The Pomp Podcast - #719 Inflation and Employment w/ Peter Schiff

Episode Date: November 12, 2021

Peter Schiff is the Chief Economist and Global Strategist at Euro Pacific Capital. In this conversation, we discuss inflation, employment, monetary policy, fiscal policy, the US dollar, bitcoin, and gold.  ======================= Gemini is a leading regulated cryptocurrency exchange, wallet, and custodian that makes it simple and secure to buy, sell, store, and earn bitcoin, ether, and over 40 other cryptocurrencies. Offering industry-leading security, insurance and uptime, Gemini is the go-to trusted platform for beginner and sophisticated investors alike. Open a free account in under 3 minutes at gemini.com/pomp and get $20 of bitcoin after you trade $100 or more within 30 days. ======================= Ethernity.io: The world’s first authenticated and licensed NFT platform, trusted by over 150,000 members. Digital NFTs and exclusive real-world unlockables, authentic partnerships with athletes and artists. Visit Ethernity.io, where you can buy and sell authenticated NFTs from top notable figures, rights, license, and IP holders you can’t find anywhere else; the start of an entire ecosystem bringing utility to #NFTs. ======================= Nasdaq-listed BTCS was the first US-public company to secure today’s top layer one protocols. Recently, BTCS launched the beta version of its digital asset analytics dashboard! From across multiple exchanges, the BTCS Data Analytics Dashboard lets you evaluate your entire portfolio’s performance with plans to add year-end reports and yield earning on your crypto through linking to staking pools. Test out the BTCS Data Analytics Dashboard today at BTCS.com.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Peter Schiff is the Chief Economist and Global Strategist at Euro Pacific Capital. In this conversation, we discuss inflation, employment, monetary policy, fiscal policy, the US dollar, Bitcoin, and gold. I really enjoyed this conversation with Peter, and I hope you do as well. Before we get into this episode though i want to quickly talk about our sponsors first up is gemini gemini is a leading regulated cryptocurrency exchange wallet custodian that makes it simple and secure to buy sell store and earn bitcoin ether and over 40 other cryptocurrencies they offer industry

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btcs.com. NASDAQ listed first US public company to secure many of the top layer one protocols, btcs.com. All right, let's get this episode. Peter, I hope you guys enjoy this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Peter, what's going on, man?

Hey, how you guys doing? All right, talk to me about inflation. 6.2% CPI yesterday, about 4.5% core inflation. Do you believe these numbers? No, actually, the numbers are worse. As bad as they are, reality is worse. I mean, first of all, we know what's going on with rent, right? With owner's equivalent rent, which the government uses in replace of actual rent. And actual rents are rising four times faster than what, you know, owner's equivalent rent. And of course, home prices don't even make it into the CPI at all. And they're way up.

So people who want to buy houses, you know, they're looking at even bigger price increases than the people who want to rent them. But I think a lot of the other, you know, numbers are massaged the way they are, you know, put through the methodology for computing the number. You know, they substitute things. If things go up, they don't count them. The whole system is rigged to give you a low number. And despite the rigging, we still have almost 7% if you annualize the first 10 months of

this year. And then it's almost 7% inflation measured by the CPI. So even the government number is bad, but reality is much worse. When you think about the inflation numbers themselves, it's very obvious that things like food gasoline etc are all uh exploding one of the takeaways that i had from the cpi numbers was that whether food at home or food out of the home was both up over five percent how do you think about the basket of goods in terms of the things that people spend a lot of money on rent food uh utilities versus maybe some of the more um kind of uh infrequent type of goods that they

may consume it feels like the things that i really care about those are actually up pretty materially and then there's a bunch of stuff that maybe I care, maybe I don't, but I just use them less frequently. Yeah, if you measure the cost of living, if you actually look at the basket of goods and services that people are buying, I think that basket is going up faster than some of the goods that people may not buy at all, you know, or may just buy once in a while. You know, if you look at, let's say, a laptop computer, how often do you buy a new laptop? I mean, maybe every few years. I mean, some people wait longer than that. They make do with the one they have. But you're buying groceries every week, right? You're buying gasoline every week. You're paying

your electric bill. So there are a lot of things that, you know, higher prices, you got to pay. Some of the things, if the prices are down a little bit, you may not even be buying them because you're spending so much money on the things you need. You don't even have that much money left over for some of the other things that you want. When you also think about things like employment, how do you settle in your mind that there is 11 million open jobs and nearly 5% unemployment number? How are those two things possible to be operating at the exact same time? Well, either the people who are unemployed don't want those jobs or they're not qualified for those jobs. But that is a problem in the economy when you have a lot of job openings that workers neither

want nor qualified for. And so the question is, why are they not qualified and why don't they want them? And I think there are different answers to those questions. But certainly one reason that people may not want jobs is maybe they got a better deal from the government. They'd rather collect benefits than collect a paycheck because you have to work for the paycheck. But I also think there's a lot of young people, maybe they got a lot of cryptocurrency and they're just trading or they're trading stocks on their Robin Hood app. And, you know, it's a bubble and they think they're geniuses and maybe they're making enough money just trading crypto or or stocks. And they figure they don't need a job. I'm going to drop some heat on you. You ready? I'm going to

tell you two theories I have. And you tell me if you think that they're actually correct or if I'm full of shit. First one is a lot of these people who are, quote unquote, not working, not in the workforce, they do have jobs. They just have jobs that previously people haven't identified or they have investment gains that people also haven't identified. So I'll give you a very quick example. There's a kid that I recently met. He had a, for all intents and purposes, a normal job that people would say, okay, you work for this employer, et cetera, previously. He then started to get into all of this crypto world and he began working for these DAOs. And think of them as similar to an organization uh they're just not legally uh the exact same thing they don't have employment

contracts all of that but he's getting the equivalent of a salary or some sort of payment for doing some actions but that's not showing up in any of the employment data and the job that he left i'm guessing is now showing up as one of the 11 million open roles because they're going to try to fill it with somebody else and so is there a world where we could try to identify whether it's like the super kind of long tail crypto stuff, or literally somebody now is running a media business where they're posting photos on Instagram and getting paid by advertisers, but they don't have an LLC. They're not using it like a traditional business owner would. Is there a way to start to identify like how many of the people who are not in the traditional

workforce are actually operating a job? It's just kind of a new type of job. Well, remember, you're not considered unemployed if you're not looking for work. So if you're content to be self-employed, you're not unemployed. So you wouldn't be part of the statistics. But certainly, you know, there are going to be people that are in the underground economy that are working for cash. But I don't know if they show up on the unemployment rolls either. They may just show up as, you know, no longer in the labor force if they don't claim to be employed, but they're actually employed under the table and they're working for cash. And, you know, And you're always going to have a, you know, a certain amount of that going on.

You know, people have a preference for cash because they they don't pay taxes. Most people. I mean, that's why I think when you see the Biden administration talking about, you know, cracking down on tax cheats, that's really who they're after. It's the gig worker who gets paid cash or the small business owner who gets some of his income in cash and doesn't report it, or maybe takes a lot of personal exemptions and claims them as business expenses. That's where they're looking, because that's where all the tax evasion is taking place.

You know, they're really rich. They don't have to evade the taxes. They just legally avoid them. And they don't want to risk tax evasion. It's not worth it to them. But for a lot of middle class people, it's worth the risk, because if they paid their taxes honestly, they couldn't feed their family. They couldn't pay the rent.

So the only way they can get by, given how high the taxes are and how weak the economy is to try to cheat on their taxes. So when you start to think about, actually, I want to make one point very quickly, as Peter Schiff just called Instagram the underground economy, which I appreciate, but it kind of is the underground economy,

is also supply chains. Supply chains keep coming up in this conversation around inflation. I don't want to make too many assumptions here, but I'm assuming that you agree monetary and fiscal policy decisions have been absolutely insane and undisciplined, but also there are supply chain disruptions as well. There's kind of two of many factors that

are at play here. Is there a world where we can assign some of the blame for the supply chain disruptions on the monetary and fiscal policy by giving all these people money, they go spend a ton of it, it puts strain on the supply chain, and that's what leads to some of the breakage? It's all the consequence of monetary and fiscal policy. I mean, you can try to blame it on supply, But that's not what's going on here. I mean, I talked about this from the beginning. The minute that COVID hit, the correct policy response was for the government to cut spending because the economy was contracting, people weren't working, and they weren't producing

goods and services. But the government did the opposite of what they should have done. The government said, hey, we have to make sure that people who are no longer working keep spending money. Why? They're not earning money. How can they spend? They're not producing anything.

But we sent everybody home and said, don't produce stuff. And here's more money. And you can now go out and buy even more stuff now unemployed when you're not working than you used to buy when you actually contributed to the production of goods and services. So we simultaneously reduced the production of goods and services, and we gave people a lot more money to go into the market and buy the goods and services that we weren't even producing. But what's driving the price is the fact that we did the wrong thing. We should have encouraged people not to spend because they weren't working. We needed people to spend less, but instead they spent more. But on what?

We weren't making this stuff. So the prices are going up. and you know now if you look at the the imports we have record imports we are importing more than we've ever imported before the the volume is a record right not only are the deficits a record but the imports are a record so we've got more supply coming in from the rest of the world than we've ever had in the past the problem is we've got too much money to spend it on and americans are not producing because we're more reliant on foreigners because they say hey it's about covid that's why we're not producing well why is china producing why is the rest of the world producing

because they have record exports china has the largest trade surpluses in history because it's making all this stuff and sending it to america i mean they have covet over there in china too yet how come they produce all this stuff and we don't the problem is we have a more reckless monetary policy and a much weaker economy fundamentally because we're not producing. We're just producing money, right? But when the Federal Reserve prints money and gives it to people to spend, that doesn't mean there's more stuff to buy. So if you got more money to buy the stuff, well, the price of the stuff has to go up. That's basic supply and demand. That's what inflation is. It's an expansion of the money supply. Rising prices are just a consequence

of inflation. So all this talk about the government trying to scapegoat supplied bottlenecks or the economy reopening and ignoring the elephant in the room, which is massive money printing by the Federal Reserve to finance huge deficits by the federal government. That's it. What questions you guys have for Peter? Peter, how you doing? Thanks for joining us again. So we had 6.2 this month, do you think next month will come in higher or lower? And if it's higher, how bad do you think it can get? Well, I've been taking the over on CPI every month. I mean, I generally think that's the safe for bet. The markets are usually disappointed when the number comes in higher than expected. The only thing that's interesting now, and this is recent because it happened again

this month, is we got a hotter than expected inflation number and the price of gold went up. It was up about 18 bucks yesterday. It's up another $10 today. And that's what you would expect, right? You would expect gold to go up on high inflation. But what had been happening is that we'd get higher than expected inflation numbers and gold would sell off, sometimes 20, 30 bucks. And the reason for that is the market is still foolish enough to believe that these higher

inflation numbers mean the Fed is going to have to react and put out the fire. The Fed is going to have to get tough on inflation. It's going to fight inflation. with more aggressive tapering or rate hikes. And so gold always factors that in and sells off because the markets start looking forward to this tighter policy. What the markets still don't get is,

A, the Fed's probably not going to try to fight inflation. And B, even if it does, it's going to lose because it will not be able to raise rates enough in order to make a difference. If inflation is 7%, 8% by the time the Fed gets around to the first rate hike I mean how is it going to do anything I mean if the Fed goes from zero to 25 basis points half a percent even if they go up to one percent what difference does that make when inflation is eight percent you are so far behind the curve that there's

nothing you can do the Fed would have to jump out in front of the curve so if inflation is eight percent the first rate hike has to be like to ten percent you got to get out in front of that curve to bend it. But of course, that's never going to happen. I mean, we're not going to get any real rate hikes. I mean, they had to stop the rate hikes in 2018 at 2.5% because everything started to collapse. Well, if we collapse the 2.5% in 2018, we're not going to get anywhere near that high now because we have so much more debt today than we had back then, thanks to all the stimulus that has occurred since that point in time. John, what questions you got? Yeah, Peter, Nice to see you again. I know you're having a good day. Gold was up yesterday. So can you talk

about the official numbers are 6.2% for inflation. We can beat the drum all day. How long do you think inflation is going to last in this kind of environment with this 6 plus percent? Oh, it's here for the duration. I mean, I mean, this decade is going to be a big inflationary decade. I mean, it's going to get worse. It's going to be much worse in the 70s. I just don't see a way out, really. You know, we got out of it with Paul Volcker and Ronald Reagan in, you know, 1980. I mean, I don't see a Reagan on the horizon in the White House. We're not going to get another Paul Volcker. And even if we had Paul Volcker, I mean, how could they raise rates? I mean, in 1980, when the Fed raised rates, it only impacted the new budget deficits. It didn't

impact the national debt because the national debt was financed with 30-year treasury bonds. Today, the national debt is financed with T-bills. We got almost a $30 trillion national debt. If they had to jack interest rates up, let's say even at 10%, we would pretty much have to refinance the whole national debt in three years at 10%. Right now, we've got it financed at 1%, 2%. I mean, really low. Where would the government get trillions of additional dollars to pay the interest on the debt. Plus, we already have three, $4 trillion a year deficits, which would get much bigger if the Fed actually raised interest rates to 10%. What would happen to the economy? I mean, it would implode. I mean, think about the real estate market, the stock market. I mean, everything

would collapse. So the deficits would skyrocket. And of course, how would they pay the interest? So we're in a position where we can't raise rates. In 1980, America still had trade surpluses. Now we have huge record trade deficits. In 1980, America was the world's biggest creditor nation. Now we're the world's biggest debtor nation. There's no way we can survive the cure for inflation. The cure for inflation would kill the economy, which is why we're not going to get it,

which is why inflation is here to stay and it's going to keep getting worse. And all that people can do or the powers that be is rationalize it, kind of dismiss it. It's transitory. and eventually when they can't claim it's transitory anymore, they'll say it's a good thing.

It's a sign of our prosperity. It's just a price we have to pay for a strong growing economy. You know, they're going to keep on saying all that until eventually they're going to go with the price controls. You know, we did that early on in the 1970s. You know, inflation is already worse today

than it was when Nixon put wage and price controls on. How high do you think inflation can go in the future? Well, how high is it really going to go or how high will the government admit? Because they can keep doctoring that CPI. Because I think it's already probably 10%, 15% for 2021. I mean, if you look at the import-export prices, because those things aren't manipulated as much as the CPI.

That's what you're seeing. Look at the price of imports and exports are soaring like 15% to 20% this year. So that's probably a better indication what's actually going on. But, you know, I think even the way the government measures inflation, we could end up moving into double digits. But by the time the CPI is registering 10 percent, 11 percent, you know, we're going to be over 20 percent. Peter, I have two questions. One, what is the next step in their view? This is me allowing you to create a receipt that we can come

back to later as they continue to doctor the CPI number. What's the most likely thing they do next to try to keep that number kind of sub 10 percent? Well, I don't know. They could they could find new ways of changing the index, you know, introducing more hedonics, you know, claiming that things are getting better, that the quality is improving. Of course, they'll ignore all the examples where the quality is is being diminished.

And they can also substitute more things, you know, and just say, oh, well, the price of meat went way up. So, you know, let's just people are eating chicken, you know, they're not. And so but then eventually it's like, well, they're not eating chicken, they're eating dog food. But that's OK, because they're still eating. So, you know, there's no inflation. They could just keep, you know, taking things out of the basket that are going up and throwing other things in there to try to pretend that that prices aren't rising. But, you know, the public's going to see it. You know, I mean, that's one thing they're smart enough to figure out is what they're paying for stuff.

And, you know, there's a limit to how small the packaging can get, because initially you've got the companies try to put the price increases through by just diminishing the quantity. You know, but then you open up a box of cereal and, you know, the top three quarters of the box is just cardboard. Right. The cereal doesn't start. You know, so it's there's only there's only so small you can make the packaging, you know, and they do that. you know, I mean, how many sheets can you take out of a roll of toilet paper? I mean, you can't sell toilet paper by the sheet, right? All right. Like a slice of pizza, like, you know, but so at some point they just got to raise the prices. All right. You ready? Yeah. Yeah. You tweeted that gold was up $18 yesterday and you were taking a victory lap on the internet. $18 just fell out of my pocket. What are you doing on the internet with your $18 of gold?

And why are you celebrating that? No, no, I wasn't celebrating anything. And first of all, you know, I own a lot of things in addition to gold. I mean, you think, you know, gold is a small part of my portfolio, right? I mean, I have a lot of gold stocks. So in that respect, that's a pretty big part. You said in reaction to hotter than expected inflation data, gold rose $18, closing near $1,850 per ounce. It's the highest level in five months. But while Bitcoin initially pumped to a new all-time high, Bitcoin hit an all-time high, closed to $69,000, the ensuing dumps and it tumbling 8.5% back below 63,000 at the low. I don't know. That sounds like a victory lap, $18 near a five-month high. The point I was making, Anthony,

the point I was making- You're squirming. Is that gold actually reacted to higher inflation by going up. Bitcoin reacted to it by going down. Now, what happened initially is I think some of the whales that want to unload Bitcoin, the minute they saw that hot print they're like okay let's buy some bitcoin and try to get some excitement around this inflation number gold's going up let's make bitcoin go up and they come in there and they buy and they get people oh you see even my son got excited look dad look at bitcoin going up on the inflation numbers right so they got all this excitement and as soon as they got the herd all excited then they dumped it right they took advantage of the pump and they came out

big time selling their Bitcoin and it went crashing down. So I think the whole initial move up was all a manipulated attempt to unload Bitcoin. It wasn't like, ah, you see Bitcoin is reacting to the inflation. Bitcoin's got nothing to do with inflation. It's not an inflation hedge. It's not a commodity. It's not a real asset. It's a risk asset and it goes up when people want to buy it. It doesn't have anything to do with inflation. It doesn't have anything to do with other commodities. I don't have anything to do with the gold. But obviously, that's part of the story. That's part of the phony narrative that's used to generate demand for Bitcoin, is that it's gold. But they were able to manipulate it up. But the fact that it got killed so strongly shows you

that there are people that were waiting to sell that spike. And I think the people who sold it are the same people who helped create it. Now, maybe they didn't use the same wallets. Maybe they have some wallets where they buy and then they have other wallets where they dump uh but it seemed to me that that's exactly what was going on all right are you last question for you and then we got to go we got other things to do you were late so you know i got i got all kinds of late you didn't send us the link no i sent you the link six times uh are you changing anything about your portfolio after the cpi print yesterday no i mean my portfolio went up you know be you know although you know the dollar the dollar went up and again that shouldn't be happening the dollar

had a big update yesterday on the CPI, which, of course, inflation lets you know that the dollar is losing value. So the fact that the dollar is losing purchasing power faster is not bullish for the dollar. It's bearish. But again, the currency traders bid up the dollar because they expect the Fed to successfully fight off inflation. They're wrong, as I said earlier. So, you know, but I'm short the dollar and that all of my investments are international. So I have all my stuff in Asia and Europe and Australia and New Zealand you know South America so I got these foreign assets but by and large uh my most of my foreign stocks were up yesterday even as the U.S. market was down but the biggest winners were the gold stocks they're all up again today but now you know some

of my copper stocks and uh you know are having a bigger a bigger days today than than my gold stocks um you know I also have a lot of energy exposure I have a lot of assets that I think are going to be real inflation hedges. That's why I don't own any Bitcoin. I don't think Bitcoin is an inflation hedge, even though some people think it is. You know, I look at Bitcoin like any of these other overpriced meme stocks.

I mean, they can keep going up so long as, you know, the crowd, you know, is going to believe the story. But eventually, you know, reality sets in. I'm just not smart enough to know when. All right. I've let you say your piece. I think you're wrong.

You think I'm wrong. We'll see what happens. but well you ought to hedge yourself at least i mean you know i hedge myself by talking to you once a month when the inflation numbers come out what what do you what else do you own besides bitcoin what why do i need to own anything else that's see that's what i just said you got to hedge yourself what if i'm right bitcoin is the hedge peter broke all right i appreciate it thank you everyone go follow peter on twitter he uh is full of great uh memes lots of good economics the reason why i bring you on it because you actually really do understand the economy very well you

understand macroeconomics you understand monetary fiscal policy your gold fascination i you know i don't know what's going on there but i forgive you no problem i understand bitcoin too don't all right see you later my friend all right thanks peter