Peter Schiff on the dollar's decline, debt, energy prices, and where smart money is moving
Glenn Diesen interviews economist and investor Peter Schiff on the economic consequences of ongoing conflict, dollar weakness, and US fiscal deterioration.
Summary
Glenn Diesen, host of the channel, interviews Peter Schiff, CEO of Euro Pacific Asset Management and host of The Peter Schiff Show. Schiff argues that the dollar's safe-haven rally during the current conflict was notably weak by historical standards and has already reversed, signalling deeper structural problems. He contends that the Trump administration's "big beautiful bill" made US fiscal disorder worse rather than better, and that deficit spending under Trump has exceeded Biden-era levels. Schiff warns that the dollar is in a slow decline that will eventually transition into a rapid collapse, and that the smart money is already moving into gold, precious metals, commodities, and foreign markets — particularly in Asia and emerging economies. He also discusses Europe as an investment destination, arguing that while the continent has its own problems, certain European companies with exposure to emerging markets represent good value and stand to benefit as a dollar crash transfers US purchasing power abroad and creates new consumer demand globally.
Key Takeaways
FULL TRANSCRIPT
The war's impact on markets and oil prices
Glenn Diesen: Whenever we hear Trump speak about an end to the war, it often appears to be an effort to calm the markets. But given that it doesn't appear this war will come to a quick end — and hopefully I'm wrong — what do you think are going to be the wider consequences, not just for the US market but for global markets?
Peter Schiff: The war is a big problem. It's very disruptive to supply chains, particularly energy and agriculture, in addition to the damage done by the war itself — buildings, human lives. It's obviously a problem. I think the markets are too optimistic about how soon the war is going to be resolved and how quickly oil prices may come crashing down.
I don't think the war is going to end as soon as people think. And even if it ends, it really may not be over because it could restart at any moment. There's always going to be that risk that if there is a peace deal, the deal gets broken somehow and then the war is back on. So I don't think oil prices are going to come all the way back down to where they were — probably not even close. They could come off from the highs, and they will, but I think there are other factors that are going to drive oil prices higher that have nothing to do with the war, particularly a weakening US dollar.
I think the war interrupted the dollar's weakness. And to the extent that the war ends, the dollar's weakness is going to resume. That's going to put more upward pressure not only on oil, but on bond yields. Bond yields have gone up quite a bit since the war started, and they seem to back off when it looks like the war may be coming to an end. But again, I don't think bond yields are going to go down significantly when the war ends. Other factors — rising deficits, more money printing, more inflation, a weak dollar — are going to be driving bond yields up along with oil prices.
The dollar's structural weakness and the flight from treasuries
Glenn Diesen: The debt is obviously a key problem. When we see a lack of trust in repayment — at least in good money, since the money could always be printed but then devalued — you would assume that investors would expect higher yields. But that would impose a lot of problems on the United States, because paying higher yields on such huge debts becomes very problematic. Do you see countries moving away from American treasuries? I've read stories about the UAE and the United States considering currency swap lines. Do you see this in the context of a lack of trust in the dollar, or a fear that they might have to unload some of their American assets?
Peter Schiff: It's almost a reflexive action that when there's a war, people buy the dollar as a safe-haven trade. That happened. But what was significant to me was not that the dollar rallied — it was how minimal that rally was. You didn't get the big rally that you might have got ten or twenty years ago had something like this happened. And the dollar has already lost all of the gains from the war. It hasn't gone anywhere really. It's just stopped going down.
What's going to be weighing the dollar down is the soaring deficits that are bigger because of the war. Even if it ends, we're still going to be spending more money replenishing all of the missiles and bombs that we used up and now have to replace. Military spending is going to go up, but other spending is already going up, and interest spending is on autopilot now with higher rates. Our fiscal position is deteriorating and there's no sign that we're going to do anything about it.
There was some hope that Donald Trump would do something, that DOGE would do something about getting a handle on deficit spending, but those hopes have been dashed. DOGE is gone. In fact, the deficit spending under Trump is worse than it was under Biden. The markets recognise this and they don't want to be left holding the bag. So they're getting out while they can. They're moving their money out of dollars, out of treasuries, and they're buying gold. And I think that's going to continue.
Slow decline, then rapid collapse
Glenn Diesen: Given all the pressure being put on the dollar, what do you see as the long-term consequence? Do you think the dollar could reach a breaking point where the rest of the international system would begin to reject it? Do you expect a slow decline or a rapid collapse?
Peter Schiff: I expect a slow decline and then a rapid collapse. The question is when it's going to transition from a slow decline to a rapid collapse. I don't know. But when it happens, it's going to be quick. It's like the old saying: how did you go broke? Slowly at first, then all at once. That's what's going to happen to the dollar.
Government intervention and the Spirit Airlines case
Glenn Diesen: Do you have any predictions about how the government might respond to a crisis in the dollar? I see that Trump is considering taking over key assets, rescuing companies — he considered buying an airline on behalf of the US government. Do you think this is a possible path, and would it make matters worse?
Peter Schiff: Trump said they were considering buying Spirit Airlines. Spirit did file for bankruptcy and the government did not buy it. So I don't know if they were actually considering it or if Trump just posted about it on Truth Social. I think it would have been a bad decision — something they shouldn't even think about. They should know without thinking that it's the wrong thing to do.
But it also highlights the problems that government creates. Spirit Airlines, just a few years earlier, had a buyout offer — two or three billion, I forget the exact amount — from JetBlue. JetBlue wanted to buy the airline, and the Biden administration, really led by Elizabeth Warren, killed it. The courts stepped in and said no, it's bad for competition if these two airlines got together. It actually would have been good for competition because it would have made JetBlue a better competitor for all the other airlines that really dominate — United, American, Delta, Southwest. They could use more competition, and a combined JetBlue and Spirit would have been a better competitor. But they said, "No, we need all these airlines. We can't allow two of them to merge."
Well, now one of them is completely gone. What did they accomplish? We have the same number of airlines that we would have had they allowed the buyout. But had they done that, the shareholders would have gotten money instead of getting wiped out. The employees — most of them would have still had their jobs. Not all of them; there would have been some consolidation and some layoffs. But now everybody's getting laid off. And JetBlue is a smaller airline than it would have been had it bought Spirit. The competitive landscape has been reduced because the government blocked this deal.
The government always screws things up. Antitrust has done so much harm to this country in trying to prevent acquisitions and mergers that actually would have been good for everybody. The government prevents them from happening because they claim it's somehow going to harm competition. Every country is worse off because politicians do this.
Energy and agriculture: effects on the broader economy
Glenn Diesen: I've been trying to foresee where the markets might be moving given the shutdown of the Strait of Hormuz — oil prices obviously going up, a lack of access to fertilisers creating problems in agriculture as you said. How do you see this manifesting itself and creating problems further down the economy? It seems to affect all areas, and if you add on top of that the social and political challenges, it becomes very unpredictable.
Peter Schiff: There are things that people have to buy and then there are things that they want to buy. For the most part, food and energy are things you need. You can cut back to a degree — you can have less expensive food, hamburger instead of steak. You can drive less, avoid a vacation, not turn the AC up as high. You can make adjustments, but you can't stop consuming food and you can't stop consuming energy. You can consume less or lower quality, but you still need it.
What happens is: if I'm spending more money buying the things I need, I don't have as much left over for the things I want. That's where you really see a big hit — in discretionary spending. The stuff I can't buy because food is now so much more expensive or energy is now so much more expensive. What happens in those areas? People lose their jobs because their customers aren't there. Businesses are in trouble. It is a net negative for the overall economy when you have a big increase in the cost of basic necessities of life.
Glenn Diesen: Are there any benefits for the United States because it is an energy exporter, or is this simply outweighed by the problems?
Peter Schiff: If you're in the oil business, yes, it's a positive for you. If your income comes from oil and gas, that's good. But the overall economy is not going to benefit from that. There are always winners and losers. By and large, it's not a net positive.
Now, if we were more dependent on imported oil, it would be a bigger net negative than it is. The fact that our oil output has increased over the years will, on the margin, help — because more Americans will benefit from higher prices than might otherwise. And it won't have as big an impact on our trade deficits if we're not importing all that expensive oil. In fact, if we're exporting expensive oil, it should help reduce our overall trade deficit.
But even though America imports and exports oil — we're a net exporter — we still import a lot of oil. We're not self-sufficient. One of the reasons for that is the Jones Act. They've at least temporarily suspended it with respect to oil and fertiliser, to allow some of the oil produced in one part of the country to be shipped by boat to another part. Because with the Jones Act, it often makes more sense to import oil from another country rather than use our own, due to the higher cost of using Jones Act-compliant ships to move the oil.
What could actually save the dollar
Glenn Diesen: I want to return to the dollar. What is possible to do now to reverse the decline? If Trump picked up the phone and called you and asked how to restore fiscal discipline or preserve the dollar as the international reserve currency, what would you say?
Peter Schiff: The opposite of what he is doing. The worst thing he did for the dollar was the big beautiful bill. That was the one opportunity to try to get our fiscal house in order. And what did he do? He took our fiscal house and made it even more disorderly than it was when he got there.
We need massive cuts to government spending. Those are things that Donald Trump refuses to support. He will support some cuts here and there, but overall he wants government to spend more money, not less. He also believes in tax cuts — so he wants to reduce the revenue coming into the government while increasing the money going out. The only taxes he's willing to raise are tariffs, and that's because he claims Americans don't pay those, that they're paid by foreigners — which is not true. They're paid by Americans. But tariffs seem to be the only taxes he's willing to impose. And the problem is it's not enough to deal with all the extra spending, not enough to cover the cost of the debt. So foreigners are just going to keep selling dollars and selling treasuries. That puts downward pressure on the exchange rate and upward pressure on interest rates.
China's repositioning away from the dollar
Glenn Diesen: How do you see China's position changing? Its position has hardened a little bit towards the US, given the military actions against Venezuela and Iran. The Chinese see themselves as a potential target, and they've essentially now banned their own corporations from complying with US sanctions. How do you think China will reposition or avoid being pulled down with the dollar?
Peter Schiff: China is distancing itself from the dollar. They still own a lot of dollars, but fewer than they had ten years ago. The percentage the dollar represents of China's total reserves is much smaller than it was, and certainly the percentage of total US debt held by China is much lower than it was.
China is moving away from the dollar and I think they're going to accelerate the rate at which they do that. Where China is moving is to gold. China's gold reserves are exploding, and I'm sure they're far higher than what they admit to. They have been reducing their dollar exposure and simultaneously increasing their gold exposure — replacing dollars with gold. They may also hold euros and other currencies, but I think what they're mainly interested in is gold as the best way to get out of the dollar.
Tariffs and re-industrialisation
Glenn Diesen: Another key goal for Trump has been the re-industrialisation of the United States — something I think would be a good idea. He envisioned tariffs playing a central role in this, though probably not used in the best manner. How do you see the possibility of the United States being able to re-industrialise and take back some of the production base that was outsourced abroad over the past few decades?
Peter Schiff: I don't think we're going to re-industrialise based on tariffs. That's not going to work. In many cases, tariffs are counterproductive because they make US manufacturers that we still have less competitive — those manufacturers may depend on imported components, and now those components are more expensive because of the tariffs. And to the extent that tariffs do protect some industries from competition, it allows those industries to be less efficient, and therefore they end up losing market share globally. Maybe they gain some market share domestically, but they end up losing share internationally. Protectionism never really works as a strategy.
What we really need to do is get to the root cause of the problem: why have we de-industrialised? Why do we manufacture so little relative to what we manufactured in the past? Why do we have such large trade deficits now when we used to have trade surpluses? It's not because of a lack of tariffs or because other countries have high tariffs keeping our goods out. That's got nothing to do with it. Trade has been relatively free — not completely free, not free here either. We keep out a lot of foreign imports. We have quotas and tariffs. We're just as guilty as everybody else when it comes to protecting politically connected industries from competition. Every country is worse off because politicians do this.
The real problems in the US are artificially low interest rates. We don't save enough. We don't invest enough in capital equipment. We've been able to rely on the overvalued dollar to import the things we don't produce. And the world has been willing to exchange the goods they produce for the dollars we print because the dollar has been the reserve currency. In a way, we're a victim of our own success in getting the world to accept the dollar — because in accepting the dollar, they relieved us of the burden of having to produce things. We could live off of what they produced. But it's created a dependent situation that, when it comes to an end, leaves us in a lot of trouble.
Unless we get to the root causes — higher interest rates, more savings, more investment — we're never going to be able to re-industrialise. And the move from a service-sector economy to a producer economy is very disruptive to the people making a living in the economy as it exists today. To transition to a more healthy, sustainable model, you've got some transitional pain. But the instinct of all politicians is to resist any of that pain, because it would be taken out on whoever's in power at the elections. Politicians never want short-term pain that may influence voters. They want voters to feel good in the short run, even if the policies that make them feel good in the short run make them feel worse in the long run. Politicians don't care about the long run. Their time horizon is the next election. That's as far as they can see.
Where the smart money is going
Glenn Diesen: You're describing a situation where the economy is not doing well, the dollar could be reaching a breaking point, and there's a political class unwilling to make tough decisions. In such an environment, where does the smart money go in the world?
Peter Schiff: Right now it's going into precious metals, commodities, gold. I think it's going into foreign markets, emerging markets. I think that's where the smart money is going — and that's where I'm investing.
Glenn Diesen: Much in Asia, then?
Peter Schiff: Yes. People should look at my strategies at Euro Pacific Asset Management, my mutual funds that are available no-load at any discount broker.
Europe as an investment destination
Glenn Diesen: Just one last question — on Europe. Do you see any good investment there, or do you think they are in as bad or worse a situation than the United States?
Peter Schiff: There are problems in Europe in general. Some countries are less problematic than others, and we try to focus on those. But a lot of it is very company-specific. There are businesses in Europe that I think represent good investment value, that have markets going beyond Europe and that are positioned to satisfy customer demand in emerging markets where I expect demand to explode.
I think when the dollar crashes, these other currencies are going to rise and America's purchasing power is going to be transferred abroad. That's going to open up new markets and new consumers, and companies positioned to take advantage of that will do very well. I want to be invested in those companies.
The world is going to change. For some people it's going to change for the better. For Americans, it's going to change for the worse — we're not going to be able to live beyond our means anymore. We're going to have to produce to consume. We're going to have to save to borrow. But that means the people around the world who have been living beneath their means to make it possible for us to live above our means — now they're going to see a gain. They're going to be relieved of the burden of supplying the US consumer and lending to the American borrower. That's going to free up capital. That's going to free up consumer goods. They're going to be able to enjoy a higher standard of living. And that means companies will be able to make more money in those markets because their customers have more buying power.