Peter Schiff: 2% Inflation is Fantasy Land

Last week, Peter appeared on Soar Financially, where he was interviewed by host Kai Hoffmann. The two dive into gold’s upward trajectory and its historical precedents, the market’s misguided optimism when it comes to the American economy, and recent events in domestic politics and international banking.

Peter starts with his perennial reminder: public sector jobs do not boost the economy, and recent jobs numbers are intended to support a false narrative.

“Government jobs are not a sign of a strong economy. In fact, they weaken an economy because we have to pay for those jobs. They’re non-productive jobs. They result in bigger deficits, higher inflation. That’s really all we have– we have inflation that masquerades as growth.”

One factor distinguishing today’s economy from the past is that no monetary policymakers intend to hike rates in the long-term:

“Gold is on pace to have its biggest gains since 1979. And it’s not a coincidence that gold is moving this much, especially when the Fed is starting to cut rates and just beginning this new easing cycle. In 1979, the Fed was still tightening. In fact, in 1980, that’s when the Fed got rates to 20%. That’s what really stopped the gold bull market. But this gold bull market is just getting started, because the Fed isn’t anywhere near hiking rates. In fact, they’re cutting rates.”

Despite decades of artificially low interest rates and their resulting inflation, the market is too optimistic. The longer this goes on, the less plausible it is that the Fed can stay close to its inflation target:

“Every year, no matter how bad inflation was the prior year, the bond market is just assuming that it’s going to be 2% for the next 30 years. At some point, the bond market is going to have to come to terms with reality that this 2% target is all fantasy land—the Fed isn’t going to even come close to achieving that.”

Likewise, the American public mistakenly believes that politics can fix the economy without a painful and drastic correction period:

“It’s hard to get elected telling the truth that things can only get better if they get worse first. But Trump is promising immediate results—positive, no pain, just gain. And so nobody is prepared for what’s actually going to happen. That’s a problem. But the question is, can you get elected promising short-term pain for long-term gain? ‘Yes, I’m going to fix the problems, but in doing that, things are going to get worse before they get better. We have to spend less. We have to save more.’”

Turning to the havoc caused by hurricanes in recent weeks, Peter explains why it’s foolish to have bureaucrats in Washington, D.C. try to manage every disaster in the country:

“It’s a huge moral hazard, and so on the local levels, we’re not prepared. But it’s much better for North Carolina to take care of its own problems, as opposed to Washington, D.C., taking care of its problems. And California takes care of its problems instead of outsourcing it to Washington, D.C. You have Washington, D.C., trying to take care of wildfires in California, hurricanes in the Carolinas—whatever happens. But there’s so much corruption at the federal level, so much graft; it’s a very inefficient way to do it.”

In Europe, the move away from the dollar continues, with Poland significantly expanding its gold reserves. Central banks are the driving force behind gold’s rise this year, and Peter expects both central banks and the public to increase gold purchases:

“Right now, it’s foreign central banks, but they’re going to step it up. They have a lot more gold to buy—they’ve barely scratched the surface. Look now, Poland just announced that they’ve got more gold than the UK. This is a race. These central banks need to replace their dollars with gold because they can read the writing on the wall—they wrote it.”

For more analysis of the latest economic data, check out the SchiffGold Gold Wrap Podcast.

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