The Fed Will Be the Last to Know We’re in a Recession (Video)

Jim Rickards agrees with Peter Schiff – the United States is already in a recession. However, the Federal Reserve and Wall Street economists won’t realize this until long after the fact, because the models they use to forecast are deeply flawed. Rickards predicts that the Fed will begin another round of monetary easing in March of 2016. What form will it take? Rickards isn’t sure, but he lays out five options:

Even at zero [percent interest rates], there are five ways to ease. They can do QE4. They can do helicopter money. They can do currency wars – cheapen the dollar. They can do negative interest rates. The other way to do it is forward guidance, which is just talking. I actually expect they’ll reintroduce forward guidance. So gold is just a cross trade. If the dollar gets weaker, then the dollar price of gold is going to go back up again…”

Highlights from the interview:

“This is a very big deal. We are inside the second recession inside the new depression. You know my view. We’ve been in a depression since 2007. People say, ‘How can it be a depression? Growth isn’t declining around the world.’ That isn’t the definition of a depression. You can be in a depression when growth is below trend. Trend is 3.5-4%. You’re growing about 1 or 2. That’s depressed growth – lost output and enormous lost wealth. So we’ve been in a depression, by that measure, since 2007. But now we’re in the second technical recession within the depression. It’s just starting. The official referee – The National Bureau of Economic Research – they usually call it a year after it starts. So don’t wait for them to tell you it’s a recession; you can see it today…

“Clearly, [the Federal Reserve] is not going to raise rates. I said a year ago in November 2014 that they were not going to raise rates in all of 2015. Wall Street was saying March, then they said June, then they said September, now they’re saying December. The Fed’s not going to raise rates. The Fed can’t raise rates, because the economy is weakening. You don’t raise rates in a recession. The time to raise rates was 2010, maybe 2011, when the economy had a little more strength. The Fed missed an entire cycle. But two wrongs don’t make a right. The fact that they blundered then doesn’t mean they should blunder again now, raising rates in a recession. They’ve got to ease at this point…

“I think the next move will be easing. I’m looking at March 2016… QE2 ended in June 2011. QE3 started in September 2012. So that was a 15 month gap between one and the other. Take the end of QE3, which was November 2014. Come forward 15 months, you get to around March 2016. I’m not saying it’s like clockwork. The Fed doesn’t change quickly. They want to see how things go. By the way, the Fed will be the last to know we’re in a recession, because their forecasting models are deeply flawed and obsolete. A lot of people see it, but the Fed will be the last to know. By March they’ll be ready to ease…

“Even at zero [percent interest rates], there are five ways to ease. They can do QE4. They can do helicopter money. They can do currency wars – cheapen the dollar. They can do negative interest rates. The other way to do it is forward guidance, which is just talking. I actually expect they’ll reintroduce forward guidance. They took it away in March of 2015 – remember the famous word ‘patient’? They took it out of the [FOMC] statement. They could get the thesaurus, look up a synonym for patient, stick it back in the statement. I would look for forward guidance and a cheaper dollar…

“The markets will be taken by surprise. The thing about the consensus view – just look at the data right now, as we’re speaking. The majority of economists expect the Fed to actually increase rates sooner than later. Yet the Fed funds futures market is saying no way, there’s a very low probability… I’ll go with the Fed funds futures markets… The problem with Wall Street economists is a lot of them were trained at the Fed, or they went to the same schools or they had the same professors. They’re using the same obsolete models as the Fed. So it’s not surprising the economists get it wrong, the Fed gets it wrong. If you have the wrong model, you’ll get the wrong result every time…

“Gold is just a form of money. Silver isn’t quite the pure play that gold is, but silver will tag along with gold, so let’s talk about gold. Gold is a form of money. So if I say the dollar is getting weaker, that means the dollar price of gold goes up. Go back and look at August 2011. That was the all-time high for gold in terms of dollars. But that was the all-time low for the dollar in terms of the Fed’s broad, trade-weighted index. So gold is just a cross trade… If the dollar gets weaker, then the dollar price of gold is going to go back up again…”

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!