Peter Schiff recently appeared on RT to talk about rising oil prices, how they relate to inflation and what it could mean for the US economy.
President Trump has been pushing to limit Iranian oil exports as much as possible. Peter said the president needs to get his priorities straight. On the one hand, Trump has complained about the Federal Reserve raising interest rates. But one of the main reasons the Fed has given for the “Powell Pause” is that low oil prices have kept inflationary pressures low. Meanwhile, oil prices have risen some 40% since the last time the central bank nudged rates up.
“If prices keep rising, they may run out of excuses.”
Peter said putting the squeeze on Iranian oil will help other producers such as Saudi Arabia, but ultimately the US economy will suffer.
“Americans are going to be paying higher prices for their oil. It’s also going to affect the reported rates of inflation because you’ve got prices in headline CPI. You look at the retail sales numbers we just got and the strongest part of it was gasoline because consumers are paying higher prices for gas. Gas prices are going to continue to rise. In fact, if we rise by one more dollar, oil prices will be higher than all but one of the last Fed rate hikes. And in fact, we don’t have much further to go from here for the price of oil to be higher than it was every single time the Fed had raised rates in the past. So, this is going to add additional downward pressure to the US economy while putting upward pressure on the measured rates of inflation, and maybe putting more pressure on the Fed to raise interest rates, which is the last thing Trump wants the Fed to do.”
Peter also said that US policy toward Iran could anger the rest of the world. Other countries don’t like the US telling them whom they can do business with and whom they can’t.
“The only reason the US wields this power is because the dollar is the reserve currency and we threaten to cut off access to US dollars in the banking system if other countries don’t do what we say. But these other countries have less motivation to continue this standard.”
Countries like Russia and China have been seeking to minimize their exposure to the US dollar by buying gold. And the EU has even taken steps to minimize the ability of the US to use the dollar as a foreign policy weapon. In September 2018, the EU announced plans to develop a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.
Peter pointed out that one of the things that give the US dollar value is the fact that oil exporting nations price crude in dollars.
“To the extent that we piss them off and they start pricing oil in another currency, or pricing it in gold or something like that, it further weakens the demand for the dollar. And this is coming at a time when we are more dependent than ever on the rest of the world. We are running larger budget deficits than ever in our history. We are running larger trade deficits than ever in our history. And we’re not even in a recession yet, at least technically. So, during this next recession, we are going to be off the charts in the amount of money we’re borrowing from the rest of the world and therefore more dependent than ever on their charity. And this is not a time to be poking that hornet’s nest by reminding them of how much power they’re giving us by agreeing to accept the dollar as a reserve currency and agreeing to price oil in dollars.”
Peter said Trump will make excuses about why the price of oil is going up to deflect blame. In fact, prices are going up anyway. The restrictions on Iranian imports will just exacerbate that. But Peter said the real problems will start when the dollar finally starts heading lower.
“The only thing that was propping up the US dollar over the last several years was the false belief that the Fed was going to be able to normalize interest rates and shrink their balance sheet. Well, the Fed has now admitted they’re not going to do either. So, all of the props that were underlying the dollar have been knocked out, yet the dollar is still up there. It hasn’t collapsed yet. But I think it will when the market recognizes the significance of what happened. And that just going to add more upward to an oil market that’s already going up.”
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