TDI Podcast: Schiff’s Debt Reckoning (#980)

26:17Yeah, I mean, it's really breaking down. They need to really support it. But what they need to do to support it is not just intervention. They need to cut government spending. They need to do something about this ticking time bomb. They have a 250 % debt to GDP. They're running budget deficits right now of 4.5 % of GDP. They need to stop. At a minimum, they need to balance their budget. They need to stop adding to the problem. and what they should do is unload a bunch of treasuries and buy back some of their own debt so that they can reduce the debt outstanding. But they've been somewhere between, I would say, the U.S.

27:00and China in this one regard, in that for many, many years, we've been very critical of other countries, their governments getting involved in their markets, in the capital markets, capital structure, and in the intervention areas of the markets. You know, it would be like, oh, the U.S. will never do that, right? Do you remember the time that one of the Treasury secretaries walked around with the envelope in his jacket pocket that who was going to be considered a currency manipulator and pull it out at any given time? Remember that whole thing? Remember that? There's the stupidest thing ever, like, we have it right here.

27:31If we need to call you a person, and then what? All right, then we put some sanctions on you, et cetera. But these days, you know, clearly China, who has been involved in their capital markets, capital structure, involved in state-owned enterprises, right, which we always say was like, oh, my God, that's awful. Can't do that. It's so much, you know, it's a terrible thing. And then the foreign currency game that, wink, wink, the Japanese government plays, we're doing the same thing now, aren't we? Currency manipulation. Currency manipulation and state-owned enterprises now. Yeah, well, yes. I mean, under Trump, the U.S.

28:11government is getting involved in taking stakes in companies. It has taken stakes in some companies. It is contemplating taking stakes in other companies. And the government is trying to micromanage the economy, centrally plan the economy, pick winners and losers. That's one of the things that – and there are a number of things I have faulted Trump for. He's done a lot of bad things since returning to office. But that's one of them. And, you know, he pushed a lot of capital into the crypto industry. And that was wrong. And, of course, you know, a lot of that investment is going to be lost. It's blowing up right now.

28:50If it wasn't for Trump, there wouldn't be nearly as much money being lost in crypto. I saw some numbers, by the way. Because the Trump administration misdirected a lot of capital into that industry. I saw like a number of like$600 million of capital has been just evaporated in deals that he put together. Some crazy number. Oh, just his own deals. Yeah. Yeah. Well, look at his Donald Trump media stocks at a new low. They didn't, they didn't, no, no. His coins have gone to zero, you know, Trump coin, Melania coin. But I'm not saying that he lost money. Well, no, no, investors. Yeah, he made money.

29:25He cashed out. Yeah, yeah, yeah. Yeah, exactly. Exactly. So talking about this, though, and talking about where Bitcoin, because I know you've been a bit of a skeptic, which, by the way, I want to get into in a deeper manner. But I want to go back to gold for a second first, because I know you've been a big advocate of gold and really pressing that button pretty hard for a long period of time. And also we talked last time about silver. And you talked, I think, about the spread between silver and gold. We talked about that a bit. Where are we now? Well, I don't remember where it was when we spoke last, but I know silver was at about 100 to 1 with gold.

30:05And gold had been rising for a year or two, and silver basically traded sideways. And then all of a sudden, last year, towards the end of the year, silver broke out, and then it went up to 120. Right. And now it's back down to just below 60. So it's been cut in half. But it's still above the double top from 1980 and 2011. So silver's had a major breakout despite this big pullback from that overbought condition. And a lot of this has been driven recently, again, by the perception, the false perception, that Kevin Warsh is this tough, Volcker-esque inflation fighter who's going to do whatever it takes and get aggressive.

30:55And if that were the case, I don't think Trump would have picked number one. Right. But I don't believe it. No question about that. That's clear. But, I mean, he does have some pretty compelling items in front of him right now, especially the general fact that in five years we haven't seen inflation under the 2%, that crazy number that they picked, the 2 % number that they picked to be the number that is their preferred level. Yeah. And, you know, I prefer to have no inflation or to have prices coming down. That would be better than have prices going up. But the Fed has determined that the cost of living should go up every year.

31:38And it actually goes up by a lot more than 2 % because the way they measure it is, you know, they underestimate the increases. So to get 2 % officially, you've got 4 % or 5 % unofficially, which is a pretty big increase every year in the cost of living. But there's a reason that inflation has been so high. And those reasons aren't going away. In fact, they're bigger than ever. So I think that inflation is going to continue to accelerate throughout the Trump term. And I don't think the Fed is going to be able to do anything about it. I mean, they could, but they won't, because what they would have to do would be unacceptable politically, and I don't think they'd be able to get away with it.

32:25The other problem we have is not only would it be unacceptable politically, but the cost factors involved, if we do, in fact, raise rates to a point that we really do finally, once and for all, extinguish inflation, be done with it. The fact of the matter is it would cost so much money in the debt servicing that we would have to do for new debt that we would issue that it would be cost prohibitive. Yeah. I mean, interest year over year from May, the net interest expense was up 44%. We were spending, if you annualize May,$1.6 trillion in interest on the national debt. That was the entire federal budget as late as 1997.

33:05Amazing. And now that's just interest on the debt. And the number is growing every month. So as soon as it's going to be$2 trillion a year, this is enormous. And the higher interest rates go to fight inflation, the bigger our bill is when it comes to paying interest on the debt. But also, if the Fed were to really raise rates, it could easily not only cause a recession, but a financial crisis. And that would also blow out the debt. So the annual budget deficits that are now around$3 trillion could balloon to$5 trillion. That's where the pain starts. And the other big problem is in any given year, at least$10 trillion of our$40 trillion debt matures.

34:03And that means we have to borrow the$10 trillion all over again. So this is a big deal because what if we can't borrow it? What if the lenders want very high interest rates to loan us the money? So we're in a really precarious situation as a nation. But meanwhile, everybody is bullish can be and doing, you know, buying the speculative assets. SPACs are coming back, I heard just recently, this new thing. IPO is obviously raising$75 billion of companies that's, you know, questionably making money, spending all sorts of money. And then all the price increases that we're seeing on all the things related to compute.

34:43I mean, I could tell you a story that I was buying a computer two weeks ago, three weeks ago, and we got the pricing and I saw it. And I said, wait a minute, wait, wait, wait. How is it$5 ,700 for a desktop in my office? $5 ,700. It's not like I'm doing anything amazing in there. Yeah, look, computers, which used to get cheaper, are now getting more expensive. Look, Apple just announced big price increases because of the increase in the cost of memory. Yep. Big increases. Xbox is increasing. Dell is increasing their price by 28 % across the board. Something's going to break with all these high prices on these memory chips.

35:19I mean, it is pretty absurd. And that goes into your basic discussion also that, you know, the way that we have debased is creating inflation in a different way, and it's just pushing on all areas. So what's your – I want to talk about Bitcoin in a second because I do want to get your updated discussion on. But where are you seeing opportunities now as a firm? Well, I think there's a great opportunity to buy this pullback in the metals and the mining stocks in particular. Also, I think the sell-off in oil is temporary, so you got an opportunity in energy stocks. And I think emerging markets, XAI, X, the big – because the emerging markets have done very well only because of the AI stocks.

36:05But if you take those stocks out and just look at the value side of the market, there's a lot of cheap stocks. And ultimately, the main beneficiaries of AI may not be the AI companies, these hyperscalers who are spending so much money to be able to provide the AI. Because we have no idea if they'll ever be able to recoup enough income to even make these investments profitable. We really don't know how this is going to play out. Ultimately, providing AI may be a low-cost commodity. There may be a lot of companies out there that offer AI. And it may not be at a high enough price to make all these investments profitable for the companies that made them.

36:56But the main beneficiaries may end up being the customers of the AI companies that are able to buy access to the AI and use it to improve their profitability. Exactly. To be more efficient, to be more productive, to produce more output with less input, to cut down on their overhead, to cut down on their payroll. and so those are the maybe these big companies that are spending hundreds of billions of dollars whatever they're spending i mean on on buying all this equipment and building out these data centers whether these investments are ever going to be profitable remains to be seen and not to mention that if you look at the valuations being assigned to them yeah it's crazy well the other thing is that there's a definite lifespan or life cycle for all these particular goods.

37:48And then we see how the curve of technology increases over time and the depreciation of that particular equipment and where that's going. There's just all sorts of things you have to wonder about spending this money that goes into that. One of the things that's interesting, we saw technology a number of years ago and the whole idea about Bitcoin. I want to get into this with you for a second because I know you've been a Bitcoin, what would we call it? Skeptic is putting it mildly. I'm probably the most well-known Bitcoin critic in the world. Yeah. You hate it. You don't like it. So I want to push on the Bitcoin for a second because for years I've said, Peter, that, you know what?

38:29You want to play Bitcoin as a speculative investment? Have a nice time. I literally have no problem with this, right? But the other things, the idea that it is a store of value, the idea that it is a potential alternative currency, or even inside of that, a transactional vehicle that maybe is this or that. Blockchain is one thing, put that aside. But the one thing that was always there that kind of kept just a little bit of, hmm, for me was the scarcity factor, right? You know, only a certain number of coins will be minted, dug up, mined, whatever you want to call it. And there was this fixed supply that was out there.

39:15I've kind of recently given up on that. Not that I was a big proponent of it, but that was the last thread that I'm like, okay, I'll go along with that for a minute, as opposed to just the speculative side. And it seems like that has absolutely zero benefit. And it's just a fabricated dream of the Bitcoiners that just love the idea of this Bitcoin independent non-currency, whatever the hell it is, right? Yeah. Yeah. I mean, like, it never made it as a currency. It was never really used as a currency. They reinvented it as digital gold, except that's a fraud because it's not digital gold. It's digital nothing.

39:57Digital gold is tokenized gold. They have digital gold because it's real gold in a digital form. But Bitcoin is nothing. When you own Bitcoin, you don't have any rights to redeem it in actual gold. It's just a token, a digital token. And there are tens of thousands of digital tokens. You don't have to buy Bitcoin, all sorts of tokens you could buy if that's what you want to do. But the only reason that people buy them is to sell them. And they only buy them because they believe that they'll sell them to somebody at a higher price. So it's all based on the greater fool theory. The whole thing is collapsing.

40:33I mean, Bitcoin right now, as we speak, is just about$59 ,000 a coin or token. That's lower than it was in April of 2021. That's more than five years. and we're, you know, despite all the ETFs that didn't exist five years ago, all the crypto treasury companies that have been buying up Bitcoin that didn't exist five years ago, despite having a crypto president, a crypto cabinet, and Trump making America the Bitcoin capital of the world, Bitcoin is lower now than it was then. In terms of gold, Bitcoin is 60 % below its peak from November of 2021, 60 % down. And that's even with gold, 28 % down from its high.

41:19Bitcoin is still down 60 % against gold. So the whole thing is falling apart. Micro strategy is collapsing. The stock is down now about 85 % from its peak, down about 40%, 45 % in the last few weeks. is flagship preferred stock. Oh, yeah. What is that? In the last couple of weeks, it's down 25%. It was at 100. Now it's at 75. So let me interrupt you for a second here because I want to talk about Michael Saylor for a second. He is the Piper of Bitcoin, right? This is the guy who back in, I have personal experience with him. When I say personal, I owned MicroStrategy back in 2000 when the first time there was a class action lawsuit because on my birthday, I don't know if you remember this, it was my birthday and I was somewhere, I think it was on a Friday on a golf course, and I looked at something, this is way back, and I called my office and I was like, oh, MicroStrategy split?

42:16They're like, no, it didn't. I'm like, what do you mean it didn't? And now my value was half of what it was. And the reason was that they were taking their earnings, they were taking their, there was two parts of what they do. One was the earnings and one was the future contracts for services. And what they did was they took the five-year contract for services, rolled it all up, and put that into the earnings for this year, which was found to be a fraudulent or bad accounting procedure, as we would know. And there was a class action. I will share with you that the class action was very good. I did get a nice piece back, which is the craziest thing ever.

42:54I think at that time I had a$50 ,000 loss. Think about that. Way back then, it was like a personal loss,$50 ,000. And we got back like, you know, 25 ,000, which for a class action, pretty good, right? But that was my first introduction to Michael Saylor. And now we fast forward. He is a fast-talking, smooth-talking, big-worded gentleman with saying things that – and without regard for risk. Tell me, though. Yeah, look, I pointed this out, and I just read today there's a law firm that's gathering investors for a class action lawsuit. I joked a few days ago that soon Saylor will be trading in his orange tie for an orange jumpsuit.

43:41And I don't know if it's criminal fraud. It's definitely civil. And he definitely violated SEC marketing rules, no question about it. because Stretch in particular, which is really just a Ponzi scheme, dressed up as a preferred, if you read the prospectus, at least the prospectus in the fine print says how risky it is. You lose all your money. But if you look at the way Saylor promoted it in every interview that he had, a podcast on CNBC, on Fox, you look at how he promoted it on his X account. he never talked about the risk. He just talked about how safe it was. Yeah, the safety. How low volatility.

44:27We stripped out all the volatility. It's like a bank account. It's at 100. It's designed to stay at 100. So your principle is safe. It's good for retirees who are risk adverse. It just has high income. You get 11 % income. Complete fraud. And I think that anybody who invested in Stretch based on the misrepresentations made by Saylor on behalf of strategy has a pretty much of an ironclad suit that they get their money back. And, of course, where is strategy going to get the money? Where's the money coming from? It's got to sell Bitcoin. Ah, right. Right. But it's kind of interesting. That's all it's got.

45:17MicroStrategy, the company, not Stretch. MicroStrategy, the company, which is now called Strategy or whatever. No, Stretch is a security. It's part of MicroStrategy. Right, right, right. But I'm saying the company itself, Strategy, MSDR, not the preferred. Who knows what they even do now? They become a leveraged, you know, everybody was. And by the way, all the media was taken by this and was just like, Like, again, a Pied Piper just, okay, we believe this. When he was talking about the idea that, oh, we're going to utilize this as a treasury asset now and get all these other companies to buy it as a treasury asset.

45:52And we use it and we're going to leverage it up. And he had, this reminds me of long-term capital management, right? where someone has some kind of methodology that is almost unknown to anybody else to create this mathematical calculation that is foolproof. That always makes me really nervous. Yeah. That's what it seems like. The whole look, I never really started calling him a fraudster until this digital credit concept was unrolled. And that always struck me as a complete fraud. And but that was what what strategy needed to do to. To to raise more money to keep buying Bitcoin, because that's that is, you know, that was what kept Bitcoin going.

46:43It was all the sailor buying. You know, and and the way he could buy it, he had to basically lie to people to get them to send him money by promising them these safe 11 percent yields. But there is no safe 11 percent yields. Right. And then the only thing that he didn't do in a classic scheme is use the 15 percent number, because I don't know if you remember, every time I've seen 15 percent guaranteed has always been like, oh, that's the number. It's always the number. That was the Madoff number for years. Well, Madoff was about 20, 10 percent. I think he was promising. One percent a month, maybe 12.

47:17So I remember 15 percent for a number of years. It was like everybody's like, hey, should I go with Madoff? Way back, way, way back. I said, you know, I've looked at some of his stuff in some of his statements. And to be honest, I don't really understand how he's doing what he's doing. Because if he, in fact, was doing this covered call option deal, where's all the volume for the options? They're not there. There's nowhere to be found in anywhere that you look volume that would have to be for the billions of dollars that he was utilizing this strategy for. It was the craziest thing. And I said, please don't do this, which comes on the heel of all the other ones that had the 15 % magic number.

47:49But the interesting thing about the sailor Ponzi is he he didn't hide it, at least, you know, his disclosures. Right. Because he was selling he was issuing stretch to pay 11 percent. And he was getting the money to pay it by selling more shares, more stretch. And he's he's disclosed that. So he was taking in money from new investors as a way to pay his existing obligations to the current investors. That is what a posse is, when you have to take money in from new investors to pay your old investors. Because strategy doesn't generate income as a business. it doesn't have a legitimate way to pay the obligation.

48:39So if it has an 11 % payment obligation, it doesn't have any income out of which to make the payments. The only source of funds is by getting new investors to give him the money so he can keep paying the old investor. And leverage. And then the only way he can get those new investors paid is to get even more investors. So of course it was a Ponzi. And of course, because it was a Ponzi, well, you know, is going to collapse because Ponzi's don't work. That's why they're illegal. If this is a Ponzi, I'm not saying it is or not, I don't know. But if it is, it is the most, the Ponzi in the daylight of any Ponzi.

49:17Yes, that's the thing. And just because you tell people it's a Ponzi, it doesn't mean it's not a Ponzi. It just means people are that much dumber for getting into it. But even if he disclosed it was a Ponzi in a prospectus, without calling it a Ponzi, but describing a mechanism that basically is a Ponzi, he still made false representations to a bunch of unsophisticated people and got them to buy it. And they thought that they were putting their money into the equivalent of like a CD, just with a higher yield. And we've seen this with the Bitcoin group a lot. There was two or three other firms that did the same exact thing with the leveraging of the Bitcoin and utilizing the lending and borrowing, giving you 12%, 13%, 14%, 15%.

50:06It's kind of a, was made, it was kind of, this was made for scamsters in a way, in my opinion. I mean, again, I don't mind. I literally don't mind, even with all the discussions we have and all the bad things that you may talk about. I have no problem. I wonder if you do. Do you have a problem of being a speculative instrument on its own? Just the simple thing of, hey, I don't believe in it, whatever, but I could trade it and it's liquid, so I'm going to trade it. You have a problem with that? Look, I don't have a problem with people trading Pokemon cards. You know, people do what they want. And if people want to buy and sell Bitcoin, they can do it.

50:40I mean, I'm not going to stop them. I don't like governments embracing it or encouraging it. I don't like it like being improved, like for collateral for a mortgage to be guaranteed by Fannie or Freddie. You know, it shouldn't be in retirement accounts. You know, so the media, the financial media shouldn't be covering it the way they do because they're legitimizing it. They're giving it more credibility than it deserves. And they're marketing it and promoting it as if it were a suitable investment for a retirement portfolio or your investment portfolio. It's not. These are just highly speculative tokens that have no real intrinsic value, no real use case, and generate no income.

51:33And ultimately, it is a negative or zero-sum game, negative game, because the only way that you can make money on Bitcoin is if you sell it to somebody else at a higher price. That's it. And if you can't do that. Which is back to your greater fools. And what Bitcoin really does, it doesn't create any wealth. it allows wealth to be transferred from the people who buy it to the people who sell it. So if you sell somebody a Bitcoin, you get their wealth and they get stuck with your Bitcoin unless they can pass it off to somebody else. So it's nothing that the government should promote. It shouldn't, you know, I mean, look what Trump, we don't need a strategic Bitcoin reserve.

52:11I mean, come on. Do we need a strategic Beanie Baby reserve? What is the strategic purpose? Well, I would like it because I still have Beanie Babies left over from back in the day. I have like three of them. But yeah, I agree with you. Here's the thing, though. When we look at all that's going on right now and all the things that you're talking about in terms of the potential for debasement of currency or not potential, the debasement of currency and the problems we have. If someone listening says, you know what? That Peter Schiff guy, he's a smart guy. I believe what he's saying. What can they actually do?

52:43Like, what can they functionally do to protect their purchasing power? Like, what would you just like tell me? All right, I'm in. What am I doing? What should I do? Well, obviously you can own gold and silver, right? Look, you know, when I first started talking to people and recommending and selling them silver, it was$4 an ounce and now it's 60. Gold was 300 and now it's 4 ,000. Right. So you can see that gold and silver have done a good job over the longer period of time of preserving your purchasing power. Whereas dollars have not. But I also think that there are good investments around the world, companies that pay good dividends, that I think represent a good way to protect yourself from an inevitable dollar crisis, financial crisis that's more of a sovereign debt and currency crisis.

53:36So I think foreign investments, gold and silver in your portfolio is what you can do to protect you. Now, a lot of people thought, well, I'm going to protect myself with Bitcoin. No, with Bitcoin, you're jumping out of the frying pan into the fire. You haven't protected yourself. You're just exposing yourself to even more risk. So where can people get more information? Tell me how to allow people to get to you. Well, basically, they should listen to my podcast. I mean, I do podcasts once or twice a week, sometimes more. It really depends, but usually once or twice. and they can listen to my podcast at shiftradio.com or if they want to see it, I do them live with video on my YouTube channel.

54:22So you can go to my YouTube channel and subscribe to Peter Schiff. I'll be doing another podcast tomorrow so people can listen to it. Absolutely. Follow me on social media. I've got more than a million and a half followers now on X and I am constantly putting out stuff. I put stuff out as we're talking here. So I'm constantly on X. And so you should follow me there. I mean, I'm hoping to get to two million followers by the end of the year. Wow. And so anybody who follows me now can help and you can encourage your friends to follow me because the information I'm putting out is very important. I mean, there's so much misinformation, so many lies out there that I'm trying to counterbalance.

55:05And so people can help me spread the truth about capitalism, about free markets, about inflation, about the Fed, about the nature of the crisis that's coming, because the government is going to try to blame it on capitalism, just like they blame the 2008 financial crisis. And I want to make sure the public understands that the government is the source of our problems, not the solution. The solution is capitalism and free markets and sound money. That's what we need to get back to. We need to take the power away from the bureaucrats and the central bankers and put it back to the people. And so I'm trying to help get the get those messages out there on my social media.

55:43But I'm also, you know, I'm on Facebook and Instagram and TikTok and, you know, every place there's social media. You'll find my content everywhere. Peter Schiff is everywhere. I like it everywhere. You know, it's interesting. And I'll just I'll close on this that, you know, the big government thesis. I've always been a small government kind of guy, laissez-faire, you know, with the idea that, you know, let capitalism do its thing. It's kind of in the last, I don't even know how many years, but clearly in the last 15 years, that is just not even part of the plan. And it's really a problem. But anyway, Peter Schiff, thank you for joining me.

56:16We're going to put on the show notes for episode, what do I say this was, 980? Yeah, it's up there. Up there, 980. We're going to put that on there. We'll put it on our X account as well. We'll put it all over the place once this comes out. I'll make sure that people find you and all that. And I wish you the best. I hope to see you soon. Feel good. All right. Take care. Thanks. That's going to put a cap on this particular episode. Number seven. No, nine 80, nine 80, 20 more till we get to 1000 doing this back. And this is going to be interesting because our, our anniversary of the company at 40 years and also the, uh, 1000th episode.

56:52And I believe this is going to be 20 years, 20 years of, is that right? Let me think about that. Yeah. 20 years of the TDI podcast running strong since then. That's pretty amazing. Half my career I've been doing this podcast. Think about that for a second. That is wild. You know what? I never really thought, seriously, never thought of that before. Half my career doing podcasting. Wow. I guess I was early on. That's to say the least. Anyway, go over to Instagram. Horowitz and Company is our handle over there. Make sure to follow us there. LinkedIn, everywhere else. Find the podcast. Do yourself, myself, everybody a favor and send it out and tell your friends, your family, your loved ones, people you don't like.

57:36Tell them, hey, you want to get on the road to financial security? You check this guy Horowitz out on The Disciplined Investor. Amazon Music, Spotify, Apple Podcasts, all over the place. Until next week, thanks for joining me. Have a great extended 4th of July. Well, it's over, but I keep on partying anyway. So it's that time of the year where we spend a little time reflecting, getting a little sun, getting a little tan, and having a good time. So make sure you spend some time doing that. Don't be so serious all the time. Thanks so much.

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