Schiff on Wealthion: Prepare for a Return to QE

Peter recently joined Anthony Scaramucci for an interview on Speak Up, a YouTube show hosted on the Wealthion channel. The duo discuss Jerome Powell’s recent statement, pointing out the dissonance between his assertions and reality. Peter also predicts a return to QE-like monetary policy, noting that a recent surge in long term interest rates will likely motivate inflationary policy in 2025.

Schiff begins by describing the surprising resilience of the current economic bubble, stressing that policymakers like Powell are not openly admitting their role in enabling it:

What surprised me, Anthony, is that the bubble has gotten so big without any adverse consequences. In fact, one of the questions that Powell got was, does the amount of debt impact your decisions on raising rates– which of course it does– but he lied and said, ‘Oh, no, no, no, we’re nowhere near there. I mean, we don’t even consider how much debt the US government has. We raise rates to whatever level we think is appropriate. We’re not in a position yet where the government has so much debt that interest rates are a significant factor.’

Peter recounts how the initial experiment with Quantitative Easing (QE) laid the foundation for perpetual debt expansion, defying his early predictions that the bubble would burst sooner:

But I’m surprised that, you know, from the launching of QE1, which, you know, when they first launched it, they didn’t call it QE1 because they all assumed it was going to be one and done. I was one of the few people that said, no, this is the beginning of a process that will never end. But we’ve now added $30 trillion of debt. 

He notes that while the dollar still appears stable next to other weak currencies, its underlying purchasing power continues to erode, raising serious long-term questions:

So the purchasing power of the dollar has gone down. But relative to the euro or the Japanese yen or other currencies, the dollar’s doing pretty well. And interest rates are still relatively low. You know, the government is paying four and a half percent on a 30 year treasury. That seems ridiculously low given the enormity of the debt and the probability that it’s going to get inflated away. So yeah, the bubble has gone on for a lot longer than I thought.

The mounting debt load, coupled with low savings and high interest rates, traps households in a system that few politicians dare to reform:

They’re paying record high interest rates on that debt on their credit card. And so they’re desperate for the situation to change. But unfortunately, none of the candidates, and I think Trump would be included, have the guts to actually do what’s needed. I mean, even though Trump has now got himself surrounded by Elon Musk … just based on what he did in his first term, and I don’t see a huge transformation. I think Trump said what he needed to say to get elected.

Printing money to fund deficits ultimately leads to inflation as citizens pay for government largesse at the grocery store and the gas pump:

And so if there’s a difference between what the government spends and what it collects, which in the United States, there’s a multi trillion dollar difference every year, the public has to pay for that one way or another. We don’t get all this government for free. And if we just print the money to cover the deficit, that doesn’t mean it’s a freebie. What happens is the value of all the money that already exists goes down, prices go up. And those additional prices, those price hikes, that’s how we pay for the bigger government. We pay for it through inflation and a reduction in the value of our money.

Peter concludes by warning that the Federal Reserve will likely resort to renewed intervention, further eroding the dollar’s integrity and boosting the long-term case for tangible assets like gold:

“I do think they’re going to restart the QE engine. Because I think that they’ve already lost control of the long end of the bond market. Because one of the forecasts that I made that I got right recently, I was saying that when the Fed cuts rates, that was going to be the bottom of the long term rates and that they would go up. …And that’s going to be very problematic for the Fed because it’s going to be harmful to the economy, to the housing market. And when we’re in a recession, or when the recession gets worse, I think the Fed is going to be pressured to try to lower long term rates.