Watch: Will the US dollar ever crash? | The Crypto Mile
The suspension of the debt ceiling in the US is escalating the risk of a sovereign debt and currency crisis, American stock broker Peter Schiff has warned, adding that “the dollar’s status as a reserve currency is going to be lost”.
On this week’s episode of The Crypto Mile, Yahoo Finance UK spoke with renowned gold bug Peter Schiff to discuss the possibility of the US dollar being knocked off its privileged perch as the world’s reserve currency, and the unprecedented chances of green-back hyperinflation.
“A lot of people think that the dollar (USD=X) status is not in jeopardy, because they don’t see a viable alternative. They are looking at sterling (GBPUSD=X), or the euro (EURUSD=X), or the yen (JPY=X) or the rmb (CNY=X), and they are saying and think those currencies aren’t ready to be the reserve, and I would agree, but, we don’t need another fiat currency to act as a reserve, we need real money, we need gold”, Schiff argued.
In Schiff’s view, the combination of unsustainable national debt and the recently suspended debt ceiling could inevitably push the US into hyperinflation. “If we stay on this road, hyperinflation is a foregone conclusion, an absolute certainty. The only way to avoid this is to get off this road,” he stated.
To tackle the situation effectively, he argued for significant across-the-board spending cuts, “including things that are off the table, we have to cut defense spending.”
Read more: Crypto: Bitcoin and ethereum prices rise after US debt ceiling deal announcement
However, Schiff acknowledged that such cuts alone wouldn’t solve the problem. He believes debt restructuring needs to be addressed, with the US admitting to its creditors that it cannot repay all that it owes, arguing for a “haircut” for everyone, including owners of US Treasuries worldwide, as an alternative to runaway inflation.
“This means we have to tell our creditors honestly that we owe $32tn and we can’t pay this back, the US taxpayer simply doesn’t have the resources to make good on these commitments. We need a restructuring here, where we might not pay back 100 cents on the dollar, maybe 50 cents on the dollar.
“Owners of US treasuries around the world need to experience some pain, along with everyone else, the US voters aren’t going to accept a loss of their social security benefits, when the Chinese are getting all that is owed to them. So everyone is going to have to take a haircut, to avoid a crew cut, which is inflation.
“The alternative is we have runaway inflation and keep printing money, until money has no value, in which case are creditors will be worse off, I would rather get back 50 cents on the dollar, but have the dollar still maintain its value than get back all my dollars and have them lose 90% of their purchasing power, or even more,” Schiff explained.
Read more: EU implements regulations for tracing crypto transactions
In Schiff’s opinion, one of the potential benefits of a collapsing dollar is that it could bring relief to emerging markets. He pointed out that these nations have shouldered much of the burden of supporting the world’s most traded currency, implying that their economies could find room to grow as the US dollar weakens.
Schiff also argued for a shift to gold as a standard, calling it an “honest monetary system” and supports that idea that all currencies should be gold-backed, “creating a level playing field and preventing inflation and budget deficits”.
However, he expressed skepticism that the US could successfully recreate the gold standard given past breaches of trust, citing the ‘Nixon shock’ of 1971, when the dollar’s convertibility to gold was placed on long-term suspension, leading to the current regime based on freely floating fiat currencies.
“I don’t think any one country should issue a reserve,” he stated, adding, “We need an honest monetary system that keeps governments in check… all currencies in the world should be gold-backed.”
Watch: How can AI revitalise the Metaverse?
Download the Yahoo Finance app, available for Apple and Android.
