(Kitco News) – Despite a month-long rally for US stocks, a financial crisis worse than 2008 is looming, said Peter Schiff, chief market strategist at Euro Pacific Asset Management .
Schiff spoke with Kitco News anchor and producer David Lin.
Over the past month, the S&P 500 is up 9 percent and the NASDAQ is up 13 percent.
Schiff warned that if the Federal Reserve continues to raise interest rates, there will be a financial crisis worse than the one in 2008.
“2008 was about bad debts,” he explained. “It was about people borrowing money and not being able to pay it back. The collateral on these loans was not good because it was real estate and prices went down. Well, we have a lot more debt now than we did in 2008… and so that this will be a much bigger crisis when the defaults start.”
Schiff added that this time, the banks could not be bailed out.
“When they fail, it will be much worse, except with too high inflation and the Fed fighting inflation,” he said. “There is no TARP 2.0. All these banks will have to be allowed to fail.”
Inflation gets worse
The latest Consumer Price Index (CPI) figures were released on Wednesday morning.
The year-on-year CPI, which includes food and energy, rose 8.5 percent in July, a reduction in official inflation from the previous month, when year-on-year prices rose 9.1 percent. The 9.1 percent figure was the highest in 41 years.
On the same day the CPI was released, President Joe Biden claimed there had been a “zero percent” change in consumer prices month-over-month.
“Today we received news that our economy had zero percent inflation for the month of July,” Biden said. “When you combine that with last week’s booming jobs report of 528,000 jobs added last month and 3.5 percent unemployment, it underscores the kind of economy we’ve been building.”
President Biden was referring to the month-on-month change in the overall CPI, which is unchanged from the previous month of June.
Core CPI, which excludes food and energy, grew 5.9% year-on-year and rose 0.3% month-on-month.
“If you believe the official CPI, then prices, which are already very high, did not increase during the month of July,” Schiff explained. “I don’t think it’s something to celebrate … It’s not like consumers are getting relief from lower prices.”
Despite the slight drop in the reported CPI, Schiff said inflation will get much worse.
“I have no doubt that we will get a figure higher than 9.1 percent [inflation]” he said. “We’re not quite done with this inflation problem. It’s going to be here for years and years, and probably the rest of this decade and then some.”
A dollar implosion?
As the Fed pivots to avoid a “massive financial crisis,” Schiff said it would lead to a “sovereign debt crisis” and a “US dollar crisis.”
The US dollar index is up 9.5% since last year. However, Schiff stated that future events are not properly priced into this.
“The dollar has rallied so far, in the early stages of this big inflation, because investors are deluded about the Fed’s ability to contain inflation and bring it back down to 2 percent,” he said. “When they wake up to reality, that inflation will be well above 2 percent indefinitely, then the dollar will fall through the floor, and then gold and silver will go through the roof.”
For Schiff’s thoughts on the upcoming financial crisis, as well as his thoughts on the Inflation Reduction Act, watch the video above.
Follow David Lin on Twitter: @davidlin_TV
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