Noted economist Peter Schiff gave a wide-ranging interview, saying the Fed is going to take its benchmark interest rate back to zero, but that’s because an ill-timed recession will ultimately sink Donald Trump’s second bid for the presidency. And that’s when the electorate will vote Democrats back in and then the U.S. “will be to the left of Canada.”
“What we’re about to experience will be a bigger bust than what we had in 2008 and, unfortunately, Trump is going to get blamed for that as will all of the Republicans.”
“I did an interview where a reporter asked me why the economy is so volatile. And basically it’s just the air coming out of a bubble, that’s the volatility. First the bubble was inflating and everything was going up,” Schiff said in an interview with precious metals site Kitco News. “Now the bubble is deflating, everything is coming down. The Federal Reserve has tried to blow some air back into the bubble. If you look at Fed Chairman (Jerome) Powell’s comments, he’s now backing off of continuing to shrink the balance sheet and maybe not raise interest rates anymore, and so that’s kind of reflating the bubble at bit.
“But I don’t think that’s enough to do it. I think the air is still going to come out. I think the rate hikes that have already taken place are too much for the over-leveraged U.S. economy to bare, so I think the Fed ultimately is going to go back to zero (interest). I think it’s not just about slowing down the shrinking of the balance sheet, I think they’re going to blow it back up even bigger with QE4 (a fourth round of quantitative easing) and, of course, when the Fed surprises the markets by doing a complete 180 on monetary policy, I think that you’re going to see the bottom drop out of the dollar, and that’s when you’re really going to see a big bid in the gold market.”
Quantitative easing is an expansionary monetary policy — also known as large-scale asset purchases — where a central bank like the Fed buys government bonds or other assets in order to stimulate the economy and increase liquidity.
Schiff also discussed the current state of the stock market, which has seen mostly big gains so far in 2019, calling that a “correction” in a bear market.
“The stock market is moving up and down because the bubble popped,” Schiff said. “We entered a bear market in the U.S. and right now we’re having our first correction in that bear market where you get a rally. In a bull market the corrections are down. Well in a bear market the corrections are when the market moves up, and I think we’re in one of those right now. But I think the primary trend in stocks is down and I think the bear market still has a way to go.”
Schiff then went on to say the Fed will end up lowering the interest rate because we’ll be in a recession worse than 2008, and that will sink the Trump presidency.
“I think he is going to get lower interest rates but it’s going to be because the economy is in a recession, which is not something that Trump wants,” Schiff said. “In fact, it’s going to work very, very much against him, especially if he tries to run for reelection in 2020 because I don’t believe that the Fed’s policy is going to be successful in getting the economy out of the recession. I think that will help put us into a depression that may not fully take hold until the socialists come into power in 2021.
“But I do think we’ll have an inflationary recession that will only be exacerbated by the Fed’s attempts to reflate the bubble by going back to zero and doing more QE. I think that it’s going to have a big impact on the dollar, and therefore the cost of living. So it won’t be stock prices or real estate prices that go up like they did last time, but food prices and energy prices, and so it’s going to be a very, very difficult economy. That’s not what Trump wants after having claimed credit for what he called the biggest boom in U.S. history, which wasn’t even close to being true. What we’re about to experience will be a bigger bust than what we had in 2008 and, unfortunately, Trump is going to get blamed for that as will all of the Republicans.”
Schiff said Trump would have been much better off if we had the recession early in his term and blamed it on former President Barack Obama and the Fed.
“But because we started off with a big burst in the stock market and we got these tax cuts, Trump claimed ownership of the economy. But we just postponed the day of reckoning by two or three years,” Schiff said. “But now, from a timing perspective, we’re going to be going into a recession in the second half of his term, which really reduces the odds that we’re going to get out of it in time for the electorate to reward him.
“Instead, they’re going to blame him for the recession and they’re going to take out their frustrations by voting for the Democrats. Of course, the Democratic party is far more to the left now than it used to be. In fact, we’re going to be to the left of Canada. So if you think you’ve got socialism up north, wait till you see what’s coming down here.”