The U.S. economy has plenty of problems, but China’s devaluation of its currency isn’t one of them, Peter Schiff, CEO of Euro Pacific Capital, told Newsmax TV.
However, the impending collapse of the US dollar should be getting all of the attention of investors, he warned Newsmax Prime.
China rattled global financial markets Tuesday by devaluing its currency — an effort, in part, to revive economic growth. The yuan's value declined 1.9 percent, its biggest one-day drop in a decade. The move could help Chinese companies by making their products less expensive in global markets. U.S. stocks plummeted, partly on fears about a worsening economic slowdown in China.
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China doesn't let its currency trade freely in financial markets as the United States does. Instead, it links the yuan's value to the U.S. dollar. Then it restricts trading to a band 2 percent above or below a daily target set by the People's Bank of China. On Tuesday, the central bank set the target 1.9 percent below Monday's level — the biggest one-day change in a decade. It also made a technical change to give market forces more influence in determining the yuan's value: Its daily target will now be based on the previous day's closing value.
But Schiff said investors should be worried about the U.S., not China.
“China's economy is not failing and this is a small devaluation, 2 percent. The Chinese currency has increased in value dramatically over the past several years along with the US dollar. So this move was motivated not by the exchange rate between the yuan and the dollar, but between the yuan and all the other currencies because the dollars is in a bubble right now,” he said.
“The dollar is very over valued … and the dollar is a bubble,” he told Newsmax Prime. “This dollar bubble is going to burst,” he said.
“Our economy is in much worse shape than the Chinese economy. The Fed is going to be forced to admit this. They're not going to be raising interest rates, they're going to be doing QE4," he said, referring to a fourth round of quantitative easing.
"That's going to sink the dollar and then the Chinese are going to have to revalue their currency much higher in the future against the dollar and it's the dollar collapsing that's going to hurt the US. Not this recent move by China,” he said.
Schiff said the dollar has been propped up based on hope, based on hype, based on speculation.
“We have an enormous trade deficit with China. Obviously the Chinese economy is better than ours. They produce all the things that we can't produce. All the goods that Americans want to consume, they're made in China. We don't make anything the Chinese want to consume,” he said..
“Their economy is far more powerful, far more dynamic than the American economy. That's why we have these big deficits. But people believe in the myth of this US economy, they believe that this bubble is genuine, they made the same mistake in the late 1990s, they made the same mistake right before the financial crisis of 2008. They're making a mistake again,” he said.
“We're on the verge of a much worse financial crisis than the one we went through in 2008 and it's going to take the form of a currency crisis. You're talking about currency wars. American is going to win the currency war, which is a race to the bottom, and you don't want to win a currency war because a currency war is different from most wars in that the object is to kill yourself and unfortunately, we're going to succeed.”
(The Associated Press contributed to this report).
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