Peter Schiff: Jerome Powell Rewrites Inflation History

During his Jackson Hole speech, Federal Reserve Chairman Jerome Powell rewrote the history of inflation. In this clip from his podcast, Peter Schiff unravels the yarn that Powell spun.

In a nutshell, Powell claimed prior Fed policymakers mistakenly moved too fast to address inflation that turned out to be transitory, and he said he didn’t want to make the same mistake.

In the first place, none of the “mistakes” Powell described occurred when interest rates were at zero.

Even if it turns out that inflation is actually transitory, even if that’s the case, that doesn’t justify keeping interest rates at zero. Nothing justifies keeping interest rates at zero — except my explanation that the Fed knows if they raise rates, the economy is going to crash. And so they’re not raising them. And if they raise them later, it’ll crash even harder, so they’re never going to raise them. That is the only viable explanation for the Fed’s failure to act, not the idea that inflation is transitory.”

More importantly, Powell’s history lesson is wrong. He’s rewriting history. There is no history of Fed chairs being too aggressive in fighting inflation.

Peter said the opposite is true.

They’re always too dovish. They’re never too tight.”

The only time in modern history the US has had legitimately tight monetary policy was during the Paul Volker era.

Powell did acknowledge the Fed got it wrong on inflation in the 1970s. But he got it wrong even when he got it right. He said the Fed was correct in assuming 1970s inflation was transitory because food and oil prices came down. He claimed that move vindicated the central bank. But core consumer prices kept going up anyway. Powell blamed that on the public. He claimed the public started to expect inflation. Because of those expectations, we had inflation. In essence, he called rising prices in the 1970s a self-fulfilling prophecy. In essence, the public willed inflation into existence.

Peter called this narrative “nonsense.”

So, why did we have higher inflation in the 70s? It’s the same reason we’re going to have even higher inflation down the road.

It was the Fed’s fault.

They printed too much money. They printed a bunch of money during the 1960s in order to finance large government deficits.”

And where did those deficits come from?

They came from Lyndon Johnson who was implementing his Great Society programs — Medicare and Medicaid never existed before — rolled those things out. We launched the war on poverty. We had the Vietnam war. By the way, we lost both those wars. Poverty won the war on poverty, and we lost Vietnam. But we spent a lot of money losing those wars. We funded the space race. We had the Apollo missions. We went to the moon. All this stuff was done with borrowed money and printed money.”

And then we went off the gold standard.

We did all this stuff and that’s why we had all this inflation. It had nothing to do with what the public expected. They didn’t get inflation because they expected it. They got inflation because the Fed created it.”

The only thing that stopped the inflationary spiral was Volker doing the right thing. Peter said that’s probably the last time anyone at the Fed ever did the right thing.

Powell’s revisionist history proves he doesn’t understand the mistakes the Fed made in the past, which is why he doesn’t understand the mistakes that he’s making in the present.

Peter said the inflation we are about to experience will be worse than in the 1970s.

The Fed now is making the same mistakes as it did back then, only on a bigger scale. The current Fed is monetizing even larger deficits than the Fed did back then. So, even more inflation has to be created now than was created then. And it’s happening at a time where the US economy is much more leveraged than it was during the 1960s.”

America wasn’t a debtor nation in the 1970s. It was a creditor nation. It had huge trade surpluses.

The economy is a shadow of what it used to be. It’s just a gigantic bubble. We had a real viable economy back then, and we still managed to have the stagflation of the 1970s. So, if we had stagflation know the 70s when we had a much stronger economy, imagine what we’re going to have now when we have a much weaker economy. We have a much bigger bubble. And the Fed is creating even more inflation now than it did then.”