(Kitco News, Thurs. Aug. 11th, 2022) – Despite a month-long streak of rallies for U.S. stocks, a financial crisis worse than 2008 is looming, said Peter Schiff, Chief Market Strategist at Euro Pacific Asset Management.
Schiff spoke with David Lin, Anchor and Producer at Kitco News.
Over the past month, the S&P 500 rose by 9 percent, and the NASDAQ rose by 13 percent.
Schiff warned that if the Federal Reserve keeps raising interest rates, then a worse financial crisis than 2008 will occur.
“2008 was about bad debt,” he explained. “It was about people borrowing money and they couldn’t pay it back. The collateral for those loans was no good because it was real estate, and prices went down. Well, we have much more debt now than we had in 2008… and so this is going to be a much bigger crisis when the defaults start.”
Schiff added that this time, banks would not be able to be bailed out.
“When they fail, it’s going to be a lot worse, except with inflation too high and the Fed fighting inflation,” he said. “There’s no TARP 2.0. All these banks are going to have to be allowed to fail.”
Inflation to get worse
The latest Consumer Price Index (CPI) figures were released on Wednesday morning.
Year-on-headline CPI, which includes food and energy rose by 8.5 percent in July, a reduction in the official inflation figure compared to the previous month, when year-on-year prices rose by 9.1 percent. The 9.1 percent figure was a 41-year high.
On the same day as the CPI release, President Joe Biden claimed that there had been a “zero percent” change in month-on-month consumer prices.
“Today, we received news that our economy had zero percent inflation in the month of July,” said Biden. “When you couple that with last week’s booming jobs report of 528,000 jobs created last month and 3.5 percent unemployment, it underscores the kind of economy we’ve been building.”
President Biden was referencing the month-over-month change in headline CPI, which was unchanged from the previous month of June.
Core CPI, which excludes food and energy, grew by 5.9% year-on-year, and increased 0.3% month-over-month.
“If you believe the official CPI, then prices, that are already very high, did not get any higher during the month of July,” Schiff explained. “I don’t think that’s something to celebrate… It’s not like consumers actually got the relief of prices coming down.”
Despite the slight fall in reported CPI, Schiff said that inflation will get a lot worse.
“There’s no doubt in my mind that we will get a higher number than 9.1 percent [inflation],” he said. “We are nowhere near done with this inflation problem. It is going to be here for years and years, and probably the remainder of this decade and then some.”
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A dollar implosion?
As the Fed pivots to prevent a “massive financial crisis,” Schiff said that this would result in a “sovereign debt crisis” and a “U.S. dollar crisis.”
The U.S. dollar index is up by 9.5 percent year-to-date. However, Schiff claimed that future events are not properly priced into this.
“The dollar has risen so far, in the early stages of this big inflation, because investors are delusional about the Fed’s ability to contain inflation and bring it back down to 2 percent,” he said. “When they wake up to reality, that inflation is going to be way above 2 percent indefinitely, then the dollar is going to fall through the floor, and then gold and silver will go through the roof.”
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