Top Economist Warns: A Looming Recession Could Trigger a Full-Blown Depression.
It's a signal that's becoming hard to ignore.
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Finance guru Peter Schiff, known as 'Dr. Doom', says, "We'll be lucky to get off with just a recession. It's looking more like a depression."
I've been tracking Schiff since he blasted Bitcoin — claiming it would tank to zero and that people should bet on gold instead. If there's anyone who thrives on a diet of apocalyptic predictions, it's him.
His 'flat earther' mindset makes sense when you look into his backstory.
Schiff's dad was a big shot in the 'tax protestor movement,' battling the government over the belief that taxing wages was illegal and unconstitutional. Irwin Schiff got slapped with a decade-long sentence for tax evasion and sadly took his last breath in prison.
Following his dad's footsteps and leveraging the attention economy on social media, Peter often speaks against the tide of popular opinion. Every so often, he nails the piñata straight in the abdomen — his 2005 rallying against the booming housing market saw him laughed at on live television.
In a TV showdown, fund manager Mike Norman bursts out laughing at Schiff, mocking him with a "What are you talking about?" as if Schiff was a few sandwiches short of a picnic for saying the housing market was about to tank.
Peter Schiff — Source
“Home prices are completely unsustainable. They were built up to these artificial heights by temporarily low adjustable rate mortgage payments, a complete absence of any lending standard, and speculative buying. What’s going to happen in 2007 is a lot of these artificially low ARM payments are going to be reset upward. You’ll see both the Government and the lenders reimposing lending standards and tightening up on credit, and you’ll see many speculative buyers turn into sellers. And these sky-high real estate prices will come crashing back down to earth.”
My all-time favourite finance movie is "The Big Short," which took the 2008 mortgage crisis, a subject as dull as an old boot and got Margot Robbie to break it all down from her bubble bath.
Right at the start, they set the tone with a Mark Twain quote:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so”
The message to the viewer was that false beliefs or misplaced confidence can lead to trouble, and Schiff says that's where we are today.
Let's get into it.
Jobs are vanishing, yet the numbers tell a surprisingly different story.
My favourite thing about the comment section on social media is that when you read enough comments, it's a very good gauge of the sentiment of a subject.
It's a writer's secret weapon.
I've seen Joe Biden's social media rehash the same job creation report, comparing his employment numbers to past presidents with flashy graphs — but the people commenting don't seem to be buying it.
Anonymous commentor: “You post the same lie twice a month, Joe. You can’t count the jobs created after the pandemic because we were locked in our homes.”
Peter Schiff says that quality jobs are disappearing.
Tech companies are announcing significant layoffs, but the numbers are offset by multiple lower-paying jobs, distorting the overall employment figures.
Peter Schiff — Source
“The people getting laid off and getting two or three jobs, waiting tables, working in hotels, and somehow the economy is stronger because we’ve got more jobs on a numbers basis. But the quality of those jobs has decreased, and most people with two or three lousy jobs would rather have one good-paying job. Unfortunately, they no longer have that option.”
The Bureau of Labour Statistics released a report showing unemployment at 4%, with a slight increase of unemployed people standing at 6.6 million. This is still well below the Fed's target rate of 5%.
It matters because inflation and unemployment typically go opposite ways. When more money flows into the economy (causing inflation), businesses tend to hire more people because of higher demand for products and services, which then brings down unemployment.
Why is Schiff pointing the finger at foreigners?
The real threat is that foreign countries will no longer accept the U.S. dollar as payment for the products they sell.
Schiff says the U.S. currently has a significant trade deficit, meaning it imports more goods than it exports.
There were $338.2 billion in imports, which increased by 8.7%, and $263.7 billion in exports, which increased only by 0.8%—leaving an annual deficit of $74.5 billion.
Schiff says that imports are only possible because foreign countries accept U.S. currency in exchange for the goods they produce.
We have a bigger problem than we did in 2008, and it's a consequence of a much larger financial crisis, which he says "Will end with an all-out U.S. dollar currency and sovereign debt crisis."
Peter Schiff — Source
“I think we’re probably already in a depression. We’d be fortunate to escape with just a recession. It’s just going to get worse.
The real threat will be the foreigners pulling the rug from under our economy by abandoning the dollar. That’s what makes this dysfunctional economy possible. We have a trillion-dollar trade deficit, meaning we import a trillion dollars worth of stuff we didn’t make.
We can only do that because foreigners take the paper we print in exchange for everything they produce. But if they stop accepting our currency, how will our economy function without all this stuff?
We certainly don’t have the factories to produce it.”
Final Thoughts
I see Schiff as a bit like Marmite.
That's a spread we put on toast here in the U.K. The company's slogan is "You either love it or hate it." Over time, "Marmite" has become a slang term for someone who divides opinion.
Schiff's constant alarm-sounding has labelled him a bit of a pessimism preacher—he even grins ear to ear when talk show hosts introduce him with, "Share the bad news with us, Peter."
It sums him up.
In 2011, Schiff publicly stated that we were in the early stages of a depression because the effects of stimulus would run out, and "It would be a long shot for us to get through 2012."
His prediction may eventually align with reality, much like a clock stuck at midnight.
Today, we have a declining workforce that's living longer, and the magic genie called the money printer — sent to kick the can further down the road.
The money supply is increasing by around 9% annually, and we're becoming less productive. When we make less stuff but have more mullah, we need to pay back, it slowly melts away the value of our cash.
Adding 3.2% inflation to currency debasement gives you a hurdle rate of 12.2% just to tread water. Yuck.
I'm hopeful that AI will ramp up productivity, and with cryptocurrency on the rise, people might just find themselves a bit less screwed.
As for a full-blown depression?
I doubt it.