(Kitco News) - The U.S. is already in a recession and a global debt crisis makes economic growth mathematically impossible, according to Matthew Piepenburg, partner at Von Greyerz.
"This is as big a moment as 1971," when the U.S. closed the gold window, Piepenburg told Jeremy Szafron, Anchor at Kitco News, adding that the currency crisis is already here.
Traditional economic indicators, such as the unemployment rate, CPI, and core PCE, don't tell the full story, as there is already an underlying weakness in the economy.
Piepenburg highlighted that the global debt crisis is the defining factor in the current global macroeconomic outlook.
"To say that we're not in a hard landing or going towards one is comical. In a world of debt complexity, currency complexity, and precious metal complexity, they're still trying to optimize and come up with ways to get around the hard math of being far too over their skis in debt to have real growth, to have a real way of a soft landing," Piepenburg said.
He added that economists and policymakers focused on optimization but failed to acknowledge the complexities of a debt-laden economy.
"When they sanctioned a major country like Russia in 2020, that's very different than Venezuela, Iran, or even Syria. They went too far. Yet the Biden administration, or whoever was making decisions for him, made that play, and they were thinking myopically - optimizing without thinking of the possibility of them being wrong. This was their Gettysburg moment," he said.
Piepenburg listed several red-flag indicators, including the yield curve inversion and re-inversion, a 13-year peak in business bankruptcies, record-high credit card delinquencies, stagnant manufacturing and retail sales, and weakness in the manufacturing sector and auto sales.
What does Peipenberg believe is the most significant consequence of the current global debt crisis? Watch the video above for insights.
The Federal Reserve, despite claiming to be data-dependent, is ignoring the reality of these indicators. The Fed's recent interest rate cut indicates that the "jig is up" and that the economy cannot handle a "higher for longer" interest rate environment, according to Piepenburg.
Foreign investors are also losing confidence in the U.S. dollar, leading them to sell their U.S. treasury holdings, including China and Japan. Watch the video above for insights.
"This is a movement away from the U. S. dollar. And what does that mean? If there's less love for the U.S. dollar, if there's less love for the U. S. Treasury, demand goes down, the power goes down. And if we have less demand, then we have to debase and inflate," Piepenburg described.
Piepenburg pointed out that the U.S. government is in a precarious position, facing a choice between supporting the bond market or the currency.
"When you're at that debt level, you can't raise rates to kill inflation. Eventually, you're going to have to choose between your bond market and your currency. And to sustain the bond market, you're going to have to debase your currency, which is exactly what we're doing, which is exactly why gold is rising," Piepenburg said.
The choice so far has been to debase the currency to support the bond market, which disproportionately impacts the middle and lower classes, he stressed.
As countries seek alternatives to the U.S. dollar, gold is emerging as a preferred store of value. For Piepenburg's gold outlook, watch the video above.
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