Ex Reagan adviser Peter Schiff hits out at Fed for creating bubble economy, predicts bigger crisis

By @diplomatist10 on
U.S. Federal Reserve Chair Janet Yellen speaks at a news conference following the two-day Federal Open Market Committee meeting in Washington March 18, 2015.
U.S. Federal Reserve Chair Janet Yellen speaks at a news conference following the two-day Federal Open Market Committee meeting in Washington March 18, 2015. Reuters/Joshua Roberts

Peter Schiff, former adviser to President Ronald Reagan and CEO of Euro Pacific Capital has said Americans should prepare for “a horrible Christmas” even as they wrap gifts as they are going to face a big recession because of the Fed’s wrong policies.

“I expect job layoffs to start picking up by the end of the year,” Schiff said told CNBC’s Future Now program and added that retailers are going to be the first victim.

According to Schiff, the Federal Reserve has been distorting markets and pushing investors into high-risk investments by keeping interest rates near zero percent since 2008.

Americans are broke

"Retailers have overestimated the ability of their customers to buy their products. Americans are broke. They are loaded up with debt," he said.

According to him, America is teetering on the edge of an official recession and the labour market is also softening. Schiff, a longtime critic of Fed, had been expressing doubts over the Fed’s vacillation in hiking interest rates, which has been at a low since 2008. Though his predictions for a stock market and dollar crash are yet to happen, he reiterated that Fed is not being allowed to act and its hands are tied.

Schiff blamed the Federal Reserve for the current problems and alleged the central bank is following a regime of easy money and has created a bubble that any prick could spin it out of control. He said that is why the Fed is hesitating to hike interest rates.

“The Fed has to talk about raising rates to pretend the whole recovery is real, but they can't actually raise them,” said the CEO of Euro Pacific Capital.

He said Fed Chair Janet Yellen cannot admit that she cannot raise them because then she will be admitting the whole recovery was a sham.

Schiff dubbed the recent rally in the dollar as “the biggest bubble that the Fed has ever inflated” and “it's the only thing keeping the economy afloat.” The dollar hit a three-month high in November after Yellen said a December rate hike was a “live” possibility, added the CNBC report.

According to the contrarian investor, the inflated dollar is keeping the cost of living from rising rapidly and keeping interest rates artificially low. This allows the Fed to pretend everything is great.

“Eventually the bottom is going to drop out of the dollar and we are going to have to deal with reality. That reality is we are staring at a financial crisis much worse than the one we saw in 2008,” he added.

Role of central banks

“Exploding debt, financial distortion, prolonged stagnation, recurring recession, and eventual government takeover of industry and the economy,” Schiff wrote in a blog post about central banks.

Schiff alleged that many governments including the US government are playing behind the scene games in expanding the role of central banks and trying to control the direction of free markets.

He said that is the preferred alternative of politicians and bankers who refuse to let the free markets function the way they are supposed to.

Japan model

Schiff sees a parallel in Japan which also tried to revive its stagnant economy since the 1990s by expanding the interventions of the Bank of Japan.  Japan’s central bank not only kept interest rates at record lows, but also supported the country’s equity market by buying exchange-traded funds to put cash into stocks, reports News Max.

According to Schiff, the Bank of Japan is now planning its next step of direct purchases of stocks.

“Such purchases would allow the Japanese government to accumulate sizable voting interests in some of Japan's biggest companies,” Schiff noted.

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