Peter Schiff

Peter Schiff: ‘I Think This Recession Is Going To Be A Greater Recession’

Euro Pacific Capital CEO Peter Schiff, who correctly-called the housing bust and economic crisis last decade, just uploaded a new entry to The Schiff Report vlog on YouTube. On February 5, Schiff told viewers:

I think the recession that we are already in- and yes, the government will eventually admit this after the fact, just like they did with the Great Recession- but I think this recession is going to be a Greater Recession. I think it’s going to be deeper and longer lasting than the last one. And I don’t think the government is going to be able to save us with a stimulus. And I think that ship has long sailed. I think when the dollar starts to tank, and when it does, I think consumer prices in the U.S. are going to go up a lot more next time than they did last time…

I think now you’re going to see big increases in consumer prices. Remember the stagflation of the 1970s. Except this is going to have a lot more stagnation and a lot more inflation. And unlike what Ronald Reagan did at the end of that decade to put out that fire, nothing like that is going to happen this time because we can’t do it. We don’t have the tools. We can’t raise interest rates to fight inflation no matter how high inflation rises because that’s how broke we are. The only things keeping our institutions afloat, including the federal government, is artificially-low interest rates. And the more debt we have, the more important those low interest rates are to maintain the illusion of solvency. So, inflation is going to keep on going up and that is going to cause a flight from the dollar…


“Weak Jobs Report Not Weak Enough For Stocks”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: ‘Silver Might Even Be A Better Buy Than Gold’

Euro Pacific Capital CEO Peter Schiff, who correctly-called the housing bust and economic crisis last decade, just published a new entry to his Peter Schiff’s Gold Videocast vlog on YouTube.com. From earlier today:

As long as we have the strength of the dollar, we can continue to borrow money to pay for imports. We can continue to go deeper and deeper into debt. But the minute the illusion runs crashing into reality, and people recognize the situation that we’re in. That we didn’t have a legitimate recovery. That we just had a bubble. And rather than higher interest rates and a real recovery, we’re back in recession. And the Fed is going to try its hardest to blow more air into this bubble. It is not going to work. And this collapse in the dollar today is just the beginning. The dollar has a long way to fall. Not only does it have to reverse all its ill-gotten gains, but it has a long way to go beyond that. Because the problems for the dollar, the fundamentals for the dollar, have gotten worse the entire time the dollar was rallying. And it’s this phony rally in the dollar, it’s this false belief in a higher dollar and higher interest rates, that have wreaked havoc with the emerging markets, with emerging market currencies, with commodities. And all of these markets are going to be able to breathe a huge sigh of relief as the Fed backs away from these rate hikes and the dollar begins to tank. But probably the biggest beneficiary of the Fed’s new easing, this new easing cycle that I think is about to begin, is going to be gold. Gold has fallen for the last few years based on this false belief that everything is great, and we’re going to have a return to normalcy, and the Fed is going to shrink its balance sheet. Nothing could be further from the truth. The balance sheet is about to blow up. We’re going to go up to $10 trillion. The national debt just surpassed $19 trillion officially. It’s going to be $20 trillion by the time Barack Obama leaves office- maybe more. He’s doubled the national debt. The next president will have to double it again in order to keep this house of cards from collapsing. I think it’s impossible to finance- that type of growth in debt. But that’s what this bubble economy needs. Because all of our GDP grows based on debt. It’s not real economic growth. It’s just consumption that’s borrowed. And you need to borrow more and more money to get less and less GDP growth. And we’ve run to the point where we can’t do it anymore. The world is not going to continue to give us a pass. And so gold prices, I think, are going to take off. I think the correction from this long-term bull market is over. And I think gold is going to make new highs. And of course if gold is going to make new highs, so is silver. And so silver might even be a better buy than gold because silver corrected a lot more during the correction. And so it has a lot more lost ground to make up for.


“Fed Blinks: Tightening Financial Conditions Will Derail Rate Hike Expectations”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff Predicts ‘Negative Interest Rates Before The Election Because We’re Going To Be In A Serious Recession’

Euro Pacific Capital CEO Peter Schiff, who correctly-called the housing bust and economic crisis last decade, is sounding the alarm again these days. Big time. Business Insider’s Bob Bryan reported Friday:

The CEO and chief global strategist for Euro Pacific Capital, and noted perma-bear, said that serious economic destruction is just a few months away.

“I think the Fed is going to have negative interest rates before the election because we’re going to be in a serious recession,” Schiff told Business Insider on Friday.

In fact, Schiff said that we may already be in recession and this one is going to be a doozy.

“We’re in worse shape now than we were in 2007,” he said…

“We’re headed for a real economic collapse,” Schiff said, “the order of magnitude of which will be much greater than 2008’s crash.”

No way am I going to steal Bryan’s thunder on this. Head on over to the Business Insider website here for the full story.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Monday, February 1st, 2016 Crash Prophets, Interest Rates, Recession No Comments

Confidence In U.S. Government Plummeting?

Last night in a discussion about gold, I brought up Martin Armstrong, economist at Armstrong Economics (and former chairman of Princeton Economics International Ltd.) and the creator of the Economic Confidence Model, and something he said about the yellow metal two weeks ago. From his January 14 blog post:

I have stated this many times, so here it goes again: Gold rises when people lose confidence in government.

Survival And Prosperity readers are probably familiar with the myriad of poll/survey results showing Main Street has been fed up with the nation’s policymakers for some time now. But this morning, I’m going to examine if that confidence may be eroding more significantly than in recent times. I do this because:

1. I just came across some disturbing survey results in my research this week which suggests confidence in the U.S. government may be plummeting

2. If this confidence is almost to the point of being “shot,” then perhaps gold is getting closer to another sustained run-up in price

Aimee Picchi reported on the CBS News website Tuesday under the headline “Americans hate the U.S. government more than ever”:

A handful of industries are those “love to hate” types of businesses, such as cable-television companies and Internet service providers.

The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans’ satisfaction level in dealing with federal agencies –everything from Treasury to Homeland Security — has fallen for a third consecutive year, reaching an eight-year low.

The declines represent some backsliding for the U.S. government, given that satisfaction saw some improvement in 2011 and 2012, which may have been the result of spending in the wake of the recession. While the comparison with private enterprise isn’t apples to apples given the nature of government services, the findings have some implications for bureaucrats.

“Satisfaction is linked to broader goals in the political system that it wants to maximize, like confidence and trust,” said Forrest Morgeson, director of research at the ACSI. “It’s much more difficult to govern if the entire population dislikes you.”

(Editor’s note: Bold added for emphasis)

Picchi noted more than 2,000 people took part in that survey.

It’s not just confidence in government that may be in real trouble these days. Yale economist Robert Shiller, who correctly-called the dot-com and housing busts of the last decade, was interviewed last week in Davos, Switzerland, by Tom Keene of the Bloomberg TV show Bloomberg Surveillance. From their exchange:

KEENE: What is the state of our confidence now in our economics and business system?
SHILLER: It’s kind of obvious that it’s weakening.
KEENE: It’s fragile.
SHILLER: It’s fragile, and things that ought to be good news like lower oil prices are disruptive in the short run. But people are over-focused on them in valuing long-term assets like corporate stocks. So I think that the markets are driven by these perceived important facts. I think China is not as important to the U.S. economy as it appears to be. And one thing that news media people have to do- I assume you do this- is resist some of this over-hyping…

(Editor’s note: Bold added for emphasis)


“Yale’s Shiller: Markets Over-focused on China, Oil”
Bloomberg Video

Interesting comment about China. I pointed out earlier this week that Shiller’s fellow “crash prophets” Jim Rogers and Peter Schiff think the Chinese are being made scapegoats by the U.S. for Wall Street’s dismal performance this year.

And how about Dr. Shiller getting in a shot at the news media for their “over-hyping”? Serves them right considering the grief they gave the now Nobel Prize winner for having the “audacity” to point out the U.S. housing bubble last decade.

But getting back to the task at hand. Confidence in both government and the economy appears to have taken a hit lately. And a resurgent gold bull market looks promising if Martin Armstrong is correct in his assertions.

Stay tuned…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

Source:

Picchi, Aimee. “Americans hate the U.S. government more than ever.” CBS News. 26 Jan. 2016. (http://www.cbsnews.com/news/americans-hate-the-u-s-government-more-than-ever/). 28 Jan. 2016.

Robert Shiller’s recently-revised (January 2015) third edition of Irrational Exuberance

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Former BIS Chief Economist William White: ‘Situation Is Worse Than It Was In 2007’

For over a decade now, I’ve read an enormous amount of material concerning developments in the global economy/larger financial system. Particularly as it pertains to the health of that system. And not too many articles have grabbed my attention during that time like the one penned by The Telegraph’s (UK) international business editor Ambrose Evans-Pritchard on their website last week. From his January 19 article:

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said…

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly”

The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

The warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis…

(Editor’s note: Bold added for emphasis)

In case some readers didn’t know, the Bank of International Settlements, or BIS, is basically the bank of central banks. And White was their chief economist.

He also commented on the Federal Reserve’s interest rate quagmire. From the piece:

Mr White said the Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. “It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse,” he said…

(Editor’s note: Bold added for emphasis)

“Crash prophet” Peter Schiff has been harping on the rate trap for some time now.

It’s one thing when someone like Schiff points out fissures in the system. And it’s another when an “insider” like William White sounds the alarm.

You can read Evans-Pritchard’s disturbing article in its entirety here on The Telegraph website.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Peter Schiff: U.S. Stocks In Bear Market, Economy In Recession, ‘Going To Be Longer And Deeper Than The Great Recession of 2008-2009’

The last “crash prophet” I’ll be talking about today is Euro Pacific Capital CEO Peter Schiff. Earlier Monday I watched Graham Ledger interview Schiff, who correctly-called the housing bust and economic crisis last decade, on the January 21 installment of The Daily Ledger show (One America News Network). From their exchange:

LEDGER: Do we have the indicators right now of a bear market?
SCHIFF: Well, sure, not only are we in a bear market in stocks. I think we’re in a recession, economically. When you played the clip from President Obama’s State of the Union- when he talked about people peddling fiction I thought he was talking about me. But I’m the one who’s selling reality. He’s peddling a bill of goods trying to pretend this recovery is real. But whatever it was- it’s over. And I think the recession that we’re in now is going to be longer and deeper than the Great Recession of 2008- 2009. And of course, all bear markets begin as corrections. But they don’t officially call it a bear market until it’s down 20 percent. The Russell 2000 is down 25 percent, the Dow Transports are down 30 percent, many individual sectors and stocks are down a lot more than 20 percent. And so it sure feels like a bear market even though officially Wall Street hasn’t declared it a bear market. But if the Fed doesn’t come up with a QE 4. Which I think it’s going to do. I think it’s a mistake. They shouldn’t do it. They shouldn’t have done 1, 2, and 3. But the only way to stop an official bear market will be for the Fed to reverse course, reduce rates, and launch another round of QE. That’s it.


“Market Tanking After Fed Pricked Their Own Bubble”
YouTube Video

Schiff went on to talk about how the U.S. auto “bubble” has burst, the U.S. housing market is also a “problem,” and that he predicts “a lot of people are going to lose their jobs in this recession.” Regarding the Federal Reserve and Janet Yellen? They’re going to try and keep this thing afloat until November. From the interview:

Obama’s whole claim to fame is that he inherited a disaster, and now everything is great. The truth is, he inherited a disaster, and now it’s a bigger disaster. But he doesn’t want the voters to know that in November. And I think Janet Yellen is a team player. I think she looks at herself as a member of the Obama administration. She is a very partisan, liberal Democrat. And she doesn’t want this thing to collapse until the election is over. Now, I don’t know if she’s going to succeed. I think she’s going to try though.

Like fellow “crash prophet” Jim Rogers, Schiff believes China is being used as a scapegoat for America’s latest financial woes.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: Fed Will ‘Do More Damage To This Bubble Economy’ If They Raise Interest Rates In December

“Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today…”

-“Economic News Release,” November 6, 2015, U.S. Department of Labor, Bureau of Labor Statistics website

Euro Pacific Capital CEO Peter Schiff savaged the incredibly-hyped October U.S. jobs report released last Friday in a new entry to The Schiff Report YouTube vlog that same day. Schiff, who correctly-called the housing bust and economic crisis last decade, also responded to the popular belief that the Federal Reserve will be raising the federal funds rate next month. From the video:

Everybody now has jumped to the conclusion that a December rate hike is a lock. It is a sure thing, the Fed has no excuse, they’re going to move interest rates, lift-off at last in December. And as far as I’m concerned, there’s nothing in this job report that would say that. There’s nothing here that’s going to require the Fed to raise interest rates if they don’t want to.

Why does Schiff think this? He doesn’t believe it’s part of the U.S. central bank’s game plan. He added:

See, this is what scares the Fed. Let’s assume the Fed actually does raise rates. What do they do if that rate hike, even though it’s really small, what if it prompts a stock market decline? How do they stop it? Cut rates? They’d look like fools if they do that. I mean, if the Fed raises rates and the stock market goes down, people might start believing that there’s no Yellen put. That the put is expired. And that there’s no more safety net. I mean, that could be very scary if the stock traders don’t think they’ve got the Fed to protect them. Because how can Janet Yellen protect them if she’s raising rates? She can only protect them if she can cut rates. So it’s very risky for the Fed to upset the apple cart, right? There’s an expression- “If it ain’t broke, don’t fix it.” And as far as the Fed is concerned, extend and pretend is working like a charm. Everybody believes the Fed’s about to raise rates, even though they don’t actually say they’re going to do it. So they never have to really do anything. If they get the benefit of a rate hike psychologically, they get to pretend we’ve got this great economy, but they don’t actually have to raise rates, and prove to everybody that we don’t have a great economy. So there’s a lot at stake here, and I think it’s a lot easier for the Fed to punt again, and to say, “Look, you know, it’s still possible that we’ll raise rates in March” or whenever they want to pretend.

And if Yellen and the Fed does raise rates in December? Schiff warned:

I think if the Federal Reserve actually raises rates, they’re simply accelerating the moment in time when they’ll have to cut them again. I think if the Fed raises rates, they’re going to do more damage to this bubble economy, which means they’re going to have to blow even more air to fill it back up. So if they do raise rates, that means the onset of QE 4 could happen even sooner than if they just continue to pretend to raise rates but not do it.


“Over-Hyped Oct. Jobs Report Does Not Assure Dec. Rate Hike.”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Peter Schiff Predicts ‘A Horrendous Christmas,’ ‘The Dow Is Going To Rally From Here,’ And ‘Gold Stocks Are Going To Take Off’

Euro Pacific Capital CEO Peter Schiff just added a new entry to The Schiff Report YouTube vlog Friday. Schiff, who correctly-called the housing bust and economic crisis last decade, shared some forecasts with viewers. From the video:

I think that given the lousy jobs number that we just got, given the revision to the previous numbers making them worse, given now today’s factory orders and the economic data that we’re likely to get next week, I think before long- or it’s not going to be too long- before the Atlanta Fed GDP now reflects a negative print, a negative number, for third quarter GDP. Now, if we get a negative number for third quarter GDP, I bet we get another negative number that’s even bigger for the fourth quarter. Because if you look at the trend over the last six years or so, the fourth quarter is always weaker than the third. The third quarter is a stronger quarter. And if that quarter is weak, what does that tell you about the second quarter? It’s going to be even weaker. So if we get a negative third quarter, and then we get a negative fourth quarter, well, that’s a recession. Right? Technically that’s a recession. What the Fed going to do?

This is going to be a horrendous Christmas, that’s my forecast, as far as what the retailers are expecting and what they’re going to get. This is probably going to be the worst Christmas shopping season of the recovery. And I think next year a lot more layoffs are coming…

The Dow was down as much as 250 points or so early in the morning. But then the buyers came in because they realized, “Hey wait a minute! If the Fed isn’t going to raise rates, then this party can continue for a while longer.” And the Dow finished up 200 points. That’s a 450 point move. We were almost down at the Black Monday lows. I think this was a pretty significant reversal. My guess is that the Dow is going to rally from here. I don’t know if it’s going to rally to new highs- that would be a stretch. But I think right now, given the weakness of this report, I think that you can see some strength in the U.S. stock market…

This time, if the dollar rises based on an anticipation of rate hikes, and the hikes don’t even come, can you imagine how much selling there’s going to be on that fact, when you don’t even get the event that everybody’s been waiting for? That’s going to work in reverse for gold. People have been selling gold for the same reason. “Oh, the Fed’s going to raise rates- that’s going to be bad for gold.” You know, when the Fed raised rates last time, it was great for gold, because gold rose the whole time. But imagine how good it’s going to be for gold when everybody expects a rate hike, and instead we get QE 4. I think this is going to be the biggest up-leg of the gold bull market, which means the gold stocks are going to take off if I am right, because gold stocks today are cheaper than they were when the last bull market began when gold was under $300 an ounce. They’re cheaper now with gold at $1,130 than they were when gold was $270…


“Sept. Jobs Report Confirms Weakening Labor Market”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Peter Schiff: ‘Inevitable’ QE 4 Will Lead To U.S. Dollar Crisis

On August 28, 2015, Euro Pacific Capital’s Peter Schiff spoke at The Jackson Hole Summit, “the first ever event to discuss monetary and fiscal policy at the same time as the Central Bankers are discussing policy,” according to sponsor American Principles Project. Schiff, who correctly-called the housing bust and economic crisis last decade, warned those in attendance that because the Federal Reserve isn’t allowing market forces to fix imbalances in the financial system, the United States is ultimately heading towards a dollar crisis. From the presentation:

The Fed needs to raise interest rates right now. Not because the economy can take it, but because it can’t. Because, again, it is a bubble that needs to be popped. The sooner we pop it, the better. But of course we’re going to find out that the Fed didn’t save us from the financial crisis. They simply interrupted it. And they kicked the can down the road. And we’ve now caught up to the can. And, the problem is, because we’ve delayed solving the problem- see, the financial crisis was the beginning of the solution. And the Fed interrupted it. The market was trying to fix what the Fed broke. Real estate prices coming down were part of the solution. Banks failing was part of the solution. That recession was part of the solution. And the Fed interrupted it. And instead they gave us an even bigger bubble. And now we’re going to have to deal with that…

All the real economic recovery is being prevented. The Fed has got it all dammed up with its monetary policy. But it’s afraid to release the dam because it’s going to unleash all of these forces, this creative destruction that is so necessary, because we cannot have this genuine economic recovery that would actually lift living standards and create good jobs for the American people. We can’t do that unless we allow this phony economy that’s been resurrected on the foundation of cheap money collapse. But nobody is going to allow that to happen…

And then they’re going to launch QE 4. Which nobody really understands. I think it’s inevitable. I said this from the beginning. I said that when they launched the very first round of quantitative easing that they had walked into, checked into, a monetary roach motel. That there was no way out. Once they went down this line, that we were in for the duration. You live by QE, you die by QE. I said we’d have more QEs than Rocky movies. And I think they had six of those. And of course they got progressively worse. And so I think QE 4 is going to be even worse than the last rounds. And ultimately… ultimately, where we are headed is to a dollar crisis…


“Peter Schiff at Jackson Hole Summit: The Monetary Roach Motel”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Peter Schiff: Told You The Fed Was Bluffing On Rate Hikes

I recently highlighted an example of why Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (oversees $117 billion in client assets as of June 30), is one of Survival And Prosperity’s “crash prophets.”

The following also exemplifies why Peter Schiff, the CEO and chief global strategist of Euro Pacific Capital, belongs to that small group of individuals whose investment activities/recommendations I track on a regular basis.

From Schiff’s “Groundhog Day at the Fed,” published on the Euro Pacific Capital website last Friday:

Every dictator knows that a continuous state of emergency is the best means to justify tyrannical policies. The trick is to keep the fictitious emergency from breeding so much paranoia that routine activities come to a halt. Many have discovered that its best to make the threat external, intangible and ultimately, unverifiable. In Orwell’s 1984 the preferred mantra was “We’ve always been at war with Eurasia,” even though everyone knew it wasn’t true. In its rate decision this week the Federal Reserve, adopted a similar approach and conjured up an external threat to maintain a policy that is becoming increasingly absurd.

In blaming its continued inaction on “uncertainties abroad” (an excuse never before invoked by the Fed in the current period of zero interest rates), the Fed was able to maintain the pretense of a strong domestic economy, and its desire to lift rates at the earliest appropriate moment while continuing the economic life support of zero percent rates. Unbelievably, the media swallowed the propaganda hook, line, and sinker.

Over the summer it all seemed so certain. In mid-August the Wall Street Journal conducted a poll revealing that 95% of economists expected a rate hike by the end of 2015, with 82% expecting the first move to come in September. On July 29, Marketwatch reported that changes in Fed language were the “smoking gun” that made a September move a certainty. I was one of the few who publicly predicted that all the tough talk from the Fed was a bluff, and that there would be no hike in 2015. For taking that stance, I was largely ignored and ridiculed. In a July 16 interview on CNBC’s Futures Now (I am no longer invited to be on their television broadcasts), pundit Scott Nations took me to task for making the “outlandish” suggestion that the Fed would not raise in 2015, saying (to paraphrase):

“If price is truth and Fed funds futures are the collective wisdom of everybody in the world, and they are absolutely a lock for the Fed to raise rates by the end of the year, why is everybody else wrong and you are right?”

But now, in mid-September, it has all changed, far fewer economists expect a hike this year. However, despite this dramatic reversal, few have downgraded their forecasts or weakened their belief that the Fed remains committed to tighten policy…eventually. In other words, the Fed has achieved a complete communications victory.

Just like it has in prior statements, the Fed painted a picture of a stable and growing economy that was ready for a hike. In fact, in her press conference, Janet Yellen said that the Fed was “impressed” by the strength of the domestic economy. Although such statements began to resemble the film Groundhog Day, no one seems to tire of it.

A cornucopia of metaphors should have come to mind: The Fed’s bite had failed to live up to its bark; its “open mouth” operations wrote a check that its Open Market Committee was unable to cash; the Fed has become Lucy of the comic strip Peanuts, always promising to hold the football for Charlie Brown to kick, but always taking it away before he kicks it. Instead, the dominant theme of the coverage was that the Fed’s understanding of the global economy was just better than the rest of us. It apparently understood that a 25 basis point increase in rates in the U.S. could ripple through to the world markets and could potentially push China’s tottering stock market into the abyss. That was a risk it believed was not worth taking.

To keep the story line going requires that the steady torrent of negative data be ignored (see manufacturing data in September Manufacturing Business Outlook Survey of Philly Fed]. Similar weakness is evident in business investment, productivity, and consumer confidence numbers. Based on those data sets, conventional Keynesian “wisdom” suggests the Fed should be preparing a fresh round of stimulus, not readying its first economic sedative in nine years.

The big news is the introduction of “international developments” as an ongoing input into the Fed’s rate deliberation process. This addition allows the Fed nearly limitless latitude to perpetually kick the can down the road. After all, it is a great big world, and it will always be possible to find a problem somewhere. A Reuters article issued after the decision describes the new reality (9/18/15, Howard Schneider):

“It is a situation that could leave the Fed stranded in its hunt for a rate liftoff until the entire global economy is growing in sync, and the horizon is clear of risks.”

So there you have it. The Fed is no longer just the central bank of the United States, but the central bank of the entire world. As such it will need to consider any possible negative impacts, anywhere, before it pulls the trigger. This isn’t just moving the goalposts; it is dismantling them completely, putting them in crates, and losing them in a government warehouse…much like the Ark of the Covenant at the end of the first Indiana Jones movie.

The height of yesterday’s absurdity came during Janet Yellen’s press conference when Ann Saphir from Reuters asked her about the possibility that interest rates could stay at zero “forever.” While characterizing that likelihood as “extreme,” Yellen incredibly stated that she could not rule out the possibility. Of course the absurd suggestion that American civilization may never see rates above zero did not even raise eyebrows in the mainstream media. But the statement itself raises some interesting questions about Yellen’s actual thinking. First, how can she really be contemplating at 2015 rate hike, if she cannot even rule out the possibility of rates remaining at zero forever? Second, is she really that naïve and arrogant to believe that currency markets would allow the Fed to hold interest rates at zero indefinitely, without creating a dollar crisis, even if the Fed wanted to hold them there?

As I have maintained continuously, rate hike talk from the Fed is just a bluff to disguise its inability to tighten, as even small increases could be sufficient to prick the biggest bubble it has ever inflated. It is no coincidence that the stunning 170% increase in the Dow Jones, that occurred between March 2009 and the end of 2014, happened while the Fed was stimulating the economy almost continuously with QE, and that the rally came to an abrupt end when the QE stopped.

The recent 10% correction on Wall Street confirms to me just how sensitive the markets remain to the prospect of any rates higher than zero. In reality, that sell-off was a much greater factor than China in keeping the Fed quiet. That steep correction occurred at a time when most forecasters believed that a September hike was in the cards. For years, they had known that a rate hike was coming, but they always thought it would arrive when the economy was healthy. But when the big day became a clear and present danger, and the economy was still less than optimal, markets began to panic. It was only when Fed officials came out with publicly dovish statements that the sell-off ended. Despite this obvious connection, the markets are still blaming China, despite the fact that big sell-offs in China had been occurring for much of 2015 without sparking follow on panics in the U.S.

As a result, it should be clear that ongoing Fed decision-making is not just “data dependent” (and now we are talking about international, not just domestic, data), but also “market dependent,” meaning the Fed won’t raise rates if markets sell off sharply on expectations that it will raise. Given these impossible conditions, perhaps a perpetual zero rates are not so outlandish. But the reality is Central banks can’t really control interest rates across the spectrum, just the short end of the curve…when markets really panic, they won’t be able to stop economically devastating interest rate spikes on the long end.

In the meantime, I can only hope that the foreign exchange and commodity markets are finally getting the picture that the Fed appears impotent. The tremendous rally in the dollar over the past 18 months was predicated on the belief that interest rates would be rising in the U.S. just as they were falling everywhere else. Now that that premise is in tatters, the dollar should be giving back its undeserved gains. Recent moves in the foreign exchange market reveal that this is the case.

When the year began, opinion was divided between those who thought the Fed would move in March, and those who thought it wouldn’t happen until June. When June came and went, September became the odds-on favorite. Now those same experts are once again divided between December and sometime in 2016. When will these “experts” finally connect the real dots and discover that the monetary medicine that the Fed has doused over the economy since 2008 has only created a weak and utterly dependent economy. A rate hike is supposed to be a signal that the economy has a clean bill of health. But as the patient fails to recover, another dose of QE will be just what the doctor orders.

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Sniff, sniff, sniff. I smell another Peter Schiff Was Right YouTube video in the offing…

(Editor’s notes: Permission to publish article granted by Euro Pacific Capital; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Survival And Prosperity
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Christopher E. Hill, Editor

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