Peter Schiff lays out his stance on tariffs and a potential tit-for-tat trade war, which could have far worse ramifications on consumption, the economy and inflation in a world so interconnected than most models are predicting.
The Trump administration announced 25% tariffs on goods from Mexico and Canada and 10% on goods from China.
Tariffs on Canada and Mexico were recently walked back by the administration for thirty days, but the 10% tariff on goods from China still applies.
“The Trump administration announced 25% tariffs on goods from Mexico and Canada and 10% on goods from China”
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Tariffs postponed indefinitely; Peter Schiff lays out his stance
Peter Schiff noted that the market’s reaction to tariffs was bearish and perhaps reduced the Trump administration’s enthusiasm for it, bearing in mind the administration sees market performance as a report card on how it is doing.
“This was the shortest trade war ever because it ended before it began,” he said.
Mexico agreed to send 10,000 troops to the border, and Canada is going to do something to keep fentanyl outside the US.
Peter Schiff thinks Trump could have discussed his grievances with Canada and Mexico in private, threatening tariffs if they didn’t respond.
Instead, these tariffs were deliberately publicised as a trial balloon to test the market’s reaction. If the markets shrugged tariffs off, they would not have postponed it.
“I think tariffs were postponed indefinitely, which amounts to a surrender on the part of Trump,” said Peter Schiff.
“Tariffs would have done a lot of harm to America. We are a consumer-based economy, and tariffs are a consumption tax,” he said.
“Tariffs would have done a lot of harm to America. We are a consumer-based economy, and tariffs are a consumption tax”
PETER SCHIFF
China has leverage over the US, Peter Schiff lays out his stance
Tariffs have been left on China, which has retaliated with tariffs on the US.
But the 21st century is a world so interconnected and complex.
“China could retaliate by selling US-denominated debt, in addition to over 770 Billion dollars in treasuries they have over a trillion dollars in other US-denominated debt, some agency and corporate debt,” he said.
“So if China retaliates by dumping their debt, they will dump all that debt. So now you are talking about 8 trillion dollars of debt being dumped,” he said.
“That will have a meaningful impact on interest rates when the market absorbs that selling,” he added.
Peter Schiff noted that if the Chinese start selling their US-denominated debt, it could trigger a snowball effect with other countries doing the same. “China has more leverage than most people think,” he said.
He thinks the only reason why they are holding on to their debt is to have some leverage over the US.
“Eventually, US bonds will collapse because of rising interest rates, and the dollar will collapse because of inflation.
The Chinese government will lose money on all those US-denominated bonds,” he said.
The best thing they could do is get rid of them, and the last thing we want to do is give them an excuse,” he added.
So the only reason heavyweight treasury bond investors hold US bonds is for strategic reasons, having leverage over the US.
“Individually, free people can donate to whoever they want, but the US government has no constitutional authority to take money away from an American to fund whatever kind of front charity it believes” – Peter Schiff
Peter Schiff lays out his stance on the administration’s proposed budget
He sees no tax on tips, no tax on social security, and no tax on overtime as being pure inflation.
“All that extra money will be spent to drive up prices,” he added, “It will need to be offset by tariffs, a consumption tax, or real spending cuts.”
Peter Schiff advocates abolishing foreign aid, which he thinks is a scam. “Individually, free people can donate to whoever they want, but the US government has no constitutional authority to take money away from an American to fund whatever kind of front charity it believes,” he said.
Peter Schiff talks about abolishing the carried interest deduction, which would save a billion dollars a year, but he thinks that is unlikely to happen. “Biden and Trump talked about it when he first got elected.
It would save a billion dollars a year, but it is a billion dollars that goes to billionaires.
But the hedge funds give a lot of money to the politicians so that sacred cow never gets gored,” he said.
“There is no stress test for stagflation because the Fed has no plan for it”
– Peter Schiff
Peter Schiff lays out his stance on stagflation
He sees a slowing economy and rising prices as the worst-case scenario for the Fed, which has no policy for easing and tightening simultaneously.
“You can’t push and pull on the same thing because you go nowhere,” he said.
“If the Fed gets stagflation, they are out of Amo, they have got nothing,” he added.
Peter Schiff criticised the result of the Fed’s recent stress tests for the banks that all banks passed.
“They did not test for stagflation, the most adverse scenario where interest rates go up in a recession,” he said.
Peter Schiff asked a loaded question.
Why did they not run a stress test with stocks and real estate all going down in value with interest and inflation going higher?
Peter Schiff thinks Powell is not asking banks to do that test since he knows every bank will fail.
“There is no stress test for stagflation because the Fed has no plan for it,” he said.
But Murphy’s law says anything that can go wrong will go wrong.
Peter Schiff lays out his stance on a deteriorating economy with rising prices
He noted that 600,000 jobs were eliminated last year, almost 50,000 jobs per month.
Despite expectations being downgraded and the bar lowered, all the beats were misses, and all the misses were even larger misses than reported, noted Peter Schiff.
“The Fed is data dependent on completely unreliable data. The whole thing is a fake,” he said.
He noted wages are going up 4.1%, which doesn’t sound like 2% inflation
The average hourly work week went down. It Costs employers more to hire people, but they are working fewer hours.
We have weaker-than-expected job growth but more than-expected upward pressure on the price of labour. “So stagflation in the job report,” he said.
Consumer sentiment has also collapsed from 71.1 to 67.8, and consumers are worried about the weakening economy.
Meanwhile, inflation expectations soared to 4.3%
Bad inflation news is good for gold.
The Fed will have to delay rate cuts, and that is programmed into the algorithm to be good for the dollar and bad for gold, so the dollar rallied and gold sold off.
But these algorithms are an example of garbage in, garbage out.
Sophisticated money understands what is happening.
They are buying and taking delivery of gold.
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