Schiff on Capitalcosm: Central Banks Are Dumping Dollars for Gold | SchiffGold

Peter recently joined Danny on the Capitalcosm YouTube channel to lay out a connected story about reserve shifts, rising interest rates, and an overstated economic optimism at the top. He argues that foreign central banks are moving out of U.S. dollars into gold, that America’s record debt is starting to show in higher yields, and that official inflation measures hide the true erosion of purchasing power. He also takes aim at the political spin around the economy and warns of renewed Fed intervention that would only make inflation worse.

He begins by explaining the tectonic shift in reserve policy among foreign central banks and what that means for Treasuries and the dollar:

From the point of the central banks, it’s a movement away from U.S. dollars and into gold. So central banks that had heavily relied on the U.S. dollar as a primary reserve asset, they are divesting of dollars, and instead, they are accumulating gold. And so that is a big change. It also eliminates a big buyer for our treasuries. So the result of that is going to be higher interest rates for Americans as foreigners from the foreign central banks are buying fewer treasuries, but also a weaker dollar.

Peter connects that reserve diversification to the basic solvency question: creditors see the U.S. as overleveraged and change their behavior accordingly:

I mean, we’ve arrived at an unsustainable situation. And I think our creditors recognize our inability to service this massive debt. It’s over 37 trillion now. And the Trump administration has thrown gasoline on the fire with the Big Beautiful Bill. The trajectory of deficits are actually going to accelerate under Trump compared to where they were under Biden.

He then ties interest-rate expectations to Fed policy, noting the counterintuitive effect rate cuts can have on long-term yields:

Before the last great cut a year ago, I was forecasting that if the Fed cut rates, that long-term interest rates would go up. That was what I was predicting. And that’s exactly what happened. And I think the same thing will happen again. I think if the Fed does cut rates in September, the yields on the longer bonds will head in the opposite direction.

Peter warns that the political pressure from rising yields could push the Fed toward a repeat of quantitative easing (QE), and he explains why that would be a dangerous short-term patch with painful long-term costs:

I don’t put it past them. I actually expect it, because I think what’s going to happen is that the upward pressure on rates is going to become a big problem for the economy, politically, especially when you see the yield on the 10-year moving north of 5. The only thing the Fed could do about that is, of course, to officially go back to a wide-scale QE program, where the Fed just buys up all those bonds to force the price up and the yield down. But of course, that throws gasoline on the inflation fire, and that may be a very short-term fix, but it will blow back at the Fed violently in the other direction.

To make the case that official inflation statistics understate real price changes, Peter offers a simple, relatable example: the cost of newspapers and magazines over time. He reminds listeners that the government’s headline inflation gauge is bound to understate inflation in some economic sectors:

But I remember back then, I read that according to the CPI, newspaper and magazine prices were up 30% over 10 years. And I kind of found that hard to believe. I thought it was up more. So I checked, I went back to 2003, and I looked at about 20 popular newspapers and magazines. And what I found just looking at the prices, the prices had gone up by 130%.

Finally, Peter returns to politics and fiscal reality, challenging the claim that the economy is stronger under Trump and pointing to the actual direction of the budget deficit:

Well, first of all, I mean, Trump claims we have the greatest economy, but that’s just part of his sales pitch. I mean, it’s the same economy he inherited from Biden, only a little bit worse. I mean, if you look, I mentioned this on my podcast the other night, the July deficit, the budget deficit we had in July increased 20% from July last year. So when Trump is president, we have a 20% increase in the deficit from when Biden was president. Well, then why does that mean we have a stronger economy now?

Be sure to check out Peter’s other recent interview on the Mining Network!

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