Schiff on Kitco: Rate Cuts Won’t Save the Dollar | SchiffGold

Peter recently joined Kitco’s Jeremy Szafron to discuss why Fed rate cuts are unlikely to deliver hoped-for relief and may instead accelerate the dollar’s decline. He ties the problem to ballooning deficits, a fragile banking system, and the history of the Federal Reserve, and he closes by pointing out why silver remains undervalued relative to gold.

He warns that rate cuts intended to prop up the economy will have the opposite effect on long-term yields and the dollar:

And so now they’re going to cut rates because of the weakness in the labor market and the economy, but the rate cuts are not going to deliver the expected relief. I believe that they will backfire in that they will cause long-term rates to rise, which is really what they want to reduce. And that will ultimately usher in a return to quantitative easing. And that’s the nail in the dollar’s coffin. And I think that’s why you’re seeing, you know, the dollar is weakening today.

Peter connects that dollar weakness to the relentless growth of U.S. deficits and the difficulty of finding willing buyers for government debt:

So not only does the U.S. have to finance $3 trillion, $4 trillion of annual deficit spending, but we have to find buyers for, you know, $10 trillion a year of maturing debt or something like that. So it’s enormous what we have to finance and the world just does not want to do it. And they’re diversifying out of dollars. And of course, we keep flooding the world with dollars because even though we have these tariffs, we still have trillion dollar a year trade deficits. And so what is the world going to do with all these dollars that it earns selling us all this stuff?

He reminds listeners that the Fed was established as a private banking institution and that its independence reflects that origin:

The original Federal Reserve was a private banking syndicate. You know, that’s why it’s independent because it was never part of the federal government. Because the federal government is not allowed to do what the Fed does. The federal government doesn’t have the constitutional authority to print money. Only private banks can issue paper currency.

Turning to the banking sector, Peter argues that the largest banks remain fragile and that off-market accounting masks impairment in long-duration assets:

All of the too big to fail banks that we should have allowed to fail are now much bigger than they were. And the balance sheets of a lot of these banks are, I think, in a lot of trouble because they own a lot of long-term low-yielding debt, whether it’s treasury debt, mortgage-backed securities, mortgages, commercial loans, whatever it is. They’ve got all this debt that they don’t mark to market. You know, the accounting says that as long as you claim that you’re going to hold your securities to market, you don’t have to take a haircut. You can pretend that your capital isn’t impaired.

He cautions that a sharp dollar decline could prompt extreme policy responses, including foreign-exchange controls, if citizens rush to get rid of dollars:

Well, I think eventually there may be some foreign exchange controls when the dollar really is going into freefall, which I think is going to happen at some point. And I think that the US government may try to stop the bleeding. And that’s going to be when US citizens try to get rid of their dollars. So as you know, the world is getting rid of their dollars. You know, I was watching on television this morning and Scott Beset was on and he said US Treasury bonds are the best performing sovereign debt year to date.

Finally, he points out a practical, market signal: silver remains cheap when priced in gold, and that relative cheapness argues for considering physical precious metals as protection against monetary debasement:

There isn’t a lot of silver out there relative to the demand that I see for it in industry. But silver is just cheap, you know, and it’s cheap relative to gold. And that’s the best barometer of whether something is cheap or not, is look at it priced in gold. And you can still get a lot of silver for an ounce of gold. And, you know, even at $50 silver and $4,000 gold, that’s still 80 to one..

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