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Peter Schiff Podcast: Fed Doesn’t Care about Real Prosperity

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Janet Yellen and company are still claiming to make so-called “data dependent” decisions, yet new bad economic data is calling into question their true motives. In his latest podcast, Peter Schiff explains why the Fed is bluffing when it comes to raising interest rates. He also dispels myths about the benefits of a rate hike to the financial markets and why you should avoid them.


Highlights from the podcast:

“When the Fed starts to prepare the market for a rate hike, then the markets tanks. And now the Fed can’t hike rates. I guarantee you if the market really tanks and we’re down 10%, what is the Fed going to start talking about? QE4. They going to start talking about how monetary conditions have now tightened … the case for raising rates has now weakened. That’s what they’re going to say. It’s the same old thing all over again. When are people going to figure out the Fed can’t raise rates?”

“Rising interest rates is going to mean better margins for banks because the yield curve is going to steepen. Banks borrow short and lend long and if they get a steeper yield curve that’s going to be good for bank profits. This is all nonsense. The banks are going to get crushed with higher interest rates. They’re not going to make more money on their loans; they’re going to end up issuing fewer loans.”

“The problem is they’re going to take a bath on the loans they’ve already written because those low yielding loans are going to lose a lot of value when interest rates go up.  A lot of those loans are going to go into default and the collaterals are going to collapse. Banks are going to get screwed regardless. If the Fed keeps interest rates low, the banks are in trouble. If the Fed raises interest rates, the banks are in trouble. It’s a no-win situation for the financials. That’s why I don’t own them.”

“That is the huge financial crisis that is coming, which is the reason the Fed isn’t going to raise interest rates … Now people are saying, ‘well maybe the Fed isn’t going to be data dependent; maybe they’re bluffing about that.’ Well, the real bluff is they’re going to raise rates. That’s the bluff because they can’t acknowledge the weakening data.”

“People are saying, ‘why is the Fed not acknowledging the economic weakness?’ They don’t want to. They want to pretend the economy is strong. So that’s why they have to pretend they’re getting ready to raise rates. But they can’t admit that they’re not going to raise rates because then they have to admit the economy is not strong. But if the markets believe the Fed’s going to raise rates, because they don’t want to admit that they’re not, then the stock market tanks, the bond market tanks and now the Fed has to come back and take the rate hikes off the table. But now they’re in an even worse position because now it looks like they’re beholden to the markets, which of course they are.”

“That doesn’t mean the Fed shouldn’t raise rates. They should. They should raise them a lot even though it’s going to push the economy into a recession because the economy needs a recession. The recession is the restructuring. The last thing we need is for this bubble to get bigger. But that’s exactly what the politicians want. They want the bubble to get bigger because the alternative scares the hell out of them. They don’t care that it’s not real prosperity or a real recovery. They care more about form. They don’t give a damn about substance.”

“Why would the Fed raise rates in September? The election is coming up in November. Why risk it? The data is horrible. The markets are falling now. They didn’t raise rates 3 months ago, 6 months ago. Why would they raise them now? The economy is much weaker, the markets are now falling, the election is that much closer, Trump is rising in the polls. Obviously, the possibility is still remote, but the mere possibility of a tiny rate hike is all it takes to collapse these markets.”

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