The Federal Reserve raised interest rates last week for just the second time in the last decade. The United States central bank said that it plans to raise rates another nine times over the next three years because of an improving economy.
But Peter Schiff, president and CEO of Euro Pacific Capital, isn’t convinced by the Fed’s rhetoric. In fact, he thinks the Fed is faking the confidence.
Speaking in “The Schiff Report,” the contrarian investor and Fed critic asked a simple question: if the Fed was so bullish and positive on the U.S. economy then why did it move rates to half a percent? According to Schiff, if the Fed was so optimistic on the economy then it would have raised rates higher and a lot sooner.
“If the Fed was confident in the U.S. economy, rates would be much higher than a half a percent. The Fed would have raised rates a long time ago and by much more than this. In fact, they could have lifted rates by more than 25 basis points on Wednesday, yet they had so little confidence in the economy that this is what they did,” Schiff said last week.
“The only reason the Fed raised rates this December is for the same reason they did so last year. They did it despite having no confidence in the economy, because they didn’t want to send a message that they were that worried.”
He also explains that the Fed doesn’t seem to know what it’s doing, citing the fact that the central bank expected growth of 2.4 percent for 2016 but 2.1 percent for 2017. If the economic growth is lower than why would it expect to raise rates three times next year?
Ultimately, says Schiff, the rate hikes aren’t going to happen.
“I think the markets [next year] will be just as disappointed as last year, and the Fed will fail to deliver on this expectation,” averred Schiff.
Here is the full video embedded below:
Yellen is being replaced………. she’s far too political. I suggest you educate yourself. SMH
“…Most investors now believe three things about the Federal Reserve, money and interest rates. They think that the Federal Reserve is artificially depressing rates below what would be a “normal” level. They believe that in the process of doing so the Federal Reserve has enormously increased the supply of money and they believe that the USA is on a fiat money system.
All three of those beliefs are incorrect. One benchmark rate that he Federal Reserve has absolute control of is the rate paid on reserves deposited at the Federal Reserve. That rate is now 75 basis points, after being zero since the inception of the Federal Reserve in 1913 until recently. If the Federal Reserve had left that rate at zero t-bill rates would now be even lower than they are now. The shortest t-bills rates would now probably negative.
Paying interest on reserves combined with the subsidy to the banks of providing free unlimited deposit insurance on non-interest bearing demand deposits is keeping t-bill rates positive. Absent those policies the rate on t-bills would be actually negative. The Chinese and others all over the world are willing to pay anything for the safety of depositing funds in the USA. Already, Bank of New York Mellon Corp. has imposed a 0.13% charge on large deposits.
An investor who believes that interest rates are headed up may respond that the rate paid on reserves is a special case and that the vast increase in the money supply resulting from the quantitative easing must result in higher rates when the Federal Reserve reverses its course. The problem with that view is that the true effective money supply is still far below its 2007 level.
Money is what can be used to buy things. Historically money has first been specie (gold and silver coins), then fiat money which is paper currency and checking accounts (M1) and more recently credit money. The credit money supply is what in aggregate can be bought on credit. Two hundred years ago your ability to take your friends out to dinner depended on whether or not you had enough coins (specie) in your pocket. One hundred years ago it depended on the quantity of currency in your pocket and possibly the balance in your checking account if the restaurant would take checks.
Today it is mostly your credit card that allows you to spend. We no longer have a fiat money system. Today we have a credit money system. Just because there is still some fiat money does not negate the fact that we are on a credit money system. When we were on a basically fiat money system there was still a small amount of specie in circulation. Even today a five cent piece contains about 5 cents worth of metal, but no one would claim we are still on a specie money system.
Fiat money is easy to measure; M1 was $1.376 trillion in 2007 and is over 3 trillion now. The effective money supply is the sum of fiat money and credit money. Credit money cannot be precisely measured. However, When the person in California whose occupation was strawberry picker and who had made $14,000 in his best year was able to get a mortgage of $740,000 with no money down and private equity could buy a company like Clear Channel in a $20 billion leveraged buyout, also with essentially no money down, the credit money supply was clearly much higher than today. A reasonable ballpark estimate of the credit money supply is that it was $70 trillion in 2007 compared to $50 trillion today.
The effective money supply is the sum of the traditional fiat money aggregates plus the credit money supply. Thus, despite the claims of many to the contrary, the effective or true money supply has fallen drastically over the last few years….”
http://seekingalpha.com/article/1514632