Financial guru Peter Schiff says everyone is being fooled by the mainstream media when it comes to the economic health of the United States. But Schiff says it is all a delusion and phony prosperity isn’t going to last.
A lot of seemingly positive economic data came out last week, but in his most recent podcast, Peter Schiff said it is just feeding into a delusional economic narrative that ignores the most fundamental storyline – debt. According to Seeking Alpha, Schiff says that this delusion built on debt is not going to last, and we should all be prepared.
The May jobs report came out Friday, sending another ripple of optimism through the investment world. Talking heads in the mainstream media were overly excited that the numbers appeared “good.” According to the Department of Labor, the US economy added 223,000 jobs in May. The unemployment number fell to an 18-year low of just 3.8%. Average hourly earnings rose by 8 cents. Average wage growth came in at 2.7% over the past year. Pundits and prognosticators on the major financial networks were giddy like schoolchildren at the news.
But all of that optimism masks a very serious problem, says Schiff. No one is taking into account the debt. Not just the national debt, but the debt of everyday Americans. Analysts were also excited about the personal income and spending data – particularly spending, which rose 0.6% in April. Meanwhile, income was up 0.3%. Schiff put this into some perspective saying:
Consumers are spending money twice as fast as they’re earning it for the month of April – six-tenths up on spending, three-tenths up on earnings. So, what does this tell you? People are tapping into already a pretty shallow savings pool, or they are running up more credit card debt to buy stuff. –Peter Schiff
Despite all of the fundamental issues facing the economy – namely the massive levels of debt – most of the mainstream is exuberant. But Schiff explains that this is phony prosperity.
America is a sea of prosperity. Our economy is immune. We’re just going to keep on growing, even though we’ve got a rising cost of living, even though we’ve got increasing interest rates, massive debt on all levels, all these big-picture problems that we’ve got, but everybody assumes there’s nothing to worry about. In fact, you look at CNBC, I was watching them, today after the jobs numbers… and they are so excited – to a man. I mean, they’re just giddy, like little schoolgirls, about the stock market. Everything is perfect. Nothing can go wrong. Keep on buying.
If you make everybody happy by going deeper into debt, you can have some phony prosperity for a period of time. Not a very long period of time, but enough for people to get all excited about it. I mean, that’s what happened in the run-up to the 2008 financial crisis. A lot of people got excited about a phony prosperity, but the problem with phony prosperity is that it’s phony. And when it’s phony, it doesn’t last. Just like a drug high. It only lasts until the drugs wear off. And the drugs always wear off. You can’t stay high forever. You can try, but it’s not going to work. We’re going to try. We’re going to do QE4. We’re going to cut rates again. But it’s going to end in overdose. It’s going to end in a collapse of the dollar. But the point is, right now, you’ve got all these Republicans talking about how great everything is because we’re living on borrowed money. We’re living in a gigantic bubble. And we know bubbles are going to pop.” –Peter Schiff
Because our economy is built on debt, we are in worse shape now than before the 2008 crisis, Schiff says. But no one is taking that debt into account, and eventually, it will burst.