Peter Schiff believes the game has changed as he reflects on the December Federal Reserve meeting and the likely message Fed Chair Jerome Powell is conveying to investors.
Here is Fed chair Powell’s Peter Pan stage act reason, in his December meeting, why interest rates need to rise;
“We do see a very, very strong labor market, one where there has not been much softening, where job growth is high, vacancies are quite elevated. Clearly, there is an imbalance in the labor market between supply and demand, so that part of it, which is the biggest part, is likely to take a substantial period to come down. The goods inflation has turned pretty quickly now, but there is an expectation that services inflation will not move down so quickly. So, we have to raise rates higher to where we want to get. That’s why we are raising rates and expect them to remain higher for some time,” said Fed Chair Powell in his December meeting.
“we are raising rates and expect them to remain higher for some time”
PETER SCHIFF
But here is our fifty cents reason why the Fed and its sidekick central bankers are forced to raise interest rates.
Decades of outsourcing manufacturing resulted in the loss of skilled labor in production. A young generation of workers has lost the skill of brain, eye, tool, and hand coordination needed for a productive economy.
Living all day in the metaverse after completing a degree in the humanities will not equip future generations of workers to fix a leak, find and repair a shortcut or make mechanical repairs to a machine.
The history graduate saddled with debt and waiting tables on the minimum wage is a too-often-heard story.
So trillions of dollars of currency created by central banks were squandered in speculative bubbles, where those nearest to the loot bought assets cheaply and built paper wealth empires.
But it gutted the productive economy, starved capital, and decimated the living standards of an entire class of people who survived by exchanging their labor for a living.
“Living all day in the metaverse after completing a degree in the humanities will not equip future generations of workers to fix a leak, find and repair a shortcut or make mechanical repairs to a machine”
WEALTH TRAINING COMPANY
So, as globalization winds down, the economy restructures, and companies onshore production, the reserve army of unskilled labor grows, and the shortage of skilled labor becomes more acute, bearing in mind the time lag in training skilled labor.
The above dynamics lead to a twin deficit in public spending and a balance of trade as the economy goes into debt to buy goods, which it doesn’t make.
But the 31 trillion dollar deficit is partly financed by monetizing the debt on the treasuries market.
So here is what I believe is the real reason why the Fed head is raising rates; the 24 trillion USD treasury market, the pinnacle of prime western collateral, remains negative yielding, in the face of 7.2% inflation.
The sober reality is that the Fed will choose a steep recession, even a depression, rather than a crisis of confidence in the USD.
“Eventually, the Fed is going to stop fighting inflation when the recession gets much worse, and, when it becomes a financial crisis” – Peter Schiff
Peter Schiff believes the game has changed with a currency crisis and a ballooning debt, rising yields on treasuries and Fed fund rates could remain higher for longer
“Consumer; inflation is already out of control. The Fed failed to act. The actions of the Fed created inflation. And it’s going to get a lot worse,” said Peter Schiff.
Peter Schiff said rising wages don’t cause inflation.
Inflation is what’s causing wages to rise.
“Eventually, the Fed is going to stop fighting inflation when the recession gets much worse, and, when it becomes a financial crisis,” he said.
Peter Schiff believes the game has changed with inflation entrenched.
“We’re going to be living in a high-inflation environment for the foreseeable future. Rates are not going back down to zero, but they’re still going to be negative in real terms. You have to invest in real businesses that have earnings and pay dividends,” said Peter Schiff.
“now that the dollar is falling, that is going to add fuel to the inflation fire” – Peter Schiff
“You’re always going to see an ebb and flow. But to fight inflation, we would not only need much higher rates than the rates we have right now because rates need to be enough above inflation to encourage savings again, and our savings rate is basically at a record low — and consumer borrowing is at a record high. So, that is not helping. But also, government spending continues to increase. Budget deficits continue to rise. You’re not going to fight inflation unless you get cuts to government spending,” he added.
Peter Schiff believes the game has changed, something investors need to recognize
While Peter Schiff believes the game has changed, he continues to be bearish on the US dollar.
He thinks the decline of the dollar is going to kick into a higher gear when the Fed does stop raising rates because the economy is too weak and the central bank has bigger things to worry about than inflation.
But central banks work in cahoots, hiking, and loosening together. So the ECB and BoE, where the economic slowdown is the hardest and inflation the highest, would be more eager to ease than the Fed. The type of inflation we are experiencing is due to a currency crisis, the debasement of fiat debt currency.
During the Fed meeting, Powell said that the central bank will start hiking at a slower pace to “feel its way” forward.
Here is the red flag Peter Schiff believes the game has changed view
“But now that the dollar is falling, that is going to add fuel to the inflation fire. I think it’s going to burn a lot hotter in 2023. But the economy is going to cool off even more as inflation heats up, and that is a no-win situation for the Fed, and the country, unfortunately,” he said.
