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We rolled back, gold around 4,100. Silver is back below 60, around $56 an ounce. And when these banks start to fail, given what they've done, distorting markets and inflating bubbles that inevitably always burst. If it weren't for all this inflation, prices would have fallen much more . So, let's assume that AI is that productive.
In fact, even the Fed admits that their goal is for us to lose only 2 % of our purchasing power per year. So, by design, we are losing purchasing power. Banks had unrealized gains at a market valuation of over a trillion dollars in their mortgage loan portfolios. Today, unrealized losses on existing mortgages amount to two trillion dollars.
You have eight trillion dollars of fixed- rate mortgages that mature in just 25 years, with an average rate of 4.6%, but a current rate of 7.5%. When mortgage rates reach 8.5%, unrealized losses will be three trillion dollars, as there is no political incentive to prevent a crisis. All incentives are to wait for the crisis and buy gold and silver now .
I mean, we rolled back, gold is around 4,100. Silver is back below 60, around $56 an ounce. I think these are good prices. I think metals will increase significantly in price. As we know, in 2008, banks provoked a major crisis. What do you see as the role of banks today? Do you see them in any kind of collapse scenario, or do they have enough liquidity today to prevent that from happening ?
What is your opinion on the banking sector ? Yes, I think all those banks that we bailed out in 2008 because they were too big to fail. They are much bigger now, yes, because of these rescue efforts. But I think they are in worse shape financially. Like I just said, they hold all these mortgages. I mean, not all, but most of the eight trillion in mortgage loans, which have two trillion in unrealized losses, are owned by banks.
But they don't just have trillions in losses on mortgages, they have trillions in losses on the Treasury bonds they hold. And other long-term debt instruments on their balance sheets. And as rates continue to rise, these losses continue to accumulate. This is part of the problem with the Fed raising rates.
The more they raise rates, the more, you know, the worse the banks' balance sheets get. And then when these banks start to fail, and they start to, like Silicon Valley or Signature Bank, when these banks start to fail, you have to liquidate their mortgage portfolios. And now you have to realize these unrealized losses .
So, this will put a lot of pressure on the Fed not to raise rates, but to lower them, despite the worsening inflation. And when they do, inflation will get even worse. So, do you think this is just a US problem or do you see it worldwide? I mean, in particular, Europe. Does Europe have a similar problem here?
Yeah, I mean, they have a similar problem. It's not identical, but look at France. Look what's happening there now . France has almost the same level of debt to GDP as we do. So there is a big problem there . And, you know, there are many other countries in Europe that have similar problems. Look at Japan.
Look what's happening there. Look at all the debt they have. The stakes are rising. That is, payback is coming for all the states that lived in debt and sold too many debt obligations. They all seized the moment while they had the opportunity. This was great because interest rates were low, so they kept borrowing and borrowing without any consideration of the consequences that would eventually await them when rates inevitably rose, because they couldn't stay low forever.
They were eventually supposed to go up. So, the crisis we are heading towards has been inevitable all along . That's why I warned about it for so long, because, you know, of course I wanted governments to do something to avert a crisis, but I was pretty sure they wouldn't , but I at least wanted to sound the alarm so that people, first of all , could do something to protect themselves, and secondly, so that when the crisis happened, I couldn't just say, "Yes, I told you so." but also to explain that the crisis was caused by the government and central banks , and not by some internal flaw in capitalism.
If we really had capitalism, the conditions that created the crisis would never have arisen. They only came about because of socialism, because of government interference in capitalism and what they did to distort markets and inflate bubbles that inevitably always burst. Last question, Pete. Uh, I read yesterday from one of the experts that he said that we are in an inflationary cycle that will be the longest in history, predicting 10-15 years of sustained inflation.
Do you consider this a realistic scenario? Yes, this is a very realistic scenario. The only thing that could change this is if AI productivity gains become so rapid that prices start to fall. If it weren't for all this inflation, prices would fall much more significantly. So, let's assume that AI is so productive that it causes prices to fall by 20% per year.
That is, everything becomes 20% cheaper every year. Well, if inflation is, say, 22% , then we get 2% inflation. Right? So, prices are still rising. But if we didn't create all this inflation, didn't print so much money, prices would drop significantly, which is a good thing, because it's always better when the things you need become cheaper.
And this is not bad for business, because not only the prices at which they sell are reduced, but also the cost of production. So, businesses can earn more when prices fall, provided their margins remain the same. Because even if the margin remains the same, volumes increase when prices fall. So everyone wins when prices go down.
The government, on the other hand, benefits when prices rise because it is the one who creates inflation. They are the ones spending the new money that comes into circulation. Yes, there are winners and losers, and ordinary people, unfortunately, always lose. Inflation in the US remains a serious, very serious problem.
Do you believe that inflation has truly been brought under control, or are we simply getting used to the constant loss of purchasing power? Well, you know, we've been losing purchasing power ever since we went off the gold standard. This process is simply accelerating. In fact, even the Fed admits that their goal is for us to lose only 2 % of our purchasing power annually .
So, we are losing purchasing power by design. But I think we are losing it much faster, and the Fed has lost control. Look at the numbers that came out today. Yes. regarding producer prices. If we convert September's growth to an annualized basis, this 1.3% increase translates into 17 % annual inflation at the wholesale level.
And, of course, this will ultimately affect consumers, because businesses always pass on their costs to customers. And, you know, the CPI numbers we got yesterday were bad, but these numbers are even worse, which means that future CPI numbers are going to be even worse. So this is a big problem, and an even bigger problem is that the Fed can't do anything to stop it.
Nothing politically possible, because we would have to raise interest rates so high and shrink the money supply and balance sheet that we would destroy the entire economy, which is built on a foundation of debt and artificially low interest rates. So, we are in a very, very precarious position right now.
What if the next banking crisis starts with something that technically hasn't happened yet? Losses that banks still have only on paper. It is this danger that economist Peter Schiff warns about. He believes that years of cheap borrowing flooded the financial system with mortgages and bonds that looked safe when rates were low.
Now rates are higher, those assets are worth less, and Schiff believes the pressure could eventually force the Federal Reserve to make an uncomfortable choice. Protect banks or continue the fight against inflation. Imagine you lend someone money for 30 years at a fixed interest rate of 4%. After a few years, new loans pay 7%.
Your old loan may still be paid on time , but anyone buying it from you will want a discount. Much the same thing happens with long-term mortgages and bonds when market rates rise. The borrower did not necessarily miss a payment. The market value of the loan simply fell. Schiff cites a dramatic figure regarding this problem.
In the interview, he estimates about $2 trillion in unrealized losses on existing mortgages, with additional losses on Treasury and other debt. This is his estimate, not a confirmed industry-wide figure. By comparison, the FDIC reported about $327 billion in unrealized losses on bank securities in the second quarter of 2026.
This official figure does not cover every mortgage or loan, so it cannot confirm or directly refute Schiff's larger calculations. But it shows why interest rate risk deserves attention. And that's the problem with calling these losses only paper losses. The bank can often hold a serviced loan until maturity and receive scheduled payments.
But if depositors withdraw funds or the bank needs cash quickly, selling the asset at a lower price today could record a loss. Suddenly, a number hidden in an accounting column becomes a real hit to capital. This is the banking equivalent of insisting that your house hasn't lost value because you haven't tried to sell it yet.
We saw how quickly trust can change in 2023. Silicon Valley Bank went bankrupt after customers rushed to withdraw deposits, exposing weaknesses in its interest rate risk management. Signature Bank also closed, and First Republic was later absorbed. Schiff argues that the largest institutions are not immune simply because they are bigger.
In fact, he believes their reliance on long-term debt could make another period of rapid profitability growth particularly painful. For homeowners, this gap in interest rates manifests itself differently. Someone who has secured a cheap mortgage has little reason to move and borrow again at a much higher interest rate.
Meanwhile, a first-time homebuyer faces higher monthly payments for the same home. The market is freezing even without a nationwide collapse in real estate prices. This does not mean that a new wave of bank failures is inevitable. Banks have different portfolios, hedging, funding sources and capital buffers.
The FDIC also reports high levels of capital and liquidity in the industry, but the overall stress is real. Higher rates can help curb inflation while reducing the market value of assets purchased when yields were much lower. Recent reports from major US banks have recorded new losses in bond portfolios due to rising Treasury yields .
Now imagine that this tension is spreading. Some institutions need liquidity, investors are losing confidence, and politicians are facing demands for emergency support. Schiff expects the Fed to eventually cut rates or provide assistance even if inflation remains high. He is concerned that bailing out financial markets could reignite price pressures and weaken the dollar.
This is a forecast, not a decision announced by officials, and emergency lending does not automatically cause uncontrolled inflation. The story is not limited to American banks. Schiff points to France, Japan and other indebted governments facing higher borrowing costs. When sovereign debt becomes more expensive at the same time as pressure on private credit, the problem can go beyond borders.
And this is where his next warning begins. What if the financial aid people demand today will make the money in their pockets buy less tomorrow? Do you think the Federal Reserve faces an impossible choice between fighting inflation and preventing a recession ? What can they actually do? Well, this isn't just a recession, it's a full-blown financial crisis of grand proportions.
Look, I just posted this in X today. But throughout the global financial crisis from 2007 to 2010, losses from defaulted mortgages amounted to about 450 billion. However, because interest rates fell so much, the 90% of mortgages that were not in default actually increased significantly in price. I think the banks had over a trillion dollars in unrealized market gains on their mortgage books.
Today, unrealized losses on existing mortgages total two trillion dollars. You have eight trillion dollars of fixed-rate mortgages that mature in just 25 years, with an average rate of 4.6%, but a current rate of 7.5%. And when mortgage rates reach 8.5%, the unrealized losses will be three trillion dollars.
This is significantly more than was lost during the financial crisis. And this is without any defaults. That's how much they lose on mortgages that don't default. Of course , they will lose even more on those where they are. But we have never been in such a situation . So, if the Fed continues to fight inflation, we will have a housing crisis that will make the 2008 financial crisis seem like a breeze .
Um, yes. Yes. As we know, the debt has exceeded $40 trillion. The question for you is, what prevents the government from having, say, $80 trillion in debt? Really, what's stopping them from doing this? Well, eventually it will be a bond crisis. You know, the sovereign debt crisis. That's the only thing that will stop the debt train, that's, you know, a crash.
But until then , we're a little over 40 trillion now, but we'll get to 45, 50, 60, 70 trillion until there's a complete collapse. Maybe it will happen before we reach 45 trillion. You know, I do n't know. I don't know where the breaking point is. I just know it exists, and we will eventually find it, because we won't stop until we do.
Because there is no political incentive to avert the crisis. All incentives are aimed at waiting for a crisis. So, a crisis is inevitable. Yes, that's definitely not good. As we know, the dollar is the world's reserve currency. Is this a fairy tale for you, or do you really see this status remaining in the future?
The dollar's reserve status is the reason we've been able to build up so much debt, and the reason we've been able to do it at such low interest rates. Now that is changing. But yes, I believe the dollar's days as the world's reserve currency are numbered. I just don't know how many are left, but it's significantly fewer than it used to be.
That is, if you expect a major sovereign debt or currency crisis, what assets would you hold besides physical gold? I know, we all know your opinion on gold. However, apart from gold, how can we prepare for the impending crisis ? Well, I mean, obviously you can own silver. In addition to precious metals, you can invest in real assets in general.
You can invest in companies operating in the raw materials sector. So, mining companies—not just precious metals, but industrial metals, agriculture, energy, and, to the extent that you can find bargains even in technology, well, you know, just real assets. I think emerging markets look very attractive, as do many of their companies.
You need inflation hedges. You need to own things, not paper promises. Peter Schiff believes the next financial crisis could force central banks to make a choice that no one wants to make. Keep interest rates high to curb inflation, and heavily indebted borrowers could go broke. Lower rates to bail out banks and governments—and the dollar could lose even more purchasing power.
Schiff believes politicians will choose salvation. But what might this cost those who earn and save in dollars? His concerns extend far beyond the United States. Schiff points to France, Japan and other economies that borrowed heavily when interest rates were exceptionally low. But when old bonds mature , governments must replace them with new borrowing, potentially at much higher rates.
It's like a cheap introductory subscription with a brutal renewal price. Only taxpayers pay the bill . Arithmetic can quickly become unpleasant. Higher interest costs are squeezing budgets, while slowing growth is making it harder to collect revenues. Governments can raise taxes, cut spending, borrow more, or seek monetary support .
Schiff argues that politicians are constantly postponing difficult decisions, leaving central banks to act when markets finally rise up. This is his interpretation. Large debts do not prove that the government is about to declare default. And then comes Schiff's most controversial prediction . Inflation may remain a serious problem for another 10 or 15 years.
He doesn't think a few softer consumer price reports mean purchasing power has been restored. If prices rise by 8% one year and by 3% the next, they are still rising. The pace just slowed down. Anyone who pays a grocery bill understands this difference, even if the headline that inflation is under control sounds great and reassuring.
He is particularly critical of the Federal Reserve's 2% inflation target. According to Schiff, focusing on rising prices means accepting the gradual erosion of what money can buy. Central bankers would respond that a low, stable rate of inflation can help the economy adapt and avoid the problems of prolonged deflation.
But Schiff asks why the public should be satisfied when productivity makes it cheaper to produce goods. His view is that technological progress should improve living standards, and consumers should get more of these savings. This is where artificial intelligence comes into the conversation. Let's say AI helps factories work faster, companies reduce waste, and services become significantly cheaper.
Schiff argues that without offsetting monetary pressures, these efficiency gains could lower consumer prices. In the interview, he gives an exaggerated example of how productivity reduces prices by 20%, while other inflationary forces increase them by 22%. These figures are hypothetical, not an economic forecast.
It illustrates how a modest measure of overall inflation can hide huge gains that buyers never fully reap. Of course, productivity is not distributed evenly. Building AI systems costs money, electricity isn't free, and companies don't automatically pass on every saving to customers. The growth of the money supply also does not mechanically translate into a certain level of inflation.
Demand, supply constraints, wages, and expectations—all affect the outcome. Schiff's main concern is that monetary intervention could offset the benefits of innovations that are supposed to make life more affordable. In the interview, he points to a sharp monthly increase in producer prices as evidence that business is still under pressure.
Producer prices can affect how much consumers ultimately pay, but a jump in one month should not be considered a consistent annual figure. Companies can absorb higher costs, adjust their margins, or pass on only part of the increase to consumers. The signal matters. Extrapolation should be treated with caution.
And this brings us back to the banking problem from part one. If rates remain high, banks holding long-term mortgages and bonds could face additional unrealized losses. If rates fall too quickly, inflation expectations could rise again. Schiff believes that this tension makes gold and silver attractive as long-term stores of value.
However, there are no guarantees of growth for either of these metals, and both could undergo a painful correction, especially as investors cash out en masse. So what should we take away from Schiff's warning? Keep an eye on bank balance sheets, government refinancing costs, inflation trends, and whether productivity gains are actually reaching household budgets.
His prediction of a prolonged monetary crisis is far from definitive. But the question underlying it is worth asking. If politicians manage to hold the financial system together, will the money within that system still be able to buy what people need? After all, surviving a crisis on paper is not quite the same as emerging from it with a real increase in wealth. Stay up to date with the latest developments in the s well as .
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