Santelli & Schiff: Connecting the QE Dots (Video)

Rick Santelli interviewed Peter Schiff on CNBC’s Santelli Exchange yesterday. Their brief conversation got right to the heart of America’s economic problems. While Santelli seems to agree that the Federal Reserve cannot successfully unwind its quantitative easing programs, he asks Peter to focus on the seeming improvements in the economy in the past couple years. Peter helps connect the dots, showing that both the supposed recovery and the coming crash are direct results of the Fed’s cheap money. Enjoy the full transcript below.

Santelli: What are your thoughts of the last several weeks of volatility in the equity markets and in particular, a little less than a week ago, the huge drop in interest rates that had such a U-turn back up to the upside?

Schiff:I think the markets are slowly coming to grips with reality that the exit from QE is not going to be as easy as everybody thought. You know, I heard Dallas Fed Chairman Richard Fisher on CNBC earlier this morning calling for QE to end on schedule. But what Dick Fisher doesn’t understand is that you cannot end quantitative easing without plunging the US economy into a severe recession. It’s because of the monetary policy of the Federal Reserve that the US economy is more screwed up now than it has ever been in history and we cannot unravel all of these economic unbalances without a severe recession.

Santelli: I’m not saying I disagree, now there are exit issues. But for a moment, let’s just come to the conclusion that the messy exit is a given. Now let’s look at what we have left. What do you think the state of the economy is right now, void of that particular dynamic?

Schiff: I think the economy is a disaster. And that’s why I don’t think the Fed is going to exit. Unfortunately, they’ve got QE4 cued up and ready to launch right now. They’re going to do more quantitative easing, not because it has worked – because it’s been an abysmal failure – but because they can’t admit it has been a failure. They’re going to do it all over again.

Santelli: When I see certain areas of the economic marketplace, there definitely has been improvement over the last several years. One of the main issues is sustainability. And even though on the job scene, we could definitely have serious debate about part-time, full-time, good jobs, not-so-good jobs, and 92.5 million that are not able to work but are gone from the labor force – But there has been improvement, Peter. Where do you think the next ding to that is going to be? Not exit, necessarily, but do you think China [and] Europe in particular are going to give us a headwind as to affecting our growth negatively?

Schiff: Well, Rick, you have to remember – Whatever improvements we think we see are a direct consequence of the QE. So when you take away the cheap money, those improvements are going to evaporate, and we’re going to find ourselves in a deeper hole than when the Fed first started digging. All the things that we really needed to do have not been done, because QE has prevented real structural reform from taking place. So instead of building a foundation upon which a real recovery can emerge, all we did was reflate a bubble that’s about to pop. Those are the dots that nobody seems to be able to connect.

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