Peter Schiff: The Fed’s Important Admission

Atlanta Fed President Raphael Bostic made an important admission during a CNBC interview. He confessed the Fed wasn’t really going all-in on the inflation fight. That raises a question: how is it going to tame the inflation monster? Peter Schiff talked about this admission during his podcast, along with a head-scratching article about the trade deficit in the Wall Street Journal.

The US trade deficit shattered historical records in 2021. The Wall Street Journal claims this is a sign of a strong economy. Peter said that’s an absurd statement.

That’s like your kid brings home an F on his report card and you’re like, ‘Oh, that must stand for fabulous.’ It doesn’t. It is failure. A 27% explosion in a deficit is an abysmal failure of an economy.”

Imagine if the trade surplus was up 27%. Would the Wall Street Journal be reporting this as a sign of a weak economy? Of course not.

You can’t have it both ways. Either an increase in your trade surplus is good or an increase in your trade deficit is good. They can’t both be good. And clearly, a bigger surplus is a good thing.”

When you produce a surplus of goods and then sell them, you can take the earnings from those surpluses and invest them. That makes the country richer because you’ve earned assets in exchange for your exports.

That’s how creditor nations become richer because they invest their earnings from trade. On the other hand, when you are running a trade deficit, you are accumulating liabilities in order to pay for those deficits. So, debtor nations go deeper into debt as a result of running trade deficits. That’s why the US has gone from the world’s biggest creditor nation to the world’s biggest debtor because we used to run surpluses and now we run deficits.”

Peter called the WSJ article “all spin.”

They’re trying to take the facts and spin them around and make lemonade out of economic lemons.”

Speaking of trying to turn lemons into lemonade, Atlanta Fed President Raphael Bostic made an important admission during a recent interview. Journalist Steve Leisman noted that the Fed plans to raise interest rate about 1% this year. But he pointed out that the central bank would have done that anyway, even if there wasn’t inflation to fight. So, how is this rate hike going to work as “inflation-fighting,” and how has the Fed adjusted its policy in light of the fact that inflation is much higher than originally anticipated? The only thing the Fed is doing differently now that it’s admitted inflation isn’t transitory is speeding up the rate hike timeline. But the trajectory of liftoff is identical to what it might have been if inflation had remained under 2%.

Bostic actually admitted the Fed wasn’t really doing anything significant, but he said the hope was by communicating to the markets that the central bank intends to return to historically normal monetary policy would be enough to bring inflation down.

Well, why should it?

If we have this abnormally high inflation rate, how is a return to ‘normal’ monetary policy going to do anything about that inflation problem?”

The pretense for the Fed’s easy money stance in the Greenspan era has been the lack of inflation. The central bank has justified low rates by pointing to inflation below 2% and claiming that was too low.

When inflation is 7%, what is the justification for going back down to the same type of monetary policy that was supposedly appropriate when inflation was less than 2% and your goal was to make inflation higher?”

In the same interview, Bostic said the Fed would be moving to a “less accommodative stance.” Notice he did not say a “restrictive” stance. He said less accommodative, implying that the monetary policy will continue to be accommodative despite high inflation.

We’re not talking about tight money. We’re talking about less loose. And that’s exactly what Bostic confirmed. The Fed is going to go to a less accommodative policy than the accommodative policy it has right now. Well, how do you fight inflation with an accommodative policy?”

In this podcast, Peter also talked about the quiet rally in gold, bitcoin’s bear market rally, unemployment numbers and COVID and the labor market.