TLDW - Growth Slows Down as Inflation Speeds Up

Episode 891 of the Peter Schiff Show

Corona Times News

May 02, 2023

TLDW - Too Long Did not Watch therefore We Summarize…

Growth Slows Down as Inflation Speeds Up - Episode 891 of the Peter Schiff Show

Peter Schiff Talks About First Republic Bank

01:04 Peter Schiff talks about the recent closure of First Republic Bank by FDIC.
01:26 The bank has been put into receivership, and several big banks are trying to buy it on the cheap.
01:50 Big banks want to cherry-pick assets and get rid of problems.
02:06 Shares were down 97% from the 52-week high, and buying them was dangerous.
03:11 On Friday before the news that the bank was going in receivership, it dropped another 43 percent.

Initial Rescue Plan for First Republic Bank

03:31 Major Banks put up money (30 billion dollars in total new deposits) to save the bank because everybody else was taking their money out.
03:52 These big banks probably got that money from FED by giving them underwater treasuries long-term treasuries mortgage-backed securities.
04:12 They were depositing that cash over at First Republic Bank where they can earn a higher yield.

Why Banks Can't Handle Runs?

04:35 None of these Banks keep adequate reserves in case of a run because they all assume there won't be one because that's what FDIC is for to make sure there's no runs because the public knows hey my money is safe because it's got FDIC well it's not necessarily safe so why take a chance yank your money out?
04:55 Rates have moved up a lot, but First Republic is in no position to pay a competitive rate. It can't afford it because it buried all of its money in long-term low-yielding treasuries and mortgages.

05:40 The Financial Crisis

Section Overview: In this section, Peter Schiff discusses the financial crisis and how it is not just limited to banks. He explains how low-interest rates have affected various industries, including housing, automobiles, and government spending.

Impact of Low-Interest Rates

06:03 Low-interest rates have impacted various industries such as housing, automobiles, and government spending.
06:27 The automobile industry was propped up by cheap money due to low-interest rates. Banks are involved because they loaned out the money for people to overpay for cars that they couldn't afford.
07:09 The housing market was dysfunctional due to low-interest rates set by the Fed. People were buying homes with mortgages that they could not afford.
07:33 The federal government was able to run enormous deficits because interest rates were so low. If interest rates reflected the appropriate price of money that a free market would set, there is no way the government could have gotten away with this.

Consequences of High Interest Rates

08:07 If interest rates go back up, everything built on a foundation of zero percent will crash, including the government. The government cannot survive with normal interest rates and fight inflation.
08:31 If the Fed holds the line on fighting inflation by keeping interest rates high, then corporate America will be in trouble since it is all leveraged up. All loans come due when cheap money borrowed to buy back overpriced stock expires.
09:54 Bankruptcies have already started as companies can no longer afford their junk bonds or pay higher interest on their loans.

Conclusion

The financial crisis is not just limited to banks but has affected various industries such as housing and automobiles. Low-interest rates set by the Fed have caused dysfunction in these industries, and if interest rates go back up, everything built on a foundation of zero percent will crash. The government cannot survive with normal interest rates and fight inflation. Corporate America is also in trouble since it is all leveraged up, and bankruptcies have already started as companies can no longer afford their junk bonds or pay higher interest on their loans.

11:03 The Worst Year Since 2000

Section Overview: In this section, the speaker talks about how 2022 was worse than 2020 and the third-worst year since 2000. He also mentions that there were more bankruptcies in the first four months of 2009 during the Great Recession.

Bankruptcies in 2022

11:03 The speaker predicts that 2022 will be worse than 2020.
11:31 There were as many major bankruptcies at the beginning of 2022 as there were in all of 2009 during the Great Recession.
11:54 The speaker believes that there will be even more bankruptcies to come and that it's going to continue to get worse.

12:18 Importance of Mental Health

Section Overview: In this section, the speaker talks about how his bank's situation has added significant stress to his life and how he gained a newfound appreciation for mental health. He recommends using Headspace to improve mental health.

Headspace for Mental Health

12:18 The speaker recommends using Headspace if you're having problems with stress, anxiety, or trouble sleeping.
12:37 Headspace helps improve mental health through guided meditations, mindfulness practices, breathing exercises, and more.
12:56 It combines scientifically proven benefits of meditation and mindfulness with modern practices through experienced meditation teachers who use customized approaches.
13:15 With a wide range of teachers with diverse backgrounds and areas of expertise, there is content available for everyone.

14:21 Comparison between FDIC and OSIF

Section Overview: In this section, the speaker compares what happened when his bank was put into receivership by OSIF to what is happening with First Republic Bank and the FDIC.

FDIC vs. OSIF

14:21 The FDIC is trying to find someone to buy First Republic Bank to protect depositors, while OSIF put the speaker's bank into receivership.
14:56 The buyer was going to take over all liabilities and inject more capital, but OSIF rejected the sale and put the bank into receivership.
15:36 It's hard to sell a bankrupt entity, so people want to buy only the good parts of a bank and leave the bad stuff for taxpayers.

16:38 Attempted Bank Purchase

Section Overview: In this section, Peter Schiff discusses an attempt to purchase his bank by a former head of OSF and other ex-OSA members. The Puerto Rican regulators turned them away, leaving the bank in receivership.

Attempted Purchase

16:38 A former head of OSF and other ex-OSA members attempted to buy Peter Schiff's bank.
17:23 Despite having millions in cash above what was owed to depositors, the customers of Peter Schiff's bank have been waiting 10 months for their money while the customers of a bankrupt financial institution will receive their money courtesy of the US taxpayer.
18:03 The government decides which banks' customers get their money and which do not. If the free market decided, many people at First Republic would have lost their money and nobody at Peter Schiff's bank would have lost any money.
18:44 It is unclear why buyers were turned away from purchasing Peter Schiff's bank. One theory is that they discovered that Peter Schiff would own 4.15% of Kinta, the company buying the bank.

19:04 Rejection of Bank Purchase

Section Overview: In this section, Peter Schiff discusses why Kinta was rejected from purchasing his bank.

Reasons for Rejection

19:04 Kinta was publicly traded in the US when they announced their intention to buy the bank.
20:09 The reason given for rejecting Kinta's offer was that it was discovered that Peter Schiff would own 4.15% of Kinta after selling his shares in the bank.
20:48 However, this was not true as the OSF commissioner and others were informed of Peter Schiff's ownership from the beginning.

21:57 Commissioner's Decision

Section Overview: In this section, the speaker discusses how the commissioner knew about his ownership and structure of the bank but still turned down the sale. He also questions why another group that wanted to buy the bank was turned down.

Commissioner's Knowledge

The speaker had informed the commissioner about his four percent ownership and structure of the bank a week before their meeting.
More information was sent to her after their meeting, which prominently discussed his ownership and structure.
The commissioner emailed back after receiving this data about his ownership, indicating that she knew about it for nine months.
Despite knowing about it, they said that they were not approving the sale due to this reason, which wasn't true.

Other Group Turned Down

The speaker questions why another group that wanted to buy the bank was turned down.
This other group would have been better for customers as they weren't going to fire any workers and were bringing in more experienced people.
Even though there were buyers lined up, Puerto Rico regulators didn't allow them to buy the bank.

23:07 Compliance Issues

Section Overview: In this section, the speaker talks about how non-compliance issues were used as an excuse by regulators even though they had only been in Puerto Rico for four years. He also mentions how they complied with everything asked of them during their first audit.

Non-compliance Issues

The commissioner stated at a press conference that there were compliance issues due to a long history of non-compliance with certain things.
However, they had only been in Puerto Rico for four years and had their first audit nine months before she made these statements.
They complied with everything asked of them during their first audit.

New Buyers Bringing Change

Even if there were compliance issues with current management, new buyers were bringing in new people and weren't firing anyone.
They were hiring more experienced people, and it was going to be a whole new board with all-new top management.
The bank already had a new president who had quit her job at another bank and was ready to start working.

24:13 Customer Access

Section Overview: In this section, the speaker talks about how the government is trying to save an insolvent bank in the US but regulators in Puerto Rico are not allowing buyers for a totally solvent bank. He also mentions how customers of his bank have lost access to their deposits for 10 months.

Insolvent vs. Solvent Bank

The US government is doing everything they can on a Sunday night to try to find a buyer for an insolvent bank because they don't want any customers to lose access to their deposits even for one day.
However, regulators in Puerto Rico are turning away buyers for a totally solvent bank that has customers who have lost access to their deposits for 10 months.

Financial Hardship

Some customers of the speaker's bank have faced financial hardship due to losing access to their deposits.
The speaker has received emails from some of these customers blaming him, but he was only a shareholder of the bank and had nothing to do with it.

26:43 Fast Growing Trees and Q1 GDP Numbers

Section Overview: In this section, the speaker talks about two topics. Firstly, he mentions a discount offer for fastgrowingtrees.com. Secondly, he discusses the Q1 GDP numbers.

Fast Growing Trees Discount Offer

Fastgrowingtrees.com is offering a 15% discount on all orders.
The website has over 1.5 million happy customers.

Q1 GDP Numbers

The consensus estimate for Q1 GDP growth was 1.9%, but it came in at 1.1%.
The speaker had consistently said that the estimates were too high and that he would take the under.
If we have another two quarters of back-to-back falling GDP, we will be back in a technical recession again.
Inflation was strong in Q1, with personal consumption expenditure up by 4%, which is higher than expectations and last quarter's figure of 3.9%.

27:31 Weakening Economy and Strengthening Inflation

Section Overview: In this section, the speaker talks about how the economy is weakening while inflation is strengthening.

Weakening Economy

Quarter-over-quarter growth is slowing down considerably.
The growth rate of 1.1% in Q1 is the lowest since Q2 of last year when there were two back-to-back quarters of negative GDP.
There's a good chance that this quarter will be negative as well as the next one, which means we're back in a technical recession again.

Strengthening Inflation

Personal consumption expenditure (PCE) was up by 4%, which is higher than expectations and last quarter's figure of 3.9%.
Despite rate hikes to stop inflation, it's getting worse.
The core PCE was up by 4.9%, which is 50 basis points higher than last quarter's figure of 4.4%.

31:50 Stagflation and Positive Data for Gold

Section Overview: In this section, the speaker talks about stagflation and how the data that came out was positive for gold.

Stagflation

We have a weakening economy because growth is slowing down, and we have strengthening inflation because the PCE numbers are going up.
This situation is known as stagflation, which is the worst of both worlds.

Positive Data for Gold

Despite the bankruptcy of First Republic announced on Friday after close, gold did not rally.
The price of gold is currently at $1982 per ounce.
When people start to think about this situation, they will buy gold.
The data that came out was positive for gold again.

32:59 The Economy is Addicted to Inflation

Section Overview: Peter Schiff discusses the current state of the economy and how it is addicted to inflation. He explains that the government will do everything in its power to prevent a collapse, which means more inflation.

Inflation is Necessary

33:20 The Federal Reserve will ensure that the economy gets more inflation, even as it pretends to fight it.
33:42 The Atlanta Fed predicts 1.7% growth for Q2, but there's a good chance they'll miss that mark.
34:07 M2, a broad measure of U.S money supply, has contracted by 4.1% year over year. This rarely happens in the United States and hasn't happened since 1933 during the Great Depression.

Contraction in Money Supply

34:34 A declining money supply could be a sign that we're currently in a recession or depression.
34:55 There have only been four years prior to this year in the last 100-150 years where there was a contraction in money supply.
35:17 The last time we had a contraction like this was during the Great Depression.

Recession vs. Depression

36:03 We may be experiencing another depression right now.
36:24 In 1921, Coolidge cut government spending during a recession and prevented a depression from occurring. However, nobody wants to try this approach today because it involves less government intervention.

Deflation vs. Inflation

37:30 We are experiencing something now that we don't normally experience unless something bad is happening - deflation.
37:50 The fact that we're experiencing deflation is a sign that something bad is happening.

38:31 The Impact of Inflation on Consumer Prices

Section Overview: Inflation has been a major factor in the economy for the past 20 years, and even if there is a year of deflation, consumer prices still have a long way to rise to make up for all the inflation.

The Problem with Declining Money Supply

38:58 The decline in money supply will be truncated because the FED is going to reverse that decline in money supply.
39:47 This deflation is not going to be allowed to continue as it would lead to hyperinflation.
40:11 Healthy deflation is needed, but the FED never allows the market to clean up its messes.

Restructuring the Economy

40:37 We need debts to default, companies that never should have been in business to fail and restructuring of the entire economy on a solid foundation.
41:04 Loans are supposed to be a function of savings; however, we've been financing everything with inflation instead of legitimate savings.
41:44 A massive credit bubble was inflated by the FED and now it's collapsing because rates have gone up.

42:07 Powell's Prank Call

Section Overview: Powell seemed more frank about economic situations during his prank call than he was with Congress.

Frankness During Prank Call

42:07 Powell seemed more honest about economic situations during his prank call than he was with Congress.
42:47 He may not have wanted to be as honest as he was on this private Zoom chat where he thought he was talking with Zelensky.

44:05 Fake Interview with Jerome Powell

Section Overview: In this section, Peter Schiff talks about a fake interview with Jerome Powell and his thoughts on the possibility of a recession.

Thoughts on the Possibility of a Recession

44:22 Peter Schiff was not able to find the whole interview but saw bits and pieces of it. He thinks that they might be scrubbing it so people cannot see it.
44:39 During the fake interview, Powell said that he thought that a recession was equal in probability to just slow growth. This happened in January when he was talking publicly, and he wasn't thinking it was good chance that they would have a recession back then.
45:12 Recently, the FED has moved to mild recession as its base case. The FED believes we're going to have a mild recession.
45:30 Even during the Great Recession, which turned out to be the worst one since 2000 since the Great Depression, they didn't forecast that even when they were in it.
45:48 If they are forecasting one now you better believe it's going to be horrific because if they actually thought it was going to be mild, they wouldn't even want to let that cat out of the bag.

Lack of Understanding of Economics

46:57 Powell's policy is designed to cool down the economy by raising rates because he thinks inflation is somehow a byproduct of a hot economy and labor market. However, inflation is caused by printing money and government deficits.
47:17 Economic growth has nothing to do with inflation; real economic growth brings prices down. A strong labor market means labor is more productive, more productivity leads to more production and lower prices.
48:15 The economy is not too hot; we have massive layoffs and bankruptcies. Companies are getting rid of workers, not hiring them.

48:53 Understanding Inflation

Section Overview: Peter Schiff discusses the lack of understanding of inflation and economics in general among the public and policymakers.

Lack of Understanding

49:09 The level of understanding of economics is abysmally low among the public and policymakers.
49:32 People assume that those with titles like "Chairman of the Fed" know what they are talking about, but this is not necessarily true.
49:46 Most people with the title "Economist" actually know very little about economics due to their education system.
50:05 Peter Schiff did not learn economics through the university system, which he believes brainwashes students and teaches them a bunch of nonsense.

Forecasting Economic Events

50:24 Peter Schiff is able to forecast economic events because he understands economics, unlike many others who are surprised by these events.
50:48 Although he may be early in his predictions, it does not mean he is wrong. He cannot predict exactly when things will happen due to many moving parts and forces at play.

Day of Reckoning

51:07 The longer we delay the day of reckoning for our economic imbalances, the worse it will be when it finally arrives.
51:33 Cheap money and reserve currency status have kept us going, but both are now in jeopardy. Rates cannot stay low due to inflation, and dollarization has begun.

54:13 The Fed's Inflation Target

Section Overview: Peter Schiff discusses the Federal Reserve's inflation target and how it is used to delay raising interest rates.

The Fed's Excuse for Allowing Inflation Above 2%

54:13 The Fed claims they can allow inflation to be slightly above two percent.
This is an excuse to avoid raising interest rates and collapsing the bubble.
It is nonsense that we have to make up for years with low inflation by having higher inflation in subsequent years.

A Two Percent Increase in Cost of Living

54:50 The Fed wants to deliver a two percent increase in cost of living every year.
This means that if there was only 1.7% inflation last year, then this year, there needs to be a 2.3% increase in cost of living.
People who are struggling would like to see the cost of living go down instead.

Average Inflation Target

55:44 The Fed has changed its policy from a two percent inflation target to a two percent average inflation target.
However, we have spent so many years way above two percent that we need to average it down by targeting below two percent.
If the Fed ever gets us down to two percent, which is unlikely, they will need to change back their policy.

57:03 Peter Schiff on Economic Understanding

Section Overview: Peter Schiff talks about his understanding of economics and why he believes he can predict economic trends better than most people.

Predicting Economic Trends

57:44 Some people can predict economic trends better than others because they understand what should be obvious but isn't.
These people are not prophets or clairvoyants, they just understand the present better than others.
Peter Schiff believes that he can predict economic trends because he understands economics better than most people.

The Truth About Economics

57:03 Peter Schiff claims that the Federal Reserve is lying to us or not smart enough to tell the truth about the mistakes they have made and the disaster that awaits.
He believes that he understands economics and is not afraid to speak his mind and lay it out.
Although he may be early, anyone who has an understanding of economics will be early in predicting economic trends.

59:00 Pacific Asset Management Strategies

Section Overview: In this section, Peter Schiff talks about the strategies offered by Pacific Asset Management that focus on mining stocks.

Mining Stocks Correction

Pacific Asset Management offers strategies that specifically focus on mining stocks.
Mining stocks have corrected and are currently below their 52-week high.
Talk to representatives at your Pacific Asset Management europac.com to learn more about these strategies.

59:23 Euro Pacific Gold Fund

Section Overview: In this section, Peter Schiff talks about the Euro Pacific gold fund and its availability on discount brokerage platforms.

Buying the Euro Pacific Gold Fund

The Euro Pacific gold fund is available on all discount brokerage platforms.
You can buy the fund if you're willing to accept the risk.
Monday may be a good day to buy it if you don't already own it or buy more if you do.
Read the prospectus before buying.

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