Financier and economist Peter Schiff had some stark warnings for the market this week as he warned that imminent inflation could wipe out the savings of millions.
Talking to TraderTV, Schiff stated that the current banking crisis are ‘not an accident’ but a direct result of the Federal Reserve having kept interest rates too low for too long, encouraging banks to fill their balance sheets with long-term treasuries which left them insolvent when interest rates hiked by 450 basis points above their target in the space of months.
Asked by host Brendan Wickens whether the Fed’s recent decision to hike rates a further quarter point might have been the worst of all possible outcomes, Schiff replied that “the Fed was more concerned about saving face – they had talked of raising rates, so didn’t want to admit they made a mistake…but it doesn’t even matter whether they hiked .25 or .50 – it won’t be enough to put out the fire of inflation, because the rates are still below the rate of inflation. So a negative interest rate is fuelling the inflation fire, it’s not putting it out.”
“But paradoxically, while the interest rates aren’t high enough to stifle inflation [directly], they are high enough to [indirectly] make it worse…since interest rates are prices – the price of money – it factors into the costs of everything else for businesses, who pass on the costs to their customers…the cost of home ownership increases too, which pushes up rents. So everything the Fed is doing, is actually pushing up consumer prices.”
Schiff emphasised the unsustainable levels of US government debt, and the circular nature of the debt funding cycle. “The too big to fail banks are insolvent too – it’s just that we won’t let them fail, so we have to print a lot of money to prevent them from failing.”
“What the fed really needs to do is change consumer behaviour. People need to spend less and save more, but instead saving is at a record low and consumer credit card debt is at a record high, so the Fed isn’t really achieving anything. And more significantly, the government continues to spend more money, the deficits are going up – and part of that is being fuelled by hiked interest rates. The more the Fed hikes rates, the bigger the deficits get, because the government has to pay higher interest – where does the government get that money? Ultimately from the Fed, and the Fed prints it. So the Fed’s attempts to fight inflation by hiking rates is creating more inflation.”
Asked whether all sequels tend to be worse than the originals – Wickens asked Schiff whether the 2023 crisis could become worse than the 2008 crisis. “Nobody wants to refer to it as a financial crisis – they’re calling it a banking crisis – why don’t they just refer to it as a financial crisis? Because they don’t want to evoke any memories of the ’08 crisis, so they’re trying to label it something else. No – this is a financial crisis.”
He added “this is not some kind of black swan we couldn’t have anticipated, this is your garden variety white swan, they’re all over the place – this is what swans look like. If we keep interest rates at zero for ten years, this is what you get, it’s no surprise.”