Peter Schiff: The Fed Between a Rock and a Hard Place


The markets seem to think the Fed is going to fight inflation. They believe that the central bank will pivot to tighter monetary policy sooner than expected as inflation heats up, even though Jerome Powell keeps insisting inflation isn’t really a problem. It couldn’t fight inflation even if it wanted to. Doing so would kill the economy.

The only other choice is to surrender to inflation. Late last week, Jerome Powell sat down for a televised interview with the Wall Street Journal. As Peter has been saying, the increase in interest rates has little to do with economic growth and everything to do with inflation. Although he didn’t come right out and say it, Powell implied that that market is wrong.

The Fed chair insists he does not think inflation is a threat. In fact, Peter said if you listen closely to what Powell said, it’s clear he still thinks the real problem is a lack of inflation. Powell admits that he thinks there will be a sharp jump in consumer prices around the middle of the year. So, in Powell’s mind, this isn’t a fair comparison.

Yes, it looks like there’s an inflation problem, but he’s going to look past that problem to a normalization. «Powell is looking back over the past 10 or 20 years and thinking that because we haven’t had high inflation in the past, we won’t have high inflation in the future. He’s reasoning that since we did QE1, QE2, and QE3 during the Great Recession with no inflation problem, we can do it again. » Peter said he thinks Powell’s apparent lack of concern is scaring the bond market even more because it realizes that if the central bank doesn’t act soon, the inflation fire will get bigger and it will take even more water to put it out.

But Peter said the bond markets actually understood the truth, it would scare the bejesus out of them — the truth that the Fed isn’t going to fight inflation at all. It can’t fight inflation because inflation will win. Because fighting inflation, as far as the Fed is concerned, the cure to inflation is worse than the disease of inflation. «But Powell can’t say that.

He can’t admit he’s not going to raise rates no matter how high inflation rises. The US economy was in much better shape structurally back then than it is now. » The Fed appears set to ignore the inflation and focus on the unemployment. «The cure — tighter monetary policy and rising interest rates — would kill us in an economy built on piles of debt.

The Fed has the tools to deal with higher inflation, but it won’t use them because it will destroy the phony economy it has built. They have to basically put a bullet in the head of the economy. So, they don’t have a tool that they’re willing to use to deal with an unexpected outburst of inflation». If the Fed lets inflation get to 6 or 8% before it realizes it wasn’t transitory, it’s too late.

So, the whole economy is a gigantic credit bubble completely dependent on artificially low interest rates, and the whole thing would be destroyed if the Fed had to raise interest rates to fight inflation, which means they won’t raise interest rates to fight inflation, which means inflation is going to win and it is going to destroy the savings of Americans. «But traders still seem to think the Fed has inflation under control. If they understood that the Fed has no control over inflation, that all they can do is lie and pretend that it doesn’t exist, that we’re never going to have positive real interest rates, that they’re going to be negative as far as the eye can see, if the markets knew the truth, then gold would be going up.»

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Source: Peter Schiff | SchiffGold

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