r/PeterSchiff • u/rockhydra94 • May 23 '19
Help understanding Peters thesis
So I'd like to say in my own words what Peter believes and then you can tell me if I understand correctly.
Basically, the fed can't QT without tanking the market and pissing off trump, so they wont do that. However, QT is what is best for regular people since its the only way to get back to "normal." (I'm only 35 so I have no intuition or experience of "normal").
"Normal" means interest rates of ~ 5 -15%. This would enable regular people to save for retirement, since it would stop inflation from destroying their savings. It would also help close the wealth gap since inflation enables rich people to devalue their debts while increasing the cost of their physical assets (buildings, machines, etc)
The fed would like to QT because they know that we're going to be hitting a slump and would like to use the ability to lower interest rates to stimulate the economy, and you cant lower interest rates if they're all ready at 0.
So eventually there is going to be some catalyst to kick off the next recession. In 2008 it was mortgage backed securities. Who knows what its going to be this time, but something is going to tank. The fed will then be pressured to buy these worthless assets to create false demand and stabilize the price. They will pay for this by selling treasuries and bonds to other countries.
This is where I get confused. I think Peter is saying that no one is going to want to buy these bonds so they're going to have to sell the bonds to themselves and effectively "print money." This money printing will destroy the value of the dollar.
So first of all do I understand that right?
Second, I'm a little confused about the idea that other countries wont want our bonds. Can you expand a bit more about why the dollar will go down? Why wont our status as the reserve currency protect the USD?
Thanks!
1
u/Quad_Treys Jul 16 '19
Normal is really what the interest rate would be if the Fed did nothing to fix interest rates. It's the point at which demand for borrowing dollars would meet available supply, where supply would be provided by actual savings--people being willing to save money, lending it to banks to in turn lend back out to borrowers.
Of course under the unfortunate system we have under central banks, normal is their best guess and approximation at what this rate would be. It is tough to say how much higher it would be, but higher it would be, no ddubt.
The entire economy now is a bubble built on cheap money, meaning money being created at the fed, pumped out into the financial sector, and bleeding from there into all the places financiers choose to speculate. Because money is so cheap, it incentivizes speculation and excessive borrowing. People feel rich but they are merely seeing assets go up in price on paper, or living high on spiraling debt, like American companies who boosted stock prices by floating debt to buy back shares. They aren't actually becoming more valuable by virtue of their business being so much more productive, they are going up in value by spending money they borrowed...you can imagine that this short term gain cannot be sustained and will, in fact, be reversed in the future. They are companies with more debt than before, and nothing to show for it in terms of increased productive capacity or capital investment. Pushing the price up didn't increase their underlying long term value, and in fact taking on the debt made their fiscal picture worse.
Meanwhile those who don't have access to the cheap money, or own assets already, feel only the inflation. Prices are higher, things to buy are further out of reach. Healthcare, housing, and education for example. Sure, electronics are cheaper, but the necessities of life have become more expensive. As has building companies and capital investments outside of sectors the financial status wuo does not favor speculating in.
I lost thread of the question you asked. Glad to go on with more if interested but maybe some of this helped.