Rickards and Schiff warn about the coming monetary collapse (Part 2/3)

let's turn to risk assets now i want to talk about modern monetary theory which is a relatively new economic theory that contradicts a lot of classical economic principles it's uh being picked up by a few notable investors and politicians right now ray dalia for example has written about it recently and for the viewers mmt basically states that countries can finance their operations by continuously printing money without really the fear of inflation so my question to you and i'll start with you peter is does this theory have any validity because a lot of equities bulls are citing mmt as a reason to maintain their long positions in the markets well first of all i don't think there's anything new about it and i don't even think it's a theory because we already know it doesn't work so there's nothing theoretical about it i mean you've had plenty of examples in history where currencies have been destroyed uh based on what they now call modern monetary theory look the whole idea that you could print all this money and not have inflation the printing money is inflation so by definition you're creating inflation so you have it now obviously there are situations where you can create inflation and it may manifest itself in rising asset prices before it ultimately moves into rising goods prices and if you have a very productive economy that is generating more output of goods then maybe you can create a lot of inflation without the price of goods going up because you're merely preventing the price of goods from falling which would have otherwise benefited uh you know the citizens because they would have been able to buy more for less but at the end of the day what they're advocating is not a free lunch right you can't have government for free simply because you print the money to pay for it in fact the most expensive way to finance government is through inflation it's through printing money it's much better to do it through legitimate taxation but of course the public will resist taxes especially when they're already broke like you know most americans are but this is a panacea for government they can pretend that they can have this laundry list of socialist programs i mean look at what we're doing now all the bailouts all the enhanced unemployment benefits the the ppp right every everybody is getting bailed out and nobody is getting a bill nobody's taxes are being raised everything is being paid for by the fed because we think it's all free because everybody believes in mmt you know whether they want to acknowledge it or not but we're about to see uh that is it's going to be a complete disaster because the dollar is going to collapse and then of course what the m tears don't get is well what do you do what happens when inflation goes out of control what happens when prices really start to go up how do you stop it you know you know what once you've let that genie out of the bottle how do you put it back in it's impossible jim what do you think i mean uh quantitative easing has been one of the driving factors behind the equities bull rally can you see this stopping anytime soon uh no i mean peter's right the fed dug a hole and they can't get out of it and i said in uh you know we're all along but certainly you know 2014 2015 et cetera as they did the taper and then they did the liftoff and then they raised rates and all that i said the fed is trying to get out of this they're trying to normalize the balance sheet trying to normalize interest rates normalization meaning they'd love to get rates to around three and a half four percent uh they'd love to get the balance sheet down to maybe two trillion from a level of four and a half trillion where it was in 2014 and uh a level of interest rates of zero so they had to get rates up balance sheet down y so they could prepare for the next recession they weren't forecasting recession but they knew one would come eventually and and it takes about four to five percentage points 400 let's say basis points of rate cuts to get the us out of a recession how do you cut interest rates four percent if you're at one well the answer is you can't and that's why they came up with quantitative easing so the effort was get to four percent rates do two trillion dollar balance sheet and you're ready for the next recession that's what they were doing that's that's what made fed forecasting the fed child's play was very easy but i also said they won't be able to do it they will not be able to prepare for the next recession without causing the recession that they're trying to prepare for and that's exactly what happened in the fourth quarter 2018 between october 1st and december 24th 2018 the stock market dropped 19 it was one point away from a bear market at that stage and then you have the christmas eve massacre and that's when jay powell threw in the towel he got religion he said okay first he said we're not going to raise rates anymore then he said we're on pause they said we're actually going to cut rates and then nine months later he said we're going to end quantitative tightening which was reducing the balance the the my supply and then september uh 2019 they started qe4 which is the that was before and either before the recession before the depression before the pandemic they were already in qe4 and uh cutting rates again so they can't get out of it now it's worse because they're back to zero and the balance sheets up to seven trillion at this point so they prove that the failures manifest they prove that they can't get out of it uh what and and and what can they do by the way on on modern monetary theory i mean you're right there's no petersburg there's nothing new about it this comes in a book called the state theory of money by gay organ which was published i think in 1921 might be off by a year but 2021 somewhere in there um but but they say what's the secret behind mona i think it's garbage by the way but you say what's the secret behind well the secret behind it is if you can issue debt and collect taxes in the money that you print you can force people to accept the money because they need the money to pay their taxes and if they don't pay the taxes they end up in jail now you can you can you know get extensions or you know do whatever but at the end of the day if you manifestly refuse to pay your taxes they will come and and put you in jail and and the point is it relies on state power it's really a neo-fascist concept it relies on coercion you know the point of a gun jails and state power to enforce the confidence and money now that's and they say that i mean i've i've read stephanie calton she's the bright light i mean this goes back a long way but i've met her he read her books and and her book i should say in her articles uh but they're very explicit about that now i think that's completely wrong because there are so many workarounds and so many ways to get out from under that kind of state power but they do rely on state power at the end of the day so that's why it has this this neo-fascist element and beyond that stephanie kelton who is a professor at state university of new york was also the chief economic advisor to the bernie sanders campaign now sanders campaign is over but biden to get the sanders vote is going to is basically endorsing the uh sanders platform he has to to get the bernie bros to vote for him in november if he wins you're going to see stephanie calvin at the treasury or maybe on the board of governors uh you know sitting five feet away from judy shelton that'll be interesting but but this is that's the only way that they can try to pay uh for everything they're promising the voters in exchange for for their votes medicare for all you know free college reparations for slavery i mean where's the money gonna come from i mean we're broke we're already hopelessly in debt the middle class can't pay higher taxes if they raise taxes on the rich well you know they they won't collect very much uh there won't be much wealth left after they finish taxing it uh so the only source of the money is the fed so obviously they're going to embrace this theory because it's so self-serving and you know they've been lulled into a false sense of complacency because it seemed that we've been able to get away with it we have printed all of this money since the 08 financial crisis and everybody thinks it hasn't caused a problem everybody says look see there's no inflation we printed all this money we had all with the balance sheet has exploded and look prices haven't gone up so they now have this false sense of security that they there's no limit to how much they can print well what's basically been uh keeping us from having to deal with those consequences has been that reserve currency status has been the willingness of the rest of the world to hold on to that paper in the form of treasury bonds or corporate bonds or mortgage-backed securities or even u.s stocks right so as long as they're willing to park the money in financial assets then it doesn't bid up consumer prices but once they lose confidence in the dollar then they lose confidence in all dollar-denominated assets and now they want out and now all that money is going to come rushing back to the u.s bidding up the price of whatever's not nailed down thanks for watching until the end of the video the third and final segment of this interview will go live on monday august 3rd it's an exciting conclusion in which peter schiff and jim rickards debate inflation versus deflation you definitely don't want to miss it so tune into monday you

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Keywords: gold, silver, finance, news, investing, investing news, finance news, financial news, economy, precious metals, gold price, silver price, gold price today, jim rickards, peter schiff, jim rickards kitco, jim rickards currency wars, james g. rickards (author), federal reserve, jim rickards dollar collapse, jim rickards gold, monetary policy, fed meeting, jerome powell, gold price forecast, us dollar, peter schiff podcast, jim rickards and peter schiff, schiff rickards debate

Id: zSzaz-OjxdI

Length: 9min 15sec (555 seconds)

Published: Fri Jul 31 2020