‘It’s going to pop’: Major warning to Biden-led America
Joe Biden will inherit a nation grappling with a sovereign debt crisis and a dollar that will “drop through the floor”, leaving other world economies like Australia better off, a prominent US financial broker has predicted.
Speaking to Yahoo Finance, Euro Pacific Capital CEO and global strategist Peter Schiff said the US Government had been driving itself into debt for years, and US asset prices would crash during Joe Biden’s presidency.
“The US economy has been a bubble for many, many years. And they've been passing the baton from administration to administration,” he said.
Also read: What the world’s largest trade deal means for Australia
Also read: 6 promising signs the worst is over for Australia's economy
Also read: The Aussie jobs that will boom under a Biden America
But each passing administration made the debt problem worsen further, including outgoing US President Donald Trump.
Debt under Trump has ballooned to US$26.9 trillion. He added US$6.7 trillion to the country’s debt since Obama’s last budget. At the end of Obama’s presidency in 2017, the debt was US$20.24 trillion, according to The Balance analysis of White House papers.
“For all the talk from President Trump about draining the swamp and making America great again, he did neither. All he did is perpetuate the bubble that he inherited, and it's bigger than ever,” Schiff said.
“But I think it's going to pop. I think the chickens are going to come home to roost under Joe Biden.”
And if they do, we’ll see the US dollar plummet – dramatically. “We're finally going to see the dollar collapsing the way it did during the Bush administration.”
During George W Bush’s time in office, the US dollar fell to an all-time low of 71.30 on 17 March 2008 according to the dollar index during the global financial crisis.
Is this America’s next crisis?
But the next crisis won’t be the same, warned Schiff.
“It's going to be a US dollar and sovereign debt crisis. And so rather than the dollar making a bottom, it's going to drop through the floor.
“So that's going to be a big game changer, not only for the US, but for the rest of the world.”
The US will be plunged into a depression, Schiff believes; and the “world will decouple” from America.
We’ll see a return of the gold standard, according to Schiff, a practice which was ended under US President Nixon.
“I think the world is going to reject the US dollar.”
America has “abused the privilege of issuing the reserve currency,” Schiff added.
“We have created all sorts of global economic imbalances that have caused problems around the world. And so I think when the world finally rejects this and returns to a sound monetary system, it's America that has the most to lose the rest of the world has a lot to gain from that transition.
“I think that you're going to see a real economic boom, outside the United States, again, in particular, in the emerging economies, as we see a bust in the US.”
Australia, other countries to win from plunging US dollar
And if the US dollar falls, other world economies will stand to gain. The value of US asset prices, including stock and real estate, will also come down.
America will import less from other countries, but this will “actually be good news for the rest of the world”, with Americans “liv[ing] beyond their means”.
“I think as Americans consume less, that will free up resources and goods to enable the rest of the world to consume more. So there's going to be losses in the US, but there's going to be winners outside the United States.”
Australian exports sold to the US, while they may decrease in volume, may deliver more bang for buck, he added.
“The good is that [what] Australia does sell to the US they'll get more money for but more importantly, whatever Australia wants to buy from the US will be cheaper. So that will benefit Australians.”
Schiff predicts that Australia will trade less with the US and more with emerging economies, as well as China, as they will be able to bid higher prices for Australian goods.
Peter Schiff and Harry Dent will be facing off at the Great Economic Global Crisis Debate on Friday 20 November. To register, visit here.
Want to make next year your best yet? Join us for an Hour of Power at 10am AEDT Tuesday 24 November to discover 21 ways to make your money work for you in 2021.
Sign up here to our free newsletter and get the latest tips and news straight to your inbox. Follow Yahoo Finance Australia on Facebook, Twitter, Instagram and LinkedIn.
