Over the last few months Peter Schiff has been increasingly vocal about today’s massive bubbles in nearly all asset classes. All while predicting some sort of apocalyptic market destruction. As the video below suggests.
And while I agree with Mr. Schiff about many of the things he talks about, I believe he is dead wrong in terms of how we get there.
You see, Mr. Schiff expects a currency crisis (the USD collapse) and subsequent inflationary spiral. Due to the FED cutting interest rates and introducing additional rounds of QE the next time the stock market/economy collapse. Something that can happen at any day now.
I couldn’t agree more, when the next recession hits, the FED will do what they always do. Cut interest rates back to zero and introduce additional rounds of QE. Yet, the outcome might be very different this time around. And that is Mr. Schiff’s primary mistake.
DEBT…..
Today’s total National and Personal debts stand at around $40 Trillion. Throw in unfunded liabilities such as social security and the picture gets even uglier.
You see, the FED can lower interest rates to Zero while initiating additional rounds of QE, but they cannot force individuals and businesses to borrow that money for productive capital spending. That is why we have seen massive inflation in speculative assets and haven’t really seen it in the real economy.
Many would argue that we are about to see such inflation, but I would disagree. When stocks collapse and the economy goes into a recession, a deflationary spiral will take hold. Erasing today’s inflationary expectations overnight.
Again, debt is deflationary in nature and always has been.
As a result, instead of the USD collapsing in value, it will surge. As those who attempt to repay their debts seek out smaller and smaller pools of actual cash/dollars. It is only after the fact, after bad debts have been liquidated, that an inflationary spiral Mr. Shiff expects will take hold.
Understandably, TIMING is the key. Trust me, you don’t want to be stuck in inflationary trades while deflation takes hold. And vise versa. If you would like to find out exactly when/how these things will play out, please CLICK HERE
