Inflation and QE: Airing the Fed’s Dirty Laundry (Video)

CNBC’s Trading Nation asked Peter Schiff if he thinks minimum wage hikes in cities like Los Angeles will trigger higher inflation and therefore a rate hike from the Federal Reserve. Peter warned that on the contrary, creating inflation is the business of the Fed, and he expects it to launch another round of quantitative easing before it significantly raises rates.

Follow along with this transcript:

CNBC: We know you’ve got some strong views about the Federal Reserve as well, but inflation – as you have said – doesn’t have to be wages or whatever. It just is what it is. It’s higher prices. Do you have concern about inflation?

Peter: Inflation is the business the Federal Reserve is in. It creates inflation. It’s been creating it for years, and it manifests itself in different ways, higher prices being one of them. Wages are simply a price of labor. But what’s happening throughout the country now is this push for a minimum wage increase. Look at what’s happening in Los Angeles. They just increased the minimum wage to 15 dollars, which is going to be phased in over the next five years, which will delay the damage somewhat. While this is going to be problematic for businesses, it’s going to be a much bigger problem for all the workers in Los Angeles who can’t get jobs. What the law does is it says if you have minimum skills, if you can’t convince an employer to pay you $15 an hour, it’s illegal for you to work. So many people are not going to get jobs. When they had the minimum wage, they didn’t put gas stations out of business, but now we all pump our own gas. My guess is in Los Angeles by 2020, when you go into a fast food restaurant, it will be like going into a self-serve gas station.

CNBC: Could the Federal Reserve be forced to raise rates sooner than later because of this? Because this might be the final piece of the inflation puzzle?

Peter: No, I don’t think so. I think the Fed is really bluffing its ability to raise rates given how much debt we have and how addicted we are to the zero-percent rates. I think they’re going to do another round of quantitative easing. Eventually the Fed will be forced to raise interest rates, but not because of minimum wage hikes. If anything, these minimum wage hikes will slow down economic growth and weaken the employment landscape. Theoretically, the Fed will be more concerned about that. But when the dollar finally collapses based on our failure to raise rates and our launching QE4, it’s going to be that kind of inflation and a currency crisis that will ultimately force the Fed’s hand. Then we’re going to be in some real trouble.

CNBC: Do you feel the US is at least, as we’ve said, maybe the least dirty shirt in the global bag of laundry, financially?

Peter: I wouldn’t go that far. There’s a lot of dirty shirts there, but I don’t think we’re much cleaner than the others. In fact, we could be the dirtiest. We just don’t know it yet, because we’re still operating under the effects of 6 years of zero-percent interest rates and 3 rounds of quantitative easing. We’ve had a huge dose of this monetary heroin and it takes a while for the high to wear off. But when it does, you realize how big a ditch you’ve dug yourself into, because we haven’t solved our problems. We’ve made all our problems worse. We just postponed the pain.

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