#719 Inflation and Employment w/ Peter Schiff

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.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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, and custodian that makes it simple and secure to buy, sell, store, and earn Bitcoin, Ether, and over 40 other cryptocurrencies. They offer industry-leading

• 0:44Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:51Anthony Pompliano?

  beta mode. Test out the BTCS data analytics dashboard now by visiting BTCS.com. Again, BTCS.com. NASDAQ listed, first US public company to secure many of the top Layer 1 protocols. BTCS.com. All right, let's get this episode. Peter, I hope you guys enjoy this one.

• 3:11Speaker 01

  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.

• 3:35Anthony Pompliano?

  Peter, what's going on, man?

• 3:38Anthony Pompliano?

  Hey, how you guys doing?

• 3:39Anthony Pompliano?

  All right, talk to me about inflation. 6.2% CPI yesterday, about 4.5% core inflation. Do you believe these numbers?

• 3:47Anthony Pompliano?

  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 and the people who want to rent them.

• 4:19Speaker 03

  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, you know, it's almost 7% inflation measured by the CPI. So, you know, even the government number is bad, but reality is much worse.

• 4:59Anthony Pompliano?

  When you think about the inflation numbers themselves, it's very obvious that things like food, gasoline, etc. are all 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 5%. How do you think about the basket of goods in terms of the things that people spend a lot of money on? Rent, food, utilities versus maybe some of the more kind of 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.

• 5:36Speaker 03

  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 may 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

• 6:20Speaker 03

  on the things you need. You don't even have that much money left over for some of the other things that you want.

• 6:26Anthony Pompliano?

  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? Like, how are those two things possible to be operating at the exact same time?

• 6:39Speaker 03

  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 Robinhood app.

• 7:23Speaker 03

  And, you know, it's a bubble and they think they're geniuses and maybe they're making enough money just trading crypto or stocks and they figure they don't need a job.

• 7:33Anthony Pompliano?

  I'm gonna drop some heat on you, you ready? I'm gonna tell you two theories I have and you tell me if you think that they're directionally 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 worked for this employer," etc. 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, they're just not legally the exact same thing,

• 8:17Anthony Pompliano?

  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 gonna try to fill it with somebody else. And so, is there a wor- 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?

• 9:02Speaker 03

  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're, if they don't claim to be employed, but they're actually employed under the table and they're working for cash, you know, and you're always going to have a, you know, a certain amount of that going on. You know, people have a, you know, preference for cash because they, they don't pay taxes,

• 9:43Speaker 03

  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, and they don't want to risk a 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,

• 10:27Speaker 03

  given how high the taxes are and how, you know, weak the economy is, is, you know, to try to cheat on their taxes.

• 10:32Anthony Pompliano?

  So when you start to think about, uh, well, actually, I want to make one point very quickly. As Peter Schiff just called Instagram the underground economy, which I appreciate, but it was, it kind of is the underground economy. Is also supply chain. 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. That's what leads to some of the breakage.

• 11:17Speaker 03

  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.

• 11:58Speaker 03

  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. And 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 imports.

• 12:43Speaker 03

  We have record imports. We are importing more than we've ever imported before. 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.

• 13:27Speaker 03

  I mean, they have COVID 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've got more money to buy the stuff, well, the price of the stuff has to go up. That's 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

• 14:09Speaker 03

  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.

• 14:23Speaker 04

  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?

• 14:35Speaker 03

  Well, I've been taking the over on CPI every month. I mean, I generally think that's the safer 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 dollars 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

• 15:20Speaker 03

  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 market 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?

• 16:01Speaker 03

  I mean, if the Fed goes from 0 to 25 basis points, half a percent, even if they go up to 1%, what difference does that make when inflation is 8%? 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 8%, the first rate hike has to be like to 10%. You've 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 collapsed 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

• 16:46Speaker 03

  thanks to all the stimulus that has occurred since that point in time.

• 16:51Anthony Pompliano?

  John, what questions you got?

• 16:52Speaker 05

  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's gonna last? In this kind of environment with this 6% plus percent?

• 17:09Speaker 03

  Oh, it's here for the duration. I mean, I mean, this decade is gonna be a big inflationary decade. I mean, it's, it's gonna get worse. It's gonna be much worse than 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 gonna get another Paul Volcker. And even if we had Paul Volcker, I mean, what, 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.

• 17:54Speaker 03

  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 got it financed at, you know, like 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 3-, 4-trillion-dollar-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.

• 18:39Speaker 03

  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 gonna get it, which is why inflation is here to stay, and it's gonna keep getting worse. And all the people can do, or the power 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.

• 19:22Speaker 05

  How do you think?

• 19:23Speaker 03

  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.

• 19:31Speaker 05

  How high do you think inflation can go in the future?

• 19:34Speaker 03

  Well, how high is it really going to go? Or how high will the government admit? Because they can keep doctoring that CPI, right? Because I think, you know, it's already probably, you know, 10, 15% for 2021. I mean, if you look at the import export prices, because those things aren't, you know, 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%, you know, this year. Uh, so that's probably a better indication of what's actually going on. Uh, 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%, 11%, you know, we're going to be over 20%.

• 20:18Anthony Pompliano?

  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, uh, kind of sub 10%?

• 20:35Speaker 03

  Well, I don't know. They could, they could find new ways of, uh, changing the index, you know, introducing more, uh, 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. Uh, 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 okay because they're still eating. So, you know, there's no inflation. Uh, they could just keep, you know, taking things out of the basket that are going up and, and, and throwing other things in there, uh, to try to pretend that, that prices aren't rising. But you know, the public's gonna see it.

• 21:20Speaker 03

  You know, they're, 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 all, there's a limit to how small the packaging can get because initially, you've got the, um, the, the, 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, there's only so small you can make the packaging. You know, and they do that, you know, how, 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?

• 21:59Anthony Pompliano?

  All right.

• 21:59Speaker 03

  Like a slice of pizza, like, you know, but, uh, so at some point, they just gotta raise the prices.

• 22:05Anthony Pompliano?

  All right, you ready?

• 22:07Speaker 03

  Yeah, yeah.

• 22:07Anthony Pompliano?

  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?

• 22:18Speaker 03

  No, no, I wasn't celebrating anything. And, and first of all, you know, I own a lot of things in addition to gold. I mean, you think, you know, I got, I, I, 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.

• 22:31Anthony Pompliano?

  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 dump sent 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.

• 22:56Speaker 03

  The point I was making, uh, Anthony, the point I was making.

• 23:01Anthony Pompliano?

  You're squirming.

• 23:03Speaker 03

  Gold, 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.

• 23:46Speaker 03

  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 another to do with inflation. It's not inflation hedge. It's not a commodity. It's not a real asset. You know, it's just, it's just a, you know, it's a risk asset and it goes up when people want to buy it. You know, it doesn't have anything to do with inflation. Doesn't have anything to do with other commodities. Doesn'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. Uh, and 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 uh, that spike.

• 24:29Speaker 03

  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. You know, 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.

• 24:43Anthony Pompliano?

  All right, are you, last question for you and then we gotta go. We got other things to do. You were late, so you know, I got, I got all kinds of.

• 24:48Speaker 03

  I wasn't late, you had sent us the link.

• 24:50Anthony Pompliano?

  No, I sent you the link six times. Uh, are you changing anything about your portfolio after the CPI print yesterday?

• 24:56Speaker 03

  No, I mean, my portfolio went up, you know, be, you know, although, you know, interestingly, the dollar, the dollar went up. And again, that shouldn't be happening. The dollar had a big up day 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 bit 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.

• 25:37Speaker 03

  And you know, South America, so I I got these foreign assets, but by and large, my most of my foreign stocks were up yesterday, even as the US 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, you know, are having a bigger, a bigger days today than than than my gold stocks. 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 think 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.

• 26:22Speaker 03

  But eventually, you know, reality sets in. I'm just not smart enough to know when.

• 26:27Anthony Pompliano?

  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.

• 26:33Speaker 03

  Well, you ought to hedge yourself at least. I mean, you know.

• 26:36Anthony Pompliano?

  I hedge myself by talking to you once a month.

• 26:40Speaker 03

  What else do you own besides Bitcoin?

• 26:42Anthony Pompliano?

  What? Why do I need to own anything else?

• 26:44Speaker 03

  That's see, that's what I just said. You got to hedge yourself. What if I'm right?

• 26:47Anthony Pompliano?

  Bitcoin is the hedge, Peter.

• 26:50Anthony Pompliano?

  All right. I appreciate it. Thank you. Everyone go follow Peter on Twitter. He is full of great 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, you know, I don't know what's going on there, but I forgive you. No problem.

• 27:11Speaker 03

  I understand Bitcoin too.

• 27:14Anthony Pompliano?

  All right. See you later, my friend.

• 27:16Speaker 03

  All right.

• 27:17Anthony Pompliano?

  Thanks, Peter.