TLDW - Peter Schiff on the Debt Ceiling Debacle

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Jun 01, 2023

Peter Schiff explains the disaster of the Debt Ceiling Deal, which is really a Debacle in the making. Too Long Did not Watch Summary.

Fiscal Irresponsibility Shatters the Debt Ceiling - Ep 897

00:00 Introduction and Sponsorship

Section Overview: Peter Schiff introduces the podcast and mentions that it is sponsored by Fast Growing Trees. He talks about how they curate thousands of easy-to-grow plant varieties for different climates.

Podcast Introduction

Peter Schiff welcomes listeners to another live podcast.
He explains that he is recording from his house in Connecticut because his studio is undergoing construction work.
He mentions that he will be using a laptop computer instead of his studio equipment for this episode and all episodes over the summer.
Peter also shares that he will be traveling to London soon.

Sponsorship by Fast Growing Trees

Peter talks about how Fast Growing Trees is sponsoring the podcast.
He mentions that they offer a variety of plants, shrubs, and trees for different climates.
Listeners can get 15% off their entire order by going to fastgrowingtrees.com/gold.

00:58 Debt Ceiling Vote in Congress

Section Overview: Peter discusses the ongoing vote in Congress to suspend the debt ceiling rather than raise it. He shares his thoughts on why politicians are hesitant to raise the debt ceiling.

Debt Ceiling Vote

Peter mentions watching on YouTube as Congress prepares to vote on suspending the debt ceiling.
He notes that politicians are not raising the debt ceiling but rather suspending it, which they have done before.
The reason politicians don't want to raise the debt ceiling is because they don't want to take responsibility for increasing government spending.

02:04 Government Spending and Inflation

Section Overview: Peter discusses how government spending leads to inflation and devalues currency. He also talks about how central banks try to control inflation through interest rates.

Government Spending and Inflation

Peter explains how government spending leads to inflation because it increases demand without increasing supply, leading to higher prices.
He notes that inflation devalues currency and reduces purchasing power.
Peter also talks about how central banks try to control inflation through interest rates, but this can lead to other problems such as asset bubbles.

03:58 The Federal Reserve and Interest Rates

Section Overview: Peter discusses the role of the Federal Reserve in setting interest rates and how it affects the economy. He also talks about how low-interest rates encourage borrowing and spending.

The Federal Reserve and Interest Rates

Peter explains that the Federal Reserve sets interest rates by controlling the money supply.
He notes that low-interest rates encourage borrowing and spending, which can lead to economic growth but also creates debt.
Peter also talks about how artificially low-interest rates distort market signals and create malinvestments.

05:47 Gold as a Hedge Against Inflation

Section Overview: Peter discusses gold as a hedge against inflation and why he believes it is a better store of value than fiat currency.

Gold as a Hedge Against Inflation

Peter explains that gold has been used as a store of value for thousands of years because it cannot be printed or debased like fiat currency.
He notes that gold is a hedge against inflation because its value tends to rise when currencies lose purchasing power.
Peter also talks about how owning physical gold allows investors to avoid counterparty risk associated with paper assets.

07:32 Bitcoin vs. Gold

Section Overview: Peter compares Bitcoin to gold, arguing that Bitcoin is not a good store of value because it lacks intrinsic value.

Bitcoin vs. Gold

Peter argues that Bitcoin is not a good store of value because it lacks intrinsic value, unlike gold which has industrial uses.
He notes that Bitcoin's price volatility makes it unsuitable for use as a medium of exchange or unit of account.
Peter also points out that governments can regulate or ban Bitcoin, whereas gold is a physical asset that cannot be controlled in the same way.

09:18 Conclusion

Section Overview: Peter concludes the podcast by summarizing his main points and encouraging listeners to subscribe to his channel.

Conclusion

Peter summarizes his main points about government spending, inflation, interest rates, gold, and Bitcoin.
He encourages listeners to subscribe to his channel for more insights on economics and investing.

03:00 The Debt Ceiling and Misleading Legislation

Section Overview: In this section, Peter Schiff discusses the debt ceiling and how Congress avoids voting for a $5 trillion increase in the national debt by suspending the ceiling. He also talks about how legislation often has misleading names that accomplish the opposite of what they are titled.

The Debt Ceiling

Congress avoids voting for a $5 trillion increase in the national debt by suspending the ceiling. 03:00
Projections for the budget are based on unrealistically rosy economic assumptions, likely to be closer to $5 trillion or more than $5 trillion. 03:49

Misleading Legislation

Legislation often has a name of the opposite of what it accomplishes. 04:18
Bills accomplish the opposite of what they're titled because most Americans don't read these bills. 04:48
Congress passes bills with misleading titles so that they can go back to their constituents and defend their vote. For example, passing a bill that raises taxes and calling it tax simplification.05:10
The Patriot Act was mislabeled as patriotic when it is actually unpatriotic.05:32
The inflation reduction act had nothing to do with reducing inflation but instead increased inflation.05:53

06:46 The Fiscal Responsibility Act

Section Overview: In this section, Peter Schiff discusses the Fiscal Responsibility Act and how it fails to address the problem of government spending and deficits.

The Problem with the Bill

06:46 The bill claims to be fiscally responsible but actually makes the problem of government spending and deficits worse.
07:05 Democrats don't care about the debt and are voting against the bill because of trivial spending cuts.
07:29 Republicans claim that this is a significant milestone for conservatives, but in reality, they are not tackling anything. Deficits go way up even if you believe their projections.
07:49 Cuts only affect a tiny part of the budget, and none of the big-ticket items like national defense, social security or Medicare are affected.

The Insufficient Reduction in Deficit

08:35 Even if we got 1.5 trillion in deficit reduction over ten years (which is what they're talking about), that's only about 5% or less than 5% of projected deficits over the next decade.
08:56 Their projections are too low, so even if you accept them, you're still talking about enormous deficits over the next ten years being 5% less than they would be without any cuts.
09:42 Freezing spending at these bloated levels won't work; real substantive cuts to government spending are needed.

The Height of Irresponsibility

10:05 This bill does nothing to address government spending and deficits; it is irresponsible.
10:44 Congress can lie about it by pretending they've done something because they had a big fight. It's exactly what Peter predicted would happen from day one.

11:42 Impact of Deficits on American Families

Section Overview: In this section, the speaker discusses how deficits impact American families and criticizes Democrats for overlooking this impact.

Deficits and Interest Rates

11:42 The deficits have an impact on American families.
12:04 Interest rates will be much higher in the future because of these deficits.
12:22 American families will pay more in the future because of these deficits.

Burdening American Families

12:22 Democrats should not raise the debt ceiling as it burdens American families with more debt.
13:00 Republicans are also to blame for claiming they've done something about it when they've sold out the taxpayer and the American public.

Future Crisis

13:42 The only ones worthy of re-election are those who opposed raising the debt ceiling.
13:57 A crisis is coming due to the debt crisis, which will lead to a currency crisis and massive inflation.

14:17 Fiscal Responsibility Act Fraud

Section Overview: In this section, the speaker criticizes Congress's recent bill, Fiscal Responsibility Act, as a fraud on the American public.

Criticizing Congress

13:00 Republicans are also to blame for claiming they've done something about it when they've sold out the taxpayer and the American public.
14:17 The Fiscal Responsibility Act that is about to pass is a fraud on the American public.

No Re-Election

13:23 The speaker would not vote to re-elect anyone who voted for the Fiscal Responsibility Act, including Republicans.
13:42 Only those who opposed it are worthy of re-election.

Future Crisis

13:57 A crisis is coming due to the debt crisis, which will lead to a currency crisis and massive inflation.

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Section Overview: This section contains an advertisement for fastgrowingtrees.com.

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16:19 The Trade Deficit and the US Economy

Section Overview: In this section, Peter Schiff discusses the trade deficit in the US economy and how it reflects the weakness of the domestic economy.

The Merchandise Trade Deficit for April

The merchandise trade deficit for April was $96.8 billion, which is much worse than expected. 16:58
There was a 1.8% increase in imports and a 5.5% decline in exports, indicating that the domestic economy is weak. 17:27

The Weakness of the Domestic Economy

If the US had a strong economy, it could produce what it consumes and would not have to import as much. 17:52
The fact that imports are increasing does not show how strong the US economy is but rather how weak it is because it cannot generate enough production domestically. 18:16

Surging Budget and Trade Deficits

The surging budget deficits and trade deficits send a message to the world that America will never get its fiscal house in order, causing lenders to cut off lending when they realize that we're never going to stop spending more than we earn.18:37
Ultimately, inflation will run out of control, causing the dollar to collapse because none of these bonds will be worth anything.19:44

Bearish for Dollar; Bullish for Gold

Raising the debt ceiling means more debt and inflation, which is positive for gold but bearish for the dollar.20:38

21:20 Manufacturing and Inflation Data

Section Overview: This section discusses the recent manufacturing and inflation data in the US.

Weak Manufacturing Numbers

21:46 The Richmond Fed manufacturing index was expected to improve from -10 in April to -8 in May, but instead it worsened to -15.
22:07 Weak manufacturing numbers reflect that the US is not producing enough goods, which contributes to a trade deficit and lower exports.

Rising Inflation

22:51 Personal income increased by 0.4%, while spending increased by 0.8% due to rising prices caused by inflation.
23:09 The PCE is the Fed's preferred way of measuring inflation, but even those numbers are increasing. Month-over-month PCE went up by 0.4% in April compared to 0.3% expected, and core PCE went up by 0.4% compared to 0.3% in March.
24:01 Year-over-year increases for both PCE and core PCE are going in the wrong direction, with core PCE at 4.7% for April compared to 4.6% in March.

Fed's Progress on Inflation

24:24 Despite rate hikes, inflation numbers are getting higher rather than lower.
24:45 Another rate hike during the June meeting will add more inflationary pressure on an already struggling economy.

25:13 Chicago PMI and Jolts Report

Section Overview: This section discusses two important reports released this week: Chicago PMI and Jolts Report.

Horrific Chicago PMI Number

25:48 The Chicago PMI number was expected to be 47, but it plunged to 40.4, the worst since the financial crisis.
26:09 This is bad news for the economy and caused a sharp rise in gold prices.

Jolts Report

26:09 The Jolts report showed a huge increase in job openings, over 10 million.
The report caused gold prices to lose almost the entire rally from earlier.

27:00 Job Losses and Quits Rate

Section Overview: Peter Schiff discusses the job losses in banks and financial companies, which are cutting their burn due to lack of access to capital. He also talks about the quits rate, which indicates how many people are quitting their jobs. In a strong job market, people are likely to quit, but if the job market is weak, they tend to stay put.

The number of job losses in banks and financial companies is increasing due to lack of access to capital. 27:00
The quits rate has gone down, indicating that the labor market is not as robust as suggested by the Joltz report. 27:16
In a strong job market, people tend to quit their jobs for better opportunities. However, in a weak job market, they prefer staying put because they may not get something as good as their current job. 27:35

28:13 May Stock Market Performance

Section Overview: Peter Schiff talks about the stock market performance in May 2018.

The NASDAQ was up 6% in May while the NASDAQ 100 was up 8%.28:41
NVIDIA was the biggest gainer with a 36.5% increase on the month despite being down by 5.6% on one day.29:10
Big tech stocks like Google and Meta saw significant inflows and gains during May while other stocks did not perform well.29:36
The Dow declined by 3.5%, while Russell 2000 was down by 1%. This decline is significant compared to an 8% gain in NASDAQ 100 during this period leading to divergence between Nasdaq and Dow indices similar to what happened during the dot com bubble of the late 1990s.30:38

31:04 AI Revolution and Inflation

Section Overview: Peter Schiff discusses how investors are focusing on the AI revolution, which may have positive effects on productivity in the long run but not immediately. He also talks about how inflation has been a stronger factor than rising productivity in the 20th and 21st centuries.

Investors are focusing on the AI revolution, which may have some positive effects on productivity in the long run. However, these effects will not be immediate.31:04
The deflationary effects of AI help to bring down costs because it increases productivity. This is just capitalism at work, lowering prices. Government raises prices by creating inflation.31:26
Inflation has been a stronger factor than rising productivity in the 20th and 21st centuries leading to losing productivity gains and ending up with rising prices.31:52

32:37 The Impact of AI on Productivity and Government Revenue

Section Overview: In this section, the speaker discusses how AI can increase productivity by replacing workers but also lead to a loss in government revenue due to layoffs.

Increased Productivity with AI

32:37 AI can increase productivity by eliminating workers and replacing them with machines.
32:48 This leads to significant cost savings for businesses.
32:55 However, it also means that fewer people are paying taxes, which results in a loss of government revenue.

Loss of Government Revenue

33:01 When people lose their jobs due to AI, the government loses tax revenue from both the employees and companies.
33:12 The government then has to spend money on unemployment benefits and other social programs.
33:20 As a result, AI may cause budget deficits in the short run and lead to more money printing.

33:40 Impact of Money Printing on Prices

Section Overview: In this section, the speaker discusses how money printing can impact prices and how gold may be affected by AI.

Impact on Prices

33:40 Money printing can lead to inflation and cause prices to go up.
33:53 Rising interest rates can also contribute to higher prices.
34:04 In contrast, gold prices may come down due to increased productivity with AI.

Gold Prices

34:04 While gold prices may fall in terms of real money (gold), they may go up in terms of fiat money (dollars).
34:28 The ARC Innovation Fund was up 12.7% without Nvidia while the Great Scale Bitcoin Trust fell 5.5% on the month.
35:11 The environment is bullish for gold stocks, but they are not reflected in the numbers yet.

35:33 Decoupling of Crypto with Tech

Section Overview: In this section, the speaker discusses how crypto and tech may be decoupling and how this can impact the price of gold.

Decoupling of Crypto with Tech

35:33 Bitcoin seems to be decoupling from tech and going down instead of up.
36:01 Rising interest rates and inflation are bigger factors than AI for gold prices.
36:25 The next catalyst for a rise in gold prices could be the debt ceiling increase.

Impact on Gold Prices

37:22 The speaker predicts that gold prices will rise above $2000 due to these factors.

38:03 The Relationship Between Gold and Debt Ceiling

Section Overview: In this section, Peter Schiff discusses the relationship between gold and the debt ceiling.

Gold as a Hedge Against Inflation

38:21 People buy gold not because of a default on the debt ceiling but because they are worried about inflation.
38:35 The increase in the debt ceiling is bullish for gold because it means that more deficits will be created, leading to more inflation.
38:59 Fed officials are talking tough on inflation, admitting that it's harder than they thought to bring it back down to 2%.

Central Bankers' Approach to Inflation

39:47 Central bankers know that letting the inflation genie out of the bottle is dangerous because it's hard to put it back in.
40:07 Fed officials were cavalier in their approach to inflation, willing to let it rise above 2% because they believed they could easily bring it back down.
40:46 Peter Schiff warned about this approach, saying that once you let inflation out, it's difficult to fight.

Collateral Damage of Fighting Inflation

42:09 When you have a massive level of debt and start fighting inflation, even more collateral damage is created for the economy.

42:47 Student Loan Payments Resuming

Section Overview: In this section, Peter discusses the resumption of student loan payments and how it may affect households.

Student Loan Payments Resuming

42:47 Starting next month in June, people who have student loans have to start making their payments.
43:11 A lot of people were working through COVID and got paid more to stay at home than they earned. So why couldn't they make the payments on their student loans?
43:46 People haven't been making these payments since COVID, but they've been using that money for extra spending in the economy.
44:46 A lot of people aren't going to pay because they don't have the money. This is going to be a major shock for a lot of households who now have to start paying on these student loans.

45:36 Art Project Auctioning an Oil Painting

Section Overview: In this section, Peter talks about an art project he announced on Twitter last week.

Art Project Auctioning an Oil Painting

45:36 Peter announced that he's going to be auctioning off a painting, an oil painting that a friend of his painted.
46:15 When you buy the original oil painting, you would get not an NFT but this new equivalent of an NFT on the Bitcoin Blockchain called an ordinal.
46:45 The value isn't in the ordinal; it's in the actual print, the original numbered print that exists that you can put in a frame and hang it on the wall.

47:53 Bitcoin and Ordinals

Section Overview: In this section, Peter discusses the concept of ordinals in Bitcoin and their potential value. He also talks about an upcoming auction for a painting he created that features a gold bar and ordinals.

The Value of Ordinals

47:53 Ordinals can be used to represent fractions of a satoshi in Bitcoin.
48:15 Peter does not see the use of ordinals as necessary for Bitcoin's success.
48:33 The Bitcoin community is using the image of a gold bar to represent Peter's supposed capitulation to Bitcoin.
49:22 The painting featuring the gold bar and ordinals will be on display at an auction in New York.

Auction Details

49:45 The painting will be on display at 295 Madison Avenue in Manhattan.
50:05 There will be two separate auctions - one for the original painting and one for numbered prints.
50:26 Bidders must register on the website marketprice.com/golden to participate in the auction.

Potential Value

51:18 Peter believes that if his art gains value, it will be due to his talent as an artist rather than its association with Bitcoin or ordinals.
52:06 If Bitcoin becomes more successful than Peter anticipates, he suggests that those who believe in it should consider buying his art with attached ordinals.

53:12 Peter Schiff's Ordinal

Section Overview: In this section, Peter Schiff talks about the value of his ordinal and how it could be worth a lot in a world where he is wrong. He also discusses the possibility of Bitcoin crashing and the value of art.

The Value of the Ordinal

53:12 Peter Schiff created an ordinal that triumphantly raises a bar of gold and declares victory of gold over Bitcoin.
53:42 The only thing he has ever created and put on the Bitcoin Blockchain is this ordinal.
53:59 The ordinals make it easier to prove that you own the print and that it's not a fraud.
54:19 If someone thinks that Bitcoin will be worth more in the future, they should buy one of these ordinals as it would be rare to commemorate just how wrong Peter was.

The Value of Art

54:39 If Bitcoin crashes, then the value is in the art.
55:04 The painting looks better in reality, so if someone wants to bid on the actual painting, they should go to the gallery in New York.
55:25 There is something real here because there is actual value in prints and oil paintings.

Buying Prints vs. NFTs

55:42 Everyone who buys an ordinal will get an actual print; they are not just buying an NFT.
56:01 As far as Peter is concerned, he is throwing in the NFT for free.

Conclusion

56:23 These 50 ordinals could be worth a lot of money if Peter turns out to be wrong about Bitcoin.

58:16 The Future of Blockchain

Section Overview: In this section, the speaker discusses his perspective on the future of Blockchain and how it relates to Bitcoin and gold.

Gold as the Future of Blockchain

58:16 The speaker believes that gold is the future of Blockchain, not Bitcoin.
By marrying gold and Blockchain, he claims that this will be the way forward for Blockchaintechnology.

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