Jerome Powell took center stage last week and the Federal Reserve chair didn’t do anything to dampen expectations of a rate cut. His comments sent both stocks and gold higher.
Peter Schiff recently appeared on RT Boom Bust with University of Amherst economics professor Richard Wolff to talk about the Fed and its impact on the markets. Pete said no matter what the Fed does, a recession is coming.
Peter opened the interview saying the main reason the Fed is cutting rates is to try to keep the air from coming out of the stock market bubble.
The other reason is they’re trying to keep this so-called expansion going. There they’re going to fail. I think we’re headed for recession regardless of what the Fed does with rates. The only thing the Fed is going to succeed in doing is reviving inflation. The Fed claims inflation is too low and they want to make sure the rate goes up. Well, that’s going to be their only success. But unfortunately, that’s also going to be their biggest failure.”
Wolff agreed with Peter’s view that a downturn is coming, noting that we are overdue for a recession. He said the sudden dovish turn by the Fed is a “desperate move” by to try to postpone the downturn until after the 2020 election.
The host mentioned a tweet Peter put out during Powell’s trip to Capitol Hill.
Are any House Democrats smart enough to ask Chairman Powell if he agrees with President Trump that the current U.S. economy is the strongest in history?
Peter said he never heard the question asked, but it would have been a great way to put Powell on the spot and ask him if he agrees with the president.
The president tweets every day that we have the strongest economy in history, which isn’t even close to being true. But clearly, Powell doesn’t believe that the economy is the strongest in history, because if he did, he’d be raising rates, not cutting them.”
Peter said this isn’t even a good economy.
It’s a bubble. Powell doesn’t seem to understand that. He seems to think the economy is doing OK. It’s not. The economy today is in worse shape than it was before it collapsed in 2008. The Fed inflated a much bigger bubble this time than it did last time. And yes, the longer we succeed in kicking the can down the road, the greater the imbalances grow as a result of this bubble, and the more painful it is when the air comes out. And that’s what’s going to happen. And what’s going to be so much worse about the coming recession is that it’s going to be inflationary. We’re going to have stagflation except it’s going to be a recession, not just stagnation, and the inflation rate is going to be far higher than it was the last time we had stagflation, which was in the 1970s.”
There was also a discussion about Fed “independence” and Pres. Trump’s efforts to bully Powell into cutting rates. Wolff called it “extraordinary theater.” Peter said Fed independence has always been a pretense.
It was created to be independent, but it has actually acted as an arm of government. To the extent that we can no longer maintain that pretense, that is a very dangerous position to be in. But I agree with Trump that the Fed is doing a bad job — but because they didn’t keep raising rates. Rates are still much too low. The Fed needs to raise interest rates. The Fed needs to allow this expansion to come to an end because it’s unhealthy. It’s a bubble. The Fed has to let the stock market go down, let the real estate market go down, let the bond market go down, and force the US government to cut spending. That’s what needs to happen. But by keeping interest rates artificially low, they support increased government spending, they support these asset bubbles that are undermining the real economy and that are laying the foundation for the next economic crisis which will be much worse than the last one and for which there will be no bailouts.”
Peter was also asked about Powell’s take on the gold standard.
Well, the chairman’s response is typical. If we were on a gold standard, he’d be out of a job.”
He went on to explain that the economy actually fared much better under a gold standard. But it was the US that ultimately took the world off the gold standard and put it on a dollar standard.
This coming dollar collapse is going to bring the world back onto the gold standard. Because when they reject the dollar, they will embrace gold, and gold will once again serve as the primary reserve asset for currencies around the world.”