Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Peter Schiff: History Shows It’s Impossible to Put the Inflation Genie Back in the Bottle

  by    0   3

The markets basically shrugged off the hotter-than-expected inflation data for January. Most people remain convinced that the Fed can easily get price inflation back to 2% without wrecking the economy. But in his podcast, Peter explains that stuffing that inflation genie back into the bottle is a lot harder than most people seem to think.

Both the CPI and the PPI came in hotter than expected in January.

“In my opinion, it indicated a trough in so-called disinflation,” Peter said.

Jerome Powell hung his hat on declining price inflation numbers. It was the thing he could point to in order to claim he was winning the inflation fight. Even though the CPI was still well above the 2% target, it was coming down. So, it appeared that the Fed strategy was working, and we were well on a path to victory. At that point, the central bank would be free to start lowering interest rates.

Peter was calling this “wishful thinking” all along.

I was pointing out that it was not going to be nearly as easy to get that inflation genie back in the bottle as the markets expected. The CPI and PPI data should have thrown cold water on that narrative.”

But apparently, it didn’t, because the market basically shrugged the hotter-than-expected CPI and PPI data off. In fact, the NASDAQ finished last week with gains. And it is the more speculative, risky stocks that are doing well — not what you would expect if the markets were worried about more Federal Reserve monetary tightening.

The mainstream seems totally oblivious to the extreme difficulty of stuffing that inflation genie back into the bottle and getting back to the mythical 2% target. As Peter explained, history bears this out.

If you look back in time going back to the 1970s — that’s when inflation really got out of hand —  but going back to the year 1970, there have only been 11 years since then when inflation has been 2% or lower.”

If you’re going to take the Fed at its word that it wants inflation to be 2%, then it should be at that target or slightly under in order to claim success.

Not that 2% was its official target back in the 70s or 80s, but just to highlight how difficult it is to have a 2% inflation rate in this modern fiat economy, we’ve only had 2% or less 11 times since 1970. And eight of those 11 years happened after the 2008 financial crisis. In other words, before the 2008 financial crisis, when we kind of had a normal economy, we only had three years out of 38 where we had 2% or lower inflation. That’s 8% of the time.”

In the decade after the 2008 financial crisis, we had years of 0% interest rates and multiple rounds of quantitative easing. That was far from normal.

If you go back to a normal period of time, and you could argue today’s time period is more normal in that respect based on where interest rates are, why should it be any easier for the Fed to get 2% inflation now than it was before the 2008 financial crisis? In fact, it should be harder for the Fed to achieve that goal because we have so much more debt now than we had back then. Interest rates have been so low for so long. The Fed has created so much money — like half the money in circulation came into circulation just in the last couple of years. So, that really makes the Fed’s job of bringing inflation down to 2% basically impossible.”

In fact, we haven’t even reached a new equilibrium to reflect all of the new money that is now in circulation.

You have to have a balance between supply and demand — supply being the amount of goods that are produced and demand meaning all of the money that’s available to procure those goods. People now have a lot more money. Why? Because the Fed created a lot more money and put it into circulation. So, now there is more money chasing a limited supply of goods. We need a new equilibrium. The demand curve has shifted as a result of an increase in the money supply. So, now we need to find a higher equilibrium price to balance supply and demand. And we’re not even there yet. So, to think that the Fed could easily return us to a 2% inflation — a goal that was very rarely achieved prior to the 2008 financial crisis…?”

Peter conceded that it took longer than he expected for all of the inflation the Federal Reserve created after the financial crisis to manifest in higher prices. But we’re certainly seeing it today. Meanwhile, the Fed has backed itself into a corner. For years after the 2008 financial crisis, it lamented inflation below 2% and tried to get it back to that level. In fact, central bankers even said overshooting wouldn’t be a problem because they know how to fight inflation.

That’s what made me say on my podcast on many occasions, ‘Be careful what you wish for if you’re a central banker wishing for inflation.’ … I pointed out just how impossible it would be to put the inflation genie back in the bottle. In fact, I pointed out that that expression came into being for a reason. If you have an expression like that, it was developed specifically because of the experiences the people had. So, the reason you’re not supposed to let the inflation genie out of the bottle is because of how hard it is to get it back in. But for some reason, this new generation of central bankers basically felt that, no, that expression doesn’t mean anything at all.”

We are now reliving the experience that is responsible for the adoption of the adage “don’t let the inflation genie out of the bottle.”

401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Peter Schiff: Booming Stock Market Mirrors Dot-Com Bubble

This week Peter covers the highlights of a volatile trading week, paying special attention to Nvidia, Wall Street’s favorite AI stock, and Newmont Corporation, a heavy hitter in the gold mining industry. Both companies’ shares experienced dramatic price action this week, with NVDA gaining $260 billion in market cap and pulling the market up after an excellent earnings […]

READ MORE →

New Peter Schiff Video: Inflation Rises, Bitcoin ETFs, and the Final Gold Shakeout

Peter released a brief video addressing the looming resurgence of inflation. Ironically, on the back of disappointing inflation numbers, gold witnessed a dip below $2000 on Tuesday due to higher-than-expected CPI data.

READ MORE →

Peter Schiff: Inflation and Biden’s Blame Game

During this week’s Super Bowl ads, Biden slammed greedy corporations for inflation. In his most recent podcast, Peter explains exactly what’s happening with inflation, and why Biden’s blame game has it backward.

READ MORE →

Peter Schiff: We Are On The Brink of A Catastrophe

Man on a debt cliffJerome Powell’s 60 Minutes portrayal of the national debt crisis as a distant concern starkly contrasts with the urgent reality we face. Peter Schiff doesn’t mince words in his most recent podcast when he highlights the immediate threat:

READ MORE →

Peter Schiff: Another BS Jobs Report

Government official celebrates job growthThe story of America’s job growth is more complex and nuanced than the government wants us to believe. In a world where job numbers wield significant influence over perceptions of economic health, it’s crucial to scrutinize the data—and the methods behind their presentation—closely. In his latest podcast, Peter Schiff delves into the murky waters of […]

READ MORE →

Comments are closed.

Call Now