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Tags: Peter Schiff | economy | bubble | Fed

Peter Schiff: Economy's 'a Bubble and Fed Is Inflating the Bubble'

By    |   Wednesday, 25 February 2015 02:11 PM EST

Peter Schiff, CEO of Euro Pacific Capital, offered a pessimistic view of the economy in an interview with Newsmax TV.

"The problem is the economy can't stay strong because it's not strong," he said on the network's "America's Forum" program. GDP grew 2.4 percent last year.

"It's a bubble, and the Fed is inflating the bubble, which is why it's lying about shrinking its balance sheet," Schiff said.

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That balance sheet now totals $4.6 trillion. And it's "never" going to shrink, he said. "The balance sheet is going to get bigger and bigger when the fed launches QE4 [quantitative easing]." The Fed finished its third round of quantitative easing last October.

"They cannot shrink this balance sheet, and they cannot raise interest rates without pricking the bubble. That's what they should do, but unfortunately, that's not what they're going to do," Schiff said.

The Fed has kept its federal funds target rate at a record low of zero to 0.25 percent since December 2008.

As for Schiff's views on other issues:
  • "Of course inflation is a concern, because inflation is the Federal Reserve's answer to our problems," he said. "They are deliberately creating inflation because they think it's a good thing. They think inflation is necessary to grow the economy." The Fed has a 2 percent target for inflation, but its favored inflation gauge totaled only 0.7 percent last year. The Fed wants to erase government debt, Schiff said. "They won't do it honestly so they're going to wipe it out through inflation."
  • Schiff see oil prices rising. "I don't think the Fed is going to raise rates. When the market gets its arms around that, the dollar is going to turn [down], and the price of oil is going a lot higher," he said. "The benefit Americans had from a lower oil price is going to be taken away." Oil prices fell to a 5 ½-year low last month and have rebounded 16 percent to $49.77 a barrel since then.
  • The 32 percent drop in gasoline prices over the last year won't spark a spending spree by American consumers, Schiff said. "They're not going to spend it [their savings on gas], because they were borrowing money to buy the gasoline in the first place." And why did they have to borrow? "Because they have low paying jobs or no jobs at all and their cost of living is going up," he said.
  • The question, then, is not whether oil prices will soar, but "how long are they going to be at this low level and how complacent will we become?" Schiff said. "The longer prices stay low, unfortunately, the higher they might rise, because people begin to change their habits based on the expectation that prices will stay low. So we get less production, more demand and ultimately, we sow the seeds of much higher prices. . . . We can see oil prices certainly at $60 or $70 a barrel by the summer."
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Peter Schiff, CEO of Euro Pacific Capital, offered a pessimistic view of the economy in an interview with Newsmax TV.
Peter Schiff, economy, bubble, Fed
Wednesday, 25 February 2015 02:11 PM
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