Peter Schiff: ‘If the government allowed the recession banks would fail’

Is the “Armageddon inevitable”? According to Peter Schiff, it is going to happen.

Speaking in an interview with the Wall Street Daily on New Year’s Eve, Schiff, the bestselling author of “Crash Proof,” believes that the only way to keep the current train from running off the tracks is to create more inflation and continue to blow more bubbles that will eventually burst.

With the Federal Reserve winding down quantitative easing, the United States central bank is now hinting at raising interest rates, but Schiff thinks that won’t happen because of the astronomical national debt level – $18 trillion and 108 percent of gross domestic product – and the federal government can’t service the debt at a normal rate of interest.

Schiff noted that as QE has been stopped, the U.S. economy is already heading back into a recession.

As the market starts to rely less on Fed monetary injections, the immense bubbles will begin to explode, which will then prompt everyone to depend on the government and the consumer to borrow and spend, even if it is through credit and debt, something that Schiff warns would have to be resolved through a discharge.

“The government’s borrowed too much money, and the only way to solve these problems is to allow the debt to be discharged,” said Schiff. “And people have to stop spending. They have to start saving. Government has to cut spending. The Fed has to let interest rates go up, but none of this is happening. All we’re doing is trying to delay the pain by exacerbating the disease that’s causing the pain.”

Indeed, politicians and the Fed have attempted to ignore many of the problems facing the U.S. and attempting to sell to the American people that everything is fine. However, with weak economic data regularly coming out and falling oil prices, the Fed will simply try to “cover ‘em up.”

Here is what Schiff expanded upon relating to the bubbles forming:

“And that’s what’s going to happen. You’re seeing this now. The oil market is going down and people are worrying, “Well, is this going to be a problem for the stock market?” It’s not that the oil price going down is the problem. It’s just indicative of the problem. Oil prices were propped up by the Fed. So were home prices. So were stock prices. And if the Fed is not gonna be there anymore, all the prices that were influenced by QE are gonna come down. And since the U.S. recovery was a function of inflated asset prices, as these asset prices deflate, then the recession is going to return. And, of course, what is the government’s response? It’s gonna be more QE, but the real issue is that the recession is part of the healing process. It’s part of what is necessary.”

Schiff also had this quite morose depiction for the U.S. economy, which is why he said voters brought back the Republicans to run the show: homeownership has fallen, household net worth is dwindling, retirees can’t afford to be retired, student debt is skyrocketing and the labor force is toxic for graduates.

Essentially, if the government allowed a recession then the financial institutions would crumble.