Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

The Fed Is Between a Political Rock and an Economic Hard Place

  by    0   0

Black Friday was a black and blue Friday as US stock markets saw their sharpest declines since April 2020.

The selloff was spurred by a new COVID variant and fear of new lockdowns. The markets recovered on Monday, but the sudden stock dip was telling.

Peter Schiff pointed out that another economic shutdown would require more stimulus and that would mean an end to a taper that barely got started. In fact, it would probably require an even bigger round of quantitative easing.

I don’t think the Fed simply saying, ‘We’re going to maintain the stimulus we have now,’ — that ain’t going to cut it. When you have a drug addiction, you build up a tolerance. And I don’t think the Fed can really stimulate the economy again by maintaining the level of stimulus that is already in place. The markets kind of get used to that and expect that stimulus, so I don’t think it really acts as a stimulus more than a crutch. And I think if we need another phony stimulus the Fed is going to have to up the dosage.”

In fact, as Wolf Richter pointed out on WolfStreet, the little stock market swoon on Black Friday already had “the crybabies on Wall Street” coming out in force “clamoring for the Fed to end the tapering of its asset purchases, and to push out the expected interest rate hikes into distant infinity and to maybe even re-start QE all over again before they even ended it.”

Because, you know, stocks aren’t ever allowed to drop, not even a little bit off their ridiculously inflated highs.”

Richter said a drop in the market was bound to happen. After all, it doesn’t take a very big pin to pop a bubble.

But the Fed has another problem — red-hot inflation.

Powell and Brainard, along with just about every other Fed governor have acknowledged it: Raging consumer price inflation that has now spread broadly across and deeply into the economy, filtering into services such as rents that are unrelated to transportation mayhem and production shortfalls in Asia. Rents, accounting for about one-third of CPI, are just now getting started to flex their muscles in the inflation indices. And the mood of consumers has soured.”

The transitory inflation narrative has unraveled. There is no reason to believe rising prices will suddenly stop rising, especially considering that the central bank still has its foot firmly pressed down on the money printing pedal. Despite the “taper” that started in November, the Fed managed to add $126 billion to its balance sheet.

What is a central banker to do? The Fed can fight inflation by tightening monetary policy and risk a massive stock market crash – and it clearly wouldn’t take much. Or, it can just let inflation keep on running and risk a genuine dollar crisis.

Wolf called inflation a “political bitch.”

In a sense, the reaction to the stock market selloff on Wall Street was a bit amusing, as Wolf wrote.

The clamoring by the crybabies on Wall Street for relief from the Fed to soothe this insufferable pain of markets dropping a little from their ridiculously inflated levels is just hilarious and provides great amusement on this Black Friday when people are supposed to try to prop up the economy by splurging with borrowed money on imports from Asia.”

But the humor may not last as the Fed comes face to face with the reality of inflation and has to make a choice to fight or flight.

Lest you forget, Paul Volker had to hike interest rates to 20% in order to tame the inflation of the 1970s. How do you think the “crybabies” on Wall Street would like them apples?

401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

There’s a Herd of Elephants in the Room

Among the many problems currencies the markets face, there is one that is undocumented: the eurodollar market. This is yet another very large elephant in the room. This article quantifies eurodollars and eurodollar bonds, which are additional to US money supply and credit.

READ MORE →

Fed Talk and Dot Plots: There’s a Big Difference Between Saying and Doing

The Federal Reserve held interest rates steady at the September FOMC meeting, but the committee indicated that it plans to hold rates higher for longer than originally projected. As you digest the Fed meeting, it’s important to remember that there is a big difference between “saying” and “doing.”

READ MORE →

Currency Wars Versus Gold Standards

Russia and the Saudis are driving up oil and diesel prices. But these moves are likely to undermine the rouble more than they undermine the dollar, euro, and other major currencies. Therefore, higher energy prices will rebound on the Russians this winter: if they shiver in Germany, they will freeze in Russia. If the dollar […]

READ MORE →

“Silver Isn’t Scarce” and Other Myths

A commenter on the SchiffGold Facebook page recently asserted that silver coins are “junk.” Why? Because as he put it, “silver is not rare,” and, “The silver/gold ratio investment premise is obsolete in this industrial, computerized and AI world.” What should we make of these assertions?

READ MORE →

CPI Spiked Again in August Throwing Cold Water on Disinflation Narrative

About that disinflation… It was transitory. As we predicted, a jump in gasoline prices helped drive the August Consumer Price Index (CPI) higher, throwing cold water on the disinflation narrative.

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now