Peter Schiff Podcast: Only a Recession Can Help US

In his 200th podcast, Peter Schiff explains the ineffectual outcomes of Richmond Federal Reserve President Jeffrey Lacker’s call for “preemptive” interest rate action. Lacker said he believes the Fed should anticipate a rise in inflation levels by getting ahead of the curve. The suggestion only makes sense to those who can’t see the artificially inflated bubble economy the Fed has been creating for years.

Whether the Fed raises rates in December or not, it won’t solve our economic woes. Only a recession will bring the cure. Tough love, not economic coddling, is what’s needed, but current monetary policy continues to pump the economy full of temporary pain meds instead of helping us through the withdrawals.

Highlights from the show:

This is my 200th podcast and I looked back to the date of the first one and it was just over 2 years ago, September 2014. I began the podcast shortly after I ended the Peter Schiff Radio Show. I hope everybody is enjoying these podcasts and if you like what you’re listening to, help turn on other people to the same information.

Statements early this morning by Richmond Fed President Jeffrey Lacker certainly sent tremors through the precious metals markets. Gold tumbled over $40 per oz; closing $1268 and change. This is the first time we’ve actually been below $1300 in the last few months. Silver down just over a buck at $17.78. It wasn’t that long ago that we’d gotten above $20. It was even worse for gold and silver mining stocks. This was the worse day of the year for those stocks … The markets closed right near the lows of the day.

There was a big sell-off right after those statements came out and there was no reprieve for those stocks. The dollar was stronger on the day, although not against the euro. There were some rumors that the European Central Bank may begin to taper its QE program. That held the euro steady against the dollar. The weak currencies were the yen and the pound which was “pounded” again to about a new 35-year low, on concerns that we might have a hard Brexit rather than a soft Brexit. This is more a matter of the yen and pound weakness today than dollar strength.

If the markets really believe that a rate hike is coming, which is clearly what the metals traders seem to believe, I think the stock market should be even weaker. Probably what’s helping the stock market is the strength in the financials, because, as I have said before, people actually believe that higher interest rates are good for the financials. So the fear of higher rates actually lifted the financials, which helped support the market.

But people who think the Fed is going to raise rates and that higher rates are good for the financials, they’re wrong twice because the Fed’s probably not going to raise rates and if they did, it would be horrible for financials. They might get lucky because they’d be wrong on the rate hike and would not then lose as much had the Fed actually raised rates.

I want to go over the Lacker’s statement that started all the turmoil. What did this guy say that caused everybody to jump to the conclusion that the Fed’s about to hike rates? The probability of a rate hike had been rising; it didn’t just start today, but the probability did notch up a bit. They’re now looking at a 60% chance of a December rate hike, but there’s a 25% chance now of a November hike. The November meeting is one week before the election. Why would people think the Fed would take a chance on an adverse market reaction to a rate hike a week before the election?

The Fed is saying: ‘it’s easy to fight inflation because we’ve got a lot of room to hike rates. We’re really, really low and you fight inflation by raising rates. We’d rather have inflation because that’s what we can fight. What we don’t want is a recession because we can’t fight that because we’re out of bullets’. That’s what most people in the Fed have been saying, but of course, that is ridiculous. Even though they supposedly have a lot of bullets to fight inflation, there’s no way they can fire them without killing the bubble economy. That’s what nobody seems to understand: it’s all bark and no bite when it comes to inflation fighting. Now we have so much debt that if we try and fight inflation we’re going to have a worse financial crisis than 2008. Because it can’t fight inflation, the Fed pretends it can do it.

Had the Fed actually raised rates as many times as it was telegraphing two years ago, we would already be in an official recession had they been more aggressive. That doesn’t mean they were right to go slow. We need that recession. That recession is part of the cure that the Fed doesn’t want to allow to be administered because of politics.

The Fed has never solved the problems. It simply papers them over. It prevents the market from solving the problems because recessions are not to be resisted, they’re to be embraced. It’s the artificial booms that are the problem. It’s the recessions that are the solutions to the problems. But the Fed doesn’t want any solutions for political reasons.

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