Peter Schiff and Santiago Capital CEO Brent Johnson got together on the Rebel Capitalist podcast to debate the trajectory of the dollar in 2022. Johnson is bullish on the dollar. Peter thinks the greenback is going to tank.
Johnson’s bullishness stems from the fact that the dollar is the only game in town. As he put it, “you have to have dollars if you want to operate in the real world.” He contends that even with the rampant money printing, demand for dollars outstrips supply. Meanwhile, other fiat currencies are also increasing in supply. With that being the case, it comes down to demand and the world still wants dollars.
Peter agrees that all fiat currencies will lose purchasing power in 2022. The question is which one will lose the most? Peter thinks the dollar is in trouble and the demand will dry up.
Peter explained that the dollar caught a bit of a bid in 2021 for the same reason gold faced strong headwinds – everybody was anticipating the Federal Reserve going to war with inflation. The idea that we’re going to have tight money and a hawkish Fed supported the dollar and kept a lid on gold. Peter points to the trade deficit, noting that the US is importing more and more and exporting less. He contends the world doesn’t need dollars because the US isn’t producing anything for the world to buy.
Furthermore, with inflation rising and real interest rates deeply negative, there won’t be much demand for US Treasuries or other dollar-denominated debt.
Much of the foreign trade surplus has been cycled into US equities. But with the stock market extremely overvalued, Peter doesn’t think the world will continue to recycle its massive trade surpluses into overpriced US stocks. With no place else to go, dollars will hit the foreign exchange markets. As the dollar weakens, it will exacerbate consumer price inflation and that will put further downward pressure on the dollar.
A weak dollar is going to send the trade deficits even higher. All of this is going to make the dollar even less appealing. It’s going to weigh on the economy. It’s going to result in the Fed reversing course and moving from being less loose to even more loose than they were before. So, a lot of downside risk for the US dollar, upside for inflation. And of course, I also think gold is also going to make a big move in all currencies, in particular the dollar, as the markets come to terms with the fact that the Fed is not only not going to win a war against inflation, it’s not even going to fight the war. It’s going to surrender without a fight because it knows it can’t win.”
Watch the debate and decide for yourself who makes the strongest case.
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