Wednesday, October 2, 2013

Peter Schiff: Fed Admits Economy is Fundamentally Weak

All the buildup. The hype. You would be forgiven if you thought this was some sort of Hollywood blockbuster coming down the pipe. It fizzled, just like so many of them do. Ask a room full of economists on Tuesday if they thought the QE taper was on, and you would have heard a resounding yes. It was a question of just how much.
Then came Wednesday and the shocker that the Federal Reserve was leaving QE unchanged and slashing growth forecasts.

Peter Schiff is out with a letter explaining his thoughts on the whole process, and what he sees as a way forward. He thinks the Fed admitted that the US economy is fundamentally weak, and cannot handle the stimulus being withdrawn. The recovery is highly dependent on the QE program like an addict. Plus, the benefits all go to Wall Street. Dow 15k, yet all we produce are part-time jobs? Sustainability baby.

Schiff goes on to say that when the stimulus has to be removed, the correction to real values will be worse than the one five years ago. Obviously Peter Schiff left his rose colored glasses at home.

With QE, the Fed has succeeded in one thing. Confidence. With the stock market back at lofty levels, investors are feeling confident. Real estate prices are being bid up by funds looking to get into the rental game. Perception on the Wall Street is all is well. Except on Main Street, no one buys into that anymore. Without QE, there is no way the markets reach these levels. So remove the drug, and watch the inevitable crash according to Schiff.

As we can already see today, the Fed has one exit strategy. It will sound familiar to most Americans. Hope. Yeah, they are pinning the whole thing on hope. Sure, they will drop their hints on slowing down this, tapering that.

In the end, the Fed needs the economy to all of the sudden come back to life. The problem is, once it does and they stop the QE, they themselves become the problem with the tightening financial conditions. Interest rates rose over the summer due to the taper talk. Now, they have to hope one day the economy is strong enough to absorb their shock.

Some would argue we have where the political refrain of hope has led this country. Now we have a central bank following the same premise.

Read Peter Schiff’s full letter at:

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