Peter Schiff: What Taper? Ultimately the Fed Will Expand QE

Peter Schiff recently appeared on RT Boom Bust to talk about Fed monetary policy and the possibility of a taper. He said even if the Fed does slow asset purchases, the taper won’t last long. Ultimately, the Fed will expand QE.

Despite the disappointing August jobs report, the conventional wisdom is that a recovery in hiring along with record job openings indicates the economy has recovered. Peter said he doesn’t think the economy has recovered from anything.

I think it’s still very sick and having nothing to do with COVID. I think all that happened is the government printed a bunch of money, or the Fed printed the money, and the government mailed out the checks, and everybody went on a spending binge.”

All of that consumer spending pumped up GDP numbers. But as Peter pointed out, it’s also the reason we’ve seen huge price increases.

It’s the inflation that the Federal Reserve has created.”

Peter also noted that we’re still seeing a lot of unemployment claims. They’re just not as high as they were last year.

And a lot of people just don’t want to work anymore. The government has made people a better deal. A lot of people find it’s more lucrative to take a vacation than to show up for work.”

Despite talk of tapering quantitative easing, the Fed hasn’t given a timeline or any concrete details of what it might look like. As Peter noted after Jerome Powell’s Jackson Hole speech, if the plan was to taper, Powell had every opportunity to clarify that intention. At this point, the Fed is just making excuses.

It knows the only foundation this bubble economy has is the Fed’s easy money policies. And I don’t think they have any actual plans to taper. And even if they just kind of feign the process by beginning it, they’ll never complete it because soon after they start the taper, again, if they even ever start, they’re going to have to reverse the process. Because ultimately, the Fed Fed is going to expand the QE program and start to buy a lot more government Treasuries and mortgage-backed securities in the future than it’s doing right now.”

Fed policy has juiced the stock market to record levels. Some worry a taper could crash the market. But should the Fed be concerned with that? Peter said technically, it shouldn’t.

But remember, these guys think that the economy lives or dies by the market. Remember, their whole goal in QE was to create a wealth effect. They thought if they could make the stock market go up, we’d all feel wealthier, and then, somehow, we’d spend more money. And so they’re kind of wedded to this philosophy, so whenever the stock market starts to go down, they start to fear a reverse wealth effect, and so they start printing money.”

The Fed isn’t just propping up the stock market.

It’s this whole bubble economy that they’re filling up with air. But by doing this, they’re actually undermining legitimate economic growth and they’re making everybody poor.”

So, how close are we to the bubble bursting?

Peter said if the Fed did the right thing, it would certainly precipitate a financial crisis. And that’s exactly why the Fed won’t do the right thing.

That’s why they keep kicking the can down the road because they want to delay that crisis as long as possible. But the longer they delay it, the worse it’s going to be because the only way to delay it is to make the bubble bigger. And the bigger the bubble is, the worse the fallout when it pops.”

One of the anchors noted that inflation recently hit a 13-year high in Germany and Germans are loading up on physical gold. Peter said there is a lot more inflation to hedge and people should be worried about it. Of course, the Germans are particularly sensitive to rising prices given the hyperinflation they experienced during the Weimar Republic. But Peter said inflation is going to be a problem worldwide.

Central banks around the world are printing too much money. They’re keeping interest rates artificially low. And so, inflation is a worldwide problem. But it’s going to be particularly acute here in the United States. We’re creating more inflation than most, and we are more dependent than any other country on the value of our currency to fund our imports because we can’t produce the goods that we consume. And so, we have to trade the money that we print for the stuff everybody else makes. And so, as the value of our money is going down, we’re going to really feel the pain of inflation to a much greater degree as the dollar falls and the cost of those imports go through the roof.”