Deepak Malhotra, Investor & Landlord, Cheney WA,  99004

The Fed that Cried Taper


Peter Schiff is a financial expert who correctly predicted the 2007 real estate crash. In an August 2006 interview, Schiff said, “The United States is like the Titanic and I am here with the lifeboat trying to get people to leave the ship…. I see a real financial crisis coming for the United States.” On December 31, 2006, in a telecast debate on Fox News, Schiff forecast that “what’s going to happen in 2007 is that real estate prices,” which had peaked in December 2005, “are going to come crashing back down to Earth.”

In his 2007 book Crash Proof, Schiff wrote that US economic policies were fundamentally unsound. Since then, he has stated many times that without a change in US government economic policy, there will be hyperinflation

The Federal Reserve wrapped up its September FOMC (Federal Open Market Committee) meeting Wednesday and once again left its extremely loose “emergency” monetary policy in place. Quantitative easing continues unabated. Interest rates remain at zero. But the Fed did signal it may begin to taper quantitative easing (printing of money) “soon.”

The FOMC downgraded its economic growth forecast to a 5.9% GDP increase this year compared with its 7% forecast in June.

With respect to inflation, the Fed acknowledges that prices are rising faster than they projected. Using its flawed formula, that doesn’t adequately consider housing costs, the new forecast is for core inflation to increase 3.7% this year. The Fed made a 3% projection in June.

While acknowledging surging prices, Fed Chair Powell continues to blame it completely on supply chain problems.

Powell continues to promise that if inflation does become a bigger problem, the Fed has the tools to fight it. Peter Schiff believes that is a bluff. “If the Fed was actually willing to use the tools, it would have already used them. The fact those tools are still buried in the shed someplace proves that they have no intention of using those tools, even if they can find them.”

He said that the Fed always says the same thing:

“The economy is great. Everything is going great. The labor market is strong. Inflation is contained. Yet, we’re not raising rates. We’re not tapering our asset purchase program. Everything is great, but we’re not going to remove any of the emergency monetary policy supports that we implemented when everything was terrible. Even though everything is now great, we’re still going to continue with these policies…”

The Fed did indicate it may begin to taper asset purchases “soon.”

Powell has repeatedly said the Fed won’t begin raising rates until the taper is complete. That means nobody can put a timeline on liftoff until we have a timeline on tapering.

The FOMC downgraded its economic growth forecast to a 5.9% GDP increase this year compared with its 7% forecast in June. The Fed is between a rock and a hard place. GDP isn’t that great but inflation is rising. If it raises interest rates, it may burst a bubble and cause a recession. If it does nothing, inflation continues at more money is printed, thus reducing the value of money versus goods.

Everybody was looking to the Fed to lay out a plan for tapering Quantitative Easing (printing of money). But, once again, the Fed just talked vaguely about slowing the pace of asset purchases. All the FOMC said was that said was that tapering “may soon be warranted.”

Powell said he thought the taper would be finished by the end of next year. But we’re almost through September and there is no taper. Powell reiterated that they haven’t made the decision to taper and there is no tapering timetable other than it will be “gradual.”

Peter Schiff said if they were really close to tapering, there would have at least decided on a timetable.

The timetable is important to us as real estate investors because the Fed could trigger a fall in real estate prices and a recession if it increases interest rates too quickly. Thanks to Keynesian economics, we cannot easily predict when the next correction or crash will occur. When that happens mostly depends on the actions (not just talk) of the philosopher Kings at the Federal Reserve.

https://schiffgold.com/peters-podcast/peter-schiff-the-fed-that-cried-taper/