The Great Inflation Debate (Video)

Is inflation “transitory,” the result of a quickly recovering post-pandemic economy as Jerome Powell insists? Or is it a long-term phenomenon resulting from loose monetary policy that’s not about to abate anytime soon? Peter Schiff recently participated in the “great inflation debate” on RT’s Cross Talk with Peter Lavelle, along with American Institute for Economic Research economist Pete Earle and Renaissance Capital economist Sofia Donets.

Peter Schiff opened up the discussion emphasizing something Lavelle said in the introduction – inflation is a tax.

The source is government because that’s who taxes us. The only way to reduce inflation would be to dramatically cut government spending, because government spending is being paid for through inflation. We’re running record budget deficits. And so, instead of taking our money and spending it, the government is taking our purchasing power by printing new money and spending that. So, the increase in prices that we’re all experiencing is the tax that we’re all paying to finance government. In addition, the Federal Reserve is trying to prop up the stock market, prop up the real estate market and prop up the US government. It can only do that by keeping interest rates artificially low. But in order to do that, the Fed has to keep printing money to buy bonds. So, as long as the Fed is artificially suppressing interest rates, it is going to have to create inflation to do it. And because we have so much debt, the Fed is now forced to keep interest rates at zero. And so unfortunately, average Americans, the middle class, and the working poor are going to suffer the most severe bout of inflation in US history – far greater than anything experienced during the decade of the 1970s.”

Peter Earle said that he generally agrees with Peter, but he’s not so much concerned with the CPI numbers. He says the real problem is inflation showing up in the financial markets.

Donets said as former a central banker, she takes the other side of the argument, agreeing with Jerome Powell that inflation is transitory.

Lavelle noted that loose monetary policy has been going on for a long time. The pandemic super-charged it. Is the Fed being “responsible?” Schiff said the Fed is never being responsible.

One of the other things the Fed is never is honest. The Fed is all about spin.”

Schiff harkened back to the Fed’s response when it was becoming obvious that the mortgage market was in trouble. The central bankers came out and reassured everybody that there was nothing to worry about and the problems in subprime were “contained.” Why did they do that?

They were hoping that by denying the problem existed, maybe they could somehow will it out of existence and somehow get people to change their behavior in the face of what should have been an obvious crisis. And they were hoping to avert it. And I think they’re doing the same thing now. The Fed has absolutely no ability to fight inflation, so why even acknowledge it’s a threat when you can’t do anything about it? So, the only thing the Fed can do is deny. Lie to the markets. Tell everybody that it’s all temporary. And that explains their failure to act. But the real failure to act is because it’s impossible. Because the only way to fight inflation is to turn off the monetary spigots.”

Peter said the bottom line is we’re at the beginning of a long-overdue increase in the cost of living – not only due to the money creation during the pandemic, but also all of the money printed before COVID-19.

Ultimately, the issue is political. Governments have promised to solve all of our problems. But we still have to pay for it. As Peter Schiff put it, every member of Congress wants to give the voter something for nothing. But where is the money coming from?

They’re not raising taxes. They’re just spending the money. And so, the money is being created. It’s being conjured into existence by the Federal Reserve. But that is inflation. You see, every single dollar that the federal government spends, the American public has to cover the cost. So, if they’re not going to take out money through taxation, they’re going to take our purchasing power through inflation.”

We can’t have all of this stimulus for free.

There is no such thing as a free lunch. Spending is going to keep getting worse. And of course, as government spends more, it weakens the economy, which means even more spending — inflation is going to go through the roof.  We keep talking about the 1970s. What we’re going to experience is going to be far worse.”

The massive injection of liquidity has created a bubble in just about every asset class. As Peter Schiff put it, everything is dramatically overpriced. He singled out the bond market noting that yields don’t reflect reality.

It reflects fantasy. And everything is priced to fantasy.”

Peter Earle said at some point somebody will need to step up, be the adult in the room, and clamp down on this easy money policy. But Peter Schiff said there is no savior that’s going to do the right thing as Paul Volker did in the early 80s.

The consequences of doing the right thing are so horrific at this point that they’re never going to be tried. But of course, the consequences of continuing to do the wrong thing are even more horrific. But that’s what’s going to happen. Because politicians don’t give a damn about that. All they want to do is kick the can down the road as long as they can. They don’t care if they make the problem worse, just so long as it blows up later.”