Top Economist Warns the Dollar's Days Are Numbered as Crisis Nears

Source: Coindoo Original Title: Top Economist Warns the Dollar’s Days Are Numbered as Crisis Nears Original Link:

Peter Schiff closed his 2025 recap with a stark warning: the U.S. dollar is entering the most dangerous phase of its decline, and most investors are completely misreading what comes next.

While markets continue to price in a soft landing and contained inflation, Schiff believes the U.S. economy is heading toward a crisis defined by weak growth, persistent inflation, and a loss of confidence in dollar-based assets.

Key Takeaways

• Schiff expects economic weakness and persistent inflation to coexist in 2026
• Tariffs and a weaker dollar are shifting costs directly onto U.S. consumers
• Rising debt and bond market stress may force aggressive Fed intervention
• Central banks are increasingly replacing Treasuries with gold as a reserve asset

A Weak Economy Does Not Mean Low Inflation

One of Schiff’s core arguments is that investors are relying on outdated assumptions. Many believe that a weakening economy automatically leads to lower inflation. Schiff strongly disagrees.

In his view, the U.S. is entering a rare and dangerous combination: economic slowdown alongside rising inflation. He argues that both sides of the market are positioned incorrectly. Investors who expect economic weakness are buying bonds, assuming inflation will fall. Those who expect economic resilience are buying growth stocks, assuming inflation will remain manageable.

Schiff believes both camps will be disappointed. Inflation, he argues, is not contained, and the slowdown in economic activity will not be enough to offset rising costs driven by currency weakness, tariffs, and years of monetary expansion.

Tariffs, Currency Weakness, and a False Narrative

Schiff spends significant time dismantling the idea that tariffs are enriching the U.S. economy. He points to the dollar’s performance against the Chinese yuan as evidence. The dollar finished the year near its lows against the yuan, down roughly 5% on the year.

If China were absorbing U.S. tariffs, Schiff argues, its currency should have weakened sharply. Instead, the opposite happened. This, in his view, proves that U.S. consumers are paying the tariffs directly, while also absorbing additional costs through a weaker dollar.

He notes that U.S. imports from China have fallen sharply, not because China is losing, but because American consumers can no longer afford higher prices. Meanwhile, China has successfully redirected exports to other countries, keeping overall export volumes strong.

Schiff expects these pressures to increasingly show up in inflation data throughout 2026 as exporters fully adjust pricing structures and delayed tariff effects reach consumers.

The Federal Reserve Is Trapped

According to Schiff, the Federal Reserve is facing an impossible policy dilemma. Despite multiple rate cuts, long-term Treasury yields remain elevated, with the 10-year yield still above 4% and the 30-year hovering near 5%.

Schiff interprets this as a sign that the bond market is no longer responding to conventional monetary easing. Investors are demanding higher yields to compensate for inflation risk and fiscal instability.

As the U.S. national debt approaches and then surpasses $40 trillion in 2026, Schiff believes pressure will mount on the Fed to expand quantitative easing, not only in size but also in duration, targeting longer-dated maturities in an attempt to suppress yields.

He warns that such actions would further undermine confidence in the dollar rather than restore it.

Central Banks Are Voting Against the Dollar

One of the most important trends Schiff highlights is the behavior of global central banks. Faced with rising debt levels and persistent inflation risks, central banks are steadily reducing exposure to U.S. Treasuries and increasing allocations to gold.

Schiff argues this shift is structural, not cyclical. Central banks that were not previously active buyers of gold are beginning to enter the market, while those already buying are accelerating purchases. In his view, gold is increasingly replacing Treasuries as the preferred reserve asset.

This trend, Schiff believes, will continue well into the next decade and marks the beginning of the end of the dollar’s dominance as the world’s reserve currency.

2026: A Year of Crisis and Capital Rotation

Looking ahead, Schiff expects 2026 to be a year of broad disappointment. Investors expecting a strong economy will be wrong. Investors expecting falling inflation will also be wrong. Political pressure will intensify ahead of midterm elections, increasing demands for rate cuts and monetary stimulus despite rising inflation.

Schiff believes this environment will drive capital out of U.S. dollars, Treasuries, and overvalued U.S. equities, and into real assets and foreign markets. Gold and silver stand to benefit the most, followed by energy and select emerging markets.

In his framework, gold is not merely rising alongside the dollar’s decline – it is actively replacing it as a store of confidence. Silver, having joined the precious metals rally later, could amplify those gains as investors seek alternatives to fiat currencies.