Peter Schiff Explains Why America Is Entering A Horrific Financial Crisis...

look at the data on mortgage applications that we got yesterday the purchase index was down 8% and that's following a 3% decline the week before and the refi index was down 9% following an 8% decline the week before mortgages and refinances are plunging and this has major implications for the economy first of all Wells Fargo just announced major layoffs in its home lending business why because people aren't able to do any refi they don't need all these mortgage agents if people can't refinance their mortgages because where are mortgage rates the mortgage interest rate is now so high in relation to where it's been that there's nobody who can now refinance their mortgage into a lower rate because everybody's got a better rate than what they can get now and that refi Lifeline has been a major Lifeline for the economy because it's given households a source of income because you only refinance your mortgage if the result is a lower payment and if homeowners are able to lower their payments through a mortgage refi then they have extra money to spend because they're not spending it on their mortgage they have more money to go shopping or whatever and that additional spending goes into GDP it also helps employment in the industries that are the beneficiaries of that spending so this has been helping a bubble economy an Economy based on consumer spending if consumer income are freed up from having to make mortgage payments they have more money to buy other things well households can't do that anymore whatever your mortgage is you're stuck you're not going to be able to reduce it and in fact for a lot of people their mortgages are going to be going up because you still have a lot of adjustable rate mortgages out there I'm not sure the exact percent maybe something like 15 20% of the mortgages are adjustable and they're not necessarily adjustable every year a lot of people took out 5-year fix where after 5 years it adjusts well there are a lot of people that did that 5 years ago and now they're getting up to their adjustment period and their rate is going to adjust way up and now they're going to have to start spending more money making their mortgage payments which means now they have less money to buy food less money to buy gas of course food and gas cost even more so chances are they're going to have to cut back on other discretionary items which is why a lot of these consumer discretionary stocks have been having so much trouble but we already have this otal evidence of a weaker economy even more news today weakness in manufacturing the Kansas City fed Manufacturing Index was supposed to come out at 39 that was going to be an improvement instead the number was way below the consensus range so there's ample evidence that the economy is much weaker than everybody thought and that is especially true when you look at the GDP number that confirms this now of course one of the biggest factors driving the GDP down was America's record trade deficit we actually got the merchandise trade deficit now they call it the goods deficit we got the Advan estimate so this was the final month of the third quarter and this definitely weighed on the number this is just Goods this doesn't include our Surplus in services that reduces the overall deficit but this is the big deal this is the manufactured stuff Remember When Donald Trump ran for office to make America great again it was because of our merchandise trade deficit it was manufacturing he campaigned to make America great Again by rebuilding our industrial base our manufacturing because we were losing on trade because of these big trade deficits not only did it not contract the way the experts expected but it skyrocketed to 125. 30 low of 103. 7 billion to a high of 106.

6 billion this is a horrific number I mean nobody has ever seen anything like this number I mean the only thing more amazing than this number is the market reaction because the dollar went up I mean once upon a time a number like this not like we've ever seen a number like this the dollar would be killed instead the dollar went up nothing that should have happened did happen the markets are still completely clueless normally the currency of a Nation with such a horrific trade deficit its currency would be punished because that's the way to get rid of the deficit the currency crashes and now you can't afford all the Imports anymore and now your exports get a lot cheaper to foreigners and it helps bring your trade back into balance but America is not being disciplined the way a normal country would because we have the reserve currency you see how did we pay to import $125. 3 billion worth of stuff we paid for it with dollars we imported stuff and we exported dollars see dollars are America's greatest export except they're worthless we just print them we create them out of thin air they have no value the stuff that we're getting has real value you need factories you know machines workers land all sorts of materials are go into the production of finnished goods that Americans are importing and what are we giving our trading partners digits that we create out of thin air why do they do that what is the world doing with all these dollars what are they going to do with the $125. 3 billion they just earned I mean I know what we're going to do with all the stuff we just bought we're going to enjoy it we're going to have fun we're going to use all these products to make our lives better what is the world going to do with all this paper right well they're just going to hold on to it they're going to buy more of our paper but the more they buy the less it's worth eventually it has to collapse right now the dollar is benefiting from this flight to safety from problems in Europe problems in Japan but this is a huge bubble it can only end in disaster the higher the dollar Rises the more spectacular the collapse is going to be once reality sets in when do you think the breakout Point like the latest data is showing that what new mortgage applications are down like 40% or something and the markets starting to take a hit the IMF says that interest rates should be at least 1% above the inflation rate I would want more than 1% above inflation because that's not a good enough return I mean 1% there's negative interest rates everywhere I think they're the most negative here because we've actually got the highest inflation so even though we have higher nominal rates than what you would find in Europe or Japan we have lower real rates because our inflation rate is higher and of course that's the unofficial the real inflation rate is quite a bit higher than that but look when mortgage rates go up and now they're back up to about 5% and historically that's still low but in recent years they've been well below four I mean people were getting mortgages below 32% on 30-year fix and you know if you look at home prices because they're up like 20% year-over-year home prices are at record highs and home affordability is at a record low and that's before interest rates go up so the only thing that's keeping these overpriced homes marginally affordable is the low mortgage rates but if you take away those low mortgage rates and mortgage rates moved back up to maybe 7 8 % which was normal you know before the 08 financial crisis we get mortgage rates back there something's got to give otherwise nobody can afford to buy a house and what's going to give are the home prices home prices are going to crash but what's not going to happen though is new construction because inflation is driving the cost of building new homes through the roof so we're not going to get any new homes if you want a home you're going to have to buy one of the homes that already exists but if you don't have any money and somebody wants to sell you a house I mean the price is going to have to go down at some point real estate could become an all cash mark because most people may not even be able to qualify for a mortgage but when do you think what interest rate do you think when the FED gets it goes to that it's really going to bring down the markets and the economy well I think we're already there I mean I think the markets already broke we just haven't collapsed yet but I think we're headed lower the bond market clearly broke but if you go back to 2018 the wheels really came off the bus in the fourth quarter of 2018 I remember the FED got rates up to about 2 and A4 2 and A2 and then they had to stop hiking and then they had to stop quantitative tightening and they ultimately went back to zero in QE in March of 2020 with CO as the excuse this time around I think the breaking point is much lower than what it was in 2018 because the breaking point is a function of how much debt you have so the more debt you have the bigger the Imp impact an increase in interest rates is and the lower the increase has to be to create that impact so because we have so much more debt now than we did before Co the economy is more levered up and more dependent on cheap money as that money becomes less cheap you're going to have a collapse quicker it's like we have a much bigger drug habit now and because this drug habit is so much bigger we're going to go into a relapse and withdrawal much sooner with an even smaller reduction in the dose of our you know monetary heroin which is where we're headed so 150 basis point rate hike that might do it you know the only thing that's propping up the commercial real estate market is the cheap money because the rental income is not there and it's obvious that more people are going to work from home the commercial real estate sector is going to get decimated as two will retail because people aren't shopping a they're not going to be able to afford the shop because the dollar is going to lose so much value going to Walmart it'll be like going you know to sax withi Avenue people aren't going to be able to afford to go to shop there anymore but to the extent that people do shop they're buying stuff on Amazon or other online retailers they're not going to malls and shopping centers and all of these places are in tremendous trouble and so are the banks that loan money to the owners of these properties because they're going to default so this is a tremendous crisis that's coming the real estate that will gain the most value will be like Farmland land where you have natural resources that you can Harvest or grow and maybe maybe land out in the suburbs as a lot of people are fleeing these crime infested overtax cities where they no longer have to work because they can work from home so you could see a dichotomy between real estate in the inner city and real estate out in the country or the suburbs the markets are in the eye of a hurcan here and the way the markets are looking at inflation right now in the fed the markets still believe that the FED will be successful in its inflation fight and that this big uptick in inflation will in fact end up being transitory it's just a longer transition than they may have first thought but the markets still believe that inflation is going to stay around 2% or lower over the next 30 Years and you can see that by looking at yields on 30-year bonds you can look at the spread between treasury inflation protected bonds and regular treasuries that the market still expect low inflation over the next 30 Years despite these massive deficits and they believe the FED can continue to print all this money do all this quantitative in that the balance sheet can grow forever and none of that is ever going to translate into higher inflation and I think that's Pie in the Sky nonsense and I think soon the markets are going to have to come to grips with reality that the FED is going to lose the inflation fight it may not even really have the fight it may just be bluffing but ultimately not even have the guts to get in the ring with inflation based on the political sacrifices that would be made short term for the economy and for employment and for the federal budget deficit you know because if the FED fights inflation the US government is going to be forced to dramatically cut government spending including spending on Social Security Medicare and things like that and so to spare politicians from having to make those tough choices it's likely that the FED never follows through with this and we go back to QE and the FED starts cutting rates again even as inflation remains high but when the markets realize that inflation is not going away and even if we have a recession inflation is not going away a lot of people think well if the FED doesn't win the fight against inflation recession will because the fed's going to raise rates high enough to cause a recession and the recession is going to get rid of inflation it won't the recession is going to make inflation worse because in the recession we're going to have less economic output but we're going to print even more money but when the markets come to terms with just how high inflation is going to be there's going to be a rush into gold and silver like you've never seen prices are going to crash up not down what zero represents is Joe Biden understanding of the US economy because he has no clue what's going on you can't brag about the fact that we had one loan month where high prices didn't get any higher it's not like they went down they just didn't go up but if people were struggling with high prices their struggle didn't get any easier it remained the same what would have been good is if prices could have come down but they didn't come down and in fact the only reason that the headline number didn't go up was because we finally got some relief at the pump gas prices came down but a lot of other prices food prices keep going up rents keep going up we are nowhere near gun with this inflation problem it is going to be here for years and years and years probably the remainder of this decade and probably then some as they keep telling us this is a very unique recession in fact most people don't even want to admit that we have one but look at the recessions of the 1970s you had Rising prices there during stagflation and that's what my forecast is remember I was predicting the economy would be in recession in the first half of 2022 and very few people had that right but I also predicted that inflation wasn't transitory that it would get stronger as the economy got weaker and that is exactly what happened now the reason that I believe that inflation is going to kick into a higher gear as this recession that we are in gets worse is because I believe how is going to Pivot ultimately and he is going to give up his fight against inflation in order to fight a different Foe and that is going to be a recession and Rising unemployment and potentially a financial crisis either one that has already happened or one that is rapidly approaching and so I think pal is going to choose what he believes to be the lesser of the two evils and I think he's going to pick fighting recession and propping up financial markets and monetizing government debt so the treasury doesn't have to default I think the FED is going to pick that over inflation and so unlike the pivot that we got with vulker back in 1982 where Hulker pivoted after a victory in his fight against inflation pal is going to Pivot despite defeat inflation is going to win and so when we go back to 0% interest rates or whatever we do and when we go to qe5 which is going to be launched I don't think the FED is going to shrink its balance sheet very much it's going to shrink it less than it did last time it tried to do it which is an impossible task given the bubble it's inflated I think when the FED goes back to stimulus and creating inflation when inflation is maybe double or triple or quadruple that 2% Target the markets are going to react very differently than how they reacted in the past because in the past the Fed was able to justify all this cheap money because they said we don't have enough inflation we're still below Target well when they go back to the stimulus when inflation is triple or more their target the markets aren't going to buy it and so I think all the inflation that they are going to have to create in order to stimulate the economy out of this recession is going to ignite a powder cake we already have an inflation problem and Pal's going to pour all this gasoline on it and so we're going to see inflation moving up to a much higher level even though it's already very high in fact it's probably double what the government claims in the CPI if you want to know what's actually happening to prices you've got to double what the government tells you and that's more accurate meanwhile labor force participation last month fell to 62.

1 that is the low for the year and in fact over the last four months even though we've created all these jobs the number of people in the workforce has gone down and so that means means that all the jobs that were created over the last four months were people who already had a job getting another job you know Biden claimed that we have a record number of people in the workforce he was mistaken we had more people working 4 months ago than we have working now the record high for the number of people working is before the pandemic so even though we've recovered the jobs that we lost prior to the pandemic it's only because the same people have multiple jobs we haven't recovered the workers we still have a lot of workers that were working prior to the pandemic that haven't rejoined the labor force we can't have a soft Landing because the soft Landing means we avoid recession so by that definition we've already crashed or it's a hard Landing it is what it is and so you have all these keynesians that somehow believe that inflation is caused by economic growth they also think it's caused by too many people working they think there's a trade-off between unemployment and inflation they think if there's not enough people unemployed you're going to have more inflation and a way to get rid of inflation is to put people out of work all of this is Keynesian nonsense inflation is not caused by the private sector it's not caused by growth it's not caused by people working the only people working that cause inflation are the people at the FED who are running the printing presses or are pushing all the buttons that are creating all the money that's where inflation comes from and they create inflation in order to monetize US Government debt so the federal government runs a big budget deficit the federal reserve prints up money to buy those bonds and that inflation enters the economy it's got nothing to do with growth or people working as a matter of fact in a real economy the stronger the growth the lower prices because what is economic growth it means increased output it means more goods and services are being produced well if you increase the supply of something then you decrease the price so a productive economy that's producing more stuff means that the price of that stuff is lower the same thing with people working if more people are employed productively their productive output is increasing the supply of goods and services keeping the prices down if you slow down real economic growth if you force people out of of work you're going to have less Supply we're not going to make as much stuff we're not going to be offering as many services and so therefore the prices of those goods and services all else being equal are going to go up Supply creates demand so if people are producing and putting goods and services into the economy well now they have the ability to share in that production they've earned money helping to create stuff and now they could spend that money to buy the stuff that they created and so the demand that comes from real production does cause prices to go up the only kind of demand that causes prices to go up is when the government just prints money and gives it to people and so that money is not a function of production people didn't earn that money producing they just were sent the money by the government I mean that's what happened during covid to a huge degree you had people who had jobs and were working to help make stuff they went home they weren't working at all they weren't making anything but now the government sent them money they weren't earning money because they worked they were being paid not to to work but the worst part about it was many people were paid two or three times not to work than what they earned when they were working so now these people who weren't working at all had all this money to go and buy stuff but they didn't help produce any stuff that's what pushed up prices because you had all this fake demand and no Supply you see the proper monetary policy response to the pandemic if everybody was going to stop working the FED should have Shrunk the money supply not expanded it the US government should have cut spending not spent more that would have balanced out supply and demand but instead we had the worst combination of monetary and fiscal policy probably in the history of the country in the face of collapsing Supply we flooded the economy with phony demand and so we're experiencing now I think just the beginning of those consequences we've got a long way to go which is why the idea that inflation has peaked is nonsense historically whenever they brand a piece of legislation whatever the name is the effect will be the opposite of that name so if a bill is called the inflation reduction act then you know right off the bat the effect of the bill is going to be to increase inflation and that's exactly what it's going to do first of all there's all this new government spending that's more demand artificial demand coming into the economy how is the government going to get all this money that it's going to spend because it's not going to get it from those tax hikes it's ultimately going to get it from the fed the FED is going to have to print more money to monetize those debts now even if the FED doesn't do that and the government has to find private buyers for those bonds well then it's going to crowd out investment in the private sector and so that's going to mean fewer things are going to be produced because the private sector is going to have less money to invest in capital and things to improve productivity and so that ultimately causes prices to be higher so will the increase in corporate taxes because to the extent that corporations have to pay higher taxes it comes at the expense of lower investment so if corporations have less money to invest in plant equipment and expanding Supply that ultimately puts upward pressure on prices what the government needs to do to reduce inflation is reduce government spending we need a bill that cuts government spending the government is doing the opposite they are increasing government spending so what they're doing is they are throwing gasoline on a fire that's already burning hot the government makes everything more expensive it's the free market that makes things less expensive so if we want to help put downward pressure on prices we got to get government out and let the free market in now in fact they may be cutting interest rates before the end of this year but it's not going to be because they've won a victory over inflation it's going to be because the economy is in a much more severe recession than the one it's in right now in other words this recession that's here is going to get worse and that's going to force politicians to try to do something you know once the political pressure is greater because of unemployment and the economy then the FED is going to switch its attention from inflation but the inflation problem is not going to go away it's just that this other problem is going to loom larger in the eyes of the fed and I think what's driving in the markets is this bad news on the economy is good news for the markets because it means the FED will pivot sooner and before it pivots it will raise rates less than it might have raised absent the bad economic news and again you still have all of these keynesians out there that think bad economic news is good news on inflation they think the weak economy will weaken inflation it won't it is going to strengthen inflation especially when the Federal Reserve and the government respond to the weakening economy with more stimulus because that stimulus is inflation so they're going to start creating more inflation even though we already have too much inflation and so the problem's going to get much bigger than the markets understand I still think this is an overall bare Market I think that rate hikes are going to continue to take their toll but so will inflation I think inflation is going to harm a lot of companies that have a problem dealing with it I think a lot of demand is going to be destroyed for a lot of discretionary items because people are going to spend all their money on food on energy on insurance on rent on taxes well I think the nature of this financial crisis is going to be a lot different than the one we had in 2008 because I don't think the FED is going to allow it that's one of the reasons I believe that pal is going to Pivot because if the FED does keep raising rates we will have a financial crisis that looks like 2008 only much worse because 2008 was about bad debt it was about people borrowed money and they couldn't pay it back and the collateral for the 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 I mean by an order of magnitude everybody has more debt than they had back then and so this is going to be a much bigger crisis when the defaults start and all those banks that were too big to fail that were bailed out in 2008 they're a lot bigger now and when they fail it's going to be a lot worse except with inflation too high in the FED fighting inflation there are no bailouts there's no tarp 2.