The Fed Is Stuck with the Biggest Bubble Yet (Audio)

Peter Schiff appeared on Benzinga’s Pre-Market Prep show last week. He explained why the Federal Reserve is going to be forced to keep interest rates at zero in 2015 and maybe even start QE4. What the United States really needs is the tough love of higher interest rates that would push the economy into a recession in the short-term, but ultimately make it stronger in the long-term.

Highlights from Peter’s interview:

“I think the Fed is going to keep on pretending that what they’ve created is a legitimate recovery, but what they’ve actually done is inflated the biggest bubble yet. It’s bigger than the Fed-induced NASDAQ bubble of the 1990s, or the housing bubble that we had more recently. I think this bubble is bigger than both those bubbles combined. Unfortunately, it needs a lot more air or it’s going to pop. I think the Fed knows the bubble is too big to pop. That’s why it just talks about raising interest rates, but doesn’t actually do it. Because it’s afraid of popping the bubble. I think at some point we’ll get enough weak economic data that the Fed is going to have to drop the pretense that the economy is strong, and we’re going to be looking at QE4 rather than higher interest rates…

“I think the odds are they won’t [raise interest rates]. If they do, it will just be a trivial amount, and they won’t follow it up with an additional hike. They’ll reverse it and go back to zero and launch QE4. I do not think the Fed is willing to allow the next recession. I think if the Fed were to raise interest rates, it would bring about a financial crisis that would be on an order of magnitude far greater than the one we had in 2008…

“I think raising interest rates and crippling the markets would actually help the economy. I think one of the reasons we don’t have a real recovery is because of the Fed. Unfortunately, if we want to have real economic progress, if we want to have a productive economy that provides more economic output, that provides good-paying jobs for our citizens, we’re going to have to let this bubble burst. The Fed didn’t do it in 2000, they didn’t do it in 2008. They’ve postponed the pain, and now it’s going to be a lot more painful to have to deal with it. But the Fed should stop QE, they should raise interest rates, even though it will plunge us into a recession, even though it will collapse the stock market and real estate market, even though it will result in a lot of big banks failing, even though it will result in the government having to slash spending and restructure its debts – all these bad things are going to happen if the Fed does the right thing…

“I think gold, which has really been in pretty much a stealth bear market for all of 2014. You know, gold was up strongly in just about every currency except the US dollar, where it was basically flat. Everybody thought that 2014 was going to be the year that gold got clobbered. Instead, it did relatively well. I think if the Fed does QE4, the best asset class to be in will be gold…”

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