The dollar declined sharply, pushing gold up late last week as President Trump criticized the Federal Reserve's interest rate policy. Trump took aim at the Fed during an interview on CNBC, saying he's "not thrilled" with the central bank's push to raise rates.
Because we go up and every time you go up they want to raise rates again. I don't really - I am not happy about it. But at the same time, I'm letting them do what they feel is best."
Trump also blasted the European Central Bank and the Bank of China, accusing them of currency manipulation. Trump says the two banks are intentionally weakening their currency to disadvantage the US.
In his latest podcast, Peter Schiff said he thinks the president is saying all of this in order to have a place to put the blame when the economy tanks.
Peter said Trump is wrong to think a weak dollar is good for America. When it comes to trade, a strong currency gives you the advantage.
Trade is all about imports. How do you get more stuff for your own citizens? And the way you pay for that stuff is by exporting. But the goal is to export as little as possible to import as much as possible."
In other words, as a buyer, you want to pay the least to get the most. When you have a strong currency, you can claim a greater portion of the global output. Since the dollar has been overvalued, Americans enjoy greater consumption than would otherwise be possible if they were limited to their collective production.
But as Peter put it, in Trump's view, weakness is strength.
Unofficially, we have a weak dollar policy. Whether Trump wants to come out and officially proclaim that we have a weak dollar policy, that is what we do."
Peter said he thinks the US will be successful in implementing a weak dollar policy - whether official or not - but it's not going to be the panacea Trump thinks it will be.
Trump actually made a good point in one of his tweets, noting that raising interest rates when there is so much debt might not be such a good idea. Of course, Peter said that raises a question: why did Trump cut taxes and increase spending, thus driving that debt even higher?
Regardless, Trump's criticism of the Fed creates problems for the central bank. Peter said it puts the Federal Reserve in a "damned if you do, damned if you don't" position. If the Fed signals it's not going to push rates up as quickly, it will create the impression Trump got to Powell and political pressure is undermining the Fed.
So now, maybe he's in a box where he might raise rates even though he might not have, just to prove he's independent and not being influenced by Trump... Either way, it's going to give America's creditors pause if they think there is more political influence on the Fed."
Of course, the whole notion that a central bank is politically independent is a myth to begin with. As Peter put it, the difference is Trump is airing the dirty laundry in public.
It's one thing for Trump to make a private call to Powell and say, 'Hey buddy, help me out here. You know I nominated you. You gotta keep this bubble going. You know, I've got to get re-elected, so do me a solid here and cut rates.' I mean, he's not supposed to do that, but at least he does it privately and now nobody realizes what's going on, and Powell could still look independent if he acts. But if you've got Donald Trump, who can't resist tweeting and grandstanding and just airing all this in public, well, now you make it harder for this to happen - but you make it more obvious. Before, it was just a guess. People could say there's some influence, but now, hey, they know that, and the whole idea is the Fed is supposed to be independent."
Peter went on to say Trump is right to criticize the Fed, but he's criticizing it for the wrong reason. The problem isn't that's it's raising rates too fast. The problem is it should never have cut rates to zero to begin with.
You guys inflated a bubble. I mean [Trump] was right as a candidate. He was very critical of the Fed and the bubble they created. Now he's critical because they're not supplying more air to keep the bubble from deflating. Because now it's his bubble, and the last thing he wants to have happen is for that bubble to pop, so he's upset the Fed is not going to be supplying more air."
Peter said he thinks all of this Fed criticism is a way for Trump to get ahead of the coming economic problems. He's setting the stage to blame the Fed.
I think he is laying a foundation of blame. Because when the economy tanks and we go into recession... Trump can now say, 'You see! Look what the Fed did. They screwed up all of our hard work. We had all this momentum, everything was going great, and these guys kept raising rates. I told them not to. I said it was a mistake. But you know, I have no control over the Fed, right? It's independent. And look what the Fed did. They screwed up this whole recovery by jacking up interest rates.' So now, he's trying to shift the blame away from himself because he can't really blame Obama anymore because he's gone and Trump has claimed credit for the economy. He doesn't want to blame trade... He's the one that launched the trade war. So, he wants to blame the Fed."