The Fed Is Doing Everything Wrong – A Peter Schiff Exclusive

Back in September, Peter Schiff was interviewed by Anthony Wile of The Daily Bell. The exclusive conversation covered a vast number of topics, but in the second half they dug deep into Peter’s analysis of the United States economy. Peter, as usual, clearly explains our fundamental economic reality while deftly moving across a range of topics, from the performance of this year’s blockbuster movies to the European Central Bank’s rate cuts. 

Daily Bell: What should the Fed be doing these days other than going out of business? What’s it doing wrong?

Peter Schiff: It’s doing everything wrong. It’s printing too much money. Interest rates are too low. The Fed should stop buying bonds and mortgages and should actually be selling them and strengthening its balance sheet. It should be raising interest rates. Now, I’m not naive to think that there wouldn’t be any short-term effects or that it would cause the stock market to crash, the real estate market to crash. We’d be back in a severe recession, banks would fail, the government would have to restructure its debt, which would mean default on its obligations. All that would be painful but that’s what’s going to happen eventually anyway. It’s just that the Fed is delaying that day of reckoning. But by delaying it, it’s going to make it that much more painful because we’re going to have a lot more to reckon with because we didn’t fix the problems sooner.

It’s like if you’re an alcoholic, you’ve got to stop drinking even though that means you’re going to be hung-over for a while or maybe you have to go to rehab. Or if you’re a drug addict. It’s not a pleasant experience. It’s more pleasant to keep taking drugs but you’ve got to do it eventually, and the sooner the better. The longer you’re addicted, the more screwed up your life is going to be, the better the chance that you’re going to lose your job, your spouse leaves you, you lose all your money and you’re in the gutter or end up being dead. So you’ve got to deal with your problem. But the Fed is trying to prevent us from dealing with our problems. It’s trying to come up with a quick fix solution that doesn’t really solve anything; it just numbs us to the pain.

Daily Bell: What about in Europe? The ECB is making an announcement this week about QE there.

Peter Schiff: They’re doing the same thing in Europe now with these rate cuts. Europe doesn’t need lower interest rates; they’re already practically zero. They’re talking about needing more inflation. That’s the last thing that the unemployed people in Europe need – to have to pay more for food or for energy. A rising cost of living doesn’t help the economy. A falling cost of living is helpful to the economy. It’s so perverse that the economists are trying to convince us that what we need for a healthy economy is for things to be more expensive, for the things that we need to cost more money, and that is completely absurd. It is the opposite of reality. It is the reduction in price, it is the creation of abundance – the more we produce, the less stuff costs and that’s what creates wealth. That’s what creates a rising living standard – when you can buy more stuff for less money, not buy less stuff for more money. But that’s the goal of the central banks – let’s make stuff more expensive so that fewer people can afford to buy stuff and somehow that’s supposed to grow the economy and create jobs.

Daily Bell: Where do you see stock markets heading this fall?

Peter Schiff: They’ve been creeping higher. I think another correction is coming but I don’t think we’re going to get a crash. I just think that the Federal Reserve and other central banks are printing too much money for that to happen. Because we’re not going to get real economic growth. That’s not happening. We’re going to slip back into an official recession. I think unofficially we’re actually in a recession because I don’t believe the statistics. In particular, I think inflation is being understated so that automatically means that growth is being overstated.

I think what’s going to surprise people is the fact that the Fed ends up having to have embark on a whole new round of quantitative easing because the last several rounds just didn’t work. I think we’re going to be seeing unemployment rates starting to pick back up again.

Look, we just had the worse Hollywood box office in about 20 years. People are saying, “Well, it’s because the movies weren’t any good,” which is BS. Box offices outside of the United States were up. The movies were fine. I haven’t seen any significant collapse in the quality or quantities of movies. There were plenty of big-budget sequels that came out this summer. I think the problem is American’s can’t afford to go to the movies because it’s too damned expensive and they don’t have good jobs. People aren’t going to the movies because they can’t afford it. How is inflation going to solve the problem – drive up the cost of the tickets even more, make the popcorn even more expensive? That’s going to bring people into the theaters? I went to a movie – not even 3-D, just a regular movie – over the summer and took my son. The adult ticket was $13 and under-12 were $11. I remember when I was a kid and went to the movies, the adult tickets were $4 and the kids’ tickets were $2. That’s a big difference when you’re talking about half price — $2 was a big deal when it’s $4 compared to $2. But when you’re talking about $13 versus $11? If you’ve got a family with a couple of kids, they can’t afford that. What’s it going to be in five years, $20 for an adult, $18 for a kid? It’s absurd.

Read the Full Interview Here

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