Oil prices have fallen for six consecutive months, and this trend is likely to continue heading into next year. Lower gas prices have put more money in the pockets of consumers, while also hurting government coffers of nations that rely on oil revenues. In other words, declining oil prices have become quite a mixed bag for various parties.
Peter Schiff, CEO of Euro Pacific Capital, believes declining oil prices is “probably a harbinger of another recession.” Schiff has said this before on many occasions and thinks this trend is just a short-term move and the price of oil will eventually shoot up once again.
Speaking in an interview with NewsMax, Schiff explained that falling gas prices are great for the consuming sector, but they’re bad for the overall economy. With oil prices tumbling to a five-year low, Schiff argued that the cause for this is because markets are expecting a drop in demand as the U.S. and global economy heads into a recession.
Essentially, this move is a negative for oil, the stock market, the housing sector, the bond market and the entire U.S. economy.
“So now that the Fed is winding down QE and threatening to raise rates, a lot of the markets that were lifted on a sea of liquidity are coming down,” Schiff added. “The problem is a lot of money has been borrowed, predicated on the belief that oil would be $80 to $100 a barrel. So if those loans default then a lot of jobs get lost. That’s going to bring about a recession.”
He further explained that a major energy industry has recently been constructed in the U.S. that has been tied to those oil prices. Therefore, the entire industry would be destroyed, which would be a lot more disruptive than the collapse in the dot-come bubble.
Although everyone is talking about the Russian ruble and how it is self-destructing, the real crisis talk should be on the U.S. dollar, says Schiff.
“Right now people are worried about the ruble. That’s just the warmup,” he said. “The main event is going to be the dollar crisis, and when our currency starts to collapse it’s going to be much more problematic.”
In the end, according to Schiff, the Federal Reserve will eventually reignite quantitative easing.
“What’s going to be an even bigger negative is when the Federal Reserve comes back with their monetary guns blazing and they launch QE4,” Schiff averred. “Then the oil price is going to rise to an even higher level than it fell from and that’s going to be very bad for consumers who have to pay a lot more for oil and everything else.”
His tip for investors is to buy gold, invest in foreign stocks, purchase foreign currencies and take advantage of the energy sector right now because “a year from now they’re [oil prices] going to be a lot higher.”
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