Peter Schiff appeared on Kitco News with David Lin to talk about the investment implications of the upcoming US elections.
Peter said he doesn’t feel good about the election and that he thinks Biden will likely win. He said the Democrats may even gain control of the Senate. So, what would a Biden win mean for the economy?
As reckless as the Republicans have been with borrowing and spending, I expect the Democrats to be even worse. And unfortunately, unlike when Obama was president and you had some pushback from the Tea Party in the Republicans to kind of rein in Obama and keep him from borrowing and spending as much as he would have liked, that opposition is not going to exist anymore. Basically, the Tea Party is dead. Trump helped kill it.”
Peter said with the ramped-up spending will come even more money printing and that will lead to inflation running out of control.
Peter noted that Trump ran on shrinking the trade deficit. Last month, the US charted the largest monthly trade deficit in goods in the history of the country.
Our trade deficits with China have never been bigger. Our trade deficits with Mexico have never been bigger. So, if we were losing on trade before Trump was elected, we’re losing even bigger since he’s been elected. So, the budget deficits are out of control. The trade deficits are out of control. Government is bigger than ever, spending more than ever, borrowing more than ever. The Federal Reserve is printing more than ever. We are further away from greatness than we have ever been.”
As result, Peter doesn’t think a lot of people will be willing to take another chance on Trump.
I think more people now are going to vote Biden if they want change, even though, clearly, Biden doesn’t represent change. He represents a continuation of the failed policies. But Trump isn’t change either because he’s the incumbent. So, I think when times are bad and voters are frustrated, the tendency is to throw the bums out, even if it means putting another bum in.”
Peter said a Biden win would almost certainly mean a big increase in taxes, especially if the Democrats control both houses of Congress.
You’re talking about a dramatic, maybe even an unprecedented increase in the taxation of corporate earnings, which is going to have a dramatic impact on the value of companies.”
Stimulus could somewhat mitigate the impact of higher taxes on stock values. Peter said a Biden win would likely mean an even weaker economy. That would likely lead to even more borrowing, spending and money printing to keep things propped up.
Bad news is good news. Why is bad news on the economy good? Because it means we get more stimulus. We get more money printing. That is the only thing that’s driving the stock market. So, they’re looking at the bad news of a Biden win as being good for the stock market, not because it’s good for corporate earnings, it’s not. Corporate earnings are going to get crushed under Biden. What the markets care more about is the stimulus. The stimulus trumps the earnings. I don’t even think earnings matter in this market anymore.”
Despite the market reaction, Peter said he doesn’t see anything bullish about a Biden victory.
I don’t think the money printing and the deficit spending is going to be enough to compensate for the lower earnings in a weaker economy. And I think the market is already so overvalued from past stimulus that I don’t think the future stimulus, even if it’s bigger, is going to have anywhere near that impact.”
More stimulus means more dollars printed – the very definition of inflation. It also incentivizes people not to work. We end up with a phony recovery instead of a real recovery. That’s bad for the dollar.
I think once the dollar starts to fall, it’s going to turn into a freefall. That is the crisis that’s coming. It’s not going to be a financial crisis. It’s going to be something so much worse than that. It’s going to be a US dollar crisis, which means it’s also going to be a sovereign debt crisis.”
Peter said he doesn’t see any other currency replacing the dollar.
I see gold replacing the dollar. I mean, the dollar replaced gold. So now, gold is going to replace the dollar.”
As Peter noted, central banks already hold gold.
It’s there. So, all they have to do is increase their ownership of gold to replace the lost value of the dollar. And a lot of the transition is going to take place in the market. When the price of gold moves up – right now it’s at around 1,900 – when it goes up to 10,000, 15,000, 20,000, that means that by default, the reserves that central banks have, now their percentage of gold reserves is going to increase.”
In the short term, Peter said gold has done well under Trump and it can shine even brighter under Biden.
The economy is going to be far weaker under Biden. Everybody can see that. The deficits are going to be much bigger. The Fed’s going to be printing a lot more money. That is very bullish for gold.”