Powell Said A Lot of Foolish Things This Week

Powell Said A Lot of Foolish Things This Week from Schiff Gold

The Federal Reserve held rates steady during the final FOMC meeting of the year, but the messaging turned out to be more dovish than markets anticipated, with the Fed signaling it will not raise rates at all in 2020. Stocks and gold both moved up on the news.

Peter Schiff appeared on Fox Business’ Claman Countdown along with National Alliance Security’s Andy Brenner and former Dallas Fed chief economist Michael Cox to talk about the Federal Reserve. Peter said Fed Chair Jerome Powell said “a lot of foolish things” during the post-meeting press conference.

Brenner kicked off the segment saying that uncertainty about a trade deal is the biggest factor, particularly in pushing bond yields lower.

Cox said the reason we don’t have inflation is because we live in the “knowledge world.” He said the faster the economy grows, the less each producer has to charge. There are high fixed costs and low marginal costs, and that creates deflationary pressure. He also said he thinks the government underestimates GDP growth. That leads to overestimating inflation, underestimating productivity and wage growth, and also underestimating real interest rates.

Claman introduced Peter by reminding the audience he was right when he predicted last December’s rate hike would be the final increase and the Fed would turn to rate-cutting. Now the Fed says it plans to keep rates unchanged in 2020. Peter said he thinks the Fed will cut rates again much sooner than Fed Chair Jerome Powell thinks.

Powell said a lot of foolish things today. It was ironic that he began the press conference by praising Paul Volcker and now he’s going to resurrect the high inflation that Paul Volcker buried. But you know, inflation was never created by economic growth or employment or wages. The Fed created inflation. What’s different now is there’s been a lag between the inflation that the Fed creates and the impact that it has on consumer prices, which year-over-year is still up better than 2%. But a lot of that inflation is in the stock market and the real estate market and the bond market — the lag is what’s longer. But that’s what’s going to change. We are going to be hit with a tsunami of inflation in this country. We’re going to have an inflationary depression. What Powell just said is really rewriting the playbook for central bankers. He said, ‘We’re going to wait until inflation gets really bad before we do anything about it.’ In the past, you wouldn’t want the inflation genie to get out of the bottle. But that’s what Powell’s saying. ‘We’re going to let it out of the bottle.’ Well, you know what? Once it is out of the bottle there is no way to put it back in. We have way too much debt in this country. Can you imagine the Fed if they let the official inflation rate get to three, four, five percent? Having to jack up interest rates to seven, eight, nine percent to fight that inflation, with all the government debt, with all the corporate debt with all the consumer debt? This economy would implode like never before. That’s why gold is going up.”

Cox insisted that real wages are higher than we think they are because the price for a lot of things has fallen. Consider email is free and you get free shipping on Amazon. He said the price level is overstated because a lot of things are left out of the index. He said, “We are understating GDP growth and we are understating real wages.”

So, when will the Fed cut rates? Claman asked. Peter said he can’t predict exactly when.

It’s going to take another drop in the stock market or some more weaker economic data … You mentioned that we had a strong economy. We don’t. We have a bubble economy.  And the only thing keeping the air in the bubble is the Fed. The reason the Fed had to start cutting rates was because last year the air really started to come out of that bubble. So, the Fed had to blow some air back in. So, this is not a strong economy. It has never been a strong economy.”

Claman asked what interest rates should be.

I have no idea. They should be much higher than they are now because we have no savings in this country. We have massive amounts of debt. Obviously, interest rates should be a lot higher to encourage more savings and to cut down on all the borrowing. I don’t know where the real rate is because the Fed has been artificially manipulating them for so long. But this has created massive economic distortion. That’s why we’re headed for a much worse financial crisis than the one we had in 2008. The Fed is powerless to do anything about it at this time because the next crisis going to be centered in the dollar, in the bond market, the sovereign debt market, not just the mortgage market, and, you know, the chickens are going to come home to roost a lot sooner than people think.”

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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.