Going Up: The Fed’s Balance Sheet & Gold (Video)

Peter Schiff began his latest interview with Greg Hunter of USAWatchdog by explaining the history of the United States government’s debt ceiling. Peter argued that the idea of a real debt ceiling is a fantasy, just like the Federal Reserve’s narrative of a broad economic recovery. Greg pointed out that some analysts are predicting a further plunge in the price of gold, but Peter defended the yellow metal by pointing to long-term historical trends.

There will be deflation in terms of gold. If you want to price things in gold, stock prices are coming way down in gold. Real estate prices are coming way down in gold. Consumer prices are coming way down in gold. Commodity prices are coming way down in gold. They’re not going to come way down in dollar bills, because the government can create as many of those as it wants…”

Highlights from the interview:

“It’s not even a debt ceiling, because they raise it whenever we approach it. So it’s not really a ceiling. Interestingly enough, not a lot of people know the origin of the debt ceiling. The reason Congress first enacted one is because shortly after the Federal Reserve was established in 1913, America found itself in World War I. In order to pay for the war, the government wanted to borrow money, and they wanted to borrow money from the Federal Reserve, which was illegal based on the original Federal Reserve charter. The Federal Reserve was not allowed to buy any US Treasuries, so that was a problem. They amended the Federal Reserve Act to enable the Federal Reserve to buy US treasury bonds, so that it would be easier for the government to finance World War I. When Congress did that, they were worried that with access to the Fed, the government would borrow too much money. So they passed the debt ceiling. The debt ceiling was supposed to limit the amount of money the government can borrow, now that it can borrow from the Fed. That was the origin of it. Of course, ever since then, they’ve raised the ceiling. The original Congress was correct to worry about how much debt would be created if the Federal Reserve was allowed to buy it. The mistake they made was enacting a ceiling that future congresses could just raise with impunity, because that is what they’ve done. This phony crisis – it’s not about not raising the ceiling. That’s the solution. The crisis is continually raising it. What we need is some congressmen with some backbone not to raise that debt ceiling…

“Everybody is still brainwashed. They believe the Fed propaganda. The Fed has been talking about how great the recovery is, and how it’s getting ready to raise interest rates. None of that is true. There is no recovery, thanks to the Fed. All there is is a gigantic bubble that has prevented a recovery from taking place. The only reason the Fed is pretending it’s going to raise rates is so it can pretend that the economy is strong enough to withstand that. Basically, the Fed can’t do that…

“At some point, people are going to begin to get the picture that this is not a healthy recovery, but a bubble. There is no endgame. There is no exit strategy. The Federal Reserve has no ability whatsoever to raise rates. It is impossible for the Fed to shrink its balance sheet. The balance sheet is going to go to the sky. It’s going to go to $10 trillion maybe by the end of this decade. Right now, it’s $4.5 trillion. When people perceive that reality, they are going to run from the dollar. The only reason that people have been buying dollar is because they believe the Fed…

“All the [recent economic] data is consistent with recession, not expansion. If the Fed were to raise rates, this would be the first time they’ve actually raise rates into a slowing economy. Normally the Fed would be stimulating with economic numbers this bad. The only numbers that are still holding up are the housing numbers, and they’re going to implode at some point. And the jobs numbers, which have just started to roll over. Of course, the employment numbers are lagging, not leading indicators. What nobody has wanted to acknowledge is that beneath the surface of these 200,000 a month non-farm payroll numbers – it’s all part-time work; it’s temporary work; it’s low-paying, service sector jobs. We’ve had a collapse in the labor force participation rate. That’s why the unemployment rates are so low. You can’t get fired unless you get hired…

“There will be deflation in terms of gold. If you want to price things in gold, stock prices are coming way down in gold. Real estate prices are coming way down in gold. Consumer prices are coming way down in gold. Commodity prices are coming way down in gold. They’re not going to come way down in dollar bills, because the government can create as many of those as it wants…

“[Gold] could go down before it goes up. I don’t know. While we were on a gold standard, you needed $20 to buy an ounce of gold. Then Roosevelt devalued and [then] you needed $35 to buy an ounce of gold. That’s where the price remained until Richard Nixon. Nixon devalued the dollar a couple of times, and I think at the end it was about $42 an ounce before they gave up and said, ‘The dollar is no longer backed by any gold.’ Now gold is $1175 an ounce. There’s an obvious trend there. That trend is up. Gold is not going to stop rising now. Why should it buck that trend? It has been rising ever since 1971, when we left the gold standard, and we’re not back on it yet. In fact, once we left the gold standard, we left all discipline on the growth of government…”

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