Peter Schiff: When Kashkari Talks, Smart People Buy Gold

Minneapolis Federal Reserve Bank President Neel Kashkari has been making the rounds. Peter Schiff talked about Kashkari’s recent comments on his podcast.

Kashkari ranks as arguably the most dovish Fed president. Peter called him the “uber-dove” saying he basically wants to print as much money as possible.  During an online seminar put on by Montana’s Bureau of Business and Economic Research, Kashkari said the Fed needs to do even more to boost the economy and he’s not worried about overdoing it.

“Right now I’m not concerned about it – this is like wartime spending,” he said, adding, “We have the capacity to do what we need to do.”

The key now is for the Federal Reserve to keep our foot on the monetary policy gas until we really have achieved maximum employment as we call it. And I think it’s going to be important for Congress to continue to be aggressive supporting people who have been laid off, supporting small businesses until we really get the pandemic behind us and restore the economy.”

Kashkari said one of the reasons he’s not concerned about deficits is because a lot of people are actually better off thanks to the pandemic because they haven’t spent as much and there is more saving to tap into. That means they’re able to loan this money to the US government. In turn, it can spend it to help the people who are suffering. It’s basically a virtuous circle that all works out in the end. Peter called this “laughable.”

The public is not lending any money to the US government. The average guy who maybe has some more money in the bank than they had, they’re not going out buying any US Treasuries with that money. There’s no way.”

The banks where the saved money is kept might be using it to buy Treasuries, but with yields this low, this is probably not the case.

The reason long-term Treasury yields are so low – it’s got nothing to do with this glut of savings from the Americans who are better off from COVID. It’s because the Federal Reserve is buying all those bonds. That’s why interest rates are so low. That’s where the government is getting the money to bail out everybody who’ve been hurt by COVID. They’re not getting it from Americans who are flush with savings. They’re getting it from the Federal Reserve that is just printing money and buying up the bonds.”

Kashkari’s theory also ignores an important fact. Even if this money was being borrowed out of this pool of savings, it has to be paid back.

The problem isn’t borrowing [the money]. The problem is when you have to pay the loans back. But of course, Kashkari doesn’t even consider paying the loans back because he knows the loans are never going to be paid back — and he doesn’t even care. He knows the government is just going to perpetually into debt because the Federal Reserve is there to make that possible and to keep the Ponzi scheme going so that the government never has to deal with the debt.”

But eventually, somebody is going to have to deal with it. The dollar will have to deal with it and that means anybody who owns dollar-denominated debts will have to deal with it.

Kashkari also said he wasn’t concerned about inflation. He deemed it a psychological phenomenon. If people think inflation is coming, they ask for a raise. In essence, expectations drive inflation. Since inflation expectations are low right now, that means we won’t likely get it. Peter said, in his mind, what people don’t expect is the big concern.

It’s ‘expect the unexpected.’ Like what happened with GameStop — I don’t think any of the shorts in GameStop expected what happened but it happened anyway. And because what happened was so unexpected, it was such a big deal. So, it’s the unexpected inflation that is much worse than the inflation that you expect.”

Regardless, if you look at the bond market, it’s pretty clear inflation expectations are growing. And the only reason interest rates aren’t pushing even higher is the Fed has its thumb on the bond market.

Kashkari also weighed in on unemployment. He said he thinks the real rate of unemployment is higher than the numbers indicate. In fact, he thinks it’s as high as it was at the height of the Great Recession. And yet a lot of companies are struggling to hire workers. Kashkari said all they need to do is offer higher wages, completely ignoring the fact that the high unemployment compensation doled out by Uncle Sam incentivizes people not to work.

We have made it very lucrative for people to be unemployed. For many people, it’s more lucrative to stay unemployed than to go back to work. And it’s certainly a lot more fun. So, if it’s more fun and more lucrative, why wouldn’t you expect people to opt to do that? And so now, in order to entice somebody to give up the cushy deal they have on extended unemployment benefits, employers have to pay a lot of money to get these workers back. But if they can’t increase prices high enough to cover the cost, then they just have to make do without those workers.”

Kashkari represents that conventional wisdom at the Fed. Print money. Borrow money. Spend money. Repeat. And of course, this is bullish for gold. Inflation is bullish for gold. Money printing is bullish for gold. Stimulus is bullish for gold. And Kashkari makes it crystal clear, this is the path forward. So, when Kashkari starts talking, smart people buy gold.