Since central banks around the world are expanding their role in the free markets, governments may begin to play a much larger role in capitalist economies. In fact, according to one contrarian investor, governments and central banks are flirting with the communism.
Writing in a blog post this week entitled “QE’s Creeping Communism,” Peter Schiff, CEO of Euro Pacific Capital and author of “Crash Proof,” opined that the Federal Reserve has distorted markets and guided all kinds of investors into high-risk investments with zero-percent interest rates.
Schiff noted that “exploding debt, financial distortion, prolonged stagnation, recurring recession, and the eventual government takeover of industry and the economy” are things that politicians and central banks seem to prefer. Schiff came to this conclusion because politicians and central bankers “simply refuse to let the free markets function the way they are supposed to.”
The financial commentator alluded to the Bank of Japan (BOJ), which has repeatedly attempted to reinvigorate its economy since the “lost decade” of the 1990s.” It’s tried this through record low interest rates, consistent intervention by the BOJ and even purchasing exchanged-traded funds (ETFs) in order to revive the country’s struggling equity market.
It’s next step, according to Schiff, is actually directly buying stocks.
“Such purchases would allow the Japanese government to accumulate sizable voting interests in some of Japan’s biggest companies,” Schiff wrote. “These possibilities should horrify anyone who still retains any faith in free markets. Purchases of equities would involve a stealth nationalization of industry, and would represent a hard turn towards communism.”
The United States central bank, meanwhile, only purchased government bonds and mortgage debt during the three rounds of quantitative easing for five years. This led the Fed to accumulate nearly $5 trillion worth of assets from financial institutions in order to spur lending to consumers and businesses. Of course, stocks reached record highs and a lot of investors made a lot of money. Essentially, the inflation seeped into stock markets and pushed up values.
Nevertheless, economic growth has barely budged above three percent throughout this recovery. This is the worst recovery for the past 70 years.
“Many American observers will take comfort in their belief that the United States has already concluded its QE experiment and that we are heading in the opposite direction, toward an era of monetary tightening. This greatly misjudges the current situation,” Schiff avers in his blog post. “The U.S. economy is slowing remarkably, and despite the continuous assertions by the Fed that rate hikes are likely in the very near future, I believe we are stuck just as firmly in the stimulus trap as Japan.”
What’s the solution? The free market. If Washington only allowed the free market to heal the economy then things would have gotten a lot better faster without constant interventions by central banks, whether it’s the Fed, the Bank of Canada or the Bank of England.
“If interest rates were never manipulated by central banks and QE had never been invented, the markets could have purged themselves years ago of the speculative bubbles and mal-investments,” Schiff added. “Sure we could have had a deeper recession, but it also could have been much shorter, and it could have been followed by a far more robust and sustainable recovery.”
Fed Chair Janet Yellen has hinted that the central bank could raise interest rates next month for the first time since 2006. U.S. rates have been at near zero since 2008.
If the central bankers and politicians left the economy alone, they could not suck profit for themselves and friends out of the system as easily as they do today.