On Sept. 22, Peter Schiff spoke at the Nexus Conference in Aspen, Colorado, and argued that the financial crisis in 2008 was just the opening act. The real crisis will result from the way the government and the Federal Reserve responded to the 2008 crash.
I don't think 2008 was the crisis. I think that was kind of the overture to this opera."
Peter focused in on his 2007 book Crash Proof: How to Profit From the Coming Economic Collapse. He noted that he predicted the housing bubble would pop, but said he wasn't thinking that would be the ultimate crash. He said he believed the government's response to the housing crash would set the stage for the real crisis - a dollar collapse.
I wrote that in response to this, the government was going to try to reflate the bubbles. They were going to try to prop up real estate prices. They were going to try to prop up stock prices by printing even more money than they did before, by lowering interest rates even lower than they did before…As a result of all of the money they were going to have to print to reflate these bubbles, and prop this economy up one more time, the dollar was going to collapse. And when the dollar collapsed, that was the crash."
Peter said at that point, the government will basically have two options - allow the dollar to completely collapse which will result in hyperinflation, or they'll have to dramatically increase interest rates and implode everything. In other words, the Fed is between a rock and a hard place.
I wrote that the economy could survive. What I was predicting - the bursting of the housing bubble, the financial crisis - I said we could survive that disease. I said what's going to kill us is the government's cure."
Peter said that when the housing bubble popped and we went through the 2008 recession, he didn't realize it was going to take this long for the second act to play out, but now we are starting to see signs that things are beginning to unravel. The dollar has started to show significant weakness. There was a big rally in the dollar in 2014 and 2015. The dollar index peaked at just under 104. But in January of this year, it started to tank.
But now the dollar has started its fall. When the year began, there was pretty much unanimous consensus that the dollar had no place to go but up. Everybody on Wall Street was long the dollar. It was the most crowded trade on Wall Street and so far it's blown up."
Despite a rally in recent weeks with the Fed's hawkish September FOMC meeting, the dollar index is still off better than 10% from its high in January. It's off to potentially its worst year since 1985 - the beginning of a decade-long dollar bear market.
I think this is going to be the mother of all dollar bear markets."
Peter pointed out that now the crash is going to be from a much greater height. Think about what caused the housing bubble that led to the financial crisis. It was spurred on by 1% interest rates for about a year and a half. The Fed took another year and a half to get rates back to 5%.
You can only imagine how much more screwed up the economy is today after eight years of 0% rates, after three rounds of quantitative easing, when you have a Federal Reserve with a $4.5 trillion balance sheet."
Meanwhile, the Fed has not been able to raise rates nearly as high as expected. Remember, we started at .5%. Even if the Fed does another hike in December, we're still only at 1.5%.
So, the Fed has not been able to normalize interest rates, and they're not going to be able to shrink their balance sheet."
Peter then turned to the state of the current economy, noting that despite all of the optimistic talk from government officials and central bankers; it's really not in very good shape.
If you look at the statistics of this so-called recovery, it looks worse than most recessions. In fact, it's probably the only recovery in history where people are worse off now than they were when it began. So, it's really a statistical recovery."
Peter pointed to the "retail apocalypse," noting that the sector is in worse shape than it was in 2009. Last month, Toys "R" Us declared bankruptcy. Of course, everybody blames Amazon (NASDAQ:AMZN). But Peter said there is something else going on.
It's mainly because their customers are broke. That is the problem. People don't have the money. In fact, they didn't have the money for a long time. They've been buying on credit, and now the credit is running out. And so all these retailers are imploding because their customers are broke. They're underemployed. They're unemployed. They're loaded up with debt."
There's no way of knowing when the bottom will officially fall out, but Peter said we are due for a recession.
This so-called recovery, even though it's been the weakest recovery ever, it's required the most amount of stimulus to produce it. And it's now one of the longest recoveries ever. There is pretty much no way that we're going to get through the next several years without a recession."
And that's when things really go south. The Federal Reserve doesn't have much ammunition in its box. It can't cut rates because it hasn't been able to normalize. That means the only route is more quantitative easing and government stimulus. Peter said that's when the real crisis will begin.
So, I think what people need to do now, to the extent they haven't done it, is to get prepared. Get prepared for this crisis. Get prepared for the dollar collapse."