Peter Schiff: The Fed’s ‘Help’ Is Actually Hurting
The Federal Reserve is injecting trillions of dollars of monetary stimulus into the financial system to ‘help’ the economy through the coronavirus pandemic. This is the same kind of ‘help’ the central bank offered in 2008. But as Peter Schiff explains in his latest podcast, this kind of ‘help’ is actually hurting. In fact, the ‘help’ we got in 2008 set us up for the crisis we’re entering today.
When the Fed cut interest rates to zero in December 2008, most of the mainstream pundits insisted that it was temporary. Former Federal Reserve governor Wayne Angell was on CNBC that day insisting that “the Fed is taking the action that it needs to take” and “Bernanke will not be a Greenspan who will leave the ease on too long.”
When the Fed launched quantitative easing, Federal Reserve Chairman Ben Bernanke himself swore that the central bank had an exit strategy. He told Congress the difference between debt monetization and the Fed’s policy was that the central bank was not providing a permanent source of financing. He said the Treasurys would only remain on the Fed’s balance sheet temporarily. He assured Congress that once the crisis was over, the Federal Reserve would sell the bonds it bought during the emergency.
But there was no exit strategy.
Peter said on his podcast that he was worried at the time that the Fed was going down a road from which there was no coming back.
These guys are like, ‘Don’t worry. This is temporary.’ It’s 12 years later. We’re at zero again. We’re doing QE infinity. How was it temporary? … What I was saying back then is if the Federal Reserve can’t raise rates now, how are they going to do it later once they make sure everybody has more debt. That is the problem. You can’t get everybody addicted to a drug and then think you can just take away the drug. “
The Federal Reserve did try to normalize rates. It did try to shrink its balance sheet. It went about the task in earnest in 2018, a decade after “the ease” started. The result was a crashing stock market that made the Fed quickly reverse course.
We were on the path back to zero even before coronavirus.
Fast forward to today. As Peter put it, Bernanke looks like Paul Volker compared to what Jerome Powell is doing today.
This is so off the charts reckless, but it all got started back then.”
The Dow Jones finished up March down another 410 points, wrapping up its worst quarter in history. This despite all of the stimulus money thrown at it by the Fed.
Imagine where the US stock market would be right now had the Fed not done anything. Had the Fed not tried its best to save the market, where would the market be?”
But the Fed’s help is actually hurting.
That’s the problem. They’ve ‘helped’ so much in the past; that’s why we’re hurting so much now. They need to let the market go down. It’s because they didn’t let it go down more the last time, and the time before that, and the time before that that we’re in so much trouble.”
The amount of stimulus the Fed has thrown at the market in a very short amount of time dwarfs by an order of magnitude what happened in 2008. Coronavirus has obviously complicated the situation, but as Peter has said repeatedly, the pandemic was just the pin. The bubble was going to pop at some point anyway. And Peter has been saying all along that QE 4 would dwarf QE 1, 2 and 3.
Because I understood and recognized how big the bubble was. Because the bigger the bubble, the bigger the pop. And then the more air it takes to try to blow it back up again. So, I knew the next time they tried it they would have to throw the kitchen sink, that it would have to be the biggest round of QE yet. And you know, they’ve surpassed my expectations with this QE infinity.”
Peter said it looks like it’s full speed ahead now to hyperinflation city.
And that’s the worst possible outcome for the economy and the markets.”
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