Peter Schiff Says the Economy Will Experience Economic Convulsions Next Month

% of readers think this story is Fact. Add your two cents.

Peter Schiff, economist and owner of Euro Pacific Capital has been saying for some time  that there are going to be big problems in the economy when they taper QE (quantitative easing). The Federal Reserve is on track to eliminate QE next month, as October is the last month of the wind down.

Schiff likens QE to drugs and the US to a drug addict, saying that once QE is removed, (tapered) the drug addict (the US) will go into convulsions. 

Schiff says he has never seen irrational exuberance like he has now; that it is much worse now than during the height of the housing bubble. At that time, he went on TV and predicted the housing market would crash, and the analysts would laugh and mock him. He accurately predicted when it would crash and he now says that the atmosphere is worse now.

Hear what he thinks is going to happen next month when QE is eliminated…

 

Peter Schiff says, “ From my perspective, I remember the giddy days of the housing bubble very well.  And I remember the attitude that most people had. I remember how irrational about everything everyone was when I was trying to educate them on what was really going on in the economy and the housing  market and the crisis that was in our future, that  nobody wanted to believe.

I believe the collective irrational exuberance, the lack of understanding, of the true nature and character of the US economy  is greater now.  It’s far greater than anything I’ve experienced in that period of time. All of this euphoria that is going on is all based on the Fed and the idea that QE worked, zero interest rates worked, and because they worked so well, now the Fed can end it. 

The Fed can take away QE, raise interest rates and the recovery can continue without it. That the stock market and the housing market that rose on that sea of liquidity can keep rising when you remove it [is ridiculous].  And of course, the idea that that can happen is so fanciful that it is amazing that intelligent, otherwise intelligent people, can fail to connect these dots. 

That if the Fed were to do what everyone is so convinced they are going to do, based on a lower unemployment rate, or these jobs that are being created, if they were to do it, the jobs would disappear just as quickly as the QE. 

Because once they start raising interest rates, even a little bit – the markets cannot sustain it. The stock market can’t sustain it, the housing market can’t sustain it, corporate America can’t afford the higher rates, the banks and home buyers can’t afford it and the Federal government can’t afford it.

The fact is, they can’t end these programs because they worked; … they didn’t work and they can never work. That’s why I’ve always said, QE is like putting out a fire with gasoline.  This fire did not go out with the latest round of gasoline, it’s just been burning hotter than ever. 

The problems are bigger than ever, that’s why we’re going to need an even bigger dose of QE to numb the pain as the prior dose wears off. 

So all the traders buying up dollars and selling gold because they’re so convinced that the Fed is about to tighten, and [the fact is] that none of the other central banks are – Europe and Japan, they’re going to keep doing more QE. 

The reason that Europe and Japan are still pursuing these cheap money policies is that  they haven’t worked there either. And they didn’t work in America, either. People just haven’t figured that out because they’re looking at the wrong number and they’re focusing on asset [stock] prices and not the underlying economy.” 

Peter Schiff goes on to say, ”The only reason the US economy appears strong, that people are confident enough to buy the dollar, is because they believe that QE and ZIRP are temporary. They haven’t figured out that they’re permanent. They haven’t figured out that once we go down this road, there is no turning back. 

You can’t create a recovery that’s based on quantitative easing and zero percent interest rates and expect the recovery to continue once you take it away. When people figure that out, that’s when we have a collapse of the dollar and that’s what ultimately brings QE to an end, in that we die of an overdose. If you live by QE, you die by QE. I’ve always said, 
 

It appears that the excuse that they’ve got is…the strength of the dollar. It’s inflation not being high enough. It’s still below their 2% target. 

Before they were saying “We need unemployment to get below 6 1/2%. And now it’s below-it’s 5.9%.” Forget about how we got there, by people leaving the labor force and taking low-paying part time jobs. The labor force itself has collapsed. 

We’re below the Fed’s benchmark, yet they’re not hiking rates. The next thing is inflation. They’re claiming we don’t have enough inflation. The Fed talks about this supposed “threat” of this strong dollar which is going to bring down commodity prices, and lower consumer prices. 

That’s not really a threat. I hear it all the time on TV, that falling oil prices are good for the consumer. If it’s true about gasoline, then it’s true about other prices. The less the consumer has to pay, the more money they have to buy other things. 

That’s progress. Falling prices used to be considered progress. It meant that you felt richer and that you could buy more stuff. But now, if prices are falling, that’s some kind of economic disaster. 

This is just a ruse. The fact that so many people believe it, is incredible. 

That’s what it doesn’t want to come down. So when the Fed is talking about the effect on prices of a strong dollar, it’s not really worried about consumer prices, they’re worried about stock and real estate prices. 

That’s what quantitative easing was all about, and they said it. Ben Bernanke, when he launched the program, he said specifically QE was “specifically designed to lift asset prices.” Why did Ben Bernanke want asset prices higher? Apart from bailing out insolvent banks, he wanted to create a wealth effect, even if it was phony wealth. And now that the Fed is trying to take away the “air” [QE], and the bubble is going to burst. 

The idea that you can have all this stimulus and then take it away, it’s like a heroine addict that’s been taking heroin for so long, he’s high as a kite. And then you determine, this guy is so high, because he took all this heroine- he doesn’t need the heroin anymore. 

He’s on a permanent high, so he no longer needs any more drugs, he can stop taking heroin, and he’s going to feel just as great. Its doesn’t work that way. It isn’t easy to kick a drug habit, and it isn’t going to be easy to kick the QE, ZIRP [Zero Interest Rate Policies] habit. 

The economy is going to go through economic convulsions. You cannot end quantitative easing without plunging the us economy into a severe recession.

I think there’s going to be ……………………..read the rest of the article here.