Crypto-Skeptics Turn to Gold as “Mother of All Debt Bombs” Looms

Turkish-American economist Nouriel Roubini and Bitcoin critic Peter Schiff believe that a weaker dollar will allow gold to thrive in 2023, as central banks are backed into a corner through high global debt levels.

Contrary to the widespread consensus that predicts a shallow recession in 2023, accompanied by rising equity prices and falling bond yields, Turkish-American economist Nouriel Roubini expects inflation to persist alongside an economic slowdown.

Central Banks Trapped by High Levels of Global Debt

Roubini says that the economic slowdown caused by repercussions of Covid-19 shutdowns, the impact of the Ukraine-Russia war on oil and natural gas prices, and China’s zero Covid policy have all contributed to rising inflation. These three factors weakened supply, even as demand increased.

“The combination of all of these things leads to a rising cost of production and a contraction of economic activity. That’s what we call a recession,” the economist asserted in a recent Kitco NEWS interview.

Despite efforts by central banks to curb inflation, Roubini argues that rising interest rates will cause an economic crisis unless the amount of global debt is reduced.

“So we’re entering recession by tightening monetary and credit policy, making the recession worse, while raising the debt servicing ratios of the private and public sector with higher interest rates,” he warned.

Gold bug and Bitcoin critic Peter Schiff agrees.

“Eventually, interest is the only thing you’re going to be spending money on,” Schiff told the Epoch Times in a recent interview. Schiff also points out rising rates have done nothing to nudge consumers towards saving more and spending less.

Real estate consultant Nick Gerli confirms that the savings rate of Americans has dropped to its lowest levels since 2006-2007, just before the 2008 financial crisis.

An anonymous source told Reuters that Wall Street investment bank Goldman Sachs would reduce its headcount on Jan. 11, 2023, as income from investment banking fell $15.3 billion in Q4 2022 compared to a year earlier. Analysts expect JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo to report a 1.7% profit decline from Q4 2022 on Jan. 13, 2022.

In addition, analysts expect the big four to hoard $5.7 billion in preparation for loan defaults in 2023.

Gold Will Appreciate Amid Weakening Dollar in 2023

Schiff and Roubini agree that gold will be the silver lining for a bleak 2023 outlook.

According to Roubini, gold didn’t perform well in 2022 because the dollar was strong. Amid a weakening dollar, he predicts that gold will appreciate by high single-digit or low-double-digit percentages over the next decade. 

Schiff agreed, saying, “I think 2023 could be one of the weakest years for the dollar.” He also predicted that those who invested in Bitcoin instead of gold during recent inflationary highs will “lose a lot of money in 2023.” He says that Bitcoin has a price, despite having “no value,” and people will soon “wise up” to this reality.

While many argue the merits of Bitcoin as an inflation hedge, Schiff says that most Bitcoiners expect the cryptocurrency’s value to rise dramatically rather than preserve wealth, which is not an accurate measure of a hedge’s merit. He noted that gold is up 11% in the first four trading days of the year.

While he’s not on the gold side of the fence, Black Swan author Nicholas Nassim Taleb argues that low-interest rates drive asset bubbles like Bitcoin, which he called a “malignant tumor.” Taleb once favored Bitcoin after disagreeing with Fed chair Ben Bernanke’s “transitory” response to the 2008 financial crisis.

Despite the doom and gloom, MicroStrategy Executive Chairman, who invested the software company’s excess cash into Bitcoin in 2020 to protect shareholders against the Federal Reserve’s then-loose monetary policy, recently reiterated his faith in the asset.