With a recession in sight and global markets shedding more than $3 trillion in losses since the start of the New Year, some observers are wondering what central banks and policymakers can do next to stop the bloodshed.
Governments and central banks are already more indebted than ever before (SEE: BIS warns Federal Reserve rate hike could create global debt crisis), and the only thing an entity like the Federal Reserve can do in order to prop up the current bubble is to reintroduce quantitative easing.
In other words, turn on the printing presses again.
CNBC is blaming the recent financial crash on China, but one contrarian investor is blaming the Fed.
Speaking in an interview with the business news network, Peter Schiff, CEO of Euro Pacific Capital, noted that the reason for the all of the financial turmoil in the stock market is due to the fact “the Fed pricked the bubble” by raising interest rates.
“We are trying to rationalize it by pretending what’s happening in the U.S. stock market has to do with factors beyond our control,” said Schiff. “So people can continue to pretend that everything is fine, that we have a legitimate recovery, the Fed can continue to raise interest rates and everything is going to be great.”
Since Fed Chair Janet Yellen raised rates, the market has tumbled between seven and 10 percent. But Schiff thinks Yellen will have to reverse this rate hike and move back into near zero interest rates territory, otherwise you’re just “whistling past the graveyard.”
“The great recession of 2008 is going to resume in earnest because the problems are bigger than ever, and I think the market is going to continue to be under pressure until the Fed rescues it,” he said. “The markets are going to drop until the Fed changes the game.”
Ultimately, according to Schiff, the Fed will have to slash rates and launch a fourth round of quantitative easing, something he has said for several months now.
Will the Fed cut rates? A handful of Fed officials have averred that the central bank will stay the course and move forward with its intended rate hikes.
New York Fed President William Dudley said, when looking at the national economy, “the situation does not appear to have changed since the last FOMC meeting.” He added that the labor market and consumer spending are positive economic factors to suggest things are going well.
Whatever the case, investors are taking a beating ever since the start of 2016, and it doesn’t matter what sector.