A Fed Rate Hike Is “Possible,” but Inflation Is Inevitable (Video)

Peter Schiff has been making the rounds of the financial media this week, warning that the Federal Reserve has no intention of raising interest rates. Fox Business moved on from this topic and asked Peter to defend the latest weakness in the gold price. Peter noted that gold has risen 5-fold in the last decade — far outpacing the stock market. Every investment will see a few down years inside a larger trend, and investors need to keep that trend in mind. Official inflation might be low now, but there’s clearly a bubble in asset prices. When the Fed inevitably fails to maintain this bubble, inflation will spread to the rest of the economy.

The stock market is inflated, the bond market is inflated, the real estate market is inflated. But all this represents claims to wealth, when actually people want to convert their claims to real stuff, when they want to spend their gains. That’s when you really see prices surging for consumer goods and that’s when it finally shows up in official measures of inflation.”

Follow along with this partial transcript:

Peter Schiff: Well they’re never going to raise interest rates, at least not until they’re forced to. That’s what I can’t understand, that people haven’t figured this out yet. Yellen has no intention of raising interest rates. She did mention it was possible they could raise rates. But anything is possible. An alien invasion is possible. It’s not going to happen, and it’s not because of inflation. It’s because we have a bubble. There is no legitimate recovery. If there was, they would have raised rates years ago. There is a gigantic bubble and the Fed is afraid to prick it.

Host: [The Fed’s new policy as of the last financial crisis is to deflate bubbles.]

PS: This bubble is too big to pop. If the Fed does pop it, the result will be a financial crisis much worse than 2008. So the Fed has to maintain the pretense that it’s going to raise rates without ever actually doing it. That is the fine line that they’re trying to walk.

Host: [Have we created a currency war because of what central banks around the world are doing?]

PS: Yes, every central bank is acting recklessly in slashing interest rates to create inflation on purpose as if inflation were the holy grail of economics… but it’s not. It makes common sense. Consumers are better off if the cost of living goes down. If the things that you want and need are less expensive, you’re better off. Demand increases when prices go down. It’s not the other way around, but that’s what they’re trying to convince us.

Host: [But this means that if the value of my expensive New York apartment goes down, I lose.]

PS: Now you’re talking about asset prices and bubbles. And yes, people that are speculating on bubbles, people that have a lot of debt, yes, they want inflation to bail them out. It’s not good for creditors, it’s not good for savers, and it’s not good for the economy. Real economic growth comes from savings and investment, and inflation and speculation discourages that.

Host: [What’s going on with gold?]

PS: Well, I think it’s going there [to $5,000] eventually. I’ve been coming on financial television since gold was $300 an ounce. Gold has done a lot better than the stock market over the past 15 years. Now it doesn’t go up every year. It has been going sideways to down for the last 2 to 3 years… The market is entitled to a pause after going up 5-fold in 10, 12 years. I believe that the lack of recent price gains in gold is a reflection of the false belief that the US has a legitimate economic recovery and that the Fed’s going to raise rates. I think that it’s a bubble and that the Fed is more likely to launch QE4 than raise rates.

Host: [Why would I buy gold when there’s never going to be inflation?]

PS: Well there’s going to be a lot of inflation, that’s the thing. Central banks around the world have unleashed what will be a tidal wave of inflation. The markets don’t have any sense for it yet, but it is there and so far a lot of the inflation has been confined to financial assets. The stock market is inflated, the bond market is inflated, the real estate market is inflated. But all this represents claims to wealth, when actually people want to convert their claims to real stuff, when they want to spend their gains. That’s when you really see prices surging for consumer goods and that’s when it finally shows up in official measures of inflation.

Host: Do you still have those little cards… where you break off the gold?

PS: Oh, the Valcambi [CombiBars]? Yes, we still sell those. SchiffGold.com if you want to buy some.

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