The United States economy hasn’t exactly been the bastion of recovery since the financial collapse a few years ago. Millions of people are still out of work, households nationwide are in massive debt, students are on the brink of a personal collapse and the only people and organizations benefitting in today’s economy are those who are close to the money printing.
Peter Schiff, CEO of Euro Pacific Capital, speaking in an interview with Newsmax, isn’t exactly impressed with the overall economy and believes it’s currently in a bubble that is being inflated by the Federal Reserve. To Schiff, the U.S. economy can’t remain strong because it’s not even strong to begin with, citing the lies being purported by the Fed, including the central bank shrinking its astronomical balance sheet (nearly $5 trillion).
According to Schiff, the balance sheet will never contract or diminish.
“The balance sheet is going to get bigger and bigger when the fed launches QE4 [quantitative easing],” averred Schiff. “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.”
Interest Rates, Inflation & Debt
Ostensibly, the Fed continues to tergiversate on whether or not it should raise interest rates this summer. A fair number of Federal Open Market Committee (FOMC) members say it’s better to remain patient, while other Fed members suggest it’s about time to start hiking rates. The U.S. central bank hasn’t revised its interest rates since Dec. 2008. The federal funds target rate stands at 0.25 percent.
In addition to interest rates, Schiff thinks inflation is a major problem, despite the fact that so many economists warn about deflation today.
“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.”
When it comes to the national debt, Schiff posits that the Fed wants to eliminate government debt, but it won’t do so honestly. Instead “they’re going to wipe it out through inflation.”
Oil Prices
Since he believes the Fed won’t hike interest rates, which will then cause the U.S. dollar to taper its growth, oil prices will go a lot higher. This means American consumers will no longer be able to benefit from the collapse in gas prices. Nevertheless, the 32 percent decline in pump prices won’t necessarily prompt consumers to start spending those savings.
“They’re not going to spend it [their savings on gas], because they were borrowing money to buy the gasoline in the first place,” added Schiff. “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.”
Finally, according to Schiff, the question isn’t necessarily whether or not oil prices will soar but rather how long they’ll stay at these levels and how complacent will we become.
“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,” said Schiff. “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.”
The price of a barrel of oil is trading at around the $50 mark.
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