Schiff & Maloney: The Dollar is More Likely to Crash than the Stock Market- It Could Happen This Summer!

Mike: I think that he [Bernanke] and Greenspan have absolutely destroyed America. People don’t realize what is coming from the stored up energy from the manipulations that they did.

Peter: This was really the first chance I had to have a conversation with Ben Bernanke. Speaking of him, I really got the sense that he has no idea of the Fed’s culpability in the housing bubble or the ensuing financial crisis, he really doesn’t know. And he denies that the Fed had anything to do with that, that maybe it was pure happenstance or coincidence that we had a housing bubble and these very low interest rates. 

And because Ben Bernanke still doesn’t get the connection between the Fed’s mistakes of the past and the last crisis,  he certainly doesn’t understand the coming crisis, which is going to be far worse,  because the mistakes the Federal Reserve made in the aftermath of that crisis are far worse and far bigger than the ones that caused it.

Mike: Right. Ben Bernanke’s overreaction was far bigger than Greeenspan’s reaction to the NASDAQ crash.

Peter: And as a result the crisis in our future unfortunately is going to be far larger than the one that we just experienced.

Mike: You predicted that we were in a real estate bubble. I predicted that we were in a real estate bubble.

Peter: Ben Bernanke denied that there was a real estate bubble. Even after it burst, he still couldn’t figure it out.

Mike: And what amazes me is people like Bernanke are taken seriously still and the people that did predict it are dismissed as lunatics half the time. It really burns me up.But this is manufacturing new orders for consumer goods and this is from the Fed’s website and you can see this big plunge that it took in 2008.

The Fed is going to have to do another round of quantitative easing, that they’re not going to raise rates and that’s going to be a shocker

Peter: But more importantly, the reason that he’s been able to look like he’s succeeded is because of the illusion that it’s all temporary. Everybody believes that the Fed can normalize rates, shrink their balance sheet but when they realize that they can’t do that, that they’ve been lied to then this is going to be a major event for the currency markets or the financial markets when people come to terms with the predictament that we’re in. 

 

Peter: One of it is the big transformation from full time employment to part time jobs.Everybody points to all the jobs that are being created and the low unemployment rate but the problem is that the unemployment rate dropped not because people found jobs but because 
a) they stopped looking or 
b) they settled for a part time job.

So when people who used to have full time jobs now have part time jobs they don’t have the income to get the credit that they need.

Peter: You know you have home ownership rates now at almost 30 year lows, yet rents are rising…In fact, a lot of people are actually enrolling in college now, not because they want the education but because they need the loans. They just want to get the money so they can pay their utility bills. 

Mike: Home mortgages, they’re going longer now than 30 years. There’s longer home mortgages being offered too, trying to keep that bubble inflated.

Peter: Well, of course they’re offering 3.5% down payments now too with government guarantees which was part of the problem because 3.5% is not enough down to actually have skin in the game. It costs you more than that just to sell a house. So if you buy a house with 3.5% down, the minute your mortgage closes you’re already under water. 

But now the problem is you’re giving the homeowner a free gamble on the real estate market. Because if real estate prices go up, he can keep the profits, refinance. If prices go down, he could just walk away but better than that he can just stop making his payments altogether and live rent free for three years before they can kick you out.

Peter: Remember, the air is coming out of the bubble because the Fed halted or paused it’s quantitative easing program.  All they’ve done is talk about raising them in the future and we’re already rolling back into recession.

So I believe that the Fed is going to have to do another round of quantitative easing, that they’re not going to raise rates and that’s going to be a shocker. It’s going to send shock waves throughout the currency markets and the bond markets because everybody expects the Fed to raise rates…

… and when they don’t do it because the economy is too fragile because it’s just a bubble, not a legitimate recovery,  then people are now going to have to second guess their idea that what the Fed worked instead of calling Ben Bernanke a hero a lot more people are going to say, wait a minute he wasn’t a hero what he did wasn’t heroic. 

He took the coward’s way out because all he did was exacerbate the problems to postpone the day of reckoning.

Mike: Yes the derivatives are bigger instead of smaller. Everything that was put in place to create that bubble that then popped. The two big [inaudible 00:05:36] banks are all bigger. Nothing has been addressed right?

Those banks are now bigger than ever and if it was going to be a problem to let them fail in 2008 it’s going to be much bigger problem to let them fail in 2016.

Schiff: The other thing is when you’ve been on 0% for 6 years you develop an addiction to that. We have built an entire economy around free money. You can’t take that away even if the interest rates are still low, even if they went to just 2% to 3%. Yes that’s still low. But not low enough for an economy addicted to 0%. 

If you’re a heroin addict and your body is used to a certain amount of heroin then your pusher says “I can only give you half of what I normally give you, but you still have some heroin.” That’s not gonna cut it. You’re already gonna start going through withdrawal.

You know that’s why the Fed… supposedly we’ve been in a recovery for six years. Yet interest rates are still at zero. I mean if it was a real recovery they would have raised rates years ago. But they’re afraid to do it because they know it’s phony. 

Mike: So you and I just absolutely agree that this entire recovery has been engineered through the creation of currency. Now if Keynesian economics was remotely plausible, if it worked would they have made it a QE2 or a QE3?

Peter: Well no, it would have worked the first time…The reason they’ve done it three times is because it fails every time which is why they’re going to do a fourth. Quantitative easing is like trying to put out a fire with gasoline. You can’t put the fire out, you just make the fire bigger. The problem is when all you have is gasoline that’s all you can do. 

The Keynesians don’t understand that their own remedy is the reason the patient is so sick and they just want to keep on administering it. But I don’t think we’ve had recovery. We haven’t recovered from anything. We’re sicker than ever. The average American knows that. The man on the street can feel his standard of living declining despite what the Federal Reserve. The cost of living is going up, the quality of jobs is going down, all the Fed is doing with its monetary policy is redirecting our resources from productive uses on main street to speculation on Wall Street. 

They’re propping up the stock market, they’re propping up housing, they’re diverting loans to things like education, they’re propping up health care but the real economy is disintegrating and Americans can feel that.

If we actually had a real recovery we wouldn’t be talking about all the jobless recovery. The reason it’s jobless is because it’s not a recovery. If it was a recovery there would be good jobs and the jobs that are being created..
 
You know I think the most interesting thing is who is getting them because they look at the labor force participation rate which is the lowest it’s been since the mid 1970s. And everybody wants to say it’s because the baby boom is retiring. So hey, there’s nothing we can do about it. We all know there’s a baby boom. They’re getting old, they must be retiring. That’s why the labor force is shrinking. A lot of people accept that on face value. 
 

But the reality is the baby boomers, the older people, they are the ones working in record numbers. In fact, there are months when the only jobs that are created are for people 55 and older. It’s the younger people, people in their 20s and 30s that are leaving the labor force.
 
And what’s happening is you have so many Americans who were retired who have to come out of retirement and take a part time job so they can pay their utility bills, so they can put food on the table. 

That’s where all the jobs are coming. So the labor force participation is not about people retiring. The people who should be retiring can’t afford to and the younger people who should be working can’t get jobs. That’s the truth behind the numbers.

Mike: Yes. The markets are in a bubble. I think there’s a crash coming. 

They’re trying to keep these bubbles from popping because they’re literally too big to pop. They think the mistake that they made in 2008 was turning off the spigots – now they want to keep them wide open and so it’s the dollar that’s more likely to crash this time than the stock market.

Mike: Yes. I do think though that if the problems first develop in other countries like if the Euro has a problem or if China has a problem we could see the dollar go higher. It might not but 

Peter: I think we’ve already seen the dollar rally. In fact there is probably more agreement among traders, speculators in the dollar’s direction. Everybody believes that the dollar’s going to go up, everybody has longed to dollar, betting on it continuing to rise because everybody bought into this myth of legitimate U.S. recovery and they believed that the Fed was going to raise rates. 

So I doubt something that everybody expects to happen will in fact happen. What’s going to surprise everyone is dollar weakness. Everybody is positioned for dollar strength and I think that trade is already over. I think … instead of a rate hike – we get QE4.

I think the dollar collapses. So I wouldn’t want to hold out waiting for another dollar rally. I think we’ve already had it. I think now the next thing for the dollar is a big drop.

Mike: The move that the dollar made was..it’s less than a year right?

Peter: Yes.

Peter: But when we can pay for them just by printing money that costs nothing, we can make an unlimited quantity of it but this is going to end in disaster.
 

Peter: Now putting money under the mattress seems like it’s a more responsible thing to do than to loan it to a bank at a negative rate of interest. Because the bank could fail and you’ve lost your money. Why take a risk if you’re not going to be paid?

Mike: Right. It’s illegal to put cash in a safe deposit box.

Peter: Some of these countries want to make it illegal to even have cash. And they’re cracking down on people who are even conducting their business in cash which the way around that is own gold. Own real money. If they’re going to start punishing you for owning Euros or owning Yen or maybe owing dollars, okay, don’t own it. Own something real.

Mike: Yes, that’s what I do. My total net worth is split up between cash and a vast majority is physical gold and silver.

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Transcript is excerpts from the following video: