The Reason Trump is President – Peter Schiff

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so the opposite of what everybody
expected happened when we elected George
Bush because the bubble burst under Bush
but here’s a problem when the bubble
burst Bush did not blame that recession
that we had in 2001 he did not say hey
we had a bubble under Bill Clinton and
now we have to deal with the
consequences we have all these
malinvestments because of the stock
market bubble and we’re gonna have to go
through a recession as we work our way
out of these imbalances no he made the
mistake of trying to use Keynesian
stimulus budget deficits and Alan
Greenspan slashed interest rates
to 1% and we were able to mitigate the
severity of that recession it was the
shallowest recession in US history and
we replaced the stock market bubble with
a housing bubble and that housing bubble
created enough phony wealth and enough
phony prosperity to buy George Bush’s
second term but the consequence of that
bubble blew up in 2008 while built while
George Bush was still in office and so
ultimately that bubble collapsed and
that’s what paved a way for Barack Obama
but this time I don’t think George
Donald Trump is going to be so lucky
because I think when the bubble bursts
now and it’s all the same bubble it’s
all a continuation of the same policy
because when the housing bubble burst
instead of lowering interest rates to 1%
the Fed didn’t stop at 1% days passed
when and went all the way to zero and
they stayed there for like 7 years and
now despite all this talk about how
they’re gonna normalize rates and raise
rates they’ve only raised them twice
they’ve raised them by 50 basis points
there’s still half of where greenspan
slashed the middlee you know in 2002 and
so now it’s not just that we reflate
‘add the real estate bubble or reef
lated the stock market bubble because we
have both but now we have a massive bond
market bubble we have us we have a
repeat of the dollar bubble we have the
same dollar bubble we had in the late
1990s we pretty much have a bubble in
everything where we had a bubble in auto
loans a bubble in student loans we have
now so much debt the national debt is 20
trillion right the national debt doubled
under under Bush from 5 trillion to 10
trillion it doubled under Obama from 10
trillion to 20 trillion I mean is it
even within the scope of possibility
that we can go from 20 trillion to 40
trillion assuming that you know Trump
was in office for eight years
but I think at this point and interest
11:08
rates are already starting to rise this
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is going to be the problem this is the
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pin that pricks this debt bubble is
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rising interest rates
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I mean why has the Fed kept rates so low
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for so long because they can’t raise
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them that’s why I mean they want to
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pretend that well you know we’re we’re
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just trying to make sure everything is
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okay look if everything was okay when we
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raise rates it’s because they can’t
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raise rates because the debt is too high
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what would happen to the budget if
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interest rates went up right now we’ve
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got a twenty trillion dollar national
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debt yet we pay less interest on the
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national debt than we paid when Ronald
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Reagan was president and the national
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debt was one trillion so all of this is
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possible because interest rates are so
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low if interest rates went back to 5%
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which is still not high 5% you’d be
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talking about an extra trillion dollars
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a year or an interest on the national
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that every year
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where’d that money come from what if
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interest rates went to 10% oh it’s I
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mean they went higher than that under
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under Paul Volcker but even some of
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between five and ten and then what about
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the housing market where would work
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mortgage rates have been averaging the
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last you know a few years mortgage rates
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three and a half four percent yet
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homeownership in America is at a 60-year
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low what would happen into the
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real-estate market if mortgage rates
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went to 6 or 7% or 8% I mean that’s
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normal for a mortgage nobody could
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afford a house now how the market would
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implode what about the corporate
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corporate sector corporate America why
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do you think the Dow is flirting with
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20,000 it’s not because US companies are
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earning all this money it’s because they
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levered up during the era of cheap money
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and they bought back a bunch of stock
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you know and so we have this gigantic
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bubble and Donald Trump is right you
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know the last eight years have been a
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disaster right our our country is
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littered with closed out factories that
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are like tombstones right people have
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lost good jobs we’ve had massive debt
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but there is no quick fix to all this I
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mean Donald Trump talks as if all we
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have to do is renegotiate NAFTA
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right all we have to do is have smarter
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bureaucrats negotiating and the trade
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deficits are gonna go away no they’re
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not you know and Donald Trump talks
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about how you know the world has been
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taking advantage of America no we’ve
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been taking advantage of the world
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that’s what he doesn’t understand right
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what is the relationship that America
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has with the rest of the world
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well we consume in the world produces
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well I mean well obviously we’re the
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beneficiaries of that we we get to
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consume all sorts of products yes the
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factories are all gone but the consumer
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goods that the factories used to produce
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they’re still here
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how are we getting all these goods that
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we don’t produce because people in other
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countries are dumb enough to give them
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to us now they don’t think they’re
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giving them to us they think they’re
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selling them but they’re not because
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we’re borrowing the money to buy it and
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we’re never gonna pay it back I mean we
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don’t have the capacity to pay it back
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we don’t have the intention of paying it
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back so the world has been conned into
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supporting this this relationship so
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Donald Trump has that backwards the
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world loans us the money to buy their
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products so in order to make America
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great again and Donald Trump talks with
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us all the time we’re gonna have to go
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through a massive recession and the
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scary part is Donald Trump is not
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preparing any Americans for any of the
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pain that is necessary if we’re going to
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write this economic ship if we’re going
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to have real production in America again
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Americans have to stop spending we have
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to start saving we have to start
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investing in plant and equipment you
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know Donald Trump wants to deliver tax
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relief to the middle class how we have
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20 trillion in debt the middle class is
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on the hook for that we have a massive
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government that the middle class has to
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support the only way to deliver tax
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relief is to slash government but Donald
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Trump is talking about more spending on
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the military more spending on
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infrastructure more spending on the
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border we’re not going to make any cuts
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to Social Security we’re not gonna make
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any cuts to Medicare and he’s gonna
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replace Obamacare with Trump care what’s
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that gonna cost I don’t know
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yes he’s talking about some kind of cuts
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to discretionary spending but they’re
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gonna be tiny compared to all these
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increases so none of this is possible it
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seems to me
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that all that all Trump is trying to do
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is make the bubble bigger right he’s
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saying you know we want to I want to I
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want to change it right now right you
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have all this quantitative easing that
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has benefited the 1% benefited the rich
15:43
benefit of Wall Street maybe he wants to
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target monetary policy or fiscal policy
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to somehow benefit the middle class what
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would actually benefit the middle class
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is going to be to free up the economy
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from the burden of government
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unshackle the middle class from
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government but in order to have this
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transition we can’t go from a consumer
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credit bubble economy to a real savings
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base productive economy without
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collapsing the asset markets stock
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prices have to come down a lot real
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estate prices have to come down a lot
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bond prices have to come down a lot
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interest rates have to go way up and
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when that happens a lot of companies go
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bankrupt a lot of banks fail a lot of
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people lose money a lot of people lose
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jobs this has to happen it should have
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happened in 2001 but it didn’t it should
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have happened in 2008 but it didn’t
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because they kept you know blowing the
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bubble up with more and more air and now
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it is just so big it’s just so ignore
16:40
that it can’t possibly not pop and I
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don’t think there is there’s another
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bubble that the Fed has up and sleeve
16:47
and you know Donald Trump of course you
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know he criticized the Fed when he was a
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candidate I don’t think he’s gonna do
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that as president in fact when Donald
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Trump ran for office he talked about the
16:57
stock market he said it was a big fat
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ugly bubble well it’s bigger fatter and
17:03
uglier now but he never mentions it as a
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bubble because now it’s his bubble he
17:07
doesn’t want it to deflate he wants it
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to keep going up he doesn’t want to get
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blamed for all the bad things that are
17:14
about to happen and he’s I think setting
17:16
himself up for a disappointment because
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he’s promising so much everything is
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gonna be so great it’s not and and he is
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appointing a lot of business people
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smart people to the cabinet but they
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have no idea what they just bit off and
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I think the markets and I’ll talk more
17:33
about this tomorrow
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but I think we have a real opportunity
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here because this dollar bubble it is as
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big as the dollar bubble that popped
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when Bush took over because
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when this market when the economy ends
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up being a lot weaker then people
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believe because the economy has been
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decelerate and you know we’re far as I’m
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concerned the only reason we’re not in a
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recession is because the government
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isn’t honest about the inflation rate
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because they take the nominal GDP and
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and they deflate it but a lot of people
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are thinking hey if we’re gonna get this
18:07
fiscal stimulus we don’t need the Fed
18:09
anymore right that’s what’s been that’s
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what helped the dollar and hurt gold
18:13
hey the feds gonna raise rates because
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now they’re not the only game in town
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right before we couldn’t get any fiscal
18:19
stimulus because we had gridlock but now
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that we have Republicans in Congress and
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we have a Republican president we’re
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finally gonna get the fiscal stimulus so
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now the Fed can back off and let rates
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go up they got it wrong the only way we
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can have so-called fiscal stimulus is if
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we get an even bigger dose of monetary
18:39
stimulus to make it possible because if
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the Fed is gonna be letting interest
18:43
rates go up and they’re not going to be
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monetizing debt with QE and we’re gonna
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take the budget deficits and increase
18:50
them dramatically to finance tax cuts
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and more government spending who’s gonna
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buy all those bonds the Chinese aren’t
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gonna buy them they’re selling the
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Japanese aren’t buying them the Russians
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aren’t gonna buy them a Saudis or
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everybody is selling everybody is
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selling Treasuries in fact the bond
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bubble the bull market that started in
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1981 is pretty much over the whole world
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wants out of Treasuries how are we going
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to finance massive deficits in a bond
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bear market where nobody wants to buy
19:17
our debt and if interest rates go up the
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the depressing effect on the bubble
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economy of rising rates will more than
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offset the stimulus of the tax cuts I
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mean just what people are gonna have to
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pay an extra debt service costs are
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gonna destroy whatever benefits they get
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from whatever tax cuts and the tax cuts
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are talking about our minimal they’re
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not even as big as bush they’re nowhere
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near like Reagan there are people
19:40
comparing Trump to Reagan I mean it’s
19:43
just it’s night and day I mean when
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Reagan came in the debt to GDP was 30%
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now it’s over a hundred percent when
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Reagan came in interest rates on 30-year
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bonds were 14% they had nowhere to go
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but down
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short-term rates were 20%
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the stock market was at a p/e of seven
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so we had cheap stocks we had expensive
20:05
money and they cut rates dramatically
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Reagan’s rate cuts the marginal rate
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went from what 70 percent down to 30 son
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was a huge cut in marginal tax rates and
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yes Reagan ran up the deficits but we
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were able to finance him because we were
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a wealthy country when Reagan was
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elected we had trade surpluses in
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America when Reagan was elected we were
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still the world’s wealthiest creditor
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nation not the world’s biggest debtor so
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Trump is coming in at a time that’s why
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I say it’s not morning in America it’s
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midnight in America but people are as
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optimistic now as they were then they
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actually believed that all these
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problems can be solved just because
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Donald Trump is the first person to have
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the courage to actually you know call
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the problems out right to actually say
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what a lot of Americans were thinking it
20:49
didn’t all didn’t buy all this hype and
20:50
all this propaganda about how good
20:52
things were but as the air comes out of
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this bubble when the Fed has to come
20:56
back with more QE when they have to cut
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rates have I gone over oh it’s kind of
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yeah hello it’s counting up I must have
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gone over all right so when the event
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when the Fed has to has to cut rates and
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they have to do QE four and I think this
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next round of quantitative easing is
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going to be bigger than the last three
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combined and what’s gonna really
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surprise people is just as the Fed is
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easing the ECB is gonna be tightening
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because inflation is picking up all over
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the world
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inflation in Europe is picking up it’s
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gonna be above 2% sometime this year
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they can’t have that the Bundesbank is
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not gonna allow they’re gonna have to
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start taping their QE they’re gonna have
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to start raising interest rates so it’s
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gonna be the exact opposite instead of
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the world you know ECB easing and the
21:43
Fed tightening it’s gonna be the reverse
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and I think the dollar is gonna fall
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through the floor and eventually this is
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going to end in a currency crisis
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there’s no way around that that we’re
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gonna have a dollar crisis and we almost
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had a dollar crisis in 2008
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but it was saved by the financial crisis
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we’re not gonna get that lucky next time
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anyway I’ll be at my booth thank you
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[Applause]
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you