The stock-market plunge wasn’t caused by China, but was a reaction to the Federal Reserve’s plans to hike rates, Peter Schiff, president and CEO of Euro Pacific Capital Inc., told Newsmax TV.
Not only won’t the central bank officials raise rates, they will actually launch a fourth round of quantitative easing to re-inflate the stock market bubble, he predicted.
“The fundamentals are driving this and it's not China,” he told “Newsmax Now.”
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“The media is blaming this on China. Look, the Chinese market is going down for the same reason that the U.S. market is going down. It's not that China is causing our market to go down,” he said.
“Both markets are responding to the Federal Reserve's threat to raise interest rates. It's the Federal Reserve that's been propping up the U.S. economy and more specifically the U.S. markets to the detriment of the U.S. economy but the Fed was propping up our markets with quantitative easing and zero percent interest rates," he said.
"They've already ended quantitative easing. They're threatening to end zero-percent interest rates and if the Fed takes away the props, the market is going to implode,” he said.
“It's not just a 580 points we drop today or the 530 on Friday or the 350 on Thursday. We have thousands and thousands of points to surrender if the Fed is actually going to follow through with its threats to raise interest rates,” he said.
The Fed has kept short-term interest rates at a record low near zero since December 2008. The central bank had been expected to raise its key interest rate next month for the first time in almost a decade in a move signaling that the U.S. economy is healthy.
So what does he ultimately think the Fed will do now?
“They're going to back away. The Fed's going to call off the rate hike. In fact, I don't think they ever planned on raising rates. The whole thing was a bluff. The markets just haven't figured that out yet," he said.
And in fact, the Fed plans something even more sinister, and dangerous, he says.
"The Fed is going to come back with QE4. It's going to hurt the real economy just like QE3, 2 and 1 did but it is going to blow some air back into the stock market bubble.”
Schiff points out that most other economists have been totally wrong about predicting just what the Fed will do – and when it will do it.
“When the year began, we were divided between two camps. Those that thought the Fed would move in March and those that thought they would wait until June. They were both wrong,” he said.
“I was the only one that was saying the fed won't move at all in 2015 because they can't do it without pricking their own bubble,” he said.
Meanwhile, he noted that gold isn’t the investor safe haven it once was.
"Gold is up $80 in the last two weeks but it's not getting the safe haven flows because people still haven't figured out what it is they have to flee,” he said.
“They're still buying the dollar although over the last week, they're buying the euro, they're buying the Swiss franc, they're buying the Japanese yen. The only currencies against which the dollar is now rising are commodity-linked currencies or emerging market currencies," he said.
"The game is changing but ultimately people are going to move to gold, especially when they figure out that at zero percent interest rates forever and we're getting another round of quantitative easing.”
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