Peter Schiff: The Fed Is Destroying the Foundation of the Economy

The Federal Reserve held its September Federal Open Market Committee (FOMC) meeting last week. While there was a lot of talk about the central bank tapering its quantitative easing program, the Fed didn’t announce any concrete plans to slow asset purchases. The lack of concrete action was no surprise to Peter Schiff. After the Fed meeting, Peter appeared on NTD News to talk about it and the Fed’s apparent reluctance to take any concrete steps toward monetary tightening. He said the central bank is in the process of replacing America’s economic foundation with a money printing press.

The NTD News anchor opened the interview asking “what is the Fed afraid will happen if it does taper?” Peter said the Fed’s asset purchases are propping up the entire bubble economy.

If the Fed were to actually do what they’re talking about doing, they risk toppling the economy because they’re going to pull the foundation out from under it, which is why they only talk. They don’t actually act.”

Peter said despite their inaction, the central bankers have to talk about tightening or they would face an even bigger problem.

People would realize the severity of the position that they’re in. So basically, they continually bark about tapering but they don’t actually bite.”

Peter made another important point: tapering is still quantitative easing.

It’s not like they stop doing it. They’re just saying, ‘We’re going to do a little less of it,’ and they’re saying that they’re basically never going to raise interest rates because that’s supposedly what happens after they’re finished tapering. But that’s ain’t ever going to happen.”

The Fed claims QE helps meet the central bank’s employment goals. But how does buying US Treasuries and mortgage-backed securities help people find work?

I think it helps people find the wrong kind of work. Because what the Fed is doing is sustaining asset bubbles, and so, you have a misallocation of resources. What the Fed is helping to do is misdirect labor from places that it would ordinarily be absent the Fed’s easy-money policies to the places that it’s going pursuant to those policies. But these are economic mistakes — misallocations of resources, malinvestments that are ultimately going to have to be liquidated. And all of this is making the economy poorer, not richer.”

Peter said the Fed is the biggest roadblock we have keeping us from true economic prosperity.

The NTD anchor noted that low interest rate policies discourage savings. How does that work in an economy when savings continue to diminish year after year?

Short answer — it doesn’t work!

That’s the problem.”

And of course, the Fed monetary policy stokes inflation. Even the Fed has admitted that prices are rising faster than they projected. And Peter said the actual inflation rate is probably triple what the Fed admits to.

Savings are being destroyed. You have negative real rates because you’re getting zero nominal. But if inflation five, six percent, seven percent a year, that is a massive destruction of the purchasing power of money. Nobody is going to save under these circumstances. But the problem is for a real capitalist economy, savings are the lifeblood because it’s under-consumption and savings that finances capital investment, that allows for increased productivity — rising living standards. But if the Fed is punishing savers to the point that nobody wants to save, then you’ve destroyed the very foundation of the economy. The Fed is trying to replace it with a printing press.”