Peter Schiff left a stark warning in his recent podcast: “2024 could be a horrible year for the dollar.”
Here are 3 big reasons why Peter thinks inflation might rise even higher this year.
1. The Fed wants to boost Biden’s reelection
The Fed is deeply influenced by political dynamics and, with the 2024 presidential election around the corner, it’s already maneuvering to align with the political incumbent.
“I think that the Fed is going to be doing everything it can to try to reelect Biden or whoever may run if Biden does not… The Fed chairman always wants to play ball with whichever Administration is in power.”
This has less to do with blatant political bias and more to do with self-preservation.
The President plays a decisive role in appointing the Fed chair. Given this, Jerome Powell is incentivized to prioritize monetary policies that could boost a Biden reelection. And that’s exactly what we’re seeing.
The Fed already announced considerably lower interest rates in 2024 through 2025, strategically timed for this year’s US election.
Peter predicts that the Fed will continue its dovish, inflationary policies through the end of this election year.
2. US Economic “Strength” Rides on Inflation
The perceived strength of the US economy is largely illusory, a facade created by inflationary policies rather than genuine economic growth.
Peter explains that higher stock market indexes and other financial indicators in 2023 reflect investor expectations of inflationary Fed stimulus rather than genuine economic progress:
“Investors are anticipating a big bond rally. That’s what they think. The Fed is going to going to go back to zero or close to it back to quantitative easing. And so they’re factoring all this in. They’re pricing this easing cycle into the markets now. They’re betting on it.”
Rather than ruin the bets of the broader economy and suffer a massive stock market collapse, the Fed would rather keep monetary policy loose. Congress, too, would prefer to maintain high budgets than risk losing reelection.
This all drives up inflation, which Peter dubs as “the only magic trick they have.”
3. U.S. Trade Deficits as a Contributing Factor:
Peter links the dollar’s weakening to recent large U.S. trade deficits. A cheap dollar will mean higher commodity prices and even higher trade deficits, which in turn will undermine the dollar further.
Peter explains:
There’s no way that inflation is going to come down in an environment where the dollar is that weak, because that’s going to really push up commodity prices. That’s going to push up our trade deficit… These big trade deficits are going to weigh heavily on the dollar.”
We’re entering a classic scenario where a depreciating currency contributes to domestic inflation. Trade deficits are not just a symptom of economic issues but also a causative factor in the declining value of the dollar.
As long as the U.S. continues to run these deficits, the pressure on the dollar will persist.
Meanwhile, investors are flocking to other safe haven assets, like the Swiss Franc.
In 2023, the Franc was up a whopping 10%:
That is a very negative sign for the dollar for 2024 and a positive sign for gold because people are buying the Swiss frank as a safe haven. Gold is an even safer haven than the Swiss franc, but the fact that the Swiss franc is gaining so much on the dollar is an indication that people are leery of the dollar.”
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