Why the Air Is About to Come Out of America's Bubble Economy - Peter Schiff



so I'm going to kind of continue to talk from earlier today and by the way if anybody has any questions I will try to answer them at the booth outside where I have the booth over at Gold money and if you have any cards that you filled out earlier today you can hand them back to me in fact if you didn't get a card you want to fill up your name get on my mailing list I will you can grab some at the booth or here pass them up but now the US economy is probably the most important economy from the perspective of most investors you know we are the largest economy you want to measure it by GDP we are certainly the biggest debtors Americans borrow money from every other country we borrow money from the poorest people in the world are lending money to the United States we are the world's biggest importer of course we don't pay for our imports with exports like a lot of other countries do we just issue IOUs so the world loans us the money that we need to buy the products that they produce and they're loaning us money now at the lowest interest rates in history I mean why is that I mean why is America able to borrow so much money at such a low rate of interest I mean you're talking about interest rates that have never existed and of course it's not just the United States other countries are able to borrow money at rates that have never been known in recorded history but if you think of interest as the price of borrowing money what determines prices supply and demand so why would a society have low interest rates well it would be a society that had a lot of savings lots of people were under consuming and saving and very few people were borrowing does that sound like the United States it's actually the opposite of the United States right nobody is saving you'd have to be a moron to save but most people can't afford the same they can't even afford to spend right they have to borrow they don't earn enough money have to go into debt in order to spend so there's no savings and of course governments there's massive amount of government debt and not just the federal government the federal government has a twenty trillion dollar national debt but that's the tip of the iceberg right there's a lot more beneath the surface the government guarantees all the student loans it guarantees all the bank accounts it guarantees all the pensions where's that liability it's not part of that 20 trillion dollars but obviously a lot of those contingency liabilities are going to be real then the government has all sorts of debts like Social Security Medicare now Obamacare Trump care maybe who knows but the government has committed the taxpayer to all sorts of liabilities that are just as real as that twenty trillion dollars because believe me people who are expecting Social Security they you know they expect that money same thing for people who work for the government and are expecting a government pension those government pensions are real liabilities just like the bonds that creditors bought so you add all that debt together and you're talking about a 100 trillion dollar plus number and then you've got US corporations that are loaded up with debt why do you think the stock market so hot because companies are making all these profits now companies are able to buy back their shares with debt they're able to sell bonds at very very low rates of interest and then take the proceeds and buy back their own stock and push up the value of their shares what about American households do they have any savings don't they're loaded up with debt you know one of the statistics I hear which is really not not true is that oh well you know American household debt is you know is not as bad as it was let's say in 2008 it's actually worse in fact if you look at US household debt it has now eclipsed the levels it was at just before the 2008 financial crisis so we had a crisis that was brought about by excess debt and now we have more debt today than we had then but it's actually worse because mortgage debt has actually come down rather significantly so if mortgage debt has come down how is it that Americans have more debt now because you know the homeownership rate in the United States has fallen to near a 60-year low so a lot of Americans that had homes and mortgages in 2008 don't have either today right so you can't have mortgage debt unless you own a home and a lot of homeowners are now renters so they don't have that mortgage debt but what else they don't have is they don't have home equity see in 2008 a lot of Americans had houses that exceeded the value at least on paper of their mortgages so they had an asset as part of their net worth today for a lot of Americans that asset is gone yet the debts are still there so why do Americans have more debt today despite the fact that many you know a lot of Americans don't have mortgages and that's because of credit card debt it's because of student loans and it's because of automobile debt right you have over a trillion dollars in each of these categories if you add up all three you've got over three and a half trillion dollars of student loans credit card debt and auto debt that has been what has been fueling u.s. consumption it hasn't been income it's been debt it's been the ability to buy things that you can't afford on credit with cheap money now of course some people will point to the low unemployment rate to save all the US economy is a good tip because look how low the unemployment rate is right as the lowest it's been in like 50 or 60 years well if unemployment is really that low all right first of all why did so many people vote for Donald Trump that the economy is that great and why you know why didn't people want more of the same why didn't people vote for Hillary Clinton so that you know all that great stuff would continue why did people want to change something that's so good because that number is nonsense the way the government measures unemployment is a guess similar to the way they measure inflation the number is not designed to be accurate it's designed to paint a rosy scenario so that people believe that things are better in the US economy how did the unemployment rate get to be so low is it because so many Americans that used to be unemployed are now working now it's because so many Americans that used to be employed aren't even looking for jobs and if you're not looking for a job then you're not counted as being unemployed but the other way that the government was able to manufacture all this employment is by Counting people who have part-time jobs as being employed guess once upon a time if you had a part-time job that didn't count especially if you were looking for full-time jobs because sometimes people take a part-time job just to make ends meet while they're looking for a full-time job so if you still spend most of your time looking for work you're unemployed right if you're if you're an engineer but you're you know you're cooking french fries you know for 20 hours a week and then you're spending the rest of your day looking for an engineering job you're an unemployed engineer you're not a fry cook but now if you have any job even if you work an hour a week you're employed even if you spend the other 40 hours looking for a job you don't count as being unemployed and in fact if you have more than one part-time job but all of your part-time jobs together add up to a full-time job all those part-time jobs get scored by the government as being full-time jobs so that's one of the reasons that we were able to create 200,000 jobs a month month after month under Barack Obama it was because we had this massive transition in the US economy from full-time employment to part-time employment and a lot of that was driven by Obamacare itself because when Obamacare was passed the the law said that if you are an employer and you have 50 full-time workers you have to provide very expensive health insurance for every one of your employees and so what that law effectively did was say that you're not going to have more than 50 employees and an employee has to be somebody who works full-time you have to work 30 hours or more so what the employer said okay we're not going to have more than 50 full-time employed employees and it's actually worse like if you own a bunch of franchises let's say I own a bunch of McDonald's franchises because sometimes people own more than one restaurant if I own five restaurants and collectively all five of my restaurants have 50 employees I got to pay health insurance for everybody it's not it's not per restaurant right so people that owned a number of these small restaurants knew okay I can't have full-time workers so all throughout the United States employers were transitioning from a full-time workforce to a part-time workforce because it was too expensive to employ part-time people because of Obamacare now what does that do to the numbers well that means all sorts of jobs are going to be created look at employment in the United States you can look at employment in the restaurant industry in waiters waitresses off-the-charts we've created so many jobs yet fewer Americans are actually eating out look at what's happening to a lot of the restaurant stocks same thing in retail we've created all these retail jobs yet retail store after store in America is shuttering shuttering in fact the retail industry in the United States today is in worse shape if you look at store closings and layoffs I mean two store closings rather and bankruptcies retail is in worse shape now than it was in 2008 so if restaurants and people aren't eating out and if people aren't shopping at brick-and-mortar stores why has there been so much hiring why have we created so most jobs in these sectors ten percent I think ten percent of all the jobs created under Barack Obama we're created in retail restaurants or stores how is that possible again it's all because of the part-time people if you lay off a full-time worker and you replace them with two part-time workers that's plus one job right when they report the job they don't report quality of jobs they take this report the net so if you lose a hundred thousand full-time jobs and you create 200,000 part-time jobs that's plus 100,000 and in fact if you look at Americans now the number of Americans who have two and three jobs at all-time record high so many Americans now working three jobs but they don't even make as much money now as they did when they had one real job and we've lost a lot of productive jobs a lot of goods producing jobs and we have all these low-paying service sector non-productive jobs which is why the trade deficit keeps going we're employing all these people why don't we see a reduction of trade deficit because they're not making anything right they're employed but they're not productively employed and so when they spend their paychecks they have to spend it on products that were made in other countries and so more and more stuff is being imported so you see the trade deficits going up they're not going down I mean if America had a real economic recovery you would see our trade balances to decline I mean people like to say oh no when people are wealthy they go out and spend more no when they're wealthy they produce more right production is the sign of affluence right debt and consumption or not right or the sell America is this you know prosperous economy and that's why we're going into debt a sign of prosperity is getting yourself out of debt right when you're paying off your liabilities and you're accumulating assets that shows that a nation is as advancing but what the United States has been doing is we've been accumulating debt but we put out all these statistics and people look at all the the you know the unemployment rate is so low the GDP keeps growing well why is the GDP growing well GDP I think is really growing is because the inflation the actual inflation the US economy is being underestimated and you know the government I just read that government economists are now claiming that inflation is being overstated right that actually that they need to change that the measurement again the last time they did this was in a Baskin Commission right back in the 1980s the government said hey our inflation measures are wrong and we got to go and refigure it because the numbers are too low right they said that the official numbers were under estimating inflation and so they went back and they they change the way they calculate inflation and what do you know now inflation is lower right not because prices are rising more slowly it's just because of the way that we measure the rise and of course what are the what are the politicians saying again are the economists they're saying that the current way that we calculate inflation is still not giving enough credit for improvement in quality so they're saying we've got to make more reductions because things are getting so much better there they don't really cost more we're just getting so much more for our money but you know from my perspective there are a lot of things where the quality is going way down in fact there's probably more examples where you get less for more and none of that gets factored in to the CPI I mean all sorts of things that you used to be able to buy that we're fully assembled now you buy it and it's in 100 pieces and you got to put it together yourself and it takes you three or four hours what's your time worth right according to government nothing all right so there are a lot of products where it's going the other way but all this government is trying to manipulate so our nominal GDP growth in the United States has been minimal right we haven't even had under under Barack Obama we didn't have one year of 3% growth generally we had growth of under 2% we had 1.2 is what the government estimated annualized for the first quarter for the US and that's despite the fact that we've had the lowest inflation at least via lowest official measures of inflation ever well I think if we had a more accurate a more honest measure of inflation the result would reveal that the United States has pretty much been in recession for the entirety of this recovery and I mentioned it my talk earlier today that this is the first recovery that is actually weaker than the recession that we recovered from right it's the first recovery where people are poor at the end at the beginning right real net worths went down during recovery real wages fell during the recovery it doesn't sound like a recovery and the reason is because it's not the government manufactured it with statistics but the statistics didn't fool the voters that's why the voters elected Donald Trump because they want to change but unfortunately they're not going to get changed they're going to get more of the same because I think we are now and I mentioned earlier headed for a complete collapse of this system I don't think there's there's much more air that can be put into this bubble right the 2008 financial crisis was a sign that the the end is here or end is near that that was the beginning of a process but the fact that the central banks and not just a Federal Reserve but central banks all around the world have had to pull out the stops to try to keep the wheels from coming off this bus I mean you've got interest rates now in in Europe that are negative in Japan they're not negative here but real rates are negative in the United States because if you look at even the government's own inflation measures as bad as they are still show that we have negative interest rates in real terms and the reason that central banks have been able to con the world into accepting this is the idea that there's no inflation that there's never going to be inflation well this is about to change if you look at measured inflation rates around the world as bad as these numbers are you're still seeing official inflation in the United States Europe and Japan around five five six year highs all these all these central banks now even in in Europe the the CPI now is 1.9 percent year over year increase that's it that's that they can't let it go any higher right if you ever listen to Mario Draghi he always says that the the goal of our monetary policy is to have inflation close to but below 2% well that's it 1.9 you can't really get much closer than that and if you get the 2 point if you get to 2 that's too hot so they're going to have to start backtracking but people are going to find out and central bankers are going to find out that inflation is a very called genie to put back in the bottle and you cannot stop on a dime I mean this whole inflation targeting is complete nonsense that we need some positive amount of inflation as if inflation is actually beneficial that without inflation right and when I say inflation they really mean rising prices right so economists think we need prices to rise by almost two percent a year and if they don't it's going to be a disaster right price is going up only by 1% why is that a problem if the cost of living goes up 1% why is that worse than the cost of living go up 2% and what's the problem if the cost of living goes down I mean isn't that a good thing right if my costs are lower if food is cheaper if education is cheaper if health care is cheaper what's wrong with that right I mean my cell phones get cheaper no one complains about that that's not a bad thing computers get cheaper all right this whole stuff is a bunch of nonsense the government's are trying to justify inflation by trying to claim that it's good for us it's not good for us it's good for governments it's good for debtors and but what's going to happen is as these inflation rates pick up and they're going to pick up in the United States as well what is the what are the central banks going to do particularly United States nothing it's all talk and no bite so the US economy as I said earlier this phony recovery is about run out of steam right we've this recovery has been going on for 8 9 years something like that it started 2009 it's already I think the second or third longest recovery in US history it is the weakest recovery in US history even the way the government measures it but it's required more stimulus we've had more government stimulus than ever before more money printing more artificial and all they can produce is one of the weakest recoveries ever but according to the budget that Donald Trump just submitted to Congress it's going to last for another 10 years America is not going to have a recession according to Trump for at least another ten years and according to trump the economy is going to grow by 3 percent average during those 10 years that we have no recession despite the fact that we haven't had one in what eight eight years which would mean that if the Trump budget is correct this is going to be the longest expansion in US history and it'll be more than twice as long as the the second longest right none of this stuff is true and and so once the economy turns down which it will I mean we could enter recession this year we could be there and remember the government doesn't admit you're in a recession in many cases until it's almost over remember the Great Recession of 2008 I was going on television shows summer of o8 talking about this recession that I thought was coming we were already in it right and I you know but the people I was arguing with were saying oh no there's no recession coming everything is great in mid-2008 but when they went back and tried to figure out the beginning of the recession they went back and changed all the GDP numbers and they went back to the fourth quarter of 2007 and they said that's when the every session began but they didn't admit that till it was close to the end of 2008 and then they went backwards and they said all the numbers that we gave were wrong so the first quarter which the government said we grew at one point two percent who knows six months from now nine months we thought they can go back and say no the economy contracted we got some numbers wrong you know a lot of the numbers are just guessing anyway and again the inflation numbers are much too low to be to be believable but we go back into recession and the Federal Reserve is going to what do they do ready to cut interest rates but how much are they going to cut them they're almost at zero I mean even if they succeed let's assume they raise interest rates again in June right the markets figure the odds of that are a hundred percent if that's true despite how bad the economic data is because remember the Federal Reserve has been saying the whole time that their data dependent meanwhile the data that they claim on that they claim to depend on has been lousy right one of the reasons I thought the Fed was not going to raise race was because I thought they would you the week data is an excuse not to raise rates but they were dumb enough to raise rates anyway and it's not because we don't need higher interest rates they should be much higher but the Fed doesn't care about doing what's right the Fed cares about kicking the can down the road and just you know kind of putting band-aids on a cancer because they don't want anybody to know how bad it is and and so when we have this next downturn since rates are only 1% even if they even if they raise them again right there'll be one to one and a quarter if they raise them one more time and then we have recession how much can they cut from one to zero how much stimulus is that going to be so where is this stimulus going to come from the Fed has already said it quantitative easing they're going to do it all over again because they're convinced that works so great the first time well it never worked the first time that's why the recession was so bad because the government interfered the government didn't allow the market what was what what should the Federal Reserve have done in the aftermath of 2008 they should have recognized that their policies caused the problem that it was keeping interest rates too low that caused the speculative excesses and the economic imbalances and they should have allowed free market forces to correct the problems that they created instead they made all those problems bigger and they bought us another phony recovery but now we're going to have to deal with a real recession because when the Fed has to go back to QE 4 that's it when they when the Fed did the first round of QE 1 the dollar started to fall gold rose up to 1,900 dollars an ounce and because people began to be worried this is not going to end well this is bad this is going to kill the dollar they were right but then they became convinced they were wrong because all of a sudden the Fed announced we're going to end this policy we're going to taper quantitative easing and everybody started talking about what a success the program was because now we're going to end it right yeah I mean it's easy to proclaim a success it's easy to say we're going to end up ended without actually doing it yes they've succeeded in raising interest rates up a tiny bit but have they normalized them not even close has their balance sheet shrunk no not by a dollar they have they have not only have they not allowed any bonds to roll off but they reinvested every nickel and interest every every interest payment that the Federal Reserve has received on any bonds that it owns it's used that money to buy more bonds so the Fed has not been able to unwind this policy at all they've Nuns interest rates up a little bit but they're already setting the country up for the next recession and I think this one is going to be worse than the Great Recession we have far more debt now than we had then all the banks that were too big to fail well they're much bigger now and they'll fail again so they're going to have to go back to QE 4 and when this happens the world is going to recognize wait a minute if they were not able to normalize interest rates the last time if they couldn't shrink a four and a half trillion dollar balance sheet how are they going to shrink eight trillion dollar balance sheet or 10 trillion dollar balance sheet who knows how big this balance sheet is going to have to get right as a result the next quantitative easing program I mean we go into the next recession they're going to have a tax cut right the government is going to cut taxes no one's going to be against the tax cut in a recession and of course we're going to have this big infrastructure spending right the government's going to try to stimulate the economy by borrowing money and fixing roads or building bridges so if our deficits are already seven eight hundred billion I mean the national debt actually grows in America by about a trillion a year but somehow the budget deficit is not quite that high because a lot of the debt is off budget but doesn't matter if it's off budget we saw up a financing but if we already have budget deficits of close to a trillion dollars a year during the recovery where are they going to go in the next recession right in the Great Recession they shot up to a trillion this time they can go to two trillion now how was the US government going to borrow two trillion dollars a year on top of all the money they have to borrow because our national debt is financed with short-term paper right it's all like an adjustable rate mortgage the government doesn't borrow for 30 years it borrows for 30 days now of course the Federal Reserve is pretending that it's going to unwind its balance sheet now the reason I say it's pretending is because it can't do it because if we're going to run large budget deficits how is the Federal Reserve going to sell bonds in competition with the Treasury see a lot of people say well the feds not going to sell they're just going to let the bonds mature and not roll them over that's the same thing because if the Federal Reserve doesn't roll over its debt then the Treasury has to sell an additional amount of debt that's the same amount that is enrolled over to repay the Fed because the Treasury doesn't have dollars the Federal Reserve creates dollars the US Treasury can't create any dollars so if the US Treasury wants to get dollars to repay the Fed it has to borrow them in the market and if it's not barrings in the Fed it has to find a private buyer so can you imagine having two trillion dollar deficits and at the same time the Federal Reserve or the Treasury having to borrow another 500 billion to pay off the Fed so where who's going to do who's going to be buying all those bonds nobody who's buying bonds now I mean no real investor is buying US Treasuries 10-year Treasuries at what 2% whatever they're at or 30-year Treasuries are not even 3% nobody is dumb enough to think that's a good investment the buyers are foreign central banks the buyers have been the Fed the Fed is holding on to a huge portfolio of long-term Treasuries banks have them because they're required to have them as collapse peculation what happens is people borrow money short and then they buy Treasuries and they live off the carry you know if you can do that with a lot of borrowed money you can make money but there's no real investors in this market but I think that when the Fed goes back to QE 4 nobody is going to believe that this is a success nobody is going to believe that it's going to end and as the official in numbers continue to move higher right and the feds inflation rate is two-and-a-half percent three percent three and a half percent four percent and it can go there very quickly I mean we're not too far we're you know we're at 2.3 2.4 percent right now we're already above their so-called 2% level remember 4% inflation is where Nixon imposed wage and price controls we're going to go through 4% inflation the feds going to do nothing and why can't they do anything cuz it's impossible because we have too much debt what would happen what would happen if interest rates went up to 5% what would the interest be on a 20 trillion our national debt a trillion dollars a year that's about four times what we spend right now where the US government get the extra right to pay the higher interest what would happen in the housing bubble if mortgage rates went up what would happen to corporations if interest rates went up what would happen to commercial real estate in the United States it would all implode the whole house of cards is being held up by these artificially low interest rates the only way we can service this debt is with these low interest rates I mean we can never repay it and when our creditors figure that out that's when they want their money back that's when the music is going to stop so what's going to happen is as we go to QE I don't think the foreign central banks are going to be financing it again remember Donald Trump well we'll label people currency manipulators right no one's going to want to just start printing money and buying up dollars to artificially prop up the dollar where Trump is publicly calling for a weaker dollar and trying to single out countries that are manipulating the currency markets what they're really doing is propping up the dollar but when they stop propping up the dollar it's going to collapse and I think that ultimately the Federal Reserve sacrifices the dollar it's the one thing that they don't care about because they want to keep the bond bubble inflated they want to keep the real estate bubble inflated they want to keep the stock bubble inflated and the only way they can do that is by printing money and trying to postpone the pain but by doing that they just make the pain that much worse all these bubbles are going to deflate because eventually the Federal Reserve is going to have to choose between turning the dollar into monopoly money having hyperinflation or reluctantly and and much too late eventually letting interest rates go up and not just going to go up a little they're going to up a lot they're not going to stop at 5% remember under under Ronald Reagan and Paul Volcker they went to 20% if they can go to 20% back then when the United States was in much better shape economically we were we had a much better balance sheet in 1980 than we do today so if they can get to 20% then they can go there again and imagine what happens in the economy when that with if that's the case I see here that amount of time so if anybody has any questions about this or what to do again I had to talk earlier about how to prepare your portfolio but I don't think this is something that's going to happen off in the distance I mean this is something that is going to happen soon as far as the scheme of your portfolio and your investments and the quicker that you can insulate yourself from this the quicker that you can devise a portfolio that will profit from this I mean there are going to be people that are going to make money from what's going to happen I mean far more people are going to lose money and more important than losing money they're going to lose the purchasing power that's associated with their money you're going to have a lot of you know poor people that are that are rich in paper currency but they're not going to be able to buy anything so the key is preserving your purchasing power and owning the assets that will retain that purchasing power and actually grow in purchasing power as this crisis unfolds thank you [Applause]




Comments
  1. I love this guy. There will be no antiques for this era because everything produced is JUNK. That cheap crap is putting quality manufactures out of business. The very people that care about what they make can't produce because this economy is killing them off. When money is king life becomes meaningless.

  2. Its now 2 years later (2019). He pushes a very lame mutual fund and gold. What Washington is going to do to stave off disaster is gut SSA and Medicare. I don't hear him warn about that much. The media will downplay it and ignore it and treat it like a non-event. That's where the screw job is coming.

  3. Inflation…? I remember when coffee was 16 oz. and now it's 12 oz a can… same price. How many products have you seen that you get less? Tuna in a can, more water than tuna. WTF! Talk about playing with the Inflation rate!

  4. Well Peter you nailed it, the Federal Reserve is the biggest scam in history. Think how Trump could make history by shutting down the Federal Reserve and the Government start issuing it's own currency called Trump Dollars. I guess I dreaming because he's just like the rest of the swamp he referenced:)

  5. Just give me my Social Security contribution that I have been putting in since 1986. I think you will be about 1.5 million dollars coming my way. My Social Security is not a debt, it was stolen, mismanaged and squandered on other programs…..Not cool.

  6. what peter is not saying that when this starts, crime be rampant ,my thought, it;s already started .i would not want to be near cities involved in sanctuary for illegals .

  7. Peter has been preaching "the world is going to collapse" for over a decade now. Tell me 1 country that can succeed the US as the worlds financial back bone?

  8. Unfortunately it seems we are for another round of a market selloff and more people will end un losing than winning.

  9. I think he needs to look at world debt and state of most countries after WWII. Europe woud be collapse long ago if it was that simple.

  10. The market is run by the fed and the can make it go anywhere they want. Don't play this game, if you do you will become a slave.

  11. Interests rates go down, oil prices rise. All consumer prices rise, particularly food, because of the cost of fertilizer and fuel for transportation. Price of oil comes down, price of food and goods remain high, probably due to the costs of acquisition of bankrupt farms? Why bankrupt farmers? Because retail costs and wholesale costs are two different things.

  12. So the 2008 was based on sub prime housing loans. 2018 will be sub prime auto loans. Heard it here first. The auto industry is doing the same as the mortgage people did. Soon the cars will lose their value just like houses did. The bubble is ready to pop.
    Hopefully we don't bail out the auto industry again to prop it back up but it's likely they will so it wont be so bad I guess…. just more air in the bubble.

  13. I like Peter, followed him for years…invested in gold and silver…have money in gold money…but, he has been saying this for years…and nothing yet… Still waiting for the looking 2ed predicted crash.

  14. Schiff is smart but he's been tragically WRONG for at least a decade now, predicting imminent economic disaster and $8000 or 10k gold prices, complete JOKE by now.

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