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Peter Schiff: This Is a Bubble Deflating (Video)

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Peter Schiff appeared on RT Boom Bust last week and reiterated he thinks we have entered a bear market. In fact, what we’re seeing now is a deflating bubble. 

I’ve been calling for a bear market, and I think this is a bear market. And if we get a rally that will be the correction because the primary trend is now down. This is early in this bear market. It’s very young and unfortunately, it’s going to be very long-lived. I think this is going to be similar, if not worse, than the bear market that went from 1966 to 1982. It took 16 years for the Dow to make a new high, and during that time period, inflation took about 70% away from the Dow’s value. This time I think it’s going to be worse.”

Bart Chilton asked why more people don’t seem to be concerned. Is it just that they don’t want to face the music?

They don’t even understand the music or what’s playing. What they don’t get is that we are about to finish the financial crisis and Great Recession that started 10 years ago in 2008. Because all the Fed’s succeeded in doing was interrupting that process, which was the market’s cure for the underlying economic disease, which is now much worse. Ten years of additional debt – borrowing and spending – simply allowed us to reflate an even bigger bubble than the one that popped before. And so, as a result, we are in a much worse economic condition than we were on the eve of the last crisis. And so now, the finishing process is going to be far more severe. So, the back half of the great recession is going to be much greater than the first half, and the rest of the financial crisis is going to be much worse than at the beginning.”

Nevertheless, most of the mainstream pundits continue to view what’s going on as a healthy correction. Peter said there is nothing healthy about what’s going on.

This is a bubble deflating. This is exactly how it started in 2008, only this is a bigger bubble and it’s going to produce a bigger crisis.”

Chilton brought out the regulation boogeyman, saying it was unregulated markets and rampant speculation that led up to the financial crisis in 2008. Peter said this notion that unregulated markets caused the crash is a common misconception. He said the problems were actually evolved in the regulated entities such as Fannie Mae and Freddie Mac. And these were not the root of the problem.

But remember, the fuel for that bubble was not the mortgage lenders, it was the Federal Reserve, which kept interest rates artificially low. They kept interest rates at 1%, which at that time was the lowest they’d ever been. They left them there for an entire year, and then it took two or three years to normalize back to 5%. But we took on a lot of debt when interest rates were artificially low. A lot of it was mortgage debt. And the bubble popped. But this time, the Federal Reserve injected far more monetary heroin into the economy. They kept interest rates at zero for six years. They’ve been raising them for three years, and they’re just now back at 2%. So, you have nine years so far of extremely artificially low interest rates, which have caused a much bigger credit bubble than the one that popped in 2008.”

We ended up with all kinds of bubbles and now they have popped. And since the economy was more screwed up by this round of Federal Reserve intervention than the one before, we are in much bigger trouble. Peter said the big difference this time around is the Fed is not going to be able to bail us out.

There is no bigger bubble that the Fed can blow. This is it. They’re done blowing bubbles. We now finally, finally have to deal with the consequences. And because we kicked the can down the road for so many years, the consequences are much more severe than they would have been if we’d bit the bullet and dealt honestly with them earlier.”

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