Peter Schiff, economist, author and owner of Euro Pacific Bank predicts that after the end of QE in October, the economy will go into recession and the stock market and housing prices will tank.
Because of this happening, he believes that the Federal Reserve will start money printing again.
In an interview on Fox Business News, Schiff says, “In fact, when the Fed first announced the taper, I said AT THAT TIME, that if they tapered, they would have to reverse the process. You can’t take away QE without creating a bear market in stocks and real estate and putting the US economy back into recession.
QE 4 is coming; it’s going to be bigger than QE 3, and it’s going to do more damage to the US economy.”
Commentator: It’s not the job of the Fed to support the stock market. It’s the job of the Fed to deal with unemployment and to deal with the value of the dollar.
“We are going to have more QEs than Rocky movies.
And they’ve got 5 Rocky movies, so we’ve got more to come.” Peter Schiff
Schiff: First of all, the Fed can’t do anything about employment. So that’s a phony mandate. The Fed can’t create jobs by creating inflation. But the Fed has targeted the stock market.
Commentator: There was a time, for example, when Paul Volker, when he was head of the Fed, he didn’t give a damn what happened with the stock market.
He said that “I’m going to have a strong dollar; that is my mandate – and the stock market tanked as a result of what he did, so other Fed chairmans have stood up to the stock market.
Schiff: Yes, but this is Janet Yellen. She’s not Paul Volker. When Ben Bernanke announced QE 3, he said, “The specific goal of quantitative easing was to raise stock and real estate prices, to create a wealth effect, that he hoped would trickle down to the overall economy.
It didn’t trickle down. It stayed in the hands of a few people who benefitted from QE. But this is the only game that the Fed knows, and it’s going to keep playing it until we have a crisis worse than the one we had in 2008.
Commentator: The way you play it out, Peter, you say than unless they keep adding QE , we will have a bear market in stocks. They are too fearful of that, even though the role of central bankers is to calibrate interest rates, to promote growth. But, are you saying we’ll never get out of QE?
Schiff: But it doesn’t promote growth. It undermines legitimate economic growth. It blows up bubbles, and that’s what we’re doing, and yes, if the Fed stops QE, we’ll have a recession. WE NEED that recession. The last recession didn’t flow naturally because the Fed cut it short with the QE and ZIRP. But all that did was exacerbate the problems and delay the day of reckoning and now we’re staring at a much bigger crisis because if the Fed actually did the right thing and normalized interest rates, shrank it’s balance sheet, and stopped QE, we would have a much worse financial crisis.
Commentator: Hold on, Richard Fisher (Federal Reserve bank of Dallas President and CEO) who I spoke to this week, says there’s not going to be another QE, I know it might be pie in the sky from his perspective. On the other hand, he and other people are saying, the economy is showing signs of improvement.
Whether you like it or not, Peter, there are certain indexes that show the market improving. If they do another QE, they’re going to have to make the case that the economy is really desperate – to justify that QE, and so far they haven’t made that case.
Schiff: They’re going to come up with an excuse.
Commentator: What is that excuse going to be?
Schiff: Maybe it’ll be that inflation’s too low. I don’t know what they’re going to blame it on, but I know they’re going to come up with an excuse, because they can’t end QE and they can’t raise interest rates.
But the one thing they can’t do is admit that. So they have to keep talking up the economy, pretending things are good. Either they’re incompetent, or they’re lying. Either they know how bad things are, and they don’t want to say it, or they’re actually foolish enough to believe it.
Some people actually believed that QE worked and you have a confirmation bias [tendency to interpret or prioritize information in a way that confirms one’s beliefs or hypotheses]. If you think it works, you expect it to work.
But if you actually look at the economic data that’s been coming out for the past couple of months, the vast majority of it has been bad or below expectations. The economy is de-accelerating as the air is coming out of the bubble. And the Fed is going to blow it right back in, because that’s all it does.
QE 4 is Coming, QE 4 is Coming
“Meantime, nobody thinks the Fed’s going to do any QE,
and the Fed’s going to do it.
Once QE 4 comes in , it will be a shocker, a game changer, and I think
QE4 will have the biggest effect for the dollar on the downside and gold to the upside.”
“The unemployment rate is going to head back up, and then QE is going to be ramped back up.
We still need to see gold close above $1250 to really say that the bottom is in with a lot of conviction. I do believe we will continue to see weak economic data coming out of the US and therefore increasing questioning of the “tapers over , rate hikes are coming” scenario.
I think DESPITE the words that we got from Mario Draghi, European QE is not a done deal. There is plenty of objection among the central bankers… and other northern European economies that do not want QE. I don’t think it will be as large as people believe.
Meantime, nobody thinks the Feds going to do any QE, and the Fed’s going to do it. Nobody is going to get in front of Janet Yellen. If the economic data disappoints, and the economy heads south in a more obvious way, if the unemployment rate starts ending up [higher], not only will there be no objection to QE 4, they will be demanding it. Wall Street and the government will be demanding it.
The scary part is, not only that we are going to get QE4, but we’re also going to get a big stimulus package from the government. Because I think the newly elected Republican moderates that control the Congress are eager to show that they are bi-partisan, that they can work with the President.
This is not a tea party confrontational Congress. This is a get-along, big-government Congress. And they’re going to want to come together with the President and create a stimulus. They’re not going to want to be seen as the “road block”. They don’t want Obama to be able to run against the “do nothing Republican Congress” even though that’s what they’re going to do no matter what. They’re going to want to be seen as cooperating and trying to help the economy.
They will put together a package of temporary tax cuts for the middle class. It’s probably going to have minimum wage increases and more government spending. So we are going to get the worst of all worlds.
We’re going to get money inflation from the Fed, bigger deficits from the government. All this stuff is just going to compound … and sometime by around mid 2015 the investment landscape is going to look very different.
The question for me is- how long is it going to take for gold to make a new high? Or for the dollar to make a new low? If you remember how quickly the dollar fell and how quickly gold rose, in response to QE 1, by the time they did QE 3 the effect was muted. Once QE 4 comes in , it will be a shocker, a game changer, and I think QE4 will have the biggest effect for the dollar on the downside and gold to the upside. “
He’s not the only one who thinks that another round of QE is coming. Er
Egon von Greyerz of Gold Switzerland also thinks a new round of money printing in the U.S. will happen soon. Greyerz predicts, “Absolutely, I think early in 2015, the first quarter or the second at the latest.
It will definitely happen, and by the way, I hate this word QE (quantitative easing). They make up these words so no one can understand them. What is QE? I like to call it MP because that’s what it is—money printing. They are destroying the value of money by printing unlimited amounts. We all know you cannot create wealth by printing money. If we could, we would all just stop working and print money.”
Article authored by Carol Serpa. You can find the original story right here.