And this recovery of ours is allegedly phony, which is apparently supported by current economic data. [video=youtube;mdPcmeHoTfI]https://www.youtube.com/watch?v=mdPcmeHoTfI[/video] Interesting information, opinions and predictions from Peter Schiff, as ever! He's predicting a return to open recession, basically, with the Fed failing to raise interest rates despite their promises and, as quoted, coming back with QE4 instead. Certainly the US could never handle the kind of interest rate hike that Russia's central bank just employed, as our debt to GDP ratio is significantly higher. So, I wonder whether he's calling this one correctly? Those of us who've followed Schiff at all will know that he's always been very consistent, and we know that he's been right before, e.g. about 2008. He's bullish for gold for a couple of reasons given in this video... 1/ It has already come down from an earlier high of around $1900, unlike the stock market and other assets which are still running high. 2/ He does not believe that the Fed will raise interest rates, claiming that it's a bluff. So, if we listen to him (and many others, of course), a smart thing to do right now would be to invest in it, especially in the metal itself rather than in mining company stock.
I'm not able to watch the video, but I think the Fed will very likely raise interest rates next year. Now that might result in recession as a lot of the money pumped into the economy is essentially called back in, but the interest rate hike will precede that recession.
The Fed cannot raise rates because the federal government cannot afford higher interest rates on the national debt. The current avg rate paid on the national debt is 2.4%, if the rate goes to 5% then all income tax revenue collected by the govt will be required to pay just the interest on the debt. On the other hand, even the Fed has admitted it has created a stock bubble, it cannot continue the zero interest rate program and it cannot continue QE. On the side all the retired people are making no income on their investments and are having to unexpectedly spend the principle, they are heading for poverty unless they shift from safe investments into stocks - and increasing the stock bubble. The Fed is stuck. Its lose-lose.
The Fed will not truly raise the interest rate, they will stop continuing to keep interest rates low. I think it's important we remember the distinction. The longer the Fed continues to keep interest rates below the natural market rate, the more diluted the value of the dollar will become. The reason for this, in case anyone is interested, is that the Fed is "losing money" whenever it does not manage its reserve assets like a for-profit investor would. Whenever the Fed purchases new assets it expands the money supply. The cost of buying those assets incorporates the potential natural market rate of return. The Fed can't issue new money to buy these assets and not collect that natural rate of return without the ratio of new money issued becoming out of proportion to the value of the reserve assets backing it, hence inflation. What inflation really does is eat into the government's purchasing power. So a central bank, like the Fed, "printing money" to pay for some costly monetary policy, actually just diverts away money from the government budget. And we wonder why the government never seems to have enough money. I would estimate that around 10-12% of the real budget is effectively consumed by the Central Bank's monetary policies. It costs a lot to manipulate interest rates.
Look, I'll explain it to you this way: There are three people, you, farmer A, and farmer B. Farmer A grows apples, farmer B grows oranges. Farmer A and B trade with eachother, 50 apples for 50 oranges. But there have been thieves sneaking in at night stealing their fruit so they make an agreement with you to keep watch at night in exchange for 20% of anything they trade, 10 apples and 10 oranges. Now you have been wanting to try your hand at apple farming, just for the experience, not to make any personal profit. So you make an offer to temporarily buy half of the apple farm. The part of the apple farm you want to buy produces 50 apples a year. You agree on a price a price of 1000 apples with the farmer. But you don't have 1000 apples, and what is the farmer going to do with 1000 apples all at once? So you write promissory notes, that say you owe the farmer 1000 apples. The farmer can pay you the promissory notes instead of actual apples, whenever he trades with farmer B, as per the original agreement. But that's not all. The farmer can choose at a later date to turn in his promissory notes and redeem his farm and any apples you still have saved up. He doesn't have to redeem the entire farm at once to do this. He can turn in 100 promissory notes and get a tenth of the apple trees he sold you back, in addition to 10% of any resulting apples. So you buy part of the apple farm. The first crop comes in, 50 apples as expected, and you give them all away for free to your friend Farmer B. Picking apples is hard work, you realize this line of work may not be for you. So you decide you want to sell back half of the part of the farm you bought. But the crop of apples has already come, and Farmer A did not get any. Farmer A believes 475 apples is a fair price to redeem this part of the farm. He gives you back 475 promissory notes. So now Farmer A owns 75% of the original apple farm, and you hold 25%. But what has happened to the value of each promissory note? Farmer A still holds 525 promissory notes, yet you hold only a quarter of the original farm now. Now Farmer B has discovered there seems to be more apples. With all those apple promissory notes, Farmer A does not have to pay you in actual apples anymore. Then there is your apple farm, not to mention those free apples you gave him. And Farmer B still has to pay you your annual allotment of oranges. So the balance of trade shifts, the exchange rate is now 19 oranges for every 20 apples. Each note still held by Farmer A is worth 5% less. The purchasing power, whether he wants to redeem additional farmland or trade for oranges, has been reduced. This is inflation. It was caused by you giving away those free 50 apples, rather than keeping them with the estate to back your promissory notes.
Widespread inflation is now officially a joke with oil prices crashing and all those $Trillions the Fed pumped into the economy still sequestered in the markets. The Fed does not actually have to raise interest rates to contract the money supply. All it has to do is begin selling off the $Trillions of assets it has acquired and that will remove inflationary pressure, and may contract the markets a bit. The Fed will not do that because they work for the markets, not the rest of the economy. The formal reason the Fed will increase interest rates in 2015 will be to reduce inflationary wage pressure, even though wages are not yet recovered from 2008. Their idea is to reduce the economic growth trajectory just enough that those pesky workers cannot get any benefit from it. On other words, they will raise interest rates in an attempt to slow the wide economy while simultaneously maintaining their support for the speculative markets. Pushing up interest rates a little would usually do the job, reducing the economic growth rate and bringing recession to areas that are still not recovered, which would be enough to relieve wage pressure but the collapse of oil prices has freed up huge amounts of money for consumption. The economy, and wages could continue to grow despite the Fed's best efforts. The markets will take off and the Fed will be forced to make a choice, sell its assets to cool the markets while letting the rest of the economy continue to grow for a while, or raise interest rates high and fast and bring the entire economy down. There is no price pressure on the economy right now and wage increases can be easily absorbed for now. If Yellen was smart she would realize this but the agenda may not allow for it.
Funny now the Feds have become doomsday preppers http://www.zerohedge.com/news/2014-...eparedness-specialist-familiar-dhs-directives What are they prepping for? A collapse perhaps? No way. Not in this booming Obamanomics
If anyone made investments based on Peter Schiff's caterwauling about inflation, they'd have lost money, since he's been wrong since at least 2008 on it.
