Peter Schiff: Weak economic data, market volatility, China

Peter Schiff begins his latest economic video blog, broadcast on July the 1st, by discussing the recent market volatility in China, before returning to the latest US economic data; this shows the biggest drop in house building for 40 years and the lowest numbers of Americans planning to buy cars, for many years, with both sets of news reflecting AEP’s latest Cassandrine piece in The Daily Telegraph.

Schiff thinks it is interesting that these two major market drops are precisely in those two areas that the American government has recently tried to ‘stimulate’, with the ‘Cash for Clunkers’ programme and all of the help for those struggling to make their McMansion house payments.

With jumps in unemployment claims and a weak US stock market, Schiff then discusses the bullish bond market, which he thinks should be worried in the longer term about the secondary effect of a weak stock market, which is an inflationary stimulus response from the US government which will be bearish for bonds.

Before he gets back to the topic of China, Schiff also discusses a large recent one-day drop of $50 in the price of gold, which he reckons provides a great buying opportunity in the ten-year gold bull market. This drop, he thinks, was caused by a strengthening Euro with European investors formerly buying gold for an inflation hedge switching back to the Euro in the face of several austerity programmes announced by European governments.

But the Dollar is gradually moving towards a collapse, Schiff thinks, which will cause the Dollar price of gold to shoot up, when the Chinese eventually remove the entire Renminbi Dollar peg.

The Chinese government prefers the status quo of propping up the Dollar, says Schiff, but they will be forced to gradually loosen their ties with the Dollar market because of increasing problems at home.

In China, several provinces have recently increased their minimum wages by 30% to cope with the rocketing price inflation caused by the Dollar peg and the resultant price protests. When the Chinese government bows to the inevitable and completely removes the peg, the Renminbi will appreciate significantly and the Chinese people will finally become able to consume their own production.

Schiff reckons that to avoid the resultant Dollar collapse, Obama will make the Keynesian mistake of burning the US economy to a cinder in further rounds of stimulus and inflation, thereby killing the US bond market and stoking up the gold market.