Peter Schiff recently spoke at the January 2021 Virtual Money Show. He explained why the coming financial crisis will be much worse than 2008, and how the Federal Reserve and the US government are driving us toward this crisis with their inflationary monetary policy.
Peter is well-known for predicting the 2008 financial crisis. Today he says we’re on the cusp of an even worse meltdown.
I can assure everybody today that the crisis that’s coming is going to be far worse than anything that was experienced in 2008.”
The cause of the looming crisis is the same – the Federal Reserve and its monetary policy, along with government borrowing and spending that is helping drive the reckless monetary policy. But the outcome will be different.
I think the important consideration this time around is going to be inflation. And I think inflation is the primary factor that everybody should take into consideration when trying to formulate an investment strategy.”
Peter said you should not just consider inflation as an expansion of the money supply and the resulting increase in consumer and asset prices. You need to think of it at the most basic level – as taxation.
Inflation is really a tax. That’s basically what it boils down to. And you have to understand this.”
Governments have two ways of paying for their expenditures. The most honest way is through direct taxation. But that’s not particularly popular with voters and politicians are reluctant to push tax increases.
So politicians, looking to get as many votes as possible, try to find other ways to finance their spending that won’t aggravate the taxpayer.”
The other way is borrowing money. The government sells bonds to willing lenders. In effect, it is pushing taxation into the future. Eventually, the lender has to be paid back and that money must come from the taxpayers of the future. Meanwhile, the taxpayer of today has to pay the interest on the borrowed money.
In other words, when government pays for its spending programs by borrowing, the taxpayers are actually on the hook for an even greater cost.”
Today, the US government faces another problem. It can’t afford to pay a high enough interest rate to private lenders to make lending to Uncle Sam a viable transaction. This is due to the enormous debt the US government has run up. It is well over $27.5 trillion and growing.
The US government has borrowed so much money to try to delay the day of reckoning for so long and kicked the can down the road as we’ve gone deeper and deeper into debt, now that we have a national debt that’s approaching $30 trillion, there is no way that the US government can finance that. Repaying the debt is completely impossible — not with money that has any real purchasing power.”
So at this point, the government is forced to pay for its expenditures through inflation. The US Treasury still sells bonds on the open market as it always has. But now, the Federal Reserve is putting its thumb on the bond market, buying Treasuries and paying for them with money it creates out of thin air.
When the government taxes you to pay for its spending, it literally takes your money. Your money it takes just comes right out of your paycheck if it’s an income tax. Government takes your money and then they give that money to somebody else. And now somebody else spends the money that you earned. You can’t spend it because the government took it and gave it to somebody else. So, your standard of living, your purchasing power, is diminished because you have less money to spend. But when the government doesn’t raise your taxes, if it just prints money and then gives it to that same individual to spend, your purchasing power, at least in dollar terms, hasn’t been diminished. But now you have another guy or gal who is given all this cash that can now go out and spend it. And so what happens is that person competes with you to buy stuff and prices are bid higher. And so the result of that type of taxation is that prices go up. Everything becomes more expensive. So, instead of the government taking your money, the government takes the purchasing power of your money. And that’s a tax.”
The government was borrowing and spending at a torrid pace before the pandemic. Now it is off the charts. Consider the fact that nearly half of the money the government is spending is being printed out of thin air by the Federal Reserve.
So, it’s not really ‘borrow and spend’ anymore. It’s ‘print and spend.'”
Contrary to what a lot of people seem to think, inflation is not a good thing.
Inflation is not desirable. Higher inflation is not making progress.”
Peter called it a reckless monetary policy that is designed to protect the government – not the economy and certainly not the people.
But we’re about to suffer the consequences of all this inflation in a way that’s far greater than what I imagined.”
Peter goes on to talk about where the opportunities can be found in this unfolding financial crisis.