The Economy Is About to Implode - Ep 920

Another Peter Schiff no holds barred expose on the Economy of America

Sep 29, 2023

Peter Schiff talks Economy, Government shutdown, Market and Dollar Collapse, rising Interest Rates, and Inflation all coming soon to a theater near you in 2023 >.

00:34 Impending Stock Market Crash and Financial Crisis

Section Overview: A major stock market crash or financial crisis is approaching. The only potential short-term derailment would require drastic action from Powell.

Every day brings us closer to a major stock market crash or financial crisis.
Powell will need to take drastic measures to change this narrative.
Uncertainty remains regarding the exact timing of the crisis.

00:51 Warning about Rising Interest Rates

Section Overview: Peter Schiff has been warning about rising interest rates for several years, which are now causing bond prices to collapse.

Peter Schiff has been warning about rising interest rates for years.
Interest rates are rising more than expected and staying higher for longer.
Bond prices are collapsing due to rising interest rates.

01:30 Impending Rise in Interest Rates

Section Overview: The rise in interest rates will push the economy over the edge, leading to a collapse in the financial markets.

The rise in interest rates will push the economy towards a crisis.
Uncertainty remains regarding the exact timing of the crisis.
The collapse in bond prices is a significant factor contributing to this situation.

01:56 Highest Bond Yields since 2008 Financial Crisis

Section Overview: Bond yields are at their highest levels since before the 2008 financial crisis, indicating a potential problem for the economy.

Bond yields are currently at their highest levels since before the 2008 financial crisis.
Yields on 30-year treasuries closed at 4.7%, while those on 10-year treasuries reached 4.56%.
The last time the 10-year treasury yielded more than five percent was in 2001.

02:19 Increased Debt and Potential Crisis

Section Overview: The current level of debt makes the impending rise in interest rates a much bigger problem compared to previous years.

The national debt has significantly increased since 2001, reaching $33 trillion.
A five percent yield on ten-year treasuries would be problematic due to increased debt levels.
Many facets of the economy, including government budgets and municipalities, have relied on cheap money and issued substantial amounts of debt.

03:13 Impact on Mortgage Rates

Section Overview: Rising interest rates are causing mortgage rates to increase, potentially leading to further economic challenges.

Mortgage rates have reached 7.9%, nearing eight percent.
Peter Schiff predicted this increase and warned against relying on low-interest rates for long-term investments.
Many investors believed that four percent yields were attractive based on years of zero percent interest rates but failed to consider inflation rates.

04:08 The Phony Economy and Cheap Money

Section Overview: The economy is built on a foundation of cheap money, which is now coming to an end, leading to potential economic consequences.

The entire economy, including the government and various sectors, relies on cheap money.
The belief that zero percent interest rates would continue has shaped investment decisions.
The end of cheap money signifies the beginning of the end for the phony economy.

04:31 Debt Accumulation and Borrowing

Section Overview: Over the past 15 years, debt accumulation has been significant due to low-interest rates, leading to potential problems in the future.

Many individuals and entities have accumulated debt over the past 15 years due to low-interest rates.
Peter Schiff warned against taking on debt solely because it was cheap.
Debt accumulation during this period will likely lead to severe consequences as interest rates rise.

05:16 Free Money Illusion

Section Overview: Just because money is free or cheap does not mean it should be borrowed without considering long-term consequences.

Peter Schiff used the analogy of free heroin to caution against borrowing solely because money was cheap.
Borrowing without considering long-term consequences can lead to significant problems in the future.
The illusion that free or cheap money is always beneficial has contributed to current economic challenges.

05:59 Misguided Bond Investments

Section Overview: Investing in bonds based on historically low yields may prove detrimental as interest rates rise.

Many investors believed that four percent yields were attractive based on previous years' low-interest rates.
However, these investments fail to consider inflation rates and overall market conditions.
Relying solely on historical data can lead to misguided investment decisions.

06:16 Unreliable Expectations

Section Overview: The expectation of zero percent interest rates returning in times of economic trouble may prove unreliable.

Many investors expected the Federal Reserve to lower interest rates back to zero during economic downturns.
However, this expectation may not hold true in the current economic climate.
Previous strategies based on historical data may not work as anticipated.

06:37 Conclusion

Section Overview: The reliance on cheap money and low-interest rates has created a fragile economy that is now facing potential collapse.

The phony economy built on cheap money is coming to an end.
Rising interest rates and collapsing bond prices indicate an impending crisis.
Debt accumulation and misguided investments have exacerbated the situation.

07:10 The Performance of Bonds

Section Overview: This section discusses the performance of bonds and predicts another down year for bonds in 2024 due to low yields.

Bonds are Losing Money

In 2023, bonds had a negative return, resulting in a loss even after factoring in interest earned.
Last year was one of the worst years for bonds in history.
The speaker predicts that this year will also be a down year for bonds.

Yield Curve and Interest Rates

The yield curve is positively sloped, indicating that long-term interest rates should be higher than short-term rates.
Despite a rally, the yield on a 30-year Treasury bond is only at 4.7%, which is not reflective of a normal yield curve.
Normalizing the yield curve would require higher long-term interest rates.

Inflation Risk and Premium

Inflation risk plays a significant role in determining the premium required for lending money to the government over an extended period.
With higher inflation, a larger premium is needed to compensate for the potential loss of value over time.
Factors such as government deficits contribute to inflation risk.

10:37 Future Deficits and National Debt

Section Overview: This section highlights the projected increase in government deficits and its impact on national debt.

Abnormal Amount of Debt

Current levels of debt are historically abnormal.
Two trillion dollar budget deficits are expected to continue indefinitely, potentially increasing further beyond two trillion dollars per year.

U.S. National Debt Clock

The speaker mentions usdebtclock.org as a resource to track national debt projections.
By using the "debt clock time machine" feature, it is possible to advance into the future and see projected numbers on the national debt clock.

11:59 Reminder to Like and Subscribe

Section Overview: The speaker reminds the audience to like and subscribe to the podcast for increased visibility.

Importance of Likes and Subscriptions

Liking and subscribing to the podcast helps improve algorithms and attract more viewers.
The speaker emphasizes the need for more people to understand the government's role in creating economic crises.

12:18 U.S. National Debt Clock Time Machine

Section Overview: The speaker introduces a feature on the U.S. National Debt Clock website that allows users to project future national debt numbers.

Debt Clock Time Machine

The "debt clock time machine" feature on usdebtclock.org enables users to advance into the future and view projected national debt numbers.
By selecting 2027, it becomes apparent how significant the projected deficits will be in just a few years.

Section Overview: The speaker discusses the projected increase in the national debt and the staggering amount of interest payments that will be required. They compare these interest payments to other major spending categories and highlight the potential crisis that could arise if action is not taken.

National Debt and Interest Payments

The projected interest on the national debt per year is just under three trillion dollars (0:13:46).
This projection is expected to triple defense spending, with interest payments surpassing Medicare and Social Security (0:14:08).
The projected interest payments are estimated to consume 75 percent of all U.S. government tax revenue (0:14:58).

Budget Deficits and Spending

The projected budget deficit for 2027 is almost four trillion dollars a year (0:15:26).
Federal spending is listed at 11.2 trillion, but there seems to be a discrepancy in the numbers provided (0:15:47).

Impending Crisis

The speaker emphasizes that this future scenario is impossible and something needs to happen to prevent it from occurring (0:16:07).
They warn that the current foundation we rely on is about to implode, affecting various sectors such as the stock market, companies, and real estate (0:16:34).
Normal interest rates cannot sustain massive deficits, and even Janet Yellen's previous dismissal of debt concerns based on low interest rates becomes problematic as rates rise (0:16:50).

Mortgage Market Concerns

The speaker predicts mortgage rates could reach nine percent by the end of the year, which would have significant implications for banks and mortgage-backed securities (0:17:10).
They highlight how banks loaded up on mortgage-backed securities during a period of low rates, potentially leading to insolvency when rates eventually rise (0:17:55).

Implications for Banks and Government

The speaker warns of another wave of bank collapses, with banks relying on the Federal Reserve to prevent failure by accepting their underwater mortgage-backed securities (0:19:02).
They anticipate a major reversal in quantitative tightening and a return to quantitative easing to address the impending crisis (0:19:45).

20:30 The Financial Crisis and the Fed's Actions

Section Overview: This section discusses the financial crisis and the actions taken by the Federal Reserve to address it.

The Band-Aid Solution

The Fed opened a new window to stave off the financial crisis.
They provided loans even though the securities were worth less than par.
This was a temporary solution to prevent immediate insolvency of banks.

Dumping Bad Debt on the Fed

Banks cannot repay these loans without becoming insolvent.
To avoid insolvency, banks dumped bad debt on the Federal Reserve.
The Fed is pretending to give back this debt, but it cannot do so without causing a financial crisis.

Extending Loan Maturity

To prevent banks from failing, Powell will have to extend loan maturity indefinitely.
Banks rely on these loans and cannot repay them without failing.
If banks fail, there will be a financial crisis with no bailout available.

22:08 Big Tech's Data Collection and Manipulation

Section Overview: This section highlights how big tech companies collect and manipulate user data for their profit.

Invasion of Privacy

Big tech companies like Facebook and Google constantly monitor users' location, texts, searches, and even access cameras and microphones in homes.
User data is their most valuable asset, which they use to manipulate individuals.

Reclaiming Privacy

Reclaiming privacy is easier than people think.
Glenn Meter, an online privacy expert, offers simple techniques to protect browsers, computers, and smartphones from data thieves.

24:13 The Phony Economy and Government Choices

Section Overview: This section discusses the phony economy built on cheap money by the Federal Reserve and government choices regarding spending and taxes.

The Phony Economy

The entire phony economy constructed on cheap money is collapsing.
Normalizing interest rates will expose the fragility of the economy.

Government Choices

The government must level with the people and address the unsustainable spending.
Options include raising taxes or cutting spending, particularly in areas like Social Security.
Borrowing money was possible due to low interest rates, but they are now normalizing.

25:31 Inflation and Market Reactions

Section Overview: This section discusses inflation and its impact on oil prices and stock markets.

Inflation Concerns

People expect the Fed to cut rates despite high inflation levels.
Oil prices continue to rise, even with a stronger dollar.

Market Reactions

Stock markets experience significant drops (Dow down 400 points, NASDAQ down 1.5%).
If there is a bounce in the stock market, it may further impact oil prices.

26:10 The Impact of Buying Back Oil at a Higher Price

Section Overview: The speaker discusses the potential negative consequences of buying back oil at a higher price than it was sold, which could result in a loss for the American public.

Potential Negative Trade Outcome

If oil is bought back at a higher price than it was sold, it would be considered a lousy trade.
The American public may end up with a loss due to this transaction.
There is a possibility that the purchase of oil may be delayed until the price goes up further before attempting to buy it back.

26:27 Inability to Cut Rates and Market Misunderstanding

Section Overview: The speaker explains why cutting rates may not be feasible and highlights the market's misunderstanding regarding rate cuts.

Inability to Cut Rates

Despite expectations that the Federal Reserve (FED) will cut rates to zero again, they may not be able to do so this time.
In previous instances, rate cuts were possible because inflation was below two percent and additional money printing through quantitative easing (QE) could stimulate the economy.
However, if there is a crisis now and inflation remains high, cutting rates cannot be justified as it would only exacerbate inflationary pressures.

Market Misunderstanding

The markets fail to grasp that rising long-term interest rates are not favorable for the dollar.
Bond prices are falling due to low demand for U.S. treasuries caused by concerns about inflation and excessive government debt.
If people are selling bonds due to inflation worries, they should also avoid holding dollars since U.S. treasuries represent future payments in U.S. dollars.

26:53 Justification for Rate Cuts and Quantitative Easing

Section Overview: The speaker discusses the previous justification for rate cuts and quantitative easing and how it may not apply in the current situation.

Previous Justification for Rate Cuts

In the past, rate cuts were justified by the need to stimulate the economy and increase inflation to reach a two percent target.
Quantitative easing was seen as a way to achieve both goals simultaneously.

Current Situation

If there is a crisis now, with high inflation and market crashes, it becomes difficult to justify cutting rates further.
Increasing inflation cannot be countered by creating more inflation through rate cuts, as it would lead to a crash in the dollar and skyrocketing prices.
The strength of the dollar is currently preventing gold from rising significantly.

27:38 Interplay Between Gold, Oil, Dollar, and Bonds

Section Overview: The speaker explains the interplay between gold, oil, the dollar, and bonds in relation to market dynamics.

Gold vs. Oil

Gold (yellow gold) should be rising along with oil (black gold).
Both assets should have a positive correlation.
Eventually, gold and oil will trade in the same direction.

Dollar vs. Bonds

As people sell bonds due to concerns about inflation and excessive government debt monetization, they are indirectly selling dollars since U.S. treasuries represent future payments in U.S. dollars.
Factors that make bonds unattractive also make the dollar unattractive.
Once people start dumping their bonds and dollars, this slow-motion crash could turn into a more rapid decline.

28:22 Impact of Dollar Strength on Market Dynamics

Section Overview: The speaker discusses how the strength of the dollar is currently cushioning market impacts but warns that things could worsen once the dollar weakens.

Cushioning Effect of Dollar Strength

The current strength of the dollar is mitigating the impact of market weaknesses.
Weakness in the stock market is not yet significantly affecting the bond market.

Potential Worsening Scenario

Once the dollar starts to fall, the situation could worsen.
The bond market will be particularly affected as people start dumping their bonds and dollars simultaneously.
Economic indicators continue to show weakness, such as negative manufacturing data and lower-than-expected consumer confidence.

30:22 Stagflation and Expert Opinion

Section Overview: The speaker discusses stagflation and mentions an expert opinion that aligns with their own views.

Stagflation

The current economic situation can be described as stagflation.
Weak economic numbers, including manufacturing data and consumer confidence, indicate ongoing economic challenges.

Expert Opinion

A Chief Economist or Market Strategist from Bank of America expressed similar views to those of the speaker regarding the state of the economy.

32:37 Investing Strategies in a Changing Economy

Section Overview: The speaker discusses investment strategies in the current economic climate, emphasizing the importance of buying value, dividends, and inflation hedges. They also suggest diversifying into foreign dividend-paying stocks due to concerns about the future of the US dollar.

Value and Dividend-Paying Stocks

Buying value and dividend-paying stocks is recommended as a strategy to make money in the current market.
These stocks perform well during economic downturns and can beat inflation.
The speaker has been advising their clients to invest in these types of stocks for a long time.

Concerns About the US Dollar

The speaker believes that the US dollar's days are numbered and predicts its eventual collapse.
They argue that sacrificing the dollar is necessary to prevent a financial crisis from worsening.
As a result, they recommend investing in foreign dividend-paying stocks as an alternative.

33:54 Impending Government Shutdown and Economic Impact

Section Overview: The speaker discusses the imminent government shutdown and its potential impact on the economy. They express their opinion on how shutdowns are not necessarily bad news but criticize how they are handled.

Government Shutdown Misconceptions

The speaker suggests that government shutdowns are not necessarily negative events.
However, they criticize how shutdowns still allow certain operations to continue, such as tax collection.
They highlight that shutting down national parks during a government shutdown can be counterproductive, with more people working to prevent access than when they are open.

35:02 Poll Results and Biden's Popularity

Section Overview: The speaker discusses recent poll results showing Trump's rise in popularity compared to Biden. They attribute this shift to Biden's handling of the economy rather than his age.

Trump's Lead in Polls

Recent polls show Trump ahead of Biden by a significant margin.
The speaker had predicted this shift due to the worsening economy.
They argue that Biden's low popularity is not solely due to his age but rather the state of the economy under his administration.

37:21 Economic Reality vs. Government Statistics

Section Overview: The speaker challenges the notion of a strong economy based on government statistics, highlighting the rising cost of living and financial struggles faced by many individuals.

Economic Discrepancy

The speaker argues that government statistics showing economic growth and low unemployment do not reflect the reality for many people.
They point out that the cost of living is increasing, with soaring prices and high levels of debt.
Examples are given, such as people trading down from expensive restaurants to fast food due to affordability issues.

The Disconnect Between Media and Average People

The media fails to understand why Biden is unpopular.
There is a disconnect between the media and average people.
The media may not realize the impact of rising cost of living because they make more money than the average person. 38:28

Economic Disaster and Low Poll Numbers

The economy is a disaster, which contributes to Biden's unpopularity.
If the economy was good, Biden's poll numbers would reflect that.
There is no mystery as to why Biden lacks credit - there is simply no credit to get due to the poor state of the economy. 39:08

Auto Workers' Strike and Presidential Support

The Auto Workers UAW are on strike, with President Biden joining them on picket lines.
Instead of trying to end the strike, he supports it.
The workers want higher wages due to being affected by inflation. 39:31

Wage Increase vs. Reduced Work Hours

Auto workers want a 40% raise and a 20% reduction in work hours.
However, if their work week goes from 40 hours to 32 hours, but they still want a 40% increase in pay, it effectively means a 75% increase per hour worked.
This demand poses financial challenges for automobile companies. 40:16

Government Priorities: Anti-trust Lawsuit against Amazon

Despite economic problems, the government focuses on filing an anti-trust lawsuit against Amazon.
The speaker criticizes this move as unnecessary since Amazon operates efficiently without complaints from consumers.
Instead of targeting Amazon, the government should focus on solving its own financial and economic issues. 41:55

Amazon's Benefits and Government Arrogance

Amazon provides convenience and lower prices to the public.
The government's arrogance is evident in their attempt to interfere with Amazon's operations.
The speaker suggests repealing all anti-trust laws. 43:18

44:30 Complaint against Amazon's pricing policy

Section Overview: The speaker discusses a complaint against Amazon, claiming that the company is colluding and driving up prices. The complaint revolves around Amazon's policy that prohibits sellers from offering lower prices on their own websites compared to the prices on Amazon.

Amazon's pricing policy

44:48 Amazon has a policy that sellers cannot offer lower prices on their own websites compared to the prices on Amazon.
45:07 This policy is seen by some as collusion to keep prices high and prevent customers from buying products at lower prices from sellers' own websites.
45:27 However, Amazon argues that they are trying to prevent sellers from using their platform to divert sales to other stores where products are offered at lower prices.
45:46 Amazon allows sellers to lower their prices, but it must be done on both platforms (Amazon and their own website).

46:05 Government intervention in business practices

Section Overview: The speaker expresses his opinion about government intervention in business practices, specifically regarding the case of Amazon. He argues that there is nothing wrong with what Amazon is doing and believes it is not the government's role to interfere.

Government interference and competition

46:05 The speaker believes there is nothing anti-competitive about what Amazon is doing, and it should be left between the company and its customers.
46:28 If the government were to intervene and break up Amazon, it would benefit competitors like Walmart or Target rather than consumers.
46:46 The government should not give one company an advantage over another based on its success in the market.

47:35 Impending financial crisis and government debt

Section Overview: The speaker discusses the impending financial crisis and the issue of government debt. He highlights the potential consequences of rising interest rates and the burden of national debt on individuals.

Impending financial crisis and government debt

47:35 The speaker questions how much longer interest rates can rise before causing a market collapse.
47:59 Individuals are responsible for their own debts, but every American shares a portion of the national debt.
48:21 The government does not have resources; it relies on the public to repay its debt.
48:41 The value of money comes from the private sector's production of goods, not from government printing money.
48:59 Government printing money while imposing taxes and regulations limits the productivity of the private sector, leading to inflation.

49:39 Gold as a safe haven and business announcement

Section Overview: The speaker discusses gold as a safe haven during times of economic uncertainty. Additionally, he makes an announcement about buying back Shift Gold.

Gold as a safe haven and business announcement

49:39 People mistakenly view the US dollar as a safe haven during economic turmoil, but gold is actually a better option.
49:58 The speaker encourages people to buy gold before others catch on to its value.
49:58 The speaker announces that he has agreed to buy back Shift Gold after selling it several years ago.

50:44

Section Overview: In this section, the speaker discusses their motivation to be a part of Gold Money and their attempt to sell their gold company to be involved. However, due to regulatory obstacles imposed by the government, the plans were thwarted.

Motivation to Join Gold Money

The speaker wanted to help people achieve their personal goals by promoting the use of gold as a standard.
They saw an opportunity in Gold Money's vision and wanted to contribute towards making it happen.

Attempted Sale of Gold Company

To take advantage of the opportunity, the speaker planned to sell their gold company and become a part of Gold Money.
They received stock and warrants from the deal.
However, regulatory hurdles prevented the transaction from taking place.

51:21

Section Overview: In this section, the speaker explains how government regulations hindered Gold Money's ability to enable gold transactions as a form of currency. The onerous regulations imposed by Canadian authorities made it economically unfeasible for average individuals to use gold as money.

Government Regulations and Implications

The government imposed strict regulations on Gold Money, making it difficult for them to facilitate transactions using gold as currency.
These regulations were implemented due to competition concerns and hindered Gold Money's original vision.
As a result, Gold Money had no choice but to abandon its plans.

52:22

Section Overview: Here, the speaker discusses how Gold Money shifted its focus towards other ventures such as real estate investments. However, these changes deviated from the original vision that initially attracted them.

Shift in Focus

Gold Money started buying real estate and exploring alternative ways to hedge against inflation and invest cash flow.
The speaker was not excited about this shift in direction as it did not align with the original vision of promoting gold as a standard.

53:35

Section Overview: In this section, the speaker explains their decision to take back ownership of Shift Gold and their plans to expand the business. They foresee a high demand for gold due to anticipated inflation and aim to cater to both American and global markets.

Taking Back Ownership

The speaker agreed to take back ownership of Shift Gold from Gold Money.
They had always been involved in overseeing the business through a marketing agreement.
The transaction was unwound, with the speaker returning stock and warrants while regaining control of Shift Gold.

Expanding Business

The speaker sees an opportunity for significant demand for gold in an era of high inflation.
They aim to sell more gold globally and want to expand Shift Gold accordingly.
Job opportunities may arise as they plan on hiring more people. Resumes can be sent to jobs@schiffradio.com.

54:29

Section Overview: In this section, the speaker expresses their belief that there will be a surge in demand for gold due to anticipated high inflation. They anticipate that governments will resort to printing money, leading Americans and others worldwide to seek refuge in gold.

Anticipated High Inflation

The speaker predicts that governments will not address economic challenges adequately.
Higher taxes, lower benefits, bank failures, and monetary devaluation are expected consequences.
Governments are likely to resort to inflation as a solution, similar to corrupt governments in history.

Demand for Gold

Americans are expected to buy significant amounts of gold as they come face-to-face with high inflation.
The speaker aims not only to sell gold within the United States but also globally through Shift Gold's expansion plans.

56:24

Section Overview: In this section, the speaker discusses the tax benefits of working for Shift Gold and the potential for lower income taxes in Puerto Rico.

Tax Benefits and Relocation

The speaker mentions that if someone wants to receive great tax benefits and work for Shift Gold while paying minimal income taxes legally, they can consider relocating to Puerto Rico.
However, if relocation is not an option, Shift Gold may still be able to hire individuals in the U.S., but the tax benefits may not be as favorable compared to those in Puerto Rico.

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