It’s the Fed’s Fault!

It’s the Fed’s Fault! from Schiff Gold

Jerome Powell lectured Congress about the national debt last week, calling it unsustainable. The Federal Reserve chairman is concerned. He admitted that with interest rates already close to zero, the central bank has very little room to cut rates in the event of an economic downturn. Peter Schiff appeared on the Claman Countdown, along with Milken Institute economist Bill Lee to talk about Powell’s comments.

Peter said that while Powell is lecturing Congress, it’s really the Fed’s fault.

But of course, whenever the Fed cuts interest rates in the face of a recession, it’s not helping the economy. The recession is what’s helping the economy because the recession is trying to restructure the bubble. The Fed artificially manipulates the economy with cheap money and then when that cheap money results in a recession, the Fed comes to the rescue with more cheap money. But all we’re really doing is creating a bigger problem.”

While Powell expressed worry about the national debt during his congressional testimony, he said the economy is in a good place.

Well, they always say that no matter how precariously the US economy is perched, you can always count on the Fed chairman to say everything is great.”

But Lee said he took a very positive spin from Powell’s testimony. He agreed that the US economy is strong. He said the concerns come from overseas. Lee insisted we don’t really need to worry about rate cuts. Capital is flowing into the US. And of course “there is plenty of quantitative easing we can do between now and then” to bolster liquidity.

President Trump wants to take things even further. He’s continued to call for the Fed to take rates negative. Peter said negative rates Trump is longing for is hurting the European economy and helping to prop up the US economy.

Yes, we are getting some capital moving into the US because it’s fleeing the negative interest rates in the eurozone, and so it’s propping up our asset markets and artificially boosting consumer spending. So, that’s making the US economy look better in the short run. But ultimately, we’re setting ourselves up for a big fall. And remember, don’t put much stock into what Powell says, because a year ago Powell was saying that the Fed was going to keep increasing interest rates and keep shrinking its balance sheet. It’s done the opposite. It’s now cut interest rates three times and the balance sheet is growing faster now than it was when they were officially doing quantitative easing.”

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Lee said the takeaway from Powell’s testimony is that Congress needs to do its job. It needs to help Americans by cutting regulations and creating incentives for private-sector hiring so job growth can continue. Monetary policy has done about all it can.

Peter said Powell is telling Congress the national debt is unsustainable, but fails to acknowledge the Fed’s role in enabling that problem.

How is the Fed chairman going to scold Congress for running big deficits when it’s the Federal Reserve that’s monetizing those deficits and making it all possible? If the Fed really did its job and allowed interest rates to rise, then Congress would have no choice but to cut spending. It’s the Fed that’s enabling all the spending and all the deficits.”

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.