Posted on 02/14/2022 12:45:48 PM PST by blam
After CPI came in hotter than expected yet again in January, Peter Schiff appeared on Fox Business along with Chief Investment Officer and Portfolio Manager of Solutions Funds Group Larry Shover.
Peter said that the inflation tsunami is just getting started and the Fed is powerless to fight it.
With the hot inflation print for January, the markets are now pricing in a 50 basis point rate hike in March. Peter said that won’t be enough.
“If we still measured inflation the way we did 40 years ago, it would be 15%, not 7.5%. And the rate hikes they’ve proposed are completely inadequate. In fact, the Fed is intending to pursue an accommodative monetary policy. Even if they raise interest rates to 1 or 2%, that is highly accommodative. That’s the same type of interest rates they had when inflation was below 2%. You’ve got inflation at 7.5%, even the way they measure it – and rising. The only way to put out this fire is to have positive real interest rates. The Fed needs to get above the inflation rate. We’re not even going to get close. So, they’re going to continue to pour gasoline on the fire. And so, the entire time the Fed is inching up rates, inflation is actually going to be moving higher. Inflation is going to be worse in 2022 than it was in 2021, and real interest rates are going to continue to fall even as the Fed raises nominal rates.”
So what happens to the economy?
It’s massive stagflation.
‘The problem is people still don’t recognize the box that the Fed put us in. Because there is no interest rate that the Fed could put to fight inflation that the economy could withstand. If the Fed has to fight inflation, we not only have a massive recession, and a crash in the stock market and in the real estate market, but we have a much worse financial crisis than the one we had in 2008.”
Peter said the Fed initially pretended inflation was “transitory” even though it obviously wasn’t because they knew that there was no way to fight it.
“And now that they’re no longer pretending inflation is transitory, they’re pretending that they’re going to fight it when they can’t.”
Shover said he doesn’t think the Fed is behind the curve. He pointed out that we had 10 years of low inflation, and “we’re just not used to this kind of inflation.”
Peter said we’re about to pay for that 10 years of low inflation.
“The Fed kept creating inflation, printing money, and staring at the broken CPI, and assuming that because the CPI wasn’t having a reading that was above 2% that they had the green light to create more inflation. Well, it works with a lag. And now we’re catching up to all the inflation that we created over the past decade. And it’s just started to take hold.”
The massive level of quantitative easing during the pandemic really dialed it up.
“That was the worst possible combination of monetary policy because as we ordered people to stop working, and people went home and were no longer producing goods and services, we gave them additional money to buy the stuff that nobody was producing. So, we have even more money chasing fewer stuff. We have an inflationary tsunami. And we have barely even caught up to that. This is just getting started.”
Peter also pointed out that there is a much higher level of debt today than there was in 1980 when Paul Volker went to war against inflation with 20% interest rates.
“What would happen to the economy given all the debt we have if interest rates even went to 10%? What about 5%? I mean, we couldn’t even handle two-and-a-half percent in 2018. And the economy is in much worse shape now with a lot more debt than it was then.”
Shover said there’s a savings glut. Peter said that’s not the problem. The problem is there’s a debt glut. And he reiterated the key point.
‘There is no way you can fight historically high inflation with 1% interest rates. One percent interest was the rate Alan Greenspan slashed rates to in 2002 to stimulate the economy after the stock market bubble popped and we had that recession. You can’t fight inflation with stimulative monetary policy. You need restrictive monetary policy. And no one is even talking about making money tight. All they’re doing is talking about making it less loose. And you can’t fight inflation with loose money.”
No worries Al Krugman believes inflation is temporary and the economy will come roaring back.
The official state economist has spoken comrades, all is well.
.
The asset/ruling class welcomes asset inflation. Inflation is how they get rich without working.
Don’t hold cash and you’ll be fine.
“Peter said that the inflation tsunami is just getting started and the Fed is powerless to fight it.”
The Fed isn’t powerless to fight inflation. They can and eventually will do the same thing that Paul Volcker did, halt the growth of the money supply dead in its tracks.
This will send interest rates soaring in the short term and cause a recession. The question is how long they are going to drag their feet before getting serious about it.
Hmmm, what to do, what to do?
I got it!
WW3
Yeah, because with a rigged media and phony elections they really have to worry about burdening the working people with inflation. The people might turn against them ...just like they did in Venezuela when rampant inflation was done there. [eyeroll]
Unless the clot shots work as intended and people start dying off in greater and greater numbers. Depopulation is deflationary.
Anyone who thinks that American monetary policy is comparable to Venezuela needs to find another hobby other than economics.
No kidding.
“There is no way you can fight historically high inflation with 1% interest rates. One percent interest was the rate Alan Greenspan slashed rates to in 2002 to stimulate the economy after the stock market bubble popped and we had that recession. You can’t fight inflation with stimulative monetary policy. You need restrictive monetary policy. And no one is even talking about making money tight. All they’re doing is talking about making it less loose. And you can’t fight inflation with loose money.”
A lot of people said that the markets should be allowed to correct themselves back then. It might have meant the end of GM but, oh well, the company would have been bought up and reorganized and might be building something better than the fall apart junk it builds now. But no. Greenspan had to suck up to the Pols and Traders and use monetary policy to avoid the normal business cycle.
The perps of this inflation cycle are all insulated from it.
“....Greenspan had to suck up to the Pols and Traders and use monetary policy to avoid the normal business cycle.....”
Years with Ayn Rand, I guess didn’t rub off.
The Inflation Target should be Zer0.
Who said it would be enough, Peter? Who said 50 basis points would kill inflation?
Hearing voices again?
here’s a novel thought, hang all the leftist politicians in the world, then reset the world economy/prices back to 12/31/2021... just sayin
Interesting comment.
Shadowstats.com shows the actual numbers, using older methogds
Shadowstats doesn't do any calculations.
There is “not exactly” a savings glut. All of interest income from every checking and savings account I have added up to 22.00 dollars in 2020. It was not a small amount either - about 5 months of income.
$22.00 total. You have to invest successfully in the stock market or gold or drugs or democrat politicians just to stay even with inflation and taxes.
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