Economist Schiff: Dollar's fall will be slow first and then suddenly
Peter Schiff, Chief Executive of Euro Pacific Asset Management, made critical warnings about the future of the US economy and the dollar in an interview with Norwegian political scientist Glenn Diesen. Schiff emphasized that increasing budget deficits, uncontrolled public spending and wrong economic policies have dragged the dollar's global reserve status into an irreversible collapse.
Peter Schiff, Chief Executive Officer (CEO) of Euro Pacific Asset Management and host of The Peter Schiff Show program, in an interview with the famous Norwegian political scientist Professor Glenn Diesen, deeply analyzed the financial picture of the US economy, the projection of geopolitical tensions in the markets and the process of losing the US dollar as a global reserve currency.
During the interview, Schiff emphasized that federal debt burden, uncontrolled budget deficits and misguided public policies brought the American economy to a historic turning point.
Answering Glenn Diesen's question about the possible effects of war rhetoric on Iran and Donald Trump's promises to end these conflicts on global markets, Peter Schiff drew attention to the economic costs of geopolitical crises.
Stating that the destruction caused by the war on supply chains, energy and agriculture sectors should not be underestimated, Schiff said, "The war itself is a big problem. It causes serious disruptions, especially in critical supply chains such as energy and agriculture. In addition to direct damages such as the destruction of buildings and the loss of human lives, it also deals a great blow to the economic functioning," he said.
Criticizing the markets' optimism about the end of the war and the rapid decline in oil prices, Schiff noted that this optimism does not reflect the truth.
“Markets are too optimistic about when the war will be resolved”
Stating that the markets do not rate the current risks correctly, Schiff made the following evaluations during the interview:
“I think the markets are too optimistic about how quickly the war will be resolved and how quickly oil prices will collapse. I am not of the opinion that the war will end as soon as people expect. Even if the war stops, it may not actually be considered over, because there will be a risk of restarting at any moment. The risk of any peace agreement being somehow disrupted and the war returning will always remain.”
Stating that he did not expect oil prices to return to their past lows, Schiff pointed out the main factors that raised energy costs in the continuation of the interview.
Stating that the increase in prices is not only related to the war, the expert said, "I do not think that oil prices will go down to the levels they used to be. There may be some retreat from the peak points, but there are other factors that will raise oil prices and have nothing to do with the war. The first of these is the weakening US dollar," he said.
Schiff predicted that the war stopped the dollar's ongoing weakening trend only for a temporary period of time, and that the depreciation of the dollar would accelerate again with the end of the conflict.
Stating that economic risks are not limited to energy prices, Schiff noted that the increase in bond yields also constitutes a serious pressure element.
Emphasizing that bond yields have increased significantly since the beginning of the war, Schiff said, "Rising budget deficits, more money printing, increasing inflation and a weak dollar will continue to raise bond yields along with oil prices."
“Government spending is linked to the autopilot”
Touching on the issue of the huge debt burden of the USA and the shaking the confidence of investors in the repayment of this debt, Glenn Diesen brought up the news about the currency swap lines between the United Arab Emirates and the USA.
Describing this situation as an effort of investors to get away from the dollar, Schiff, who participated in Diesen, stated that the dollar's feature of being a "safe haven" has weakened. Stating that the big rallies in the dollar in the past were no longer seen in war situations, Schiff said, "When there is a war, it is almost a natural reaction for people to reflexively turn to the dollar as a safe haven. However, what was really important to me was how dwarf this rise was, rather than the dollar gaining value in this process. If such an event had happened ten or twenty years ago, we would not have seen that big rally this time," he said.
Schiff stated that the dollar has already lost all its gains in the war process and that the budget deficits have the real pressure on this currency. Schiff, who made clear warnings that public finances have deteriorated, said:
“The main factor that pulls the dollar down will be the huge budget deficits that are growing even more due to the war. Even if the war ends, we will continue to spend more money to replace the missiles and bombs we use. Therefore, military expenditures will increase. However, other spending is already on an upward trend and interest expenses are now linked to the autopilot with high rates. Our financial position is getting worse and there is no sign that anything will be done about it.”
Stating that the expectations about Donald Trump and the Department of Government Efficiency (DOGE) have been in vain, Schiff said, "All hopes for controlling budget spending have been destroyed. In fact, budget deficit spending during the Trump era is even worse than the one under Joe Biden. Markets realize this fact and no one wants to be under this rubble. That's why they turn to gold by going to the dollar and treasury bonds when they have the opportunity. I think this trend will continue," he said.
“How does the debt end? First slowly, then in an instant”
Answering Diesen's question about the future of the dollar in the global system and the speed of a possible collapse, Schiff predicted that the steady decline of the dollar would result in a sudden break.
Schiff said, “I expect the dollar to first experience a slow decline, then to collapse rapidly. I don't know when this transition will happen, but when it happens, everything will end very quickly. There is a famous saying; they ask how you went bankrupt, the answer is: 'First slowly, then suddenly.' This is exactly what will happen to the dollar.”
Criticizing the government's reactions to economic crises, Schiff argues that the interventions in the free market make the situation worse. Reminding of Donald Trump's statements about buying a sinking airline on behalf of the government, Schiff stated that such moves damage free competition.
Explaining the devastating effects of the government on the market through the example of Spirit Airlines, Schiff said, “Spirit Airlines was wanted to be bought by JetBlue a few years ago. However, the Biden administration and Elizabeth Warren in particular prevented this. The courts stopped the unification, saying that the competition would be damaged. In fact, this merger would be good for the competition because JetBlue could compete better with market-dominating giants such as United, American, Southwest and Delta. The government claimed to maintain the competition by saying 'We cannot allow the two companies to merge', but in the end, the company went bankrupt completely and disappeared. What have they won now? If they allowed the merger, the number of airlines they would have is the same as the number they have now," he said.
Stating that the government harms the economy by misreplying the antitrust laws, Schiff said, “The government always mess things up. In fact, they caused great damage to this country by preventing acquisitions and mergers, which would be good for everyone, claiming that it would harm the competition. As in the case of Spirit Airlines, if there was a merger, the shareholders would receive their money, most of the employees would protect their jobs. Now everyone is unemployed and the field of competition is narrowing," he said.
"As the basic needs of the people become more expensive, the disposable income decreases"
Analyzing the devastating effects of the increase in energy and food prices on consumer behavior, Schiff stated that the increase in compulsory spending has dragged the general economy into a recession.
Stating that consumers cannot completely give up food and energy, but will have to change their preferences, Schiff said, “There is a balance between people's basic needs and desires. Food and energy are mandatory. Maybe you can go to the cramby eating hamburgers instead of entrecotes, driving less or giving up the holiday. However, you cannot completely stop the consumption of food and energy. The problem is that when I spend more money on my basic needs, I don't have money to spare for my wishes," he said.
Predicting that this situation will lead to a major collapse, especially in the service sector, Schiff continued his interview as follows:
“The decline in people's disposable income is hitting the real big blow to the arbitrary spending areas. Businesses in these areas are in trouble and people are losing their jobs. The huge increase in the cost of basic living needs is an absolute negative factor for the overall economy.”
Stating that the fact that the USA is an energy exporter does not benefit the entire economy, Schiff emphasized that only individuals working in the oil and gas sector benefit from this situation, but economic integrity is damaged due to high prices.
Also touching on the structural problems in the US energy trade, Schiff stated that the Jones Act increases costs.
Reminding that the USA is also an oil importing country, the expert said, "Our oil production has increased over the years, but this only relieves the pressure on our trade deficit to a limited extent. Due to the Jones Act, transporting oil in one region of the country to another region by ship is more expensive than importing from abroad. That's why we buy oil from foreign countries instead of using our own oil," he shared.
"The main reason that increases costs is the artificially low interest rates"
Listing what needs to be done to save the US dollar and re-establish financial discipline, Peter Schiff stated that the opposite of the current policies should be implemented.
Criticizing the huge spending packages of the Trump era, Schiff said, “The worst thing Trump did for the dollar was to approve that huge spending law. We spent the only opportunity we had to put our financial home in order, making our house more untidy than before. We need huge cuts in government spending, but Donald Trump refuses to support such cuts. He wants the government to spend more money, not less," he said.
Noting that tax cuts are not sustainable unless they are supported by spending cuts, Schiff said that Trump's customs duty policy is also based on the wrong foundations.
Emphasizing that customs duties are paid by American consumers, the expert said, “Trump claims that foreigners pay these taxes, but this is not true, Americans pay the taxes. Moreover, these taxes are not enough to cover additional expenses. As a result, foreigners continue to sell their dollars and treasure papers. This creates a downward pressure on the exchange rate and upward pressure on interest rates," he warned.
Pointing out that China's position against the US dollar has toughened, Schiff stated that the Beijing administration has quickly converted its dollar reserves into gold.
Stating that the US debt stock held by China is at much lower levels than in the past, Schiff said, "China is moving away from the dollar and I think they will accelerate this process. The place where China goes is gold. Gold reserves are booming and I'm sure they have much higher amounts than they admit. While reducing their dollar positions, they simultaneously increase their gold assets. Their main motivation is to get rid of the dollar," he said.
“An economy model that consumes instead of produce has come to an end”
Stating that the goal of re-industrialization of the USA cannot be achieved with customs duties, Schiff emphasized that the root causes of de-industrialization should be descended.
Stating that it should be questioned why the USA produces so little compared to the past and why it has such large foreign trade deficits, Schiff made the following determinations at the vital point of the interview:
“The problem is not the high customs duties of other countries. Trade is largely free. The real problems in the USA are artificially low interest rates. We don't save enough, we don't invest enough in capital equipment. Thanks to the precious dollar, we were able to import things that we did not produce. The world agreed to give the goods it produced in exchange for the dollars we printed because the dollar was the reserve currency.”
Stating that this situation made the US a victim of its own success, Schiff said, “The world's acceptance of dollars saved us from the burden of producing something. We lived with what they produced, but this situation created a dependent structure. When this process is over, we will be in big trouble. We can never re-industrialize without raising interest rates, increasing savings and encouraging investments," he said.
Stating that the transition from an economy based on the service sector to a production economy will be painful, Schiff noted that politicians are running away from this pain. “Politicians want to make voters feel good in the short term. They don't care if these policies make the situation worse in the long run. Their time horizon is limited to the next election," Schiff said, stating that the difficulties that the people will experience during this transition period have been postponed due to the fear of the election.
“Smart money is currently going to precious metals and commodities”
In the last part of the interview, Peter Schiff, who gave advice to investors, drew the course of "smart money". Stating that his own investment strategies are also in this direction, Schiff said, "I think smart money is currently going to precious metals, commodities and gold. They also turn to foreign markets, especially emerging markets. I see myself as smart money and I make my investments in this direction," he said.
Stating that the strategies and investment funds within the Euro Pacific Asset Management should be examined, Schiff emphasized that investors should prepare for the future big economic upheaval by accumulating gold and silver.
Evaluating the investment opportunities in Europe, Schiff stated that although there are serious problems throughout Europe, there are company-based opportunities.
Stating that European companies positioned to meet the demand, especially in emerging markets, offer good value, the expert said, “When the dollar collapses, other currencies will rise and America's purchasing power will be transferred abroad. This will create new markets and new consumers. I want to invest in companies that can benefit from this situation," he said.
Schiff predicted that the balance of power in the world would change against the Americans, but in favor of the rest of the world:
“We will no longer be able to live beyond our means. We will have to save to produce to consume, to borrow. The rest of the world, people who live below their own means to finance our living standards will see a gain. They will get rid of the burden of feeding the American consumer and giving credit to the debtor. This will give them a higher standard of living and more capital.”