Peter Schiff Spars with Liberal Economists on Inflation

Peter Schiff appeared on MSNBC’S “Up with Chris Hayes” with a panel of other experts and pundits to debate the Fed’s role in the housing bubble, Republican views on the economy, and the effects of inflation on prices.

Peter had a spirited exchanged with Karl Smith, Economics Professor from the University of Carolina, on the causes of the housing crisis. Smith took the typical stance of blaming complicated investment instruments for creating confusion in the market. Peter countered with the primary cause stemming from a combination of artificially low interest rates and Fannie and Freddie’s role in making cheap mortgages available to too many people who couldn’t afford them.

None of the panel, save Peter, expressed worry about the impact the national debt is having on the ability to raise interest rates, and what low interest rates are doing to the economy. Peter pressed the point that raising interest rates would be a bitter, but necessary, pill to keep us from falling off the fiscal cliff.

“The real fiscal cliff is not this phony one that we’re talking about at the end of the year when the budget deficit might actually come down a little bit. The fiscal cliff is when interest rates skyrocket and the government can’t afford to pay the interest on the enormity of the debt that’s been accumulated the last few years,” Peter said.

Smith lobbed a last shot at Peter asking, “When are we going to have inflation?” For Smith and other ivory tower academics, the impact and existence of real inflation may seem mythical, but for Americans trying to make ends meet, it’s an all too real aspect of their daily lives, something Peter defended in his response: “Have you been to a supermarket lately?” It seems the only inflation liberal economists believe in is the kind expanding their own egos.

Highlights from the show:
“You don’t create economic growth or jobs by printing money, what you do is create bubbles and inflation. You have to remember it was the artificially low interest rates that were the principal cause of the housing bubble, and, therefore, the Fed is to blame for the financial crisis that ensued. Right now we don’t need more cheap money. That is preventing the economy for restructuring along the lines that would actually give us lasting economic growth. We need much higher interest rates. Of course, that’s going to bring on some short-term pain, but unfortunately, we need that to get the long-term gain.”

“There’s more misery if we don’t bite the bullet and we didn’t follow Andrew Carnegie’s advice during the 1920s. Hoover ignored it; he did what Obama’s doing. He did what Roosevelt was doing. That’s why the depression lasted through the end of the Second World War.”

“The real fiscal cliff is not this phony one that we’re talking about at the end of the year when the budget deficit might actually come down a little bit. The fiscal cliff is when interest rates skyrocket and the government can’t afford to pay the interest on the enormity of the debt that’s been accumulated the last few years.”

“Most Republicans don’t understand how bad it’s going to get when the Fed does the right thing after having done the wrong thing for so long. When they finally let interest rates go up, it’s going to be very problematic for a country that is so over-leveraged. Banks are going to fail. The government is going to have to default on a lot of its obligations.”

“I don’t think that people understand the Fed’s role, how instrumental it has been to creating all the macroeconomic problems that are plaguing us right now. By keeping interest rates too low for too long it has screwed up the economy. We don’t save enough. We don’t produce enough. We have too many people working in the service sector, in government, in banking, in retail, and in healthcare and education. Meanwhile, we can produce the things that we need to consume. We have 50 billion dollar a month trade deficits because this economy doesn’t work anymore because all the resources are misallocated. It’s going to be painful to put them back together. But if we don’t do it, we’re going to have a real crash in this country that’s going to make 2008 look like prosperity.”

“Inflation is going to run out of control. It’s going to devastate the economy. The Fed has no tools now to contain it. If they have to raise interest rates in order to fight the inflation Genie that they’ve let out of the bottle, the US government is going to have to default on its bonds. We’re going to have failures in the banking system without any ballot. It’s going to be a much bigger collapse than what happened in ’08.”

“Inflation is going to run out of control. It’s going to devastate the economy. The Fed has no tools now to contain it. If they have to raise interest rates in order to fight the inflation Genie that they’ve let out of the bottle, the US government is going to have to default on its bonds. We’re going to have failures in the banking system without any ballot. It’s going to be a much bigger collapse than what happened in ’08.”

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