Schiff On Metals & Miners: Dollar Bubble Burst Will Humble The Economy

Via SchiffGold.com,

Peter recently joined Metals and Miners host Gary Gohm to discuss a range of economic topics, from consumer debt to the fragility of the U.S. dollar and the shifting global reserve landscape. He explains how reckless borrowing—by both consumers and governments—ties into the bigger story of unsustainable dollar dominance and its consequences for economic security, inflation, and the gold market. 

Peter opens with a candid take on the psychology of U.S. consumers facing mounting financial strain. He notes that for many deeply in debt, there’s little incentive to curb borrowing when bankruptcy feels inevitable:

And I think that the people who are trying to borrow more money out of desperation, they probably don’t even care that they can’t pay the money back. 

They just want to borrow more. And in fact, once you’ve already borrowed more than you can possibly repay, and you know it’s just a matter of time before you file for bankruptcy, you may as well go out with a real bang. I mean, so you might as well just take out as much additional credit.

So the consumer has no qualms about refinancing a house that is going to go into foreclosure anyway, or maxing out a credit card that he has no intention of paying, or signing up for buy now, pay later, when in his mind it’s ‘buy now, pay never.’

Steering the conversation to the foundation of this unchecked borrowing, Peter highlights the even larger bubble inflating quietly in the background: the U.S. dollar and Treasury markets. He argues that it’s this inflation that fuels trade imbalances and the erosion of American manufacturing—not foreign “cheating” or tariffs as some officials claim:

Well, first of all, the biggest bubble of them all is the one in the US dollar and in US treasuries. 

And that’s what’s been enabling these massive trade deficits that Secretary Bessent said are responsible for hollowing out our industrial base, decimating our supply chains, sacrificing our economic security. 

All that stuff is true as to what’s happened, but he’s got the cause wrong. He’s blaming all these problems on foreigners cheating through tariffs and non-tariff barriers. But that’s got nothing to do with it.

Peter then zeroes in on a risk most policymakers won’t acknowledge: the vulnerability of American banks if confronted with a stagflation scenario. He explains that stress tests run by the Federal Reserve ignore the one scenario that could truly expose the banking system’s weaknesses:

Well, it’s extremely exposed. And in fact, you know, stagflation, a combination of a weak economy and rising interest rates, is the one scenario that the Fed never stress tested any of the banks for. 

The Federal Reserve, in its most worst case adverse scenario, where there is a massive recession with high unemployment, they assume that interest rates go back down to zero, and that treasury bonds yields collapse. 

They did not run a stress test where you have a recession with high unemployment, but inflation and interest rates go up, not down. … They’d all fail under a really adverse scenario.

Shifting the focus to where big players are moving their assets, Peter notes that central banks are already well into the process of selling dollars and U.S. government debt in favor of gold. He argues that this transition is still in its early stages, with gold’s price set to climb much higher as a result:

We’re just headed higher to 4,000 and beyond. But gold is what central banks are buying as they are selling dollars. 

They are moving reserves from dollars to gold, which means they’re not buying treasuries either or mortgage backed securities. 

And we’re still early in that process. It’s been going on for a couple of years, but it’s still got a long way to go.

Peter ties his argument together by recalling how the U.S. has used the dollar’s global reserve currency status as a crutch to maintain lifestyles that outstrip domestic production and savings. As the world moves away from the dollar, he warns, Americans will be forced to return to more sustainable habits—producing and saving rather than consuming and borrowing:

The changes that I am referring to have to do with the fact that we’ve been able to get a free ride on the global gravy train. 

We’ve been able to exploit the reserve status of the US dollar to live beyond our means. We’re able to consume as a nation more than we collectively produce, and we’re able to borrow a lot more than we collectively save. 

And so our standard of living, right, our ability to buy stuff, has been enhanced by taking advantage of the dollar’s role. Without the dollar as a reserve currency, we’d have to produce more, which means we’d have to save more.

For more of Peter’s insight, check out his other recent interview on the Mining Network!