Tuesday, December 20, 2016

Inflation will rise faster than interest rates



Key points
-Doubts on Fed's credibility and ability to raise rates in 2017
-Fed is less optimistic on economy now than it was a year ago
-Fed has no confidence in the economy, that is why they raised the interest rates so little.
-Gold will rise with higher inflation
-Markets were wrong about Gold last year 2015
-Trump cannot fix all the problems because they are unfixable, the economy is messed up.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, December 12, 2016

This is the fourth longest economic expansion in US history



We are due for a recession very soon....... 

[Watch the video above for full commentary]

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, December 5, 2016

Real Interest rates are falling despite the Feds nominal increases


If we are going to have larger deficits its impossible to finance them, unless the Federal Reserve does it. So we are going to have to do even more quantitative easing (QE). The Fed is going to have to reverse and cut interest rates, and it's not going to create economic growth, but it is going to put pressure on inflation that is already now above what the Fed supposedly says is its supposed target.

He [Trump] doesn't want to tackle, for political reasons, the real problems that are underlying the economy. 



Monday, November 21, 2016

The Bond market collapse worries the Fed



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Thursday, November 17, 2016

Trump and Brexit shows true feelings of the people

Brexit and the Donald Trump presidential victory should rightly be viewed as the most significant international developments of the last decade. Both events illustrate a breaking down of globalist order and they both threaten the entrenched elite that has so ruthlessly and painfully hurt the middle and working classes. But as Trump supporters revel in the largely unanticipated victory, Brexit faces a serious new challenge.


On November 3, 2016, The English High Court ruled that the UK's withdrawal from the EU would affect substantially the "rights of individuals within the UK." As a result, the Court concluded that despite the referendum, and the "Crown prerogative" that grants the Government considerable leeway, particularly in matters of foreign affairs, the decision to leave the EU must be made by Parliament. Given that the government has made many decisions to increase the UK's "ever-closer" integration into the EU over the years, which clearly affected the "rights of UK individuals," it is curious that the Court would finally decide to step in when the government was moving in the other direction.

The May Government has announced that it will appeal to the UK's Supreme Court. Some lawyers advise that should the Supreme Court overrule the High Court, the Claimants might appeal still to the European Court of Human Rights under the Human Rights Act 1998. Whether this Court would accept jurisdiction is unclear. Regardless, the current Government and the Brexit camp are shocked and angry at the High Court's ruling. They are joined by powerful sections of the UK's mass media including the Daily Mail which has labeled the High Court as being "Enemies of The People" (James Slack, 11/3/16).

If the Supreme Court upholds the High Court decision, it is likely that Prime Minister May will have to consult Parliament. She is unlikely to find there a receptive audience. According to Business Insider some 73 percent of the 650 Members of the House of Commons, and probably a greater percentage of Peers in the House of Lords, were and probably are still in favor of remaining in the EU (Jim Edwards, 11/3/16). This means that the members of Parliament can easily rise up and vote to restore the order that they so clearly believe should be restored. But will they be prepared to defy the will of the people? This is a tall order for every politician. They could argue that the public will has changed since the vote and that the win was not all that decisive to begin with. Such arguments will be politically perilous.

By 51.9 percent to 48.1 percent the British people voted for Brexit (BBC News). However, this seemingly small margin led to 61 percent of the UK's Parliamentary constituencies to vote for Brexit, according to data from the University of East Anglia. It will take very brave Conservative Members of Parliament to vote their conscious to remain, thereby defying both their party whips, who control their promotions within the Party, and the expressed will of their constituents who control their continued membership in Parliament. Even Labour members who may desperately want to remain in the EU, may be reticent to oppose the clear wishes of their voters to leave. The fractured leadership of the Labour Party may not be able to bring much pressure on wavering members to cast a "remain" vote. The remain sentiment in the House of Lords appears even stronger than in Commons. But if Prime Minister May were to add the threat of enacting further reform of the House of Lords, it might bring enough peers into line.

The remain case has been further weakened by the lack of post-Brexit catastrophe forecast by Cameron and his allies before the vote. Recent headlines confirm the return of optimism: the Telegraph published, "UK jobs market 'thriving' after summer pause." City AM reported "Retail sales up in best month since January." Meanwhile, financial markets appear to have stabilized.

Based on all this, it is hard to imagine that UK parliamentarians will stage a quixotic last minute stand to resist the independence of the UK.

Regardless, the EU negotiators may insist that to retain access to EU markets the UK must open its boarders to EU immigrants, largely from the Middle East. If unacceptable to the UK government, likely it will result in a so-called "Hard Brexit" whereby the UK will be expelled. Should this occur, it will not be the first time England has been expelled from most of Europe. Should this occur, Britons should rejoice as history has shown that England does well when it does not yoke herself too closely to the Continent.

When King Henry VIII broke with the Church of Rome, England was forced to trade worldwide. This put England into the exploration and colonization business, which proved to be quite fruitful. When Napoleon's influence spread across the Continent in the early 19th Century, Britain shut down European ports and looked to trade elsewhere. This resulted in the largest accumulation of empire in England's history, allowing the small island nation to garner wealth, political influence and military power on a global scale.

Under Brexit, I believe the UK will be free to trade worldwide on terms that suit the UK's economy rather than that of the 28-nation EU, which has still no effective trade treaties with the U.S., China and Japan. First Brexit and now Trump have exposed powerful popular feelings of deep resentment. An increasing number of voters feel ignored by what they perceive as self-serving, uncaring and unresponsive rulers who have created a political class that is cocooned away from the financial realities which plague normal citizens. It is not a political party but, as Trump describes, "it's a movement." Likely, it will threaten the unraveling of conventional party politics in the U.S., the UK and the EU.

Brexit and the U.S. election have clearly given momentum to the anti-globalist world view. Such forces are also gaining ascendency in Italy and France. However, the forces of globalization are extremely powerful and deeply entrenched. They will surely fight back. The first round will be in the UK Parliament. But no one knows where the fight will progress.

Monday, October 31, 2016

Hillary will be bad for the US long term


Its no secret why Wall Street wants Hillary to win the elections.



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, October 26, 2016

Why is the pound so weak?

The Bank of England was very forthright, they wasted no time in warning voters not to vote for Brexit as it would be a disaster for the British economy.

Well, sure enough, the people voted for Brexit, and so now, it is a self-fulfilling prophecy. The central bankers in Britain had convinced themselves that the economy would require stimulus, and therefore announced an increase in their QE program


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, October 24, 2016

Probability of Fed rate hike in December is ZERO

The official probability of a December rate hike continues to diminish over the last several days. The markets had the rate hike at about a 70 percent probability; now we’re down to about 60 percent. Personally, I think the odds are closer to zero, and over time, as we get closer and closer to that December meeting, the odds will steadily move down. Just like the Atlanta Fed keeps moving down its estimates for Q3 GDP; most recently down to 1.9%

I expect the Atlanta Fed to move lower again this week on more weak economic data. As the potential for a rate hike diminishes, gold’s appeal improving, gold prices now back above $1260 today. We’ve had a couple of back to back strong days in the gold sector. Maybe the catalyst for the recent correction in the price of gold was the renewed expectation of a November and now December rate hike. 

As those expectations are realistically dialed back, you’ll see more money moving into the metals. The dollar, though, continues to trade firm. It’s not moving higher, but it’s not really surrendering much of its gains. Maybe some of this has to do with weakness particularly in the pound.

Tuesday, October 18, 2016

Bad recession now or worse recession later... What would you do

Currently economists and market watchers roughly fall into two camps: Those who believe that the Federal Reserve must begin raising interest rates now so that it will have enough rate cutting firepower to fight the next recession, and those who believe that raising rates now will simply precipitate an immediate recession and force the Fed into battle without the tools it has traditionally used to stimulate growth. Both camps are delusional, but for different reasons.
Most mainstream analysts believe that the current economy can survive with more normalized rates and that the Fed’s timidity is unwarranted. These people just haven’t been paying attention. The “recovery” of the past eight years hasn’t been just “helped along” by deeply negative real interest rates, it is a singular creation of those policies. Since June 2009, when the current recovery began, traditional economic metrics, such as GDP growth, productivity, business investment, labor force participation, and wage growth, have all been significantly below trend. The only strong positives have been gains in the stock, bond and real estate markets. We have had an “asset price” recovery rather than a bona fide economic recovery. This presents unique risks.

Asset price gains have been made possible in recent years because ultra-low rates have driven down the cost of borrowing, encouraged speculation, and pushed people into riskier assets. Donald Trump was right in the presidential debate when he noted that the whole economy is “a big fat ugly bubble.” Any rate hike could hit those markets hard across the financial spectrum and can tip the economy into contraction. Look what happened this January when the market had a chance to digest the first rate increase in 10 years. The 25 basis point increase in December 2015 led to one of the worst January’s in the history of the stock market. Since then, the Fed has held off from further tightening and the markets have treaded water. There is every reason to believe that the sell-off could resume if the Fed presses ahead.

Our current “expansion,” which began in June of 2009 is 88 months old, and is already the fourth longest since the end of the Second World War (post-war expansions have averaged 61 months) (based on data from National Bureau of Economic Research and Bureau of Labor Statistics). But although it is one of the longest it has also been the weakest. Despite fresh optimism nearly every year, we have not had a single year of 3 percent GDP growth since 2007. More ominously, the already weak expansion is beginning to slow rapidly. GDP growth has been decelerating, averaging just 1% in the past three quarters. (Bureau of Economic Analysis) And while hopes were high for a significant rebound in Q3, as has been the pattern all year, rosy estimates have recently been sharply reduced.

Typically rate-tightening cycles start in the early stages of a recovery when the economy is still gathering momentum. As I have argued before, a rate tightening campaign that begins in the decelerating tail end of an old and feeble recovery is bound to unleash problems.

So I agree with those who believe that rate hikes now will bring on recession, but I disagree that we should keep rates where they are. They believe we need to keep the stimulus pedal to the metal…and when that’s not enough, to cut a hole in the metal and push harder. I believe that despite the short term pain that will surely follow, we need to raise rates now to break the addiction before it gets worse.

The “keep rates at zero camp” argues that global economic developments have made traditional GDP growth nearly impossible to achieve. These believers in “the new normal” fear that the Fed is mistakenly waiting for growth that will never come. Larry Summers, the leader of this group, recently argued in the Washington Post that the Fed will never be able to raise rates enough in the short term (without plunging the economy into recession) to gather enough ammunition to effectively fight the next recession. In his view, to raise rates now would be to risk everything and get nothing.

Summers knows that central bankers now do not have the caliber of bazookas that their predecessors once carried (Bernanke was able to slash interest rates over 400 basis points in a few months). So he advocates continued stimulus until newer means can be developed to head off the next recession before it develops. (He promises to reveal those new ideas soon…really).
Given all the economic realities that central banking has attempted to suspend in recent years (such as the antiquated belief that lenders should be paid to lend rather than being charged for the privilege), it’s no great stretch for them to consider the next big leap and call for an age of permanent expansion.

To do this they must short-circuit the business cycle, which up until now has regulated prior monetary mismanagement. Rather than being some naturally occurring process, the business cycle actually results from artificially low interest rates. Mistakes are made during the booms, when rates are held artificially low, and are then corrected during the bust, once those rates are allowed to normalize. Ironically, the busts are actually the benign part of the process, and should not be resisted, but embraced. But to mitigate the short-term pain associated with actually correcting those mistakes, central banks typically opt to paper them over for as long as possible. The problem is that this time the papering over process has gone on for so long, and involved a record amount of paper, that correcting the mistakes now will necessitate a recession so severe that it is unthinkable. The only apparent “solution” is to make sure one never arrives.

To do so Fed must replace the “ups and downs” of the economy with the “ups and ups.” This futile process will likely involve the Fed intervening directly in the equity markets (by actually buying shares), or in the real estate market (by buying properties or making loans) or into the consumer economy by directly distributing money to citizens. But since contractions are necessary and healthy, especially when markets have gotten ahead of themselves, attempting to short-circuit them does more harm than good. Yet despite how crazy such a policy sounds, Yellen just suggested that she thinks it’s not only a good idea, but that the Fed is already giving it serious study. Given the damage our crazy monetary policy has already inflicted in the past, one can only imagine what kind of devastation awaits.

Just this week the International Monetary Fund issued a report about the dangers of global debt growth, which has reached $152 Trillion, or roughly twice the size of global GDP. They noted that the growth of private debt has recently led the upswing. With negative rates actually paying some companies to borrow, should this be a surprise? And while it’s nice that the IMF raised a red flag, it’s pathetic that their only proposed solution is to call for governments to increase public debt through fiscal stimulus (based on what should now be the debunked theory that deficit spending creates growth).

Even more pathetic is Alan Greenspan attempt on CNBC this week to blame the current low growth economy on Congress, and its failure to reign in entitlements. Greenspan is correct in his determination that “the new normal” results from the plunge in productivity gains that is a function of drops in savings and capital investment. But he can’t absolve the Fed. Had they not monetized the ever growing Federal deficits, or kept interest rates artificially low for so long, market forces would have forced cuts in entitlement spending years ago. These actions, originated with Greenspan himself, enabled Congress to repeatedly kick the can down the road.

According to Greenspan, to spare the public the pain of higher interest rates the Fed has no choice but to hold its nose and accommodate any level of debt Congress chooses to accumulate. But the ability to pursue unpopular policy is precisely they are supposed to be politically independent. What good is an independent central bank that simply helps incumbents win reelection?
Given that the Fed has already unsuccessfully exhausted so much firepower, it is unfortunate that it never seriously questions whether their policies are actually harmful. Modern economists simply can’t imagine that throwing ever more debt on the back of a weak economy actually prevents it from recovering.
I think it’s high time the Fed finally moves rates well into positive territory. The next recession has been on its way for years, and it will arrive no matter what the Fed does, if it’s not already here. Sometimes reality hurts, but fantasy can be more damaging in the long run.


The real choice is not between recession now or recession later. It’s between a massive recession now, or an even more devastating one later. Either way, there is no Fed policy that will be able to fight it. But that is not because the Fed is out of bullets, but because it never had any real bullets to fire in the first place. All it had was morphine to numb the pain as the wound festered. Now is the time to bite the bullet, endure the pain, and allow the wound to actually heal. This will also allow us to finally bury the idea of a new normal, enjoy a real recovery with all of its traditional benefits, and actually make America great again.

Monday, October 10, 2016

Our recovery is a mirage

I'm certain that all this talk about a recovery is wrong. The recovery is an illusion, it's just another gigantic bubble.

Everybody wants to go to heaven, but nobody wants to die, and that is the problem. We're never going to have a real recovery until we kill this phony recovery, but for political reasons, that's not going to happen.


Tuesday, October 4, 2016

Conspiracy theories around why Deutsche Bank may get a much reduced fine



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, September 19, 2016

Americans public is broke and dont have any savings





Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, September 12, 2016

BOJ now owns more than 60 percent of Japanese ETF's

For years I have argued that ultra-low interest rates act more as an economic sedative than a stimulant. This idea has elicited laughter from the economic establishment. But it is becoming clearer that rates set by central banks that are far below the levels that free markets would have otherwise determined have dragged the world into the economic mud. The simple proof is currently arising in Europe where negative interest rates are now transforming companies from agents of growth, production, and employment into financial sloths that exist solely to borrow money.

In a September 7 front page article, the Wall Street Journal reported that as of September 5, €706 billion worth of investment-grade European corporate debt, or roughly 30% of the market, according to trading platform Tradeweb, was trading at negative yields, an increase from just 5% in January. These negative yields were the result of intense activism on the part of the European Central Bank (ECB). 

For years the ECB had been trying to stimulate growth by buying trillions of euros’ worth of sovereign debt. But as these programs proved ineffective to wake up the EU economy from its long economic slumber, this year they began moving into the corporate market. Most of this buying has occurred on the secondary market, for bonds that had previously been issued at positive rates. The central bank buying raised prices of these bonds sufficiently to push yields into negative territory. It also has drawn in speculators who have bought low yielding bonds not because they are good investments but because they are convinced that the ECB will one day buy them out at a premium.

But the real news of that Journal article was that for the first time, major European firms like German manufacturer Henkel AG and French drugmaker Sanofi SA had issued corporate bonds at negative rates in the primary market. This means that if they are held to maturity, the bonds are guaranteed money losers…in essence, the companies are being paid to borrow. This is a stunning development that alters the fundamental principles of corporate strategy.

As this process of ECB corporate bond buying continues, more and more companies will follow suit and issue bonds at negative yields. Why wouldn’t they? It’s nice work if you can get it. To seek profits, why go through the laborious and uncertain process of developing new products and seeking new customers when all you have to do instead is simply borrow money from lenders and pay them back less? It’s fool proof, requires no messy union labor contracts, no R&D, and is infinitely scalable…as long as the central bank keeps buying. All indications are that they will. With such an easy path to profits, it should come as no surprise that this August was the busiest on record in terms of European corporate debt issuance, according to Dealogic.

But what are the companies doing with the newly raised cash? They aren't using it to hire more workers. Another story in the same Journal edition detailed how European corporate investment spending stalled at 0% growth in the second quarter (Eurostat data). Rather than investing the money, companies are using the brisk bond issuance to retire older debt, pay dividends, or buyback shares on the open market. While these activities are great for shareholders, they provide very little benefit for workers and consumers. Welcome to the new economy.

Normally, if a company borrows cash at a positive rate of interest, it must put that money to some productive use in order to repay lenders both principal and interest, plus generate a profit for its efforts. But now that hurdle has been eliminated. Companies don’t need to create any value with the money they borrow. They just need to borrow. The loans themselves produce the profit. It’s not too difficult to see how the corporate sector will evolve if the “ECB buying at negative rates” trend continues, or picks up steam. Corporations will focus less on business operations and more on ways to increase debt issuance. Fewer engineers and more accountants is never a good recipe for economic growth.

Japan has been going down this road even longer than the Europeans, and the results are equally poor. Although it hasn’t been buying corporate debt, the Bank of Japan (BoJ) is on pace to buy more than $786 billion worth of Japanese Government bonds this year, more than double what the government will actually issue. Currently the BoJ owns more than a third of outstanding government bonds and, at the current pace, it could own 60% by the end of 2018. (WSJ)

But it doesn’t stop there. The BoJ has also become the principle buyer of the Japanese stock market and now owns more than 60% of Japanese ETFs. Clearly, those stock purchases are not motivated by the same market-focused rationale that would compel private investors. Such “investments” are not spurring the Japanese companies to make bolder investments into organic growth. Instead, they are more likely to sit back and let the money roll in. It’s corporate welfare at its worst, guaranteed to produce nothing but short-term profits.

But despite all of this, the politicians, central bankers, and economists insist that bolder and more creative techniques of money printing and financial stimulus will unlock the economic puzzle and return the global economy to 3% or 4% growth. I think there is little doubt that the Federal Reserve will ultimately follow the ECB and the BoJ into this bizarre world of negative yields and unlimited financial asset purchases.

But as we go down this road, no one in power seems to consider the possibility that “stimulus” does more harm than good. If central banks weren’t buying bonds, interest rates would surely rise, and risks for business and governments would return. But the real world can produce real results. It has worked that way for millennia. Without guaranteed government money, companies would need to attract real investors. To do that they would need to create real businesses, a process that takes investment, innovation, and efficiency. These are the essential elements that create productivity growth that is the single biggest factor in raising living standards. It’s no accident that productivity growth has all but disappeared in the current age of central bank activism.

So we have a choice, either we continue down the road of negative rates to Fantasy Land, where central banks own all the stocks and bonds and asset prices always rise, but real wages and average living standards always fall, or we take our chances on a different path that leads to reality, however unpleasant the transition may be. I for one would choose the latter, but it looks like I won’t have much company.

Tuesday, September 6, 2016

Markets are looking towards a weaker dollar and lower rates



Peter Schiff is an investor and author of several best selling books. He correctly predicted the last economic meltdown.

Wednesday, August 31, 2016

Fed is hoping everything magically turns around



They want to keep up the pretense that the economy is strong enough for a rate hike.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Thursday, August 25, 2016

High inflation in our future


Peter Schiff is a smart investor and author of several best selling books. He predicted the last big economic meltdown.

Tuesday, August 23, 2016

Obamacare is a failed healthcare experiment

Economics is far simpler than most in academics or government would have you believe. To make accurate predictions all you really need is an honest appreciation of the self-interest that is at the heart of free market transactions and an ability to understand how regulations that attempt to “correct” these realities don’t work. This is certainly the case with the completely predictable slow-motion train wrecks that are the signature U.S. domestic policy experiments of the last eight years: Obamacare and Federal Reserve stimulus. From the start, I issued countless commentaries on why both would fail spectacularly. The jury has started to come back on Obamacare, and the results are a disaster. And while the verdict on the Fed’s policies has yet to arrive in similarly stark terms, I believe that its failure is just as certain. 

As I explained in my July 30, 2012 commentary “Justice Roberts is Right: The Plan Won’t Work,” the central flaw (among many others) in Obamacare is that it incentivizes younger, healthier people to drop out of insurance coverage while encouraging older, sicker people to sign up. The result would be a pool of insurance participants that would guarantee losses for those providing coverage. That’s exactly what we are seeing.

After only four years of operation, there is now wholesale defection by insurance companies to abandon the Obamacare marketplace because they are hemorrhaging money faster than just about anyone predicted. To believe that any other outcome was possible would have been the equivalent of believing in the Tooth Fairy.

According to the Wall Street Journal, the four biggest U.S. health insurance companies, Anthem, Aetna, UnitedHealth and Humana are losing hundreds of millions of dollars on their Obamacare plans. And since these companies can’t be compelled to operate a business that loses money, all four have significantly scaled back their offerings. UnitedHealth has already exited 31 of the 34 states where it sells ACA policies. Humana is now offering coverage in just 156 counties of the 1,351 counties in which it was active a year ago. The latest shoe to drop came this week when Aetna said it would stop selling Obamacare plans in 11 of the 15 states where it is currently active.

It’s no secret why the companies are losing so much money. Enrollees into the new plans take out far more money in benefits than they pay in premiums, despite the fact that premiums have increased substantially. That’s because the pool of insures in the Obamacare plans differ sharply from those that exist in the private marketplace. Why this has happened should have been stunningly obvious to anyone. To quote from my 2012 commentary:

“…the ACA makes it illegal for insurance providers to deny coverage to anyone for any reason. This allows healthy people to drop insurance until they actually need it without incurring any risk. It's like allowing homeowners to buy fire insurance after their houses burn down.” Given the high cost of insurance, the law allowed millions to take a free ride.

I argued then that penalties that would hit those who remained uninsured were insufficient to compel them to make an uneconomic decision. This was the same rational that was used by Chief Justice Roberts when he ruled that the plan was constitutional. He argued that since the penalties were not high enough to compel behavior, they should be seen as constitutional “taxes,” not unconstitutional “penalties.”

Similarly, by guaranteeing that no one could be denied insurance for any reason, and that the sick would pay the same premiums as the healthy, the plans have sucked in lots of people guaranteed to take out more in benefits than they pay in premiums. Add these factors together and you get the recipe for guaranteed losses. In retrospect, it is simply incredible that supposedly smart people argued against this outcome while the law was being drafted and passed.

At this rate, there may essentially be no private companies offering insurance through the exchanges within a few years. This will mean that unless president Clinton (Trump has promised to repeal Obamacare) passes a new law requiring companies to lose money for the good of the country (not too outlandish a possibility), or if the Supreme Court allows massive increases in the penalties for not buying insurance (thereby creating the coercive force that Justice Roberts argued was absent in the original law), then the government itself will have to step in and absorb the losses that are currently hitting the private insurers. At that point, Obamacare will become just what its critics always thought it was: an enormous new unfunded and open-ended government entitlement. 

While the flaws of Obamacare were incredibly easy to see, so too are the flaws in the Federal Reserve’s stimulus policy. What’s amazing to me is that more people aren’t able to see through it as easily.

Although few realized it while it was occurring, everyone now sees that the dotcom mania of the late 1990’s was a bubble that had to end badly. Most also realize now, as they didn’t realize then, that the housing bubble of the early years of the 21st Century (which took us out of the 2001 Recession) was a bubble created by the Federal Reserve’s unprecedented low interest rates in those years.  

But while we have gotten better at recognizing bubbles after they have burst, we are still totally blind to the ones that are currently forming. Ever since the Recession of 2008, the Federal Reserve has held interest rates at zero and has injected trillions of dollars into the financial markets through its quantitative easing policies. These moves have clearly inflated prices in the bond, stock, and real estate markets, an outcome that was an expressed aim of the policies.There is also clear evidence that these asset prices will come under intense pressure if interest rates were allowed to rise.

Recent history confirms this. Back in January of this year, just a few weeks after the Federal Reserve delivered the first rate increase in nearly a decade, the stock market entered a free fall. We had the worst opening two weeks of the calendar year in stock market history. The bleeding stopped only when the Fed backed off significantly from its prior rate hike projections. Since then, the market action has been clear to see: stocks rally when they believe the Fed will keep rates low, and then fall when they think they will rise. And so the Fed has played a continuous game of footsy with the market…forever hinting that hikes are possible but never actually raising them.

But given how close the economy could be trending toward recession, can anyone seriously believe that the Fed will risk kicking a potential recession into high gear by actually delivering another rate increase? It should be clear that it won’t, but somehow the best and brightest on Wall Street appear convinced that it will. Perhaps this explains why hedge funds have so consistently underperformed the market thus far in 2016.

To me, the fate of the Fed's stimulus policy is as clear as that of President Obama's failed experiment in healthcare. It's a disaster hiding in plain sight. The stimulus itself has so crippled the U.S. economy that it can now barely survive without it. As it limps along the crutch must grow ever larger, as the support it provides weakens the economy to the point where it becomes too small to provide adequate support. But rather than acknowledging that the Fed's policies have failed (an admission that any honest proponent of Obamacare should make), the proponents of stimulus are doubling down.

Earlier this week, John Williams, the president of the San Francisco Fed and widely believed to be a close confidant of Chairwoman Janet Yellen, issued an economic letter on the FRBSF website that lays the foundation for much greater stimulus for years to come. The centerpiece of Williams’ suggestions is that he would like to see the Fed raise its inflation target past the current 2%, and that the government be prepared to run much larger deficits to combat persistent economic weakness. In other words, ramp up the dosage of the medicine we have been taking for years, even though that medicine hasn’t worked. This shows a stunning inability to recognize a failed policy when it is staring at them in the face.

Absent from his analysis is any understanding that the stimulus policies of the past two decades may have actually created the conditions that have locked our economy into a perpetually weakened state. By preventing needed contractions, debt reductions, investment re-allocations and rebalancing, perennial stimulus has frozen in place a listless economy dependent on monetary support just to tread water. Just as Federal tax policy and healthcare regulations raised the costs of healthcare to the point where another bold (and ultimately futile) regulatory framework was launched to solve the problem, new forms of stimulus are being conjured to fix problems created by prior stimulants. But since Williams does not realize the stimulus he and his fellow quacks at the Fed have prescribed actually acts as a sedative, he has misdiagnosed the resulting condition of slower economic and productivity growth and as being the new normal.

Proof of this circular logic is Williams expressed desire to use monetary policy to push up “nominal GDP,” which is simply the GDP figures that are not adjusted for inflation. What good will it do for the average citizen if we get a higher GDP number that results merely from rising prices rather than actual economic growth? While the stimulus crowd likes to suggest that rising prices are a required ingredient for real growth because they encourage people to go out and spend before prices rise further, their asinine theory is completely unfounded. The entire purpose of deflating nominal GDP is to separate actual growth from rising prices. Pretending the economy is growing by targeting nominal GDP will only stifle real economic growth that might actually solve the problems the Fed still has no idea it created.

It is somewhat heartening that there is a greater recognition now of the inherent flaws in Obamacare. Hopefully such realizations will soon be widely raised about our current stimulus experiments, and that these insights will arrive in time to change course. However, confidence should be extremely low on that front.

To me, the fate of the Fed's stimulus policy is as clear as that of President Obama's failed experiment in healthcare. It's a disaster hiding in plain sight.  The stimulus itself has so crippled the U.S. economy that it can now barely survive without it.   As it limps along the crutch must grow ever larger, as the support it provides weakens the economy to the point where it becomes too small to provide adequate support.  But rather than acknowledging that the Fed's policies have failed (an admission that any honest proponent of Obamacare should make), the proponents of stimulus are doubling down.

Wednesday, August 17, 2016

Dollar will crash instead of market crashing



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, August 15, 2016

The Paradox of our new economy

If the Economy were a car, productivity would be the engine. Heated seats, on-demand 4-wheel drive and light-sensitive tinted windshields, are all very nice. But they mean little if the engine doesn't turn and the car just sits in the driveway. The latest productivity data from the Commerce Department confirms that our economic engine is sputtering.

If you strip away all the bells and whistles of economic analysis, the simple truth is that the increased living standards that have taken us from the stone age to the digital age happened because we increased our productivity. Better plows, windmills, bulldozers, factories and, more recently, better software, technology and automation, have allowed economies to produce more output with less human effort. This means there are more goods and services for more people to share and workers can work less to acquire those goodies. When productivity stops increasing, no amount of financial gimmickry can compensate.

With this in mind the latest batch of productivity data should have significantly changed the conversation. But like other pieces of evidence that point to a weakening economy, the news made scarcely a ripple. The fact that few opinions about our economic health changed as a result, confirms just how big our blinders have become.

Most of the economic prognosticators were fairly confident about the Second Quarter numbers. After all, productivity had unexpectedly declined for the prior two quarters, and given the optimism that is ingrained on Wall Street and Washington, a big snap back was expected. The consensus was for an increase of .5%. Instead we got a .5% contraction. That's a huge miss. The contraction resulted in three consecutive declines, something that hasn't happened since the late 1970's, an era often referred to as the "Malaise Days" of the Carter presidency. That time, which spawned such concepts as "stagflation" and "the misery index," was widely regarded as one of the low points of U.S. economic history. Well, break out your roller disco skates, everything old is new again.

But it gets worse. Productivity declined by .4% from a year earlier, marking the first annual decline in three years. According to data from the Bureau of Labor Statistics, the total magnitude of the three quarter drop was the largest decline in productivity since 1993. The last three quarters mark a significant decline from the already abysmal productivity growth we have since the Financial Crisis of 2008. According to the Wall Street Journal, during the 8 years between 2007 and 2015 productivity growth averaged just 1.3% annually, which was less than half the pace that was seen in the seven year period between 2000 and 2007.

The talking heads on TV can't seem to offer any real reason why productivity has gone missing. Some feebly suggest that globalization is the problem, or that automation has moved so fast that the benefits usually offered by technological improvements have lost their power. But it would be hard to come up with a reason why trade, which has universally benefited local, regional, and international economies through comparative advantage and specialization, has suddenly become a problem. Similarly, when does greater efficiency become a problem rather than a solution? So they are stumped.

But these economists ignore the major change that has befallen the world over the last eight years, a change that has coincided neatly with the global collapse in productivity. The Financial Crisis of 2008 ushered in an age of central bank activism the likes of which we have never before seen. All the worlds' leading central banks, most notably the Federal Reserve in Washington, have unleashed ever bolder experiments in monetary stimulus designed to reflate financial markets, push up asset prices, stimulate demand, and create economic growth. And while there is little evidence that these policies have produced any of the promised benefits, there is every reason to believe that the scale of these experiments will just get larger if the global economy doesn't improve.

But very few brain cells have been expended about the unintended consequences that these policies may be creating. But let's be clear, there is nothing natural or logical about a set of policies that result in an "investor" paying a borrower for the privilege of lending them money. So in this strange new world, we should expect some collateral damage. Productivity is a primary casualty. Here's why.

Another set of statistics that has accompanied the decline in productivity is the severe multi-year drop in business investment and spending. Traditionally, businesses have set aside good chunks of their profits to invest in new plant and equipment, research and development, worker training, and other investments that could lead to the breakthroughs and better business practices. The investments can lead to greater productivity.

But the business investment numbers have been dismal. But it's not because corporate profits are down. They aren't. Companies have the cash, they just aren't using it to invest in the future. Instead they are following the money provided by the central banks.

Ultra low interest rates have encouraged businesses to borrow money to spend on share buybacks, debt refinancing, and dividends. They have also encouraged financial speculation in the stock market, the bond market, and in real estate. Investors may believe that central bankers will not allow any of those markets to fall as such declines could tip the already teetering global economies into recession. The Fed, the Bank of England, the Bank of Japan, and the European Central Bank have already telegraphed that they will be the lenders and buyers of last resort. These commitments have turned many investments into "no lose" propositions. Why take a chance on R&D when you can buy a risk free bond?

Higher interest rates are actually healthy for an economy. They encourage real savings, with lenders actually concerned about the safety of their loans. Without the backstop of central banks, speculators could not out bid legitimate borrowers who make capital investments that produce real returns. But with central banks conjuring cheap credit out of thin air, supplanting the normal market-based credit allocation process; the result is speculative asset bubbles, decreasing productivity, anemic growth, and falling real wages. Welcome to the new normal.

If the cost of money is high, people think carefully about where they want to put their money. They select only the best investments. This helps everyone. When money is cheap, they throw darts against a wall. This is not the best use of societies' scarce resources. Is it any wonder productivity is down?

Many economists are now saying that the Fed won't be able to raise rates until productivity improves. But productivity will never improve as long as rates stay this low. This is the paradox of the of the new economy.

When will central bankers conclude that it's their own medicine that is actually making the economy sick? They will not make that connection until they succeed in killing the patient...and even then they may continue to administer the same toxic medicine to a corpse. The political pressure is just too great to ever admit their mistakes, so they repeat them indefinitely.


Monday, August 8, 2016

Why the Central Banks want to create inflation

They want it to wipe out government debt; they want it to prop up asset bubbles… they want to lower wages through inflation because of asinine minimum wage laws or things that unions do to artificially drive up the cost of employment. 

So there’s all sorts of secret reasons why central bankers want to create inflation, but they don’t want to level with the public as to why they’re doing it so they make up this nonsense about how it’s a good thing and we need it for the economy.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, August 3, 2016

Fed just took the prospect of near term rate hikes off

You go back and think of all the rate hikes that people thought were going to happen. I knew that the Fed couldn’t raise rates. The fact that they did one trivial quarter point rate hike and then backtracked and took them all off the table proves that I was right.

They said they couldn’t raise interest rates without crushing the markets. They raised interest rates. The markets got crushed. The only reason the markets rallied back was because they stopped raising interest rates, which is exactly what I said.

I still believe, and I said this in December of last year, that the next move by the Fed is going to be a cut in rates.

It’s the opposite of Teddy Roosevelt. He used to say ‘speak softly but carry a big stick,’ but when it comes to rate hikes the Fed has no stick. So, all they can do is speak loudly and hope nobody notices the absence of a stick. They want to keep talking about all the rate hikes and how they’re going to raise interest rates. But the last thing they want to do is actually do that because then the whole economy will implode and then the markets will realize the box that we’re in.

Instead, they keep positioning as if they’re about to raise rates, but then they keep coming up with one excuse after another why they’re not going to do it. Meantime they’ve been making up excuses for so long, the economy has basically relapsed back into recession. We’re either there or we’re on the doorstep of one. 

I think had the Fed already raised interest rates a few years ago, they would be cutting them right now based on how weak the economy is.




Monday, August 1, 2016

Fed does not want real estate to crash



Peter Schiff is an Investor, Stock Market analyst and author of several best selling books.

Thursday, July 28, 2016

Gold on this bull market leg can far exceed previous highs

I think this is a new leg of the gold bull market. I mean, gold’s been in a secular bull market since 2000. 

We had a cyclical bear market that I believe ended when the Fed hiked rates in December. And now we have the new leg of this bull market, which I think potentially could be an even bigger leg than the first leg, which saw gold go from sub-300 to close to 2,000. So, if this leg is bigger than that you can just imagine how high the price might go.


Tuesday, July 26, 2016

Stocks are not going up in terms of real money which is Gold

I did this same panel last year, and I wasn’t bearish that the US stock market would go way down, because I believed the Federal Reserve would prevent that from happening by keeping interest rates low and by printing a lot of money, and that’s really what’s been happening.


Even though the Dow is at new high today, it’s at what? – a two- to three-year low if you price it in real money, which is gold. So stocks are not going up. The value of money is going down and gold proves that.

We still have a tremendous price that needs to be paid for the mistakes of the past. Even if we correct those mistakes in the future, we still are going to have a day of reckoning. And that day of reckoning is going to evolve a much lower US dollar and a much higher gold price.




Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, July 20, 2016

We could see negative interest rates in USA

What hurt gold up until this year was the widespread consensus that interest rates were heading a lot higher, that the Fed was going to normalize monetary policy and that its balance sheet was going to shrink, that the Federal Reserve was actually going to become a seller of US Treasuries. Now, I’ve known all along that wasn’t going to happen.

In fact, the Fed hasn’t sold a Treasury at all. The balance sheet continues to grow as they reinvest all of their interest and maturing principle. But I believe now people are starting to realize that all the anticipated rate hikes are never going to materialize – that the Fed’s tightening cycle is already over.

The next move for the Fed is to cut rates, not to raise them again. I think we might actually go negative this time. I think QE4 is going to be bigger than QE 1, 2, and 3 combined. And so I think gold is not only going to retest the highs from 2011 when it was close to $1,900, but it’s going to surpass those highs and move into the much higher territory.

Monday, July 18, 2016

Recession is going to start very quickly and its going to be worse than the last one


As the recession progresses we are going to see layoffs start.......................


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, July 11, 2016

Goldmoney acquires Schiff Gold

Goldmoney Inc.(XAU) ("Goldmoney"), a financial technology company, which operates a global, full-reserve and gold-based financial network, is pleased to announce that the Company has entered into an Acquisition Agreement to acquire Schiff Gold Inc. ("SGI") and form a marketing and service agreement with Peter Schiff. SGI is a private, U.S.-based dealer in precious metals (formerly launched in 2010 as Euro Pacific Precious Metals), one of the largest and fastest growing retail gold dealers, and services a large client base with buy and sell orders for precious metals, storage and vaulting arrangement, and gold & silver IRA arrangement services. Upon closing of the transaction, the Company will also enter into a Marketing and Service agreement with Peter Schiff, where Mr. Schiff will integrate and endorse Goldmoney services for clients and subscribers across various companies and media platforms.

The acquisition of Schiff Gold is expected to add significant revenue and increase the Company's gross profit and free cash flow generation. In 2015 alone, Schiff Gold sold over $125 million1 in precious metals, generated $2.8 million1 of gross profit and paid cash distributions of $0.975 million1 to its shareholders. Goldmoney believes there to be cost savings derived from the business combination that should result in additional operative leverage and margin expansion at the Schiff Gold business. As an example, the present Schiff Gold business generates its sales through wire transfer deposits and invests very little in marketing. Additional financial information relating to the existing gold business will be released upon closing.

"Peter is the LeBron James of the gold market with hundreds of thousands of trusted followers and an unrivaled track record in predicting some of the most important macroeconomic events of the last 20 years. Following an initially heated public debate in March, Peter and I struck a private friendship. Through in-person meetings and many thoughtful conversations it became clear to both Peter and I that we shared the same vision and goals, that Peter was motivated by the same mission that guided us, and that his business and brand could be better leveraged using the Goldmoney technology. I am extremely excited to be welcoming Peter to the Goldmoney tent and I believe his millions of followers will be much better monetized through a platform that can economically service a global user base with no minimums, superior technology, and multiple deposit and redemption options. We will unveil the full combination strategy at closing," said Roy Sebag.

"I'm thrilled to be joining the Goldmoney team," said Peter Schiff. "For my entire career I have sold gold to high net worth individuals looking to incorporate precious metals into otherwise diversified investment portfolios. While the vast majority of investors have yet to make such an important allocation shift, its average individuals who actually have the most to gain by utilizing the protection of gold for day to day savings of income. The Goldmoney platform provides this utility, simple and transparent access to the best possible defense against theft by inflation. Technology is providing more choice and easier access to everything, and the hope is that market forces will compel central banks to provide a more competitive product and put the brakes on run-away-inflationism and the asset-bubble economics that is undermining living stands world-wide."

"We are excited to welcome Peter Schiff as an important stakeholder and advocate of the Goldmoney mission to democratize access to gold," said Josh Crumb, Chief Strategy Officer. "Roy and I are grateful for the growing support and confidence among the gold community, and look forward to Peter's thought leadership and collaboration with Goldmoney stakeholders James Turk, Eric Sprott, Albert Friedberg, John Butler, Alasdair Macleod, Stefan Wieler, and our many notable shareholders."

The transaction has been structured as a joint venture between Peter Schiff and Goldmoney, with a consulting agreement between Goldmoney and Euro Pacific Asset Management LLC. The joint venture will be issued 1,063,000 common shares of Goldmoney with a deemed value of $5,315,000 (equivalent to CAD $5.00 per share), as well as 1,400,000 common share purchase warrants ("Warrants") as follows: (i) 700,000 Warrants exercisable at CAD $5.00 per share for a period of 10 years; (ii) 350,000 warrants exercisable at CAD $5.25 per share for a period of ten years; and (iii) 350,000 warrants exercisable at CAD $5.80 per share for a period of ten years. Peter Schiff will have the right to be distributed the Goldmoney securities by the joint venture.

The first 700,000 common shares of the 1,063,000 shares are subject to one-third automatic releases on each of the first, second and third anniversaries of the closing. All of the above-noted 1,400,000 Warrants and the remaining 363,000 common shares are subject to performance vesting over a three-year period in accordance with performance criteria under a consulting agreement to be entered into between Goldmoney and Euro Pacific Asset Management LLC. Pursuant to the consulting agreement, Euro Pacific Asset Management LLC will provide strategic development, product development, branding and marketing services to Goldmoney. Euro Pacific Asset Management LLC shall be paid fees equal to 50% of the distributable income from Schiff Gold Inc. with a minimum term of twenty years. For a period of five years after the twentieth anniversary of closing, Goldmoney shall have the right, but not the obligation, to terminate the consulting agreement in consideration for a payment equal to the average of distributable income over the prior five years.

Monday, June 27, 2016

Janet Yellen is probably thankful to Brexit

As far as Janet Yellen is concerned, the British have given her the gift that keeps on giving, Now, Janet Yellen can blame her failure to raise rates on Brexit. She could even use this as an excuse to cut rates back to zero and launch QE4. 

Since the process is bound to be long, messy and fraught with uncertainties this will be a handy excuse that the Fed will be able to rely on for years.

Given that there is already much concern that the dollar is valued too highly against most currencies, any surge in the dollar that results from Brexit will have to be fought by the Federal Reserve through lower interest rates and quantitative easing

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, June 20, 2016

I continue to like Gold as an investment

It’s like trying to put out a fire with gasoline. That’s all the Fed has—gasoline. And everyone expects the fire to go out. It can’t go out.” In other words, the central bank will continue to print money and gold will keep rising.

You need to be long gold and there is going to be a huge payday. Ultimately,” gold will see $5,000 an ounce and it “could go higher.


Monday, June 13, 2016

Fed pretends that its policies are working

Stop me if you’ve heard this one before: A U.S. Fed official walks into a bar and says the economy is improving and rate hikes are appropriate. The patrons order another round to celebrate. Then disappointing data comes out, the high fives stop, and the Fed official ducks out the back … only to come back the next day saying the same thing. Anyone who pays even the smallest attention to the financial media has experienced versions of this joke dozens of times. Yet every time the gag gets underway, we raise our glasses and expect the punch line to be different. But it never is. Last week was just the latest re-telling.

For nearly a month the Fed’s bullish statements stoked optimism on the economy and raised expectations, based particularly on the most recent FOMC minutes, for a summer rate hike. But these hopes were dashed by the May non-farm payroll report, which reported the creation of only 38,000 jobs in May, the worst monthly performance in six years, based on data from the Bureau of Labor Statistics (BLS). The number missed Wall Street’s estimate by a staggering 120,000 jobs. If not for the 37,000 downward revision reported for April (160,000 jobs down to 123,000), May could have shown a contraction. This would have constituted a major black eye to the Obama Administration’s favourite talking point that its policies have led to 75 months of continuous job gains.
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To make the report even stranger, the plunge in hiring was accompanied by a drop in the unemployment rate to just 4.7 per cent. Of course the fall in the unemployment rate was a function of another major drop in the labour-force participation rate to just 62.6 per cent, matching the June 2015 rate, which was the lowest level since the late 1970's (BLS). So the unemployment rate did not fall because the unemployed found jobs, but because they stopped looking. The market reaction was swift and sharp, as it always has been when a fresh shot of cold water has been thrown in the face of market boosters. The dollar fell hard and gold rose sharply.

But we can rest assured that despite any embarrassment that the Fed may be experiencing for having so gloriously misdiagnosed the current economic health, it will be right back at it in a few days, telling us about all the positive economic signs that are emerging and how it is ready and willing to start raising interest rates at the earliest opportune moment. Boston Fed president Eric Rosengren waited exactly 48 hours to start that campaign as he sounded bullish notes in a Monday speech in Finland.

Given how many times this scenario has unfolded, leading to the point where even reliable Fed apologists like CNBC’s Steve Liesman have begun questioning the Fed’s credibility, one wonders what the Fed hopes to achieve by continuously walking into the bar with a new smile. But this performance is the only policy tool it has left. The Fed appears to believe that perception makes reality, so it will never stop trying to create the rosiest perception possible. It may view its own credibility as expendable.

There is also the possibility, however unlikely, that the Fed officials are not just trying to create growth through open-mouth operations, but that they actually believe that their policies are working, or are about to work. This would be as dogged a commitment to policy as medieval doctors had for bloodletting, which they thought was a useful therapy for a variety of ailments. Doctors at that time had all kinds of seemingly plausible reasons why the technique was effective. If the patient did improve after draining blood, it was taken as a sign of validation. But they would continue to apply the leeches even if the patient did not improve. Failure was simply a sign that more blood needed to be drained. Similarly, central bankers consider ultra-low, and even negative, interest rates as an ambiguous stimulant that will create growth when applied in large enough doses.

But what if modern central bankers, much like medieval doctors, are operating on a wrong set of assumptions? We know now that draining blood creates conditions that actually decrease a patient’s ability to fight infection and recover. Perhaps, one day, bankers will come to a similarly delayed conclusion about how zero and negative interest rates have prevented a real recovery that would otherwise have naturally taken place.

That’s because artificially low interest rates send false signals to the economy, prevent savings and investment, and encourage reckless borrowing and needless spending. They prevent the type of business and capital investment that is needed to create real and lasting economic growth. But don’t expect bankers, or their cheerleaders on Wall Street, the financial media, government, or academia, to ever make this admission. They do not believe in the power of free markets. They believe in government. Such a leap is simply beyond their powers of comprehension.

But there is another cycle here that is much more influential on the current market dynamic and should be much easier to spot. When the Fed talks up the economy and promises rate increases, the dollar usually rallies. When the dollar rallies, U.S. multi-national corporate profits take a hit, and the market falls. When the market falls, economic confidence falls and puts pressure on the Fed to maintain easy policy. This is a loop that the Fed does not have the stomach to break.

Because the Fed waited more than seven years to lift rates from zero, the cyclical “recovery” is already nearing its historical limit, if it’s not already over. This could put the Fed into a position of raising rates into a weakening economy. Normally it does so when the economy is accelerating. Some identify this delay as the Fed’s only policy error. But had it moved earlier, the recession would have simply arrived that much sooner. The Fed’s actual policy error was thinking it could build a “recovery” on the twin supports of zero percent interest rates and QE, and then remove those props without toppling the “recovery.”

But despite all this, there are those who still believe that the Fed will deliver two more rate hikes this year. Given the anemic growth over the past two quarters, the recent plunges in both the manufacturing and service sectors, average monthly non-farm payroll gains of only 116,000 over the past three months (most low-wage, and part-time) and the stakes contained in the election that is just six months away, such a conclusion is hard to reach. Instead, I expect we will get the same bar gag we have been getting for the past year. Many of those who now concede that a June hike is off the table still believe July to be a possibility. I believe the Fed will go along with that hype until it can no longer get away with it…then it will start bluffing about September, or perhaps December.

The Fed has to keep talking about rate hikes so it can pretend that its policies actually worked. But the truth is that the Fed policies have not only failed, they have made the problems they were trying to solve worse, and raising interest rates will prove it. So the Fed resorts to talking about rate hikes, to maintain the pretense that its policies worked, without actually raising them and proving the reverse. This can only continue as long as the markets let the Fed get away with it or until the numbers get so bad that the Fed has to admit that we have returned to recession. That is the point where the Fed’s real problems begin.

Monday, June 6, 2016

No Rate hikes in June 2016


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Tuesday, May 31, 2016

Fed will not hike rates this year because of the weak economy


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, May 23, 2016

Donald Trump may continue with economic policies of Inflation and a weak Dollar

During an interview on CNBC recently, Donald Trump, fresh from becoming the presumptive Republican nominee, came as close as any major presidential contender ever has to saying that America is not capable of repaying her debts in full, and that America’s path to economic recovery might involve some pain for her creditors.

To many, the idea that U.S. debt obligations involved even the slightest risks to investors was both the height of financial naiveté and the epitome of political recklessness. The pressure was so great in fact that The Donald, who has consistently refused to engage in even the most sensible strategic retreats, appeared on CNN a few days later to “clarify” his earlier remarks. However, he ignited another firestorm when he inadvertently let slip another unspoken truth, namely that the U.S. can always print however much money she needs to “repay” her debt. Apparently the only acceptable position to hold on this issue is to completely deny reality.

Prior to Trump’s “clarification,” Jordan Weissmann of the online news site Slate stated the case succinctly, “When a country prints its own currency, markets don’t typically worry about them running out of money, and thus are willing to lend freely. … The fact that the U.S. controls its own currency does give us flexibility when it comes to debt. If it weren’t for our farcical, self-imposed debt ceiling, default would rarely, if ever, be something people seriously discussed.”

It seems to me that Slate was arguing that Trump doesn’t really understand that the U.S. prints her own money at will. There may be a great many things of which Trump is unaware, but he clearly knows where money comes from. The difference between Trump and his critics is that he must believe there is a cost in printing too much money. Modern economists do not appear to grasp this basic concept.

New York Times columnist Paul Krugman went even further. Despite the fact that he has argued that the Federal Reserve should print an unlimited supply of dollars to keep the economy afloat, he believes that the greenbacks themselves will remain precious and coveted forever, as long as reckless demagogues like Trump don’t spoil the party. Krugman said that Trump’s default suggestion would, “among other things, deprive the world economy of its most crucial safe asset, U.S. debt, at a time when safe assets are already in short supply.”

That same day, during an interview with Jake Tapper on CNN, conservative economist Douglas Holtz-Eakin, former director of the Congressional Budget Office, warned that if Trump, as president, ordered the Federal Reserve to print money to buy debt, it would “break the independence of the Fed” and undermine a Federal Reserve System that “has been the foundation of our economic success.” I would ask Holtz-Eakin what exactly he believed happened with Quantitative Easing or Operation Twist, programs in which the Fed purchased trillions of U.S. government bonds? Does he expect that during the next economic downturn an “independent” Fed may refuse to buy government debt, forcing the government to make unpopular budget cuts, raise taxes, or default?

At least some of the countless articles that have appeared on Trump’s debt ideas have begrudgingly admitted that there is a potential downside to printing money as the only solution to debt management, in that it could spark high inflation. In addition to the hardships that this could create for consumers, especially at the lower end of the economic spectrum, they also admit that high inflation would constitute a “haircut” for holders of U.S. bonds, as they will be repaid with dollars of lesser value than those that they lent. In other words, partial defaults are possible through above-the-table negotiations (such as those Trump hinted at) or the backdoor channel of inflation. But they almost universally agree that the covert losses through higher inflation is the far, far better scenario than the global financial meltdown that they believe would result from an overt restructuring of U.S. debt.

But even with these inconsistent musings, Trump acknowledged a hint of realism that other politicians can’t. He said that the U.S. economy remains extremely dependent on ultra-low interest rates, and that even a one per cent increase could make America’s budget position untenable. But Trump’s policy ideas on expanding the military and shoring-up social security, taking better care of vets, building walls, deporting illegals, and replacing Obamacare with some undefined program, will require even more borrowing. To square that budgetary circle, Trump acknowledged that the U.S. has to push down the value of the dollar.

In the CNBC interview, he said that a strong dollar sounds good “on paper” but that a weak currency offers much greater benefits. In fact, he credits weak currencies as the primary weapon used by China to engineer its own success. He wants to do the same for America. Of course the Achilles heel of such a plan is that a significantly weaker dollar is bound to usher in a wave of inflation that could rival, or even surpass, the 1970s. If Trump is willing to let the dollar fall steeply, the poor especially could suffer as purchasing power evaporates and poverty rates increase.

But based on the opinions of economists, that is exactly the policy path for which Americans should prepare. Inflation and a weak dollar are the only solutions they can envision to “solve” America’s problems. With Trump, that may be exactly what Americans will get.a

Monday, May 16, 2016

How Canadian economy can benefit from a US Dollar collapse


Larger deficit spending and more money printing in the U.S. will not stimulate the American economy, but the resulting collapse in the value of the U.S. dollar will reignite a commodities bull market, particularly in gold, that will prove to be a strong stimulus for the Canadian economy and the TSX.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, May 9, 2016

The Donald deserves some credit for bringing attention to our problems

Donald Trump’s critics have heaped scorn on his calls for protective tariffs to deal with America’s widening trade imbalance and the resulting loss of higher-paying blue color jobs. Some have accused him of trying to turn back the clock in pursuit of a cheap populist ploy and have said that he simply refuses to acknowledge that America is now an information and service economy for which large trade deficits are the new normal.

But voters are sensing that The Donald is right to sound alarm bells, and that something radical needs to be done to revive manufacturing to make America great again. But his tariff solution is hardly the best medicine. To be honest, given the even worse solutions that are being offered by the left, Trump’s instincts may be preferable.

Ironically, in the late 19th and early 20th Centuries, the elimination of tariffs was a populist issue. A little more than a century later, the polls have reversed completely. Prior to the introduction of the income tax in 1913, tariffs were the Federal Government’s principal source of revenue.

During the long and contentious campaign to enact the 16th Amendment (which allowed the government to tax incomes for the first time since the emergency Civil War-era 3% to 10% income tax), proponents argued that the passage of a “soak the rich” income tax would allow the government to repeal the tariffs and thereby transfer the tax burden from the working class, who paid the tariffs through higher prices on imports, to the ultra-wealthy, who were the sole target of the income tax as it was originally conceived, packaged and sold.

(The tax originally imposed rates from 1% to 7%, and only applied to fewer than 1% of Americans. The 99% supported its enactment solely because they believed they were getting something for nothing, in this case, government services paid for by the rich. In fact, in 1895, when the Supreme Court bravely declared the government’s first attempt to replace tariffs with an income tax unconstitutional, the justices were personally vilified as defenders of the rich.)

But once the Federal Government got its foot in the door, it rapidly raised the tax rates and expanded the base of taxpayers, ultimately subjecting the middle class to rates far higher than anything originally contemplated for the Rockefellers, Carnegies, or Vanderbilts. If this does not provide a sterling example to the legions of Democrats “Feeling the Bern” of how class warfare can backfire on the class waging the war, I don’t know what does. Ironically, no single tax has done more harm to the middle class than the income tax.

So while the populist movement of the early 20th Century demanded the removal of tariffs, the populist movement of today wants to bring them back. But Trump is not talking about replacing income taxes with tariffs. He simply wants to add tariffs to the existing tax structure (though he does want to lower the rates). This will only compound our problems and make our economy far less competitive. It will not bring back our jobs; it will only increase the tax burden on the American economy, destroying even more jobs. If we want to undo the deal we made with the devil over 100 years ago, we need to repeal the income tax as well.

If that substitution were on the table, I would argue that tariffs offer the lessor burden. Tariffs are a much simpler form of taxation that do not require armies of accountants, lawyers, and tax preparers, who are needed to comply. And while we are repealing the income tax, we should repeal most of the other federal taxes (particularly the payroll and estate taxes) and laws enacted since then as well. But that is not what is being discussed.

Our trade deficits do not result from bad deals but bad laws. Put simply, the amount of taxation and regulation that have been layered on our business owners and their employees have made it impossible for American firms to compete with foreign rivals. Contrary to the currently popular talking points, low wages are not the only means to establish successful trade balances. America became the dominant exporter in the world in the 19th and 20th centuries while our currency was strengthening, we were paying the highest wages, and our workers enjoyed the world’s highest living standards.

Germany is doing so today. Strong economies compete with quality, innovation, efficiency, and flexibility. Those capacities have been stifled by government policies that have nothing to do with trade agreements and have everything to do with domestic policies. We need to repeal those laws. Trade deficits are not the problem. They are the consequence of the problem. The problem is big government, financed largely by the income tax, which has
made America uncompetitive.

But it is unlikely that tariffs alone, or even a broad-based national sales or value-added tax, could bring in all the revenue generated by the direct taxes we should eliminate. To survive on excise taxes, as the founding fathers envisioned, requires making the Federal Government a lot smaller. But Trump is not promising to make government smaller. If anything, he is promising to make it even bigger. He has made no promises to cut government spending across the board, including popular “entitlements” like social security, which Trump has promised not to touch.

To make America great again, we need to recreate the free-market environment that made her great in the first place. It’s not just oppressive direct taxes that must go. It’s all the regulations that have driven up the cost of doing business, and labor laws that make employing workers so expensive and risky that business does all it can to create as few jobs as possible.

But contrary to Trump’s stump speeches, our trading partners are not taking advantage of us; we are taking advantage of them. They give us their product intrinsically worthless dollars out of thin air. But years of excessive regulation and taxation have resulted in an accumulation of trade deficits that has transformed America from the world’s largest creditor to its largest debtor. Our once mighty savings financed a high-wage industrial economy that has been hollowed out, replaced by a weak, debt-financed low-wage service sector economy.

Trump is right. This is a big problem and it needs big solutions. If tariffs were offered as a replacement to our ridiculous and destructive personal and corporate tax, and payroll and estate taxes, then America may become more competitive and our greater efficiency may even allow us to overcome the tariffs that other countries would likely impose on us in
response. But slapping tariffs on imports, while doing nothing to improve the conditions for business efficiency, simply means that prices for American consumers will rise significantly, without sparking a revitalization of American manufacturing prowess. Don’t forget the global market contains over 7 billion consumers, the U.S. market just under 320 million. Insulating our manufacturers from this larger marketplace guarantees that we will never become globally competitive.

Tariffs or sales taxes will drive up the cost of goods for consumers, a fact that Trump seems to ignore. If he would acknowledge this issue, he could offer the counter argument that if we could couple tariffs with income tax relief that Americans would also have higher incomes to pay those higher prices. But even if incomes rise, higher prices will inevitably lead to less consumption and more savings, especially if we allow interest rates to be set by the free market rather than the Federal Reserve. More savings and less spending is exactly what we need if we want the capital to rebuild our industry. Protective tariffs alone will not work, especially when there is little industry left to protect.

So instead of criticizing Trump for his misguided advocacy of tariffs as a panacea, we should at least give him credit for recognizing a serious problem that so many others ignore. The real criticism should be directed at those who would allow America to continue down this self-destructive path.


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