Peter Schiff: The Problem With Phony Prosperity Is That It's Phony


A lot of seemingly positive economic data came out last week, but in his most recent podcast, Peter Schiff said it is just feeding into a delusional economic narrative that ignores the most fundamental storyline – debt. Everybody is talking about a new era of prosperity, but Peter said it’s a phony prosperity and it isn’t going to last.

The May jobs report came out Friday, sending another ripple of optimism through the investment world. According to the Department of Labor, the US economy added 223,000 jobs in May. The unemployment number fell to an 18-year low of just 3.8%. Average hourly earnings rose by 8 cents. Average wage growth came in at 2.7% over the past year. Pundits and prognosticators on the major financial networks were giddy at the news.

But the good economic news wasn’t limited to jobs. Analysts were also excited about the personal income and spending data – particularly spending, which rose 0.6% in April. Meanwhile, income was up 0.3%. Peter put this into some perspective.

Consumers are spending money twice as fast as they’re earning it for the month of April – six-tenths up on spending, three-tenths up on earnings. So, what does this tell you? People are tapping into already a pretty shallow savings pool, or they are running up more credit card debt to buy stuff.”

Of course, everybody likes this. In the short run, this is great because spending feeds into GDP. It can make everybody feel good about this false narrative about the US economy. Despite all of the fundamental issues facing the economy – namely the massive levels of debt – most of the mainstream is exuberant.

America is a sea of prosperity. Our economy is immune. We’re just going to keep on growing, even though we’ve got a rising cost of living, even though we’ve got increasing interest rates, massive debt on all levels, all these big-picture problems that we’ve got, but everybody assumes there’s nothing to worry about. In fact, you look at CNBC, I was watching them, today after the jobs numbers… and they are so excited – to a man. I mean, they’re just giddy, like little schoolgirls, about the stock market. Everything is perfect. Nothing can go wrong. Keep on buying.”

In fact, Trump’s new economic advisor, Larry Kudlow, went on CNBC and declared America is in a new era of prosperity. But as Peter pointed out, these same people were saying the same things in 2005, 2006 and 2007. You know what happened next.

It’s worse now. The economy is in worse shape now than it was before the financial crisis. No question about it. All of the fundamentals are much worse. And therefore, the collapse is going to be much worse. But you’ve got them talking about this ‘new era of prosperity.'”

The entire economy is built on debt. Take the tax cuts for instance. Tax cuts are great because they put more money in your pocket. But there were no cuts in government spending. So, we are simply borrowing more money.

If you make everybody happy by going deeper into debt, you can have some phony prosperity for a period of time. Not a very long period of time, but enough for people to get all excited about it. I mean, that’s what happened in the run-up to the 2008 financial crisis. A lot of people got excited about a phony prosperity, but the problem with phony prosperity is that it’s phony. And when it’s phony, it doesn’t last.

Just like a drug high. It only lasts until the drugs wear off. And the drugs always wear off. You can’t stay high forever. You can try, but it’s not going to work. We’re going to try. We’re going to do QE4. We’re going to cut rates again. But it’s going to end in overdose. It’s going to end in a collapse of the dollar. But the point is, right now, you’ve got all these Republicans talking about how great everything is because we’re living on borrowed money. We’re living in a gigantic bubble. And we know bubbles are going to pop.


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In reply to by wadalt

spiff Cryptopithicus Homme Thu, 06/07/2018 - 13:14 Permalink

That's because they always say the CIA and Goldman Sachs have masterminded their downfall. It would probably take the wind out of their sails a bit if our government and multinational corporations would stop being evil. Probably too much to ask. There's always some form of "that didn't work, but it we just need to try harder." that will feed the narrative until absolute chaos can refresh the cycle. My concern is, have we reached a point where the abject poverty and fear of what will emerge from the chaos is more desirable than the dysfunction we now have, but the system can't collapse because we have reached technological escape velocity where a perfectly ordered hellish nightmare can perpetuate itself indefinitely?

In reply to by Cryptopithicus Homme

Jack Oliver Cryptopithicus Homme Thu, 06/07/2018 - 14:58 Permalink

What option do they have when they are being ASS raped by the Zio/US ???? 

Putin and Xi are the ONLY ones heading in a NEW direction ( a direction the world must take if we are to survive past 2030 ) 

If you condemn you children to the ZWO which equals resources FUCKING theft worldwide by a bunch of psychopathic FUCKING bankers led by the Rothschilds - well - you deserve what is coming !! 

In reply to by Cryptopithicus Homme

LawsofPhysics Thu, 06/07/2018 - 12:40 Permalink

Sure, sure...

...yes, eventually (usually once the majority of people are starving) the debt slaves figure out that isn't "rain" running down their backs...

..Does Peter really believe in infinite growth in a biosphere with finite resources?  LOL!

In the meantime...

"Full Faith and Credit"

Same as it ever was Peter!

MK ULTRA Alpha LawsofPhysics Thu, 06/07/2018 - 13:08 Permalink

I thought about this many times of late, he's correct. This is not real growth it is engineered growth through government spending.

Hurricane spending, increased government spending and military build up, and the tax cut adds up to a great amount of spending. Around $700 billion in new spending by the US government in one year.

It was all borrowed money, no increase in productivity, no export boom, nothing drove this economy except a massive increase in government spending.

The trillions held overseas by multinationals, the reparations didn't or haven't done anything at this point. It was all government pump priming for the mid term elections, smoke and mirrors economics.

This is why the US will run trillion dollar deficits from here on out.

The fake economy? from fake people called Americans, a once wealthy, most admired people, to now, the word American is a dirty word. In twenty years, there will be a global news flash, the last American was hunted down and killed. Like an extinct species the Americans will take their place on the ash heap of history.


In reply to by LawsofPhysics

BandGap Thu, 06/07/2018 - 12:45 Permalink

There are some cuts in government spending. 24000 workers have been let go, probably from agencies who used to enforce regulations.

The shit was going down the day after Paulson "saved" us all. Just a matter of time. Party hard.


Trezrek500 Thu, 06/07/2018 - 12:48 Permalink

It's a game all the western countries are playing, because a currency only crashes if the other currencies against which it is compared, don't crash. A sh*t storm is a very relative proposition. 


It's all about being the one eyed man in the land of the blind.


kikrlbs Thu, 06/07/2018 - 12:49 Permalink

At this point, the only news that would be good economic news is factual information detailing the decrease in debt on any level. You never hear that.

ted41776 Thu, 06/07/2018 - 12:52 Permalink

this economic system was designed to do exactly what it's doing, expand until a point and then implode. and implode is what it's starting to do right now. there's nothing to fix because nothing is broken. all according to plan

innertrader Thu, 06/07/2018 - 12:56 Permalink

While I agree with your premise, the fact is that you AND I have been wrong in the stock market for 10 years, period!





Ron_Mexico Thu, 06/07/2018 - 13:03 Permalink

is it just me, or does Schiff remind you of the guy in the old cartoons who always wore a sandwich board that said "The End is Near. Prepare to Meet Your Maker." ???

Bemused Observer Thu, 06/07/2018 - 13:04 Permalink

Those of us who plan on keeping a low profile, and just getting THROUGH the coming turmoil, are going to be surrounded by hysterical, crying, and very angry snowflakes watching all their phony wealth evaporate. Those who have been through this once or twice before are going to be besides themselves with rage when they get nailed for a third time.

Those wise enough to take some preventative steps would do well to stay under the radar and not stick out. Keep your preps to yourself, and try not to look any better-off than your neighbors. Lose some weight and try to adopt a stressed appearance out in public like everyone else. Those preps will help you re-establish when the time is right, but till then keep them well-hidden.

Those holding PM's should be alert to the anger many of their neighbors will feel if they start spiking...they will be pissed at all the 'barbarous relic' talk, and at themselves for being suckered, AND at anyone who didn't fall for it and stacked instead. So keep that information to yourselves as it could become a focus point for all the rage around you. Also keep in mind that stackers would likely be blamed for any resulting damage to the economy in any scenario where PM's start spiking in value...TPTB will say "It's those greedy gold hoarders who are holding everything back!"

And the crowd will cry out in unison..."Stone them!"


Remember...loose lips sink ships! Ride out the 'crazy' quietly and patiently...your day WILL come.

khnum Thu, 06/07/2018 - 13:06 Permalink

Its not phony; when the bubble bursts the Zionist banksters get the real physical assets hocked for the debt and if your debt is unsecured say a credit card or student loan they can still come at you via sequestration orders and wage garnishment.

rejected Thu, 06/07/2018 - 13:06 Permalink

"Analysts were also excited about the personal income and spending data – particularly spending, which rose 0.6% in April."

Tells me a lot of folks got their income tax refund. 

That $2000 per kiddie pop probably helped along with federale's paying for day care. 

Must be great,,, raised my kiddies back when I had to pay for it, no OPM for us. 

Isn't socialism greeeaaat! ,,, at least for the takers. 

Consuelo Thu, 06/07/2018 - 13:06 Permalink

'Outflows' from Europac accounts have hurt Peter - probably more so than he lets on, but he lets on quite often about clients closing out their accounts on nearly every podcast...

Right or wrong, 'doomers' need doom - their philosophy and attendant business practices depend on it.   It's the bed they made and when the doom finally does arrive, $profiteering off it may not come quite the way they had planned.



IDESofMARCH Thu, 06/07/2018 - 13:06 Permalink

When you with money you earned you buy the cheaper one. When you buy with someonelses money you splurge. 

Money is cheap debt is King if you maxout one credit card just get another card, lots of plastic around. 

Al Huxley Thu, 06/07/2018 - 13:19 Permalink

It's pretty fucking real prosperity for the upper class, and enough prosperity will buy you a lot of armed guards and gated communities to protect your stuff from the masses suffering from 'phoney prosperity'.  Not sure why Schiff pretends not to understand this dynamic.

snblitz Thu, 06/07/2018 - 14:12 Permalink

debt is not itself bad.

Using debt to invest in productive assets or processes is a good thing.

If the investment rate of return is greater than the cost of the debt go for it!

On the other hand, financing consumption long term leads to laying dead in the gutter.

If you must finance your food, so long as the debt carries a positive interest rate, you will lose in the end.  It does not matter if the interest rate goes up or down.  The gutter is still coming for you.

Financing consumption is a clear sign of a sick economy.

Financing productive assets is a sign of a healthy economy.


silverer Thu, 06/07/2018 - 14:19 Permalink

That's all good and wonderful, if you believe or not believe the economic analysis. Debt is a unicorn's dream when you don't think you'll be around long. Nothing matches the visceral excitement that will be created by an all out nuclear WWIII, so don't worry about debt. It will be blown away.

Quivering Lip Thu, 06/07/2018 - 14:31 Permalink

Total US household wealth as of 3rd quarter of 2017 was $96,700,000,000,000.

Total amount of currency in circulation $1,635,000,000,000 as of the first quarter of 2017.

Only leveraged at 59 times. Sounds pretty phony to me.

Just imagine a bank run 1929 style. Sorry people your wealth is not real it's just a column in a ledger.