Schiff: The Phony Economy Must Die

Via SchiffGold.com,

Peter recently joined Francis Hunt on his Youtube channel, The Market Sniper, for an interview. Throughout the course of their conversation, they cover the future of gold, destructive campaign promises made by Kamala Harris, soaring deficit figures, and why the public is mistaken about gold ETFs.

Francis begins by asking Peter about the similarities between today’s economy and the economy in 2006 and 2007. Many of the Great Recession era problems linger, but we have even more debt:

“The problem is that after we got the financial crisis, the government didn’t learn from its mistakes at all. The Federal Reserve didn’t acknowledge any role in creating the crisis and it simply did more of what caused it. And so now, a dozen years later or more, the economy is in much worse shape. We have far more debt now than we had in 2008. We have a much bigger bubble that encompasses a lot more than just residential housing. And we’re on the precipice of a much greater economic crisis from which there could be no bailouts because the way they were able to bail everybody out before was to create inflation.”

Meanwhile, gold is having a killer year– its best in over 40 years. With the Fed already cutting rates, the stage is set for the metal to have its best year ever:

“Gold is on pace to have its best year percentage-wise since 1979. And it’s already its best year dollar-wise. Gold is up over $600 an ounce so far this year. But percentage-wise, it’s the biggest since 1979. But 1979 was significant in that that was the end of the gold bull market, because 1980 was the top and gold turn, because Volcker raised interest rates up to 20%. But Powell and his cronies are about to cut rates, or they already have cut rates, and they’re going to cut them more in 2025.”

The presidential candidates have only one answer to complaints about the economy, and it’s to create even larger deficits:

“She [Kamala Harris] wants to give everybody $25,000 to go out and buy a house, $50,000 to start a business, $7,000 to have a child. Where’s this money going to come from? It’s going to be bigger deficits that the Fed is going to have to monetize. Everybody’s talking about tax cuts. Even though we have massive deficits, people want to make the deficits bigger.”

At this rate, debt maintenance is primed to surpass tax revenue:

“We could easily add $25 trillion to the national debt. I mean, it’s already $36 trillion. I mean, it’s growing exponentially. Interest on the national debt is larger than defense. It’s over a trillion a year. In a couple of years, interest on the national debt will be bigger than either Social Security or Medicare. And both of those expenses are growing. But probably by the end of whoever wins this presidential election, I think that interest on the debt will consume 100% of tax revenue.”

The economy must detox from decades of artificial and cheap credit, wasteful government spending, and insufficient saving. This will be a painful process, but it beats the alternative:

“And so the only way to get back to a real economy is to allow the phony economy to die. But that means a lot of people lose a lot of money. But the alternative is they lose even more because then nobody loses their money, but the money loses its value. So we don’t default on the bonds. We don’t default on Social Security. Everybody gets their Social Security checks. They just can’t buy anything when they take the money to the store.”

Peter and Francis wrap up by discussing Bitcoin’s recent performance. They agree that retail investment is a contrary indicator. Money has been flowing from gold ETFs into Bitcoin ETFs, when the reverse would be more profitable:

“While the public has been wasting their money buying Bitcoin ETFs, they’ve been pulling their money out of gold ETFs. Gold ETFs have had net outflows this year. Gold stock ETFs have also had net outflows, despite the fact that this is the best year for gold in 45 years. So, the public has been selling gold the whole time it’s been going up, and they’ve been buying an asset that’s gone nowhere.”

Check out Peter’s other recent interviews on Schwab Network, Rocks and Stocks, and Wall Street for Main Street.