Sunday, September 29, 2013

Peter Schiff Was Right ~ 'Taper' Edition

When Ben Bernanke announced that the Federal Reserve's Open Market Committee is going to continue the money expansion program it calls Quantitative Easing apace, almost everyone in the financial media was taken by surprise. The decision "surprised almost everyone out there" they said. Well, not me. As I said, The Fed knows that the appearance of economic health would evaporate if stimulus were withdrawn. The Fed understands, as the market seems not to, that the current "recovery" could not survive without continuation of massive monetary stimulus.

Peter Schiff : The Fed knows that the appearance of economic health would evaporate if stimulus were withdrawn. But like Jack Nicholson in A Few Good Men, it also knows that the markets can't handle the truth. Over the past year Ben Bernanke and other top Fed officials have tried mightily to communicate to the markets that no decisions had been made on the future and timing of QE reductions and that its moves would depend on the data. On many occasions they even hedged the automatic nature of their data triggers and moved the goal posts that supposedly guided their policy. But as a result of this continuous obfuscation, the Fed lost control of its message.
Despite its efforts toward vagueness, the markets nevertheless made definite conclusions.  In addition to the overwhelming consensus of economists who had predicted a taper announcement for today, many even offered precise measures of how big the taper would be (median forecasts were that bond purchases would be trimmed by between $10 and $15 billion per month). As the Fed had not dashed these expectations strongly enough, yesterday's non-event comes as a surprise to most. However, as I have mentioned many times in the past, the Fed has checked into a monetary Roach Motel.

Getting out will be infinitely harder than getting in. In fact it will be likely impossible to get out without tipping the country back into recession.

Peter Schiff is an investment broker, author and CEO of Euro Pacific Capital Inc. Schiff is known for his bearish views on the US economy and US dollar, and his bullish views on commodities, foreign stocks and foreign currencies