Peter Schiff: The One Promise the Fed Is Going to Keep

Since the beginning of the pandemic, government debt and money printing are off the chart. This is creating inflationary pressure. Prices are on the rise. And this is by design. In fact, the Fed has been promising more inflation for years. As Peter Schiff explains, it looks like this is one promise the Fed is going to keep.

The US government blew up the national debt by over $5 trillion in just 18 months. To support all of his borrowing and spending, the Fed turned the printing press up to full speed. The central bank’s balance sheet has expanded to a record $7.72 trillion as it’s created money out of thin air in order to buy trillions in US Treasuries and mortgage-backed securities. Peter said that the Fed is printing about half of the money being spent by the US government.

So, it’s not really borrow-and-spend anymore. It’s print and spend.”

But virtually nobody in the mainstream sees this as a problem.

People seem to think that we’ve stumbled on the equivalent of a monetary fountain of youth. People like to call it Modern Monetary Theory, which is we can have whatever we want as long a government prints the money to pay for it, that there’s no limit, that government is free as long as they print money.”

Why didn’t we figure this out sooner? After all, the printing press has been around for hundreds of years. And Peter raises an interesting question: if this is true, why do we even need to pay taxes?

Of course, the reality is that this is a fantasy — the kind that ends in disaster.

The fantasy is built on a misunderstanding of money. People have come to equate cash with wealth. But there is a big difference between earning money in exchange for producing things and the government running off dollar bills and handing them out.

When people go to work, their labor produces stuff. It increases the supply of goods and services available in the economy. You contribute your labor, and in exchange, you get money. That allows you to buy things from the pool of goods and services that you helped produce. The money itself isn’t wealth. The wealth is made up of the goods and services produced through your labor.

The more productive you are, well, the more you earn, and the greater share of what society produces you are able to enjoy yourself.”

But with government and Fed intervention, we have millions of unemployed people sitting at home just getting a check from the government. They don’t produce anything. They add no goods or services to the economy.

Yet, they can consume goods and services in the same proportions as if somebody had actually done work and actually been a productive member of society.”

What does this do?

It raises prices.

If your work adds to the goods and services, and now you’re consuming the goods and services you helped creates, that’s fine. But if now you start consuming goods and services, and you didn’t help create any of those goods and services, you just have more money chasing a diminished supply of goods and services, and prices are going to go up.”

Peter said with this level of money printing and spending, prices will go up like never before.

Ironically, the Federal Reserve has been promising Americans more inflation.

Well, that’s one promise that they’re going to deliver on. In fact, they’re going to deliver on it beyond their wildest expectations.”

Central bankers and government policymakers claim a little inflation is a good thing. It’s not.

Higher inflation is not making progress.”

Think about it. Do you want higher prices? Of course not. You want a lower cost of living.

When prices go down, that’s progress. That’s capitalism. That’s how capitalism works. When you have real capitalism, businesses become more productive. They become more efficient. They develop economies of scale. And as they do that, the cost of production comes down. And as the cost of production goes down, demand goes up. Because as prices go down, more people can afford to buy more stuff. It’s falling prices that have historically driven a rising standard of living. Well, the government has interrupted that benevolent process through inflation.”

It’s not just that inflation drives prices up. It also prevents prices from going down.

A decline in a price would have been a windfall for the consumer. When the consumer is denied that windfall by government — it’s still a tax. The government is still taking your purchasing power because the goods and services you want to consume are more expensive as a result of the government inflation.”

When you boil it all down, inflation is a promise we’d really rather the government and central bank not keep.