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Peter Schiff: Printing Money Is Not the Cure for Cononavirus

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In his most recent podcast, Peter Schiff talked about coronavirus and the impact that it is having on the markets.

Earlier this month, Peter said he thought the virus was just an excuse for stock market woes. At the time he believed the market was poised to fall anyway. But as it turns out, coronavirus has actually helped the US stock market because it has led central banks to pump even more liquidity into the world financial system.

All this means more liquidity — central banks easing. In fact, that is exactly what has already happened, except the new easing is taking place, for now, outside the United States, particularly in China.”

Although the new money is primarily being created in China, it is flowing into dollars — the dollar index is up —  and into US stocks. Last week, US stock markets once again made all-time record highs.

In fact, I think but for the coronavirus, the US stock market would still be selling off. But because of the central bank stimulus that has been the result of fears over the coronavirus, that actually benefitted not only the US dollar, but the US stock market.”

In the midst of all this, Peter raises a really good question.

The primary economic concern is that coronavirus will slow down output and ultimately stunt economic growth. Practically speaking, the world would produce less stuff. If the virus continues to spread, there would be fewer goods and services produced in a market that is hunkered down.

Why would the Federal Reserve respond, or why would any central bank respond to that by printing money? How does printing more money solve that problem? It doesn’t. In fact, it actually exacerbates it. But you know, everybody looks at central bankers as if they’ve got the solution to every problem. They don’t. They don’t have the magic wand. They just have a printing press. And all that creates is inflation.”

Sometimes the illusion inflation creates can look like a magic wand. Printing money can paper over problems. But none of this is going to fundamentally fix the economy.

In fact, if central bankers were really going to do the right thing, the appropriate response would be to drain liquidity from the markets, not supply even more.”

Peter explained how the Fed was originally intended to create an “elastic” money supply that would expand or contract along with economic output. Today, the money supply only goes in one direction — that’s up.

The economy is strong, print money. The economy is weak, print even more money.”

Of course, the asset that’s doing the best right now is gold. The yellow metal pushed above $1,600 yesterday. Gold is up 5.5% on the year in dollar terms and has set record highs in other currencies.

Because gold is rising even in an environment where the dollar is strengthening against other fiat currencies, that shows you that there is an underlying weakness in the dollar that is right now not being reflected in the Forex markets, but is being reflected in the gold markets. Because after all, why are people buying gold more aggressively than they’re buying dollars or more aggressively than they’re buying US Treasuries? Because they know that things are not as good for the dollar or the US economy as everybody likes to believe. So, more people are seeking out refuge in a better safe-haven and that is gold.”

Peter also talked about the debate between Trump and Obama over who gets credit for the booming economy  – which of course, is not booming.

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