저자: PeterSchiff · 외국인
요약 보기
미국 국채금리 급등과 재정 위기에 따른 채권·달러 대폭락 가능성을 강하게 경고하는 인터뷰다. [거시·채권] 10년물 금리 5.12%(19년래 최고), 30년물 5.41%(22년래 최고), 5년물 5% 돌파. 국가부채 약 40조 달러, 5% 금리 시 이자만 약 2조 달러로 세수의 35%에 달한다고 주장. 금리 상승은 19년 전(하락 국면)과 달리 부채가 5배 이상이고 평균 만기가 짧아 더 위험하다고 봄. 채권 약세장이 10~15년 더 갈 수 있고 결국 10% 이상 금리 가능성 언급. [연준·정책] 워시 연준의장의 25bp 인상은 너무 작고 늦었다며 더 큰 인상이 필요하나 경기 타격 때문에 못 하고 있다고 진단. 연준이 국채를 사면 인플레이션을 만들어 달러 가치를 훼손할 것이며, 다음 정책 대응도 양적완화(인플레 유발)로 결국 효과가 없을 것이라고 봄. [엔캐리·일본] 일본은행이 1.25%로 인상했으나 여전히 실질금리는 마이너스. 일본 금리가 더 오르면 엔캐리 청산, 일본 투자자의 미국 자산 매각(국채 매도 포함)이 일어나 미국 금리 상승과 달러 약세를 동시에 부를 수 있다고 봄. [에너지] 디젤 6.5달러대, 전략비축유(SPR) 고갈 우려. 비축유 방출이 유가를 낮춰 왔으나 곧 중단될 것이며, 이란 전쟁 해결은 트럼프 임기 내 어렵고 2029년까지 갈 수 있다고 전망. [실물경기] 미국은 사실상 롤링 리세션 상태이며 인플레이션이 성장률을 과장한다고 주장. 신용카드 연체 증가, 소비 위축 → 월마트·아마존·페덱스·UPS 등 대형 고용 감소 예상. 중간선거 전후 정치적 압박으로 연준이 더 곤란해질 것으로 봄. [AI] AI 기술 자체는 유망하나 대규모 설비투자 대비 수익이 아직 없고, 하이퍼스케일러의 과잉 차입이 채권시장 금리 상승과 신용경색 위험으로 이어질 수 있다고 경고. [달러·금] 금은 2000년 이후 중앙은행 매수로 상승(5500달러 고점 후 조정, 현재 4000달러대 초중반), 추가 상승 예상. 아직 달러가 주요 법정통화 대비 크게 무너지지 않았으나, 금리 상승이 달러 매수가 아닌 달러 탈출 신호가 될 때 달러 약세가 본격화될 것으로 봄. [마케팅] 영상 말미 본인의 자산운용사·금 계좌 상품 홍보.
다듬은 글
We're going to have a day of reckoning. We're going to have a complete crash in the bond market, in the economy, and the dollar. We're going to have a sovereign debt. We're going to have a currency crisis, the likes of which we've never experienced in this country. It's going to make the 2008 financial crisis look like a Sunday school picnic.
Welcome everybody. I'm Leanna Petrova with a new episode of World Affairs in Context. Today, I'm joined by a prominent economist and long-time financial commentator Peter Schiff to discuss some of the biggest economic risks facing the United States and the global economy. Peter is the chief economist and global strategist at Euro Pacific Asset Management.
Peter, welcome back to the program. Thank you very much for joining me. Oh, my pleasure. Thanks for having me on again. I'm thrilled to have you. There's so many things, so much going on. I think it's impossible to discuss all of this in in just 1 hour, but we'll try. So, let's start with recent data.
Recent data shows the Treasury yields are around 5% at the long end, oil above $100, rising US fuel prices, and renewed pressure on stocks. Looking at the latest US economic data, how would you characterize the US economy right now? Is it an economy that is still expanding as the mainstream media wants us to believe?
Is it an economy that is entering a slowdown or an economy that is already in a recession that the official data just haven't really fully captured? Well, I think the economy has almost been in a rolling recession for many, many years. The data, I think, grossly exaggerates the growth in the economy.
I think most of it is inflation. And if you under report inflation, by definition, you're over reporting on on growth. So, inflation can create the illusion of economic growth, which is one of the reasons that governments like inflation and and and go out of their way to create it. But, you mentioned the yields about 5%.
The yields now on the 5-year Treasury just went above 5%. We had an auction earlier today. Um and the 2-year is not that far below now 5%. It's It's 4.9 and change. The yield is 5.12 on the 10-year. That is a new 19-year high today. And on the 30-year, we're at 5.41. That's a 22-year high in in the 30-year Treasury.
But, if you think about 5% because the the short-term money is still 4%. The The 3-month is is 4.13. But, the entire yield curve is going to move above 5% by next year, I think. And if you think about a $40 trillion national debt, which we have now, which will be higher next year. By next year, it'll be about 42 or 43 trillion.
But, just with a $40 trillion debt, if we have to finance that at 5%, that's $2 trillion. That would not only make interest the biggest expense that the US government has, exceeding what we pay for Social Security, but it would be 35% of our tax revenue. That's more than 1/3 of everything the government collects in taxes, just going to interest on the debt.
And as bad as that is, it's going to get worse because the debt is going to keep getting bigger and interest rates are going to keep rising. So, then we go to 2.5 trillion, 3 trillion, 4 trillion. Pretty soon, all of the tax revenue will be earmarked to pay interest on the national debt. Meaning, the government won't have any money for anything else unless it borrows it.
100% of government operations uh will have to be borrowed. And all entitlements. Which obviously is not even possible. So, sometime between now and then, we're going to have a day of reckoning. We're going to have a complete crash in the bond market, in the economy, in the dollar. We're going to have a sovereign debt, we're going to have a currency crisis the likes of which we've never experienced in this country.
It's going to make the 2008 financial crisis look like a Sunday school picnic. Just shortly before the interview, I noticed that you made a post on X, and I will read it for our viewers. You said, "10-year Treasury yields, as you just said, hit 5%, a 20-year high, and 30-year yields hits 4. I'm sorry, 5.4%, a 24-year high." And you said, "The rise is neither temporary nor close to over.
It's the start of a long overdue reset that will return interest rates to levels incompatible with current asset prices or debt burdens." Could you expand on this and walk us through how the rise in yields will affect, let's say, US equities, stock prices? Well, I just think that we have too much debt now to be able to um withstand 5% or higher interest rates.
I know a lot of people now are kind of dismissing this because they're saying, "Well, you know, we can handle it 19 years ago, it wasn't a problem. The economy was okay, the stock market was okay. So, there's nothing wrong with 5%." But that misses a couple of very significant differences between then and now.
One is how much debt we have. We have um you know, at least five times the the debt now. And so, a 5% interest rate is a much bigger burden on the economy. We have a lot more debt that needs to be serviced at 5%. But what might even be more significant is the direction in which rates are headed. Because 19 years ago rates were headed down.
And they continued to fall for many, many years. We were in a 40-year bull market in bonds in 2007, which is the last time rates were at this level. The 10-year yield was at 16% in 1980. And it ended up bottoming out below 1% in 2020. And so, you know, we were still enjoying that that bull market. Rates were falling 19 years ago.
Now, we're 6 years into a bear market in bonds that likely has another 10 or 15 years left to run, if not more. And I'm sure by the time this bear market ends, Treasury yields will be north of 10%. How much higher? It's hard to say. But you know, we're about half that now. So, the fact that rates are going up, whereas 19 years ago they were going down, that is a big, big deal.
And also, the average weighted maturity on our debt is shorter now than it was then. So, it's going to be a bigger problem as more and more short-term debt matures and has to be rolled over at much higher rates. So, if global demand for US Treasuries is weakening, um I know many people, especially in the comment section to my videos, many people question, "Well, who's ultimately going to absorb the enormous supply of US government debt if foreign demand continues to weaken?"
Well, it's obviously going to be the Fed. I mean, they're the buyer of last resort. They may be the buyer of only resort. Right. But the problem is when the Fed is the buyer, it has to create inflation to do it. And and so that means that the real value of bonds is going to fall even faster when the Fed is buying.
And of course, everybody is going to be impacted by those purchases because they're going to weaken the value of the dollar. And so consumer prices are going to rise. And they're going to rise substantially. And as the Fed continues to create inflation to buy bonds to keep yields from rising, it ends up pushing up yields in other debt instruments.
Corporate bond yields go way up. Municipal bond yields go way up. Uh so America is going to suffer higher interest rates and higher consumer prices even if the Federal Reserve is able to prevent the US government itself from having to uh suffer that burden. And and we're clearly seeing pressure across several major sovereign bond markets.
This is not just a US US bond market issue, right? The Bank of Japan raised its policy rate to 1.25% on September the 18th, just several days ago. And analysts have warned that a further yen appreciation could accelerate carry trade unwinding. How large do you think the global yen carry trade really is today?
And how much leverage could be hidden behind it? Well, I think it's pretty big and eventually it will unwind cuz the Bank of Japan is going to have to raise interest rates significantly higher than where they are right now. At one and a quarter, you still have negative real interest rates. The inflation rate in Japan is considerably higher than that.
And if the Bank of Japan doesn't raise rates quite a bit, then you're going to have further yen depreciation and you're going to have even more upward pressure on bond yields and consumer prices in Japan. So at some point, the Bank of Japan is going to have to get much more aggressive. And that's when you'll start to see some strength in the yen and the unwind of the carry trade.
But either way is problematic because if the yen keeps falling uh Japan is going to have to sell treasuries in order to buy yen to support the currency. And if they raise interest rates, then everybody else is going to be selling treasuries because they have to repay the the the Japanese loans because they borrowed yen to buy treasuries and in fact they borrowed yen to buy all sorts of assets which are going to have to be liquidated if the if the Bank of Japan were to get serious about uh you know bringing down inflation and and and you know propping up the yen without having to you know resort to intervention which is what the uh the government would be doing.
Could we see a situation where Japanese investors repatriate capital and which would cause treasury yields to rise and the dollar become even more let's say come under more pressure all at the same time? Do you Do you foresee that to be one of a possible scenarios of of what we already start what we already see now?
Yeah. If interest rates really rise in Japan and Japanese investors look to repay debt they're going to have to sell off assets in order to raise the cash and a lot of the assets that they have to sell are here in the US because a lot of those assets were acquired uh with with borrowed yen. And and and those trades are going to have to be unwound in order to repay the loans because the the cost of servicing those loans is rising and especially if the yen really starts to rise, that would compound the losses for the Japanese who borrowed yen to buy dollar assets if not only are their dollar assets going down in dollar terms, but they go down even faster in yen terms if the yen is appreciating against the dollar.
So we clearly now see a particularly difficult combination which in includes higher oil prices, higher bond yields, and renewed inflation concerns. From the perspective of uh Fed Chairman Warsh and the Federal Reserve, does this create a policy trap? What do you expect his response to be in the fourth quarter and maybe in uh next year in 2027?
Well, I mean, obviously, the Fed is boxed itself into a very bad situation where it's damned if it does and and damned if it doesn't. I mean, they need to raise interest rates. Um but when they do, they're going to create a crisis. But if they don't, they actually get a bigger crisis. In the meanwhile in the meantime, the 25 basis point hike from last week is too little, too late.
They have to hike a lot more than that. I mean, they're afraid to because of what it's going to do to the economy and the markets. But they couldn't do nothing because their credibility was on the line. So, they they hiked rates uh you know, in a symbolic move just to show the world that they could do it.
But a 25 basis point hike given where inflation is and given where inflation is headed is nothing. In fact, since Warsh has been Fed chair, I think inflation has risen by more than that rate hike. So, real rates are lower now than when he took the helm. We need much bigger hikes, but they're reluctant to do that because of the damage to the economy that that you would have.
And and I would imagine that to be a particular concern given that delinquency rates are rising. So, think about all the credit card debts that Americans are carrying, and if rates rise even further, which they certainly need to, that would be catastrophic for millions of Americans, which would probably put a significant strain on their purchasing power.
And and so, it's it's kind of a snowball effect, isn't it? Yeah, and of course, the the lenders are going to have a big problem because a lot of borrowers are just not going to pay. You know, these are unsecured loans. So, you know, the credit card borrowers just stop paying. And now the losses are on the banks.
But it's not just credit cards. I mean, Americans borrow money for all sorts of things. They they have car loans, um student loans, they take out mortgages. All these loans are going to be a lot more expensive. Uh and so and it's a cumulative effect. I mean, people have multiple loans. Um so, yeah, the the economy is is is is going to be in in a lot of trouble because we've had an artificial boost because of the low interest rates.
That has freed up uh consumer spending for other things. But when all that extra spending is no longer possible because the low interest rates that made it possible no longer exist, uh you have a massive recession because all the spending uh is gone. And all the jobs uh that relied on that spending are going to disappear.
You know, you look at the biggest employers in America, the four biggest employers are Walmart, Amazon, FedEx, and UPS. And that's where we're going to see the biggest job losses right off the bat because Americans are going to have to cut back on all this spending. They're going to have any money left over after paying higher interest rates, higher food costs, higher energy costs.
Their discretionary income is just going to completely implode. And it's going to take all these jobs down with it because, you know, if there's if consumers can't buy anything, well, what do we need all these FedEx workers for? What do we need all the UPS workers? They're not shipping anything. And if, you know, people aren't shopping at Walmart, what do we need all these workers for?
If they're not buying stuff on Amazon. So, uh you're going to see a big downturn in the economy as inflation is really accelerating. And that really puts the Fed in the box because now, if it turns its attention to uh the economy and and job losses and tries to pursue a stimulative policy, it exacerbates the inflation problem that's already uh you know, causing the job losses.
Uh on the other hand, if they keep fighting inflation and allow the you know, the job losses to continue, that's going to create a political firestorm uh where you know, the Fed now gets blamed uh for creating the problem. Right. Especially ahead of midterms. So, that that's very interesting from the timing perspective.
this is probably not going to happen before the midterms cuz they're coming up in just a couple of months. Right. Yeah, right. But, I think I there obviously is going to be some pressure if we get a a downturn in the economy that's more, you know, measured by GDP numbers or if we get some bad payroll numbers, maybe some big job losses, some downward revisions, that could put a lot of pressure uh on the political parties to do something before before the midterms.
But, whatever they do will exacerbate the problem. I mean, any kind of new spending uh will just fuel the inflation fire. Let's turn to the energy situation and energy shock and related diesel uh prices. The latest EIA data show US retail diesel prices continuing to rise while the broader energy shock is becoming a major concern for the global economy and the OECD has also warned that the energy shock is becoming more entrenched.
It's not going away anywhere. So, how concerned are you about this combination of high crude prices, constrained refining capacity, and declining distillate inventories? Yeah, look, this is obviously, you know, a big problem. You got a six and a half dollar uh diesel and in some parts of the country like California, it's a lot higher than that.
Mhm. But, diesel is a very important industrial fuel. Uh it's used, you know, in agriculture. Um you know, it's used in the trucking industry. All All the goods that are being transported around, I mean, the truck drivers are relying on diesel. The fishermen, they need marine diesel for their boats if they're going to go out there and so I think everything is going to get more expensive because of these higher costs.
And what's going to happen at some point, probably by next year, is the government's going to have to turn off the spigots from these strategic petroleum reserve. They can't run it down to empty. That has problems for the tanks in the future. You You can't empty it out completely. So, I'm not sure at what level they have to stop draining, but we're probably not that far off.
And and and then what's going to happen? Because one of the reasons that oil prices are $90 a barrel and maybe not $140 a barrel is because we have been putting a lot of oil into the market from those reserves. That is going to stop. But also, not having those strategic reserves is a problem in and of itself because those reserves are not there just because prices are high.
They're there in case there's no oil. You know, like there's a war or something and our military needs oil, you know, in order to move. So, we're we we've used our strategic reserves really in a non-emergency. The oil There's less oil, but there is oil. And so, we should have just let prices go up so that we would, you know, cut back consumption.
And and just let the market allocate oil to the people who really need it and can pay the higher prices. But what we've done is if we've tapped into these reserves, mainly for political reasons because we want to keep the prices lower so we can keep on buying. But then we're going to run out of reserves, and now we're in an even worse situation than we were before, and without reserves.
What is your sense of the Trump administration's plan toward maybe with refilling the SPR? Because eventually it has to be refilled, but obviously cannot be refilled because of the energy situation, and that was very much created by the war in Iran. So Oh yeah, he he he talked about the need to refill it because they were very critical of Biden because Biden was the one that really tapped into it in for the midterms in 2022.
Uh because oil prices had gone up, you know, you had you had Putin uh in in in in you know, in uh the Ukraine, and that was driving up prices, and so the midterms were coming, and so Biden tapped the strategic reserve. And he was rightly criticized for that for that move. And one of the things Trump was promising to do was correct that by refilling the reserves, but then of course, not only did he not do that, uh but he did exactly what Biden did and drained what Biden still left.
And you know, this the stocks are as low as they've ever been. I forget how many years, 40 or 50 years, whatever the number is. But of course, relative to our population, it's even lower because we're we're you know, there's a lot more of us now. So obviously we're using a lot more oil than we did back then, yet we have uh a lower reserve.
Um so it is interesting to see what happens with the oil inventories, what happens with diesel prices. It does appear that there is really no viable solution to the problem that we see unfold at the moment. It just seems that the prices will just keep going up, and there is really no tangible solution to the conflict in the in the Middle East at the moment.
There there are some attempts at diplomacy, but still it seems too far off from my perspective. Well, it's yeah, I mean given the mess that that Trump made, it's politically there there isn't a way out. I mean, there is a way out if he's willing to concede defeat Right. and and and acknowledge that he made a mistake.
Uh but he's never going to do that. So, I don't know that we're going to see the end of of the war, you know, during the Trump administration. It may have to wait for another president, you know, uh before there's any kind of resolution because you know, now that president doesn't care about saying, "Hey, this is Trump's fault.
Trump made this mess. We got to do this." Uh so, we may have to wait till 2029 to get any any relief on that front. Um I would love to get your thoughts on the AI bubble. I know that you have been warning about an AI-driven bubble in financial markets for a while. Several major technology companies are spending hundreds of billions of dollars on AI infrastructure, even though there's considerable pushback from the communities where these data centers are being built.
And also, the return on investment hasn't been too too great. So, how would you describe the current state of the AI boom? Is it promising or is there something else going on that we need to be aware of? Well, you know, I think AI itself is is certainly very promising. I think the potential of AI, just based on what we've already created, um and of course, they're constantly improving AI.
I mean, so what we have now is not even, you know, what we're going to have. It's obviously going to be a lot better as the level of intelligence rises and the ability to do uh tasks increases. So, I you know, and from that respect, it's possible that we're underestimating the impact that AI is ultimately going to have on the economy, on productivity, on corporate earnings, on on government.
But the question is before we get to the promised land of of AI, I mean we we you know, we have a lot of problems. And one of them you're you're correct to point out is that thus far the investment in AI has not produced returns. Now, the people making the investments the companies I guess would argue, yes, but not yet.
We need to wait. The returns are going to come, but they're going to come in the future. And there we don't know because we don't really know what they're going to be able to sell the the the AI for the the tokens or the inference. How and who are their customers going to be and what are their customers are going to pay and might they buy from a Chinese company that that has lower costs or you know, so we don't know.
Ultimately, how profitable all the spending is going to be and whether or not a lot of this spending ends up being obsolete because they come up with new ways of of of doing this that don't require as much compute or don't require, you know, the type of investment that has already been made because a lot of this stuff could be obsolete.
I mean right now there's just a real shortage of of of memory and tech and and even you know, computer parts that are a few years old are now selling in the the secondary markets for more than they were originally you know, cost. But you know, that could change in the future with a better things being produced or lower cost.
So I don't know. But these stocks are very expensive and all the earnings are now concentrated in these stocks, but all the spending is there. They're basically buying from each other because all these big hyperscalers that are spending all this money, let's say on Nvidia or spending money with open AI or Anthropic.
They own stock in all these companies. And so uh they're buying uh into their own investments. And they're you know, they're not expensing all this. It's It's CAPEX. And so even though they're spending all this money, they're still reporting earnings because they're not offsetting it, you know, right now with this CAPEX, which may not even really be CAPEX because they're they're they're buying uh computer parts.
And you know, they're not, you know, constructing long-term assets that are going to be around for 20 or 30 years. I mean, these things can be obsolete in 2 or 3 years. And then they got to buy them all over again. Uh so the earnings could be exaggerated. And then again, a lot of the companies that are selling all this stuff, they're vendor financing.
They're loaning money to their customers to buy. Uh so all of this is reminiscent of the dot-com bubble and the vendor financing. And And we saw how that ended. Uh what happened to those stocks and the overall Nasdaq. I mean, I think artificial intelligence has the potential to be a lot more disruptive than than the internet.
Um but that doesn't mean that we can't have a bubble uh in in the companies that are involved. Uh and And ultimately, the biggest beneficiaries of AI may not be the companies that are selling AI, but the businesses that are using it, that are incorporating it. Unless you believe that these AI companies, uh you know, these frontier labs like, you know, Anthropic and and Open AI are just going to take over the entire global economy.
That they're going to make everything cuz they're going to have all the intelligence. They're going to have all the superhuman uh you know, robots or, you know, AI that they're just going to make everything and nobody else will be able to compete with them. Um but you know, I I you have a lot of, you know, people and young people that are working in these labs and uh they're extremely, you know, optimistic and pessimistic at the same time over this technology.
And of course, they could be so close to it that uh you know, their their judgment is clouded. Uh but they they either think we're all going to be dead because the AI is going to kill us and the whole, you know, humanity is we're all going to be extinct in a few years. Maybe maybe even less than that.
So, either we're going to be completely extinct or, you know, it's going to be this world, uh you know, where all human labor is uh is obsolete and and and and people don't have to work anymore because everything that we need will be produced by intelligent uh machines. And we'll have a a a an explosion of of productivity and abundance and incredible inventions.
That, you know, what we've invented over the last 150 years or so since the Industrial Revolution, we'll repeat that like, you know, every few weeks or something. I don't know. It's just cuz these machines, you know, once you think they're looking for this recursive self-improvement where we get to a point where we don't need human programmers anymore, where the AIs improve themselves.
And one agent basically programs the next agent that's better. And then that agent builds a better agent. And you know, so on and so on and so on. Right? And you get this explosion of super human intelligence. Um and then, you know, we're basically at the mercy of uh of of the of the AI. And we have to hope it's benevolent and and decides that we're worth we're worth uh preserving.
Absolutely. And and you know, as a former financial auditor, I spent over a decade auditing, um I would have to question the evaluations of these AI companies because as you said, well, is it CapEx or is it not CapEx? And that has to be pretty clear, but I I imagine that there are some probably really interesting things going on in terms of valuations and those profits then reported that might be a concern as well.
are dependent on a lot of things happening, a lot of good things happening that may not happen. Now, there are people who could say that, you know, what stuff is going to happen even better that as good as people think, they're wrong because it's going to be even better than that. So, you'd have to have that argument to say that these stocks are undervalued.
But, I think it's far more likely that they're overvalued than that they're undervalued, but either possibility, you know, is real. I I I don't know enough about it and I don't know that anybody does to know how this thing is going to end. I mean, maybe AI is going to reach you know, a plateau where it can't keep improving at the rate it's been improving and maybe the government is going to come in and just shut the whole thing down.
Hey, we can't do any more. We got to take a break here. Who knows what's going to happen. And and it's even possible that the industry is lobbying for the government to intervene to kind of shut off the competition. Even though I've heard people argue that it's it's the it's the frontier models that have the most to lose by slowdown because they're out in the lead.
But, you know, generally if if an industry is you know, asking to be regulated, it's normally because it wants to use the regulation to protect itself from competition. That's That's generally the case. What do you make of the enormous amount of debt and financing that is being used to build AI data data centers and infrastructure?
Doesn't that debt that private debt debt compete with government debt which pushes yield even higher? I mean, it competes with all debt. I mean, in fact, some of the big hyperscalers like Meta and and and alphabet um they were big buyers of government bonds. They had such cash surpluses, they earned a lot of money and they were loaning it to the US government.
They've now depleted that. They sold those treasuries and they're out of cash and now they're borrowing in competition with the government. And so all this borrowing is obviously driving up interest rates because uh you know, there's only so much uh savings or capital to go around. But to the extent that these big borrowers believe that the profits are enormous uh from these data centers or all the cap you know, the capex in in in acquiring compute if they see these massive returns then they don't care if they have to borrow at 10% or 20% or 30% if the profits that they expect to receive blow those those numbers away.
The problem's going to be if they've overestimated the profitability of these investments and they can't repay their debts. Um so we'll see. But in the meantime, I think there's going to be a lot more uh borrowing from the corporate sector to the extent that everybody is chasing these big AI returns.
In order to get the returns, they have to make the capital investment, at least they think they do. So you have an arms race for compute. And at the same time, you've got all these governments that are already broke and have already borrowed a lot of money uh especially in the aftermath of COVID. Um and so interest rates are going to go up and and you know, that's what creates the the the the bond crisis because people can't afford to pay.
And if you know, it's not just the government, but if you want to borrow money to buy a house, you're competing with uh the hyperscalers, too. You got to borrow money for a house, well, you know, where's that money going to come from? Um and and so everybody is going to have to pay higher rates even if you're not making those productive investments.
So there may be a tech company that doesn't care about paying 20% because they're going to have these great profits, but the homeowner or home buyer, how are you going to pay 20%? You're not generating any income out of your home. You know, you're just living there. Uh and of course the government is not generating any income off of what it borrows.
It's borrowing to to to finance a current a government spending. Earlier in the conversation we briefly discussed the deterioration in credit conditions. How vulnerable is the current AI investment boom to a sharp increase in interest rates and the deterioration in credit conditions? Is there a link between them?
Well, you know, obviously as as long as there's confidence uh you know, that the investments will exceed the interest cost, Mhm. it can continue, but I think there's already uh some concern among the lenders. And if the if the market value of their loans that they own is going down because now creditors are starting to reassess the creditworthiness of these companies and start to question, maybe they're borrowing too much money, maybe we won't be able to get repaid.
Yeah, that's going to be a big problem. Uh because, you know, then rates go have to go even higher. If the hyperscalers become the equivalent of junk borrowers, right? And their debt is like junk bonds. Um But and and you know, that's going to drive up rates across the spectrum. Uh let's turn to the dollar and the global monetary system.
There are many who argue that we are seeing the early stages of a structural shift away from dollar-denominated assets. Should we at this point, I think the demand for US Treasuries has weakened. Um the dollar is likely holding up due to the war in Iran. What are your thoughts on the role of the US dollar?
And are Are any shifts away from the dollar in global markets that would be a potential concern? Well, I mean so far you've seen it mainly with gold. You've seen a lot of dollars being sold and and central banks buying gold instead. That's really what drove the price of gold from 2000 to 5500. It was central banks dedollarizing.
And you know, during most of that rally, retail investors you know, we're selling their gold. They weren't participating. So I think that trend is going to continue. We've had a pullback, you know, from 5500, you know, now we're a little bit above 4000, 4300. Um but I think we're getting ready for the next leg up in the price of gold.
But what we haven't seen yet is a big drop in the dollar relative to other fiat currencies. So the dollar has lost a lot of purchasing power measured in gold, but not in euros or Canadian dollars or Australian dollars or Japanese yen or British pounds. And you know, that obviously shows you that all of these currencies are also losing purchasing power.
Because gold has risen in price in all those currencies, even the Swiss franc. Uh which you know, the dollar has moved to record lows against the Swiss franc, but it hasn't collapsed yet. But the Swiss franc has has been a strong currency related in relation to other other currencies. But I do think that you're going to see a point where the dollar finally begins to weaken against other currencies.
Uh and I think it at the when when the markets start to appreciate the severity of this crisis and start to look at rising interest rates not as a reason to buy the dollar, but as a reason to get rid of the dollar. Because the rising interest rates are a sign of stress, are a sign of a loss of confidence.
And of course, the higher the interest rates rise, the weaker the economy gets and the more pressure there is on the Fed to create inflation that ultimately destroys the value of treasuries. Uh so, I think at some point you're going to see flight uh from investors out of dollars. Uh and you're not just going to see the dollar going down against gold, you're going to see it going down against these other fiat currencies.
Um you mentioned that the bond market will likely continue to deteriorate. So, if the bond market continues deteriorating while inflation remains elevated or rises even further, what policy response do you expect from Washington and the Federal Reserve? Well, the same response that we've had in the past.
They're going to create inflation. That's that's they're just a one-trick pony, and that's their only trick. You know, it's that that's what stimulus is. That's what quantitative easing is. QE was just a euphemism for inflation. You print money, and you buy bonds. Unfortunately, when they do it next, it's not going to work.
Not that it ever worked, but it at least created the illusion that it worked. But, when the crisis is in the US dollar, when the crisis is in the the US bond market, creating more dollars doesn't solve your problem. It it just exacerbates it. Peter, thank you so much for joining us. This was an absolutely fascinating conversation, and I truly appreciate you joining me for a new update.
And as always, I'll look forward to having you back for a new episode soon. Okay. And in the meantime, hopefully you uh your your viewers will uh you know, start listening to my podcast if they're not already doing that. I'm doing a couple a week. In fact, I'm going to be starting one a little bit later today.
Uh that'll be out probably late tonight or something like that. But, I do them on my uh YouTube channel, Peter Schiff, also on Schiff Radio. Uh and uh if you're not yet a a cust client of Euro Pacific Asset Management, you should check us out. Take a look at our strategies. We have mutual funds that actually can be bought uh no load at discount brokers.
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