Three important things coming out of the Federal Reserve this past month: Ben Bernanke has exited the Federal Reserve, Janet Yellen is now head of the central bank and the Fed might taper back more of its quantitative easing measures.
Peter Schiff, president of Euro Pacific Capital, nails it on the head when he says that doesn’t believe the Fed will taper. Instead, he presented the case to CNBC this past week and argued Yellen will reverse the tapering and actually increase QE beyond $85 billion per month. Schiff’s proof is that the markets are addicted to monetary stimulus and the economy would head back into a recession.
Essentially, according to Schiff, the economy is not improving, recovering, rebounding or rejuvenating.
“I think Janet Yellen certainly is going to taper the taper talk and actually reverse the taper and end up doing more than $85 billion a month in QE,” stated Schiff. “Right now the markets are going to continue to decline as long as the Fed stays on this taper timeline and I think the Fed is going to be cognizant of that. Remember, the Fed is basing that taper on the recovery, which is the result of a wealth effect of a rising stock market and a rising real estate market that allows us to leverage up, borrow more money to buy more stuff we can’t afford.”
He continued to state that once these asset bubbles deflate due to the Fed removing its injections then the supposed economic recovery will vanish. Ultimately, the U.S. will head right back into a recession – perhaps even more severe than the economic collapse of 2007 and 2008.
What would be the way to prevent a decline in the markets and a recession? Schiff says the only way to encourage a jump in the markets and revive the illusion of a recovery is to reinstate QE and increase it even more.
This would happen sometime this year.
Is the economy performing well? Schiff doesn’t think so because all it is is an “illusion.” He cited poll numbers that suggest the American people still feel as if the country is in a recession – high unemployment rates, high debt levels and a high cost of living.
“People realize the box we are in that it’s QE-infinity, that there is no exit strategy and the exit is impossible. With ever larger doses of monetary heroin, the bottom is going to drop out of the dollar. An economy that lives by QE, dies by QE and you better be prepared for that.”
The only way to survive this economy would be to get out of the U.S. dollar and buy gold, acquire mining stocks and invest internationally.