Schiff w/ Mitchell: Fed Policy is Backfiring 

Earlier this week, Peter joined Mark Mitchell on his podcast for a conversation on economics and monetary policy. They dive into the economic challenges facing the United States, focusing on structural issues like inflation, debt, and currency devaluation. Peter draws attention to the overlooked surge in gold prices, contrasting it with Bitcoin’s media spotlight, and discusses unrealistic promises by politicians on both sides regarding tariffs, tax cuts, and economic growth.

To start, Peter and Mark point out the Fed’s plan to reduce long-term interest rates has backfired, leading said rates to rise even higher:

“I thought that the catalyst for the next move up in long-term rates would be the Fed reducing short-term rates. Part of the reason for this reduction in short-term rates was to try to bring down longer-term rates, particularly mortgage rates, because people are having a hard time paying these inflated home prices with normal mortgage rates. … But it backfired. As we’re talking this morning, the yield on a 10-year treasury is now at 4.3%, which is 60 basis points higher than it was when the Fed cut rates by 50 basis points.”

Even 4.3% isn’t high enough to flush out decades of malinvestment. Just like a fever burns out a virus, the economy needs high interest rates to properly allocate investment:

“Artificially low interest rates are part of the problem underlying the economy, and they are having very negative effects on the allocation of resources– malinvestments. This is doing damage. We’re not saving enough; we’re borrowing and spending too much. Part of the solution to fixing what’s broken in the economy is to let interest rates go up. They actually need to be higher than they are right now. But the problem is, we have so much debt that we can’t afford it.”

Recent jobs numbers are not optimistic, even though most government statistics probably understate the problems facing the economy. Peter explains that he looks at the year-over-year increase to the national debt, a metric he finds more reliable than headline statistics:

“The CPI is a lie. The unemployment rate is a lie. All these government numbers are designed to create a false picture of prosperity that does not exist. They understate inflation, overstate growth, understate unemployment, understate the deficits. You can’t believe the information that comes out of the government.”

The government ignores bad data, and the media ignores gold’s record-setting year, choosing instead to focus on Bitcoin’s mediocre performance:

“They completely ignore it [gold]. Maybe because it’s making a record high almost every day, so there’s nothing new about it. But when gold is doing this, it’s very significant. It’s sending a clear signal that the Fed is making a mistake, that the rate cuts are a mistake, that inflation is going to be a lot higher. … I’ll be watching financial news as gold hits a new high, and not only will they not discuss gold’s significant new high, they’ll go on and on about Bitcoin making a one-month high.”

Peter hopes Donald Trump wins the rapidly approaching election, but urges realistic expectations about his policies, especially because of the incentives politicians face on the campaign trail:

“That’s what he’s promising. ‘Just elect me, and everything’s going to be great. Immediately, we’re all going to be so rich; it’s going to be crazy. And I’m going to collect trillions from the Chinese, and, you know, it’s all going to be great.’ But it’s not all going to be great—that’s the problem. And that’s going to be a problem for the administration because they set the bar so high, the expectations are so high. You kind of want to under-promise and over-deliver, but it’s hard to do that when you’re running for office.”

How would we really make America great again? Start by slashing wasteful spending, then abolish the income tax:

“We can’t go back to the system we had before the income tax unless we dismantle all the programs that we now have because of the income tax, which I’m all for. Get rid of Social Security, get rid of Medicare, get rid of Obamacare, shrink the government back down to its pre-1913 size. And that would really make America great again!”

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