The US Economy Needs to Rebuild from the Ground Up (Video)
Peter Schiff spoke with Graham Ledger about why the United States economy will only truly recover when the Federal Reserve completely abandons quantitative easing and zero-percent interest rates. Unfortunately, Peter thinks this is highly unlikely due to the political ramifications. Raising interest rates to normal levels right now would likely pop the current stock market bubble. If that happens while Obama is still in office, it will be much easier for a Republican to get elected. That’s exactly why Obama will likely pressure Janet Yellen to keep suppressing interest rates until after the 2016 elections.
Why did we have QE3? Because QE2 didn’t work. Why did we have QE2? Because QE1 didn’t work. We’re going to have QE4 for the same reason, and it’s going to make the problem worse, which means we’re going to have QE5. It’s not going to end until we have a complete collapse of the dollar.”
Follow along with this transcript of Peter’s responses:
“I think [the Federal Reserve will raise interest rates], but not for some time and not until after there is a currency crisis that forces the Fed’s hand. The Fed has been bluffing an exit strategy, and they’ve been talking about raising interest rates for five or six years now. The reason they talk about it is because they can’t do it. If they actually raised interest rates, then we would have to deal with the consequences of their bad monetary policy. What the Federal Reserve has done with their cheap money and quantitative easing is they have inflated the mother of all bubbles. If they raise interest rates, they will prick it, and we will suffer an even worse financial crisis than 2008…
“We’re going to see a repeat of 2008 [if the bubble bursts], only on a grander scale. We’re going to see a stock market collapse. We’re going to see a real estate market collapse. We’re going to see the banks in trouble again. When interest rates go up, it’s not only going to be people who took out sub-prime mortgages that are going to pay – the US government won’t be able to pay interest on the Treasuries when interest rates go up. So we’re going to be in a situation where we’re going to have to default…
“Unfortunately, we’re going to get QE4. People ask me, ‘Why will we have QE4?’ Well, why did we have QE3? Because QE2 didn’t work. Why did we have QE2? Because QE1 didn’t work. We’re going to have QE4 for the same reason, and it’s going to make the problem worse, which means we’re going to have QE5. It’s not going to end until we have a complete collapse of the dollar…
“The risk is that we overdose before we make it into rehab. The minute we try to kick the habit, we have to accept the consequences and it’s not going to be easy. We’re going to have to go through a very protracted and painful recession, because of all the mistakes and all the malinvestments that have been built up over the years because of what the Federal Reserve [has done]. It screwed up this economy incredibly, and unscrewing it cannot be done without a lot of short-term pain…
“[The economic fundamentals] are lousy. The man-on-the-street has a pretty good feel for that, and that’s why the democrats did so poorly in these mid-term elections. It’s not because the electorate, unfortunately, was embracing limited government or Republican principles. They were just expressing their frustration at the President, because the economy is so bad. All the Federal Reserve has done is prop up asset prices that benefit a few people. But that same action has suppressed the real economy that would benefit the broader population. We’re never going to have real economic growth that reduces living costs and creates good jobs until the Fed gets out of the way and allows these bubbles to deflate. But they’re not going to do that. They’re going to keep blowing air into them, until they completely burst…
“That’s what happened to George Bush. He inherited Clinton’s bursted bubble, but instead of acknowledging the problems, he did the wrong thing. He did more stimulus, and as a result we had the housing bubble that ended in an even bigger disaster that President Obama stumbled into. Yes, hopefully this bubble will burst before Obama gets out of Dodge, so it will be easier for a Republican president to put the blame on Janet Yellen and Obama. But yes, if the bubble manages to continue to expand and it bursts on a Republican, they may easily get the blame. The problem is capitalism keeps getting blamed for the failures of government. The 2008 financial crisis was not about an absence of regulation, but about an abundance of it. It was central banking, central planning. The government created that crisis, and the government is in the process of creating the much larger crisis that is going to blow up, hopefully before Obama leaves office. But if it does so after, and it’s not President Hillary Clinton but a Republican, they’re going to have to find a way to level with the American public in a way that they understand that we can’t just have more stimulus, more government – that a real, lasting solution is not a quick fix. It’s going to involve a lot of sacrifice. The government is going to have to cut spending. Interest rates are going to have to go up. People are going to have to lose money. We’re going to have to start over again and rebuild this economy from the ground up based on savings and investment, not speculation and consumption.”
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