Peter Schiff: Negative Interest Rates Are Boneheaded

Donald Trump has been badgering Federal Reserve Chairman Jerome Powell for months, begging for lower interest rates. Yesterday, he took things to another level, saying that the “boneheads” at the Fed need to push rates into negative territory.

In his podcast, Peter Schiff said negative interest rates are boneheaded.

Trump used a pair of tweets to push for negative interest rates.

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet………The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’

Peter said he can’t think a more boneheaded thing to do than to push interest rates negative.

Trump is basically saying negative rates would allow the federal government to refinance its debt. It could roll over short-term debt into longer termed bonds and lock up the low rates. But as Peter pointed out, interest rates are already near historic lows.

If President Trump actually cared about refinancing the national debt and lengthening the maturity of the debt – the duration – and locking in these low interest rates, lock them in! They’re already super low.”

Peter said if the Fed did cut rates to zero or lower, he thinks yields on long-term bonds would actually start to go up because the market would begin factoring in higher inflation.

What is stopping Trump from doing what he claims he wants to do but for the boneheads at the Fed? … Talk is cheap. Tweets are cheap, in particular. What about actions? Actions speak a lot louder than tweets. And Trump’s actions are the opposite. During the Trump presidency, the average maturity on the national debt has actually been shortened. So, instead of locking in these super low, historically low long-term interest rates, Trump has done the opposite. He has been borrowing more on the short-run and not borrowing on the long-run.”

The bottom line is that Trump could do what he says he wants to do right now. The “boneheads” at the Fed aren’t stopping him. Peter said what’s really stopping him is political calculation. If the president actually did refinance the national debt with long-term bonds, long-term interest rates would go up. That would undermine the housing market and the economy.

So, what President Trump is doing is he’s making the same BS political tradeoff that Obama made and that Bush made and that Clinton made. He’s doing what’s good politically for himself. He’s kicking the can down the road. He’s postponing the day of reckoning by saying, ‘You know what? Even though this is a ticking time bomb, let’s keep interest rates as low as possible.’ And so we’re going to have a short maturity.”

Peter said Trump is a complete hypocrite trying to pretend it’s the boneheads at the Fed.

He’s kind of like rehearsing now for the election because he wants to blame everything that has gone wrong on the Federal Reserve rather than accepting responsibility himself.”

Peter also talked about the most recent surge in consumer debt and what that actually means for the economy and he offered some thoughts on the 18th anniversary of 9/11.