Renowned economist Peter Schiff has warned about the potential for a major financial crisis due to “run-away inflation” and a weakening U.S. dollar. Schiff also predicts a significant surge in gold prices.
What Happened: Schiff took to social media platform X to voice his concerns, stating that Wall Street is in for a shock as inflation accelerates. He believes the situation could lead to a more severe financial crisis than the 2008 recession, with Treasury bonds potentially becoming the new subprime mortgages.
“Wall Street will be totally shocked by just how fast #inflation heats up. It will be an even bigger surprise than was the 2008 Financial Crisis. Worse, run-away inflation will usher in an even larger financial crisis than 2008, as Treasury bonds become the new subprime mortgages,” Schiff wrote.
Despite a rebound in consumer confidence in May, Schiff is skeptical about its sustainability. He highlights that year-ahead inflation expectations have spiked to 5.4%, the highest since December. Schiff contends that if consumers fully understood the potential for inflation to rise well beyond 5.4%, confidence levels would be much lower.
He further warned that the dollar’s strength relative to other fiat currencies has so far shielded U.S. consumers from the full impact of inflation. However, inflation could significantly erode consumers’ purchasing power once the dollar weakens.
“So far, the strength of the #dollar relative to other fiat currencies has protected U.S. consumers from feeling the full sting of #inflation. But once the dollar rolls over, that protection will be lost and inflation will take a much bigger bite out of consumers’ purchasing power,” Schiff explained.
Schiff argues that the U.S. dollar’s breakdown will accompany an explosive breakout in gold prices, shattering the current narrative of a soft landing and falling inflation. He warns that “most investors are unprepared for this outcome,” emphasizing the urgency of acting swiftly to avoid being left behind. “There’s no rush like a gold rush,” Schiff noted.
Why It Matters: Schiff’s warnings come amid economic uncertainty. Paul Krugman compared the current inflation levels to those during Reagan’s presidency, suggesting that the current administration is not doing enough to tackle the issue.
Schiff’s warnings come at a time when inflation has proven to be more persistent than anticipated. Benzinga reported last week that inflation has remained stubbornly high, posing significant challenges for the economy. This persistent inflation has been beneficial for the U.S. dollar, but it also raises concerns about long-term economic stability.
Despite these concerns, Mark Cuban has defended the Biden administration’s economic record, attributing the underperformance to the previous administration’s policies. Additionally, Americans have started to feel better about the economy, a potential factor in the upcoming presidential election.
Despite his critics, Schiff’s predictions have been somewhat validated by the recent performance of gold. Schiff highlighted gold’s soaring prices and market momentum, suggesting that investors “just sit tight and enjoy the ride.” Schiff’s warnings also come in the wake of rising inflation rates, which he believes are being underestimated by Federal Reserve Chair Jerome Powell.
Image Via Shutterstock
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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