge jump. But the other factor that helped bring down the particular trade deficit was all of the oil that Biden released from the Strategic Petroleum Arrange. Oil companies were able to buy that oil and then foreign trade it, and so, that artificially boosted our exports, which improved GDP. But soon, we’re going to run out of the essential oil in this strategic reserve. Generally there won’t be a reserve left, so we won’t be able to depend on that crutch. ”
Peter pointed out that the economic data that will came out last week was horrific.
“ I think we’re going to have a huge negative number for Q4 GDP. So , we’re going to end the year on a low notice. And I think we’re going to have another negative quarter in Q1 of 2023. ”
The host asked Peter what he or she thought about the big jump within retail sales. Doesn’t that bode well for the economy?
Peter mentioned they’re not really up.
“ Prices are up. So , if you factor in inflation, retail sales are down. ”