Peter opened the interview by pointing out that the current spate of price inflation had its origins in the 2008 financial crisis.
What the government did in response to that crisis – QE1, QE2, QE3 – all of that, plus what we did during COVID, that is the source of all this inflation. And it’s going to continue to get worse as long as we continue to run these massive deficits.”
Peter noted that the US government is currently running budget deficits averaging $2 trillion every year.
This is going to lead to much higher inflation in the future than what we’ve experienced in the past.”
Peter also said he thinks the decline in the CPI is over.
I think inflation is going to be a much bigger problem in 2024 than it was in 2023.”
Jesse said it seems like we’re in a death spiral. Peter agreed and said the spiral is even worse than you might think because increasing interest rates contribute to the rise in CPI.
Interest rates are a price. And it’s an important price for a lot of companies, just like labor, and rent, and raw materials, companies borrow money to conduct their business, to make capital investments, to expand. A lot of these companies have taken up debt over the years and now the cost of servicing that debt has risen sharply.”
Businesses will pass on these rising prices to consumers.
Meanwhile, consumers are making less money. Real incomes fell by 0.5% month-on-month in August. This continues a trend we saw last year when household incomes fell by 2.3%.
So, how does this story end?
The story is going to have a tragic ending, unfortunately. We’re going to have a dollar crisis and a sovereign debt crisis. The Fed is going to print money until the dollar collapses. I think that day of reckoning is at hand. I don’t know that it’s tomorrow, but it’s coming sometime soon.”
Peter noted the global move toward de-dollarization. Countries are looking for alternatives to the US dollar. That’s bad news for a US economy that depends on its ability to export its inflation to its trading partners.
As our trading partners move away from the dollar, the dollar is going to fall very fast. Prices are going to rise much faster than they have been. And at some point, it is going to spiral out of control — especially the debt. We have so much debt, and as the interest on the debt really rises, then it puts even more pressure on the Fed to print even more money to buy more bonds to put some kind of cap on how high interest rates go. It just accelerates the cycle. Because what’s driving everybody out of dollars and out of bonds is inflation. And if the Fed has to create even more inflation to stop interest rates from rising, it just creates an even more powerful incentive for everybody who owns Treasuries, or any dollar-denominated debt, to sell it. Then it pushes down the price, rates go up, the Fed has to print even more money, and it ends in a currency crisis. That’s where we’re headed.”
Peter said gold is the biggest threat to the dollar.
That’s what’s going to replace the dollar as the primary monetary reserve asset. The dollar replaced gold. So, gold is just going to take back that mantel.”
At one time, the world accepted dollars because they were backed by gold. They were just as good as gold. But that’s not the case anymore.
The dollar is just a piece of paper. So, I think the world is going to go back to real money as the basis for the monetary system and all of these fiat currencies will be legitimate currencies again because they will be backed by real money, which will be gold.”
A move back toward a gold standard would level the playing field globally, but it would be difficult for the US. It has become accustomed to issuing the world reserve currency.
That’s what enabled us to live beyond our means for all these decades. It’s what enabled these huge trade deficits. It allowed our economy to evolve in the way that it did so that we have this consumer-based spending economy that can’t really survive without the rest of the world propping it up. And that’s what’s going to stop. The world is not going to prop it up anymore because it’s going to move beyond the dollar.”
Peter said when that happens, the US will have to rebuild its economy from the bottom up. Americans will have to go back to saving and producing.