Peter Schiff: Expecting A Strong Dollar From Trade Wars Is "An Asinine Theory"

Via SchiffGold.com,

It looks like we’re heading toward a full-blown trade war.

As the war continues to escalate. Pres. Trump has levied more tariffs on Chinese imports in retaliation for China’s retaliation after the US announced its first round of tariffs. A lot of people seem to think this is bullish for the dollar. In fact, the greenback has surged in recent weeks. But in his latest podcast, Peter Schiff said this is a bunch of nonsense.

Peter accurately describes these tariffs as “taxes.” But despite the fact the world seems to be hurtling toward an all-out trade war, Peter noted that US stock markets haven’t reacted as negatively as one might expect. The Dow has certainly dropped, but not precipitously. And the Russell 2000 – representing smaller companies – has actually continued to gain ground.

Peter said this indicates that investors seem to think the US will win the trade war, or that it at least won’t significantly impact the US domestic economy. Peter called this “nonsense.”

Nevertheless, the nonsense continues to drive the dollar higher. The dollar index has climbed above 95. Keep in mind, it was trading in the 88 range back in February. That was from a high of 105 in early 2017. The strong dollar is a big reason for the recent weakness in gold.

As Peter noted, everybody was bullish on the dollar in 2017 because of rate hikes. We got the rate hikes, but the dollar fell. Peter said now we have some other misconceptions that are powering the dollar.

The thinking is – at least when it comes to trade – is that the dollar is going to benefit from a trade war, which I think is wrong. I think it’s just as wrongheaded as the concept that the dollar is going to benefit from larger budget deficits.”

Peter called the notion that budget deficits make for a strong dollar an “asinine theory.” The big deficit coupled with the Fed shrinking its balance sheet means we will see trillions of dollars in Treasuries hit the market.

The thinking is this is going to absorb all the dollars out there and there is going to be a dollar shortage, which is complete nonsense.”

As Peter points out, once the government gets the dollars, it spends them right back into circulation. There’s no shortage.  Furthermore, Treasuries are really nothing more than interest-bearing dollars.

You’ve got a Treasury, you’ve got a dollar. I mean, what’s the difference between a 30-day Treasury bill and a dollar? You know, they’re pretty much the same thing. The only difference is people don’t readily spend their Treasuries, right? They don’t go into a store and purchase something with a Treasury. But they can. They can cash it in and buy something. But they’re effectively dollars. So, even though the Federal Reserve, in theory, will be shrinking its balance sheet, the US government will be expanding its balance sheet.”

Practically speaking, the supply of dollars is really the supply of Federal Reserve notes and Treasury notes. They’re all notes. They are all promises to pay dollars. The only difference is Treasury notes have a fixed maturity date and yield while Federal Reserve notes don’t.

It’s all part of the global money supply. So to say that dollars were disappearing, we’re going to have a shortage of dollars when the Treasury is flooding the world with its IOUs for dollars is nonsense.”

On top of that, the government is broke. It can’t afford to pay higher interest rates. That’s why Peter believes the Fed will never actually shrink its balance sheet, and will ultimately cut rates and go back to quantitative easing.

Currently, private and institutional investors are buying US bonds. Peter said that demand could let the Fed off the hook for a while.

But it’s not going to create a shortage of dollars. The supply of dollars is going to grow and grow and grow. Eventually, what’s going to happen is it’s going to be the demand for those dollars this is going to collapse, not the supply. And when the demand for dollars collapses, then the price of the dollar collapses. You get massive inflation. That is what is coming.”

Peter said the idea that a trade war is going to help the dollar is equally misguided.

The idea is tariffs will shrink the trade deficit, leading to a shortage of dollars. US trading partners get dollars by trading products to the US.

But the problem is they’ve already got a glut of dollars. It’s not like they don’t have a bunch of dollars from exporting products to the United States for decades. Dollars are piling up around the world.”

And as Peter pointed out, just because the trade deficits shrink doesn’t mean they’re going away. They’ll still be enormous.

So, we’re still going to be over-supplying the world with an asset it already has in abundance. So, this idea that our enormous deficits getting slightly less enormous is somehow going to send the dollar skyrocketing, as everybody is scrambling to get their hands on them, this is nonsense.”

Peter said the trade war will also likely lower US consumption. In the first place, a tariff is a tax that consumers ultimately pay. That means less spending power. Second, if the trade deficit is shrinking, that means America is not importing as much stuff from China and other countries. But it’s not like America is making all of the things imported from China. If Americans aren’t buying as much stuff from the Chinese, it will ultimately mean Americans are buying less stuff. That means a drop in US GDP.

So, what’s going to happen if the economy slows down and unemployment picks up? Well, the Fed is going to slow down on its hikes. It’s either going to hike more slowly, or call off the hikes completely, or start cutting, depending on how much the economy decelerates.”

So, where are people going to go? Gold.

Even though gold has made a move down with the breakout in the dollar – or the move up in the dollar – I think that’s the last safe haven standing. I mean, once you run out of safe havens, where are your going to go? That’s where people are heading because nobody is looking there now. People don’t even think they need a safe haven. In fact, I don’t even know if money is moving based on a search for a safe haven. It’s just going where the momentum is.”

Comments

King of Ruperts Land Stuck on Zero Mon, 06/25/2018 - 17:48 Permalink

Trade wars will be painful as in no pain no gain. It will make USA stronger. We will have to build more factories and work two jobs. The dollar may tank and the country boom. I saw on Russian TV how analysts didn't want the sanctions lifted too soon as they were making Russia stronger. Is it better to be able to buy IPhones or to have to build a factory to make them? Easier and better are not the same.

In reply to by Stuck on Zero

Endgame Napoleon NidStyles Mon, 06/25/2018 - 20:33 Permalink

Add 101 million US citizens out of the workforce to that job request, including me and you, plus 78 million gig pieceworkers who might prefer a real job.

The BLS’s 42 million EBT-eligible, womb-productive, employed-in-name-only people are often intentionally working part time to stay under the income limits for multiple welfare programs.

Since even the American-in-name-only products are Made in China, I do not see how less consumer spending will increase [official] unemployment other than in retail, which was folding before Trump even won.

I prefer a focus on ending illegal immigration and reducing legal immigration to reasonable numbers. China & Mexico, not Europe & Japan, are the ones helping to cause mass underemployment in the USA, but a trade war could have a bunch of collateral damage. Who knows. It is super-complex.

Whereas, an end to out-of-control immigration will boost employment numbers for US citizens, likely upping consumer spending, GDP and SS tax revenue as well.

Many illegal immigrants work under the table, collecting layers of monthly welfare, which covers their rent & groceries, in addition to refundable child tax credits up to $6,431. They get it by submitting proof of [traceable] income that falls below the income limits for welfare. That welfare totals $113 billion per year, just for the illegals.

They also send billions out of the country in remittances, depriving states of sales tax and lowering GDP, no? That money would otherwise be spent in US businesses. Remittances sent to Mexico alone are $28 billion per year.

In reply to by NidStyles

Charvo runningman18 Mon, 06/25/2018 - 22:19 Permalink

I agree.  How can the dollar not get stronger when the Fed is hiking while also reducing the balance sheet.  US dollars all around the world are being slowly sucked back into the origin that is the USA.  I don't know when Powell is going to stop, but I think it won't be like Yellen and Bernanke because Trump is trying to ameliorate the effects of a recession by having massive government spending especially in Trump-specific areas.

In reply to by runningman18

mad mad world Mon, 06/25/2018 - 17:06 Permalink

Peter Schiff is an axxhole! Fking guy has been saying doom since 09. OMG this sky is falling this year I swear kind of idiot he is. Blah blah blah, just tune the axxhole out. I don't need him telling me doom is coming every week. Fking news is depressing. I am switching to porn.

Fuk your thumb downs!

LawsofPhysics Mon, 06/25/2018 - 17:07 Permalink

LOL!  So Peter thinks that a weak dollar will be good for all those proles that are being paid in dollars?

Quite the conundrum Peter. Do you want sound money or not?

 

east of eden LawsofPhysics Mon, 06/25/2018 - 17:56 Permalink

Well, so I will try one more time, although I have no illusions that it will make any difference.

1. You are bankrupt, by any definition of the word

2. You have been consuming global supply for 7 decades now, giving nothing back but war and death and misery to most of the world.

3. You, probably, like most other 'Americans', believe that you can keep printing your greenbacks indefinitely, and that the rest of the world will continue to accept them in exchange for their labour, their raw materials, their expertise and their diligence. They will not. And now that your so called 'president', or, the spoiled brat in short pants has made enemies around the world, the denouement that you will experience is going to be much more severe, for you, not for us.

If you don't, or can't understand, how treasuries and dollars relate, then just stop posting your fucking garbage, because we really don't want to have to read it.

As I said over 10 years ago: If you think, for one minute, that 1.75% of the global population is going to sit on it's arse and consume 50% of the world's resources, then you are severely deluded.

 

In reply to by LawsofPhysics

izzee Mon, 06/25/2018 - 17:12 Permalink

Hey Peter, how'd that move to Puerto Rico for you and your "Fund" hdqtrs work out...  Or did you run away from the Tax benifits after that Big Wopping Storm last year. 

Lose many computers, got electricity back?  Help any of those poor  'ricans who didn't invest in your Fund.  

AHole Maximus Peter Schiff

izzee Kafir Goyim Mon, 06/25/2018 - 18:03 Permalink

au contraire

I'm still waiting and have been since last year when the Storm hit the Island and all the news about the horribleness was blasted 24/7.

I'm still waiting for Peter Schiff to tell us What The F(UK he did to HELP.

Crickets....ooooo buy gold ----dollar collapse-----ooooo Pay me I'll RESCUE you from MY predidcted End of The World----as I, Peter Schiff, see it.

Storm in PR...didn't see that...help with that... NO UPSIDE for ME.  See you in Las Vegas....lol

In reply to by Kafir Goyim

TradingRat Mon, 06/25/2018 - 17:14 Permalink

Peter ….. again.... ZeroHedge… you guys should talk about Martin Armstrong, not this kind of Gold bug. he does not understand the market. Trade war has negative influence over DOW Jones and S&P, when the equities are down, obviously the dollar becomes strong.... does he know the inverse relation between the equity price and the local currency?. Peter is just mad because the strong dollar keeps hammering his Gold. LOL

DarkPurpleHaze TradingRat Mon, 06/25/2018 - 17:31 Permalink

Armstrong moreorless went/chose jail because he refused to hand over his very extensive ancient coin collection. 

He didn't cave in to the system. You would think that alone would make him a semi-folk hero among the metalhead community.

 

But nooo! He dared to call the markets correctly (including the metals and USD etc.) and in turn has been childishly referred to as "the felon" by some petulant asshats because he made all of them look and sound like foolish and obvious hustlers/shills.

For all you knee jerk Armstrong haters...did you even know that he's actually calling for $5000 gold???

I didn't think so.

 

In reply to by TradingRat

TradingRat DarkPurpleHaze Mon, 06/25/2018 - 17:39 Permalink

LOL he didn't go to jail not because he didn't hand over his ancient coins... they took his coins too... read the story right. He went to jail because he didn't hand over the source code for his model. he called Dow 25,000 back in 2009 when it bottomed and Gold to bottom around 1000 until 2021. He also called Gold to peak in 2011. So who is right?? huh?. I lost money because I followed people like Peter and other gold bugs, then I found out about Martin , I made money because of Martin. You just observe the market and see who is right...its simple.

In reply to by DarkPurpleHaze

TradingRat Gold Banit Mon, 06/25/2018 - 18:58 Permalink

do you not know how to read? it is you who do not know how to read.. he said 2010 and 2011 was temporary high and then retest support 2012 and 2013, then rally into 2016 everything was correct..... wth…. it really shows how much you don't know about his model... Temporary high means transition phase, not making high and highs, it is simply the short lived rally before the fall. and he said 2016 rally will test resistance at 1356 and if we do not close above, it will turn down to below 1000. it was 2016 printed important directional change timeline. the computer model shows even if we did close above 1356 and make new high above 2011 high, going back down to below 1000 never changes until 2021. so you have to watch the numbers.. LOL are you that amateur trader?. even the people who do not follow him watch closing numbers to see the next trend. since we closed below, we will just go into below 1000 without making new high. 

In reply to by Gold Banit

Gold Banit TradingRat Mon, 06/25/2018 - 19:25 Permalink

Please take your blinders off and do some research on his past gold predictions, he said that gold will to to $5000 in the year 2016.

(Famously controversial futurologist, economist and business cycle expert Martin Armstrong, who forecast ‘$5,000+’ an ounce gold for 2016 on November 7th 2009 more than five years ago, now says gold touched rock bottom last week.)

In reply to by TradingRat

TradingRat Gold Banit Mon, 06/25/2018 - 19:36 Permalink

the person who wrote this didn't even follow him for years for god sake... he never said the Gold touched rock bottom in his blog. Just go to his blog. its just the Gold bugs post keep talking about this, it must have been you gold bugs listen to only what you want to hear. he said the gold will rock bottom in 2021. just look at the market dude... its not hard, you gold bugs always focus on Gold only and ignore the entire markets. Its like teaching kids how to solve Algebra equations. I find it very hard to reason with gold bugs because they keep focusing on the gold price only... well good luck with peter then, I will buy gold when it actually bottoms and enjoy the ride. Fool

In reply to by Gold Banit

Gold Banit DarkPurpleHaze Mon, 06/25/2018 - 18:34 Permalink

Martin Armstrong calls cyclical bottom for gold prices, now to $5,000?

 

 1  7  0 Google +0  0

 -- Published: Sunday, 26 July 2015 | 

 

By Peter Cooper

Famously controversial futurologist, economist and business cycle expert Martin Armstrong, who forecast ‘$5,000+’ an ounce gold for 2016 on November 7th 2009 more than five years ago, now says gold touched rock bottom last week.

His website comment last week said: ‘If we hold $1,084 for the weekly closing, then we can see a two week bounce and everyone will proclaim the low, so hurry up and buy more.’

Gold’s rising now

Gold bounced back to $1,099 at the close of last week, comfortably beating this bottom-marker and proclaiming the end of the recent sell-off.

The precious metal has tested a critical 50 per cent retracement of its bull market run. That is to say it fell to the mid-point between its $1,923 top in 2011 and $247 starting point in 2000.

Dr. Armstrong’s doomsday downside to the gold price is now not going to happen. He had warned: ‘If we close below these numbers, then we can see a two week panic to the downside and a test of the 1980 high. If that unfolds, then the latter target may be further down. So we play it by the numbers.’

So will gold prices now head to $5,000-plus as the world enters a second global financial crisis of unimaginable dimensions? That is what this forecaster said would happen next year more than five years ago (click here).

He’s been right many times before, and his prognosis for the gold price outlook in 2009 was also very accurate… Back then he commented: ‘We should see a temporary high in 2010-11 with a retest of support in 2012-13 with a rally into 2016.’ He also got the ‘explosive rally’ of 2011 spot on target.

Debt deflation spiral

The crucial difference between Dr. Armstrong and most gold forecasters is that he has always argued that it would not be consumer price inflation that sent gold prices rocketing upwards but a general loss of confidence in governments and by extension paper money or sovereign bonds in a period of deflation.

And what are we seeing today as China deals with its stock market crash and the eurozone struggles with Greece? Deflation led by commodity prices and a loss of liquidity as bond markets dry up. The US is not going to be immune from these pressures, and is also carrying a huge debt.

Gold may have just had its nemesis, the real problems are just starting for other asset classes.

 

In reply to by DarkPurpleHaze

OverTheHedge TradingRat Mon, 06/25/2018 - 17:40 Permalink

Lots of hate on poor Peter by the new boys. 

There are vast, enormous tracts of debt that theoretically need repaying. Most people who do the arithmetic seem to think that it is physically impossible to repay all this debt. Does this mean that the dollar will get stronger, heading into default? To avoid default, the only option is manic printing and dilution of the debt. Also known as inflation. Will out of controll inflation make the dollar stronger? 

Of course, it is possible that the world will keep on turning, tomorrow will be much like today, and everything will stay the same, with an exceptional United States forging into the future with the strongest currency of them all. It could happen. Couldn't it? On a long enough timeline.......

In reply to by TradingRat

vladiki Mon, 06/25/2018 - 17:24 Permalink

No more asinine than the religious faith of Central Banks in Trickle Down, the benefits of 2% inflation,  the Phillips curve, debt not mattering "because it's the money you owe yourself, tax cuts paying for themselves, phony CPI numbers that deliberately ignore important living costs, meaningless headline unemployment numbers that ignore non-participation, raw GDP data that ignores population increase, GDP numbers that price a parking lot as worth something but the field destroyed in creating it as worth nothing, doomed-to-fail pursuit of infinite growth in a finite world, etc etc etc etc. 

We're living in a time when belief in the asinine is taking us deeper and deeper into the Wilderness. Strong/weak dollar is the least of it.

SWCroaker Mon, 06/25/2018 - 17:26 Permalink

"ad hominem - (of an argument or reaction) directed against a person rather than the position they are maintaining. "

I was taught that an ad hominem attack was a piss-poor way to sway opinion and win an argument.   For all those spouting "Peter is _this_ or _that_", you get a "C" for this assignment in debate class.

If he has a failing, it is perhaps his inability to account for the humongous size and scope of government sponsored idiocy and the time-line of associated train-wrecks.  He seems to be spot on regarding the economics.

TradingRat SWCroaker Mon, 06/25/2018 - 17:33 Permalink

LOL you are with him??? dude,,, just read Martin Armstrong he is far better guy who understands real economics. Martin called Gold price will go down since 2011 peak as the real problem is in Europe, not the US. I will give you absent in your grade score, since you cant prove your thesis in empirical way. do you also believe in Global warming? I suggest you retake Econ 101 and Chemistry class

In reply to by SWCroaker