Friday, January 23, 2015

Schiff: QE won't work in Europe just like it didn't work here

Put away the party hats and the champagne. Mario Draghi’s version of quantitative easing is a “major mistake” says Peter Schiff, CEO of Euro Pacific Capital.

“The only thing they’re going to succeed in doing is lifting the inflation rate but it’s going to be a case of ‘be careful what you wish for.’”

Schiff argues the European Central Bank mandate is to keep inflation below 2%. While the environment there is currently one of deflation, he believes Euro QE will work quickly to bring inflation above 2%.

“I think this open-ended program might end a lot sooner than people think,” Schiff says. “Once they blow through that 2% level they have to cut back the quantitative easing.”

Schiff believes the real problems facing Europe’s economy have less to do directly with inflation versus deflation and more to do with employment.

“Higher inflation is not going to solve the labor problems in Europe,” Schiff contends. “The problem is that the governments have all of these onerous restrictions that punish employers. You have serious structural problems creating unemployment and detracting from economic growth. It has nothing to do with low inflation... all Mario Draghi is going to succeed in doing by raising the rate of inflation is slow down economic growth and make the unemployment problem worse.”

Here at home, he thinks all the “QE worked, the economy is saved” talk is no more than wishful thinking. While Europe may have used our success as an argument to institute their own version of the policy, Schiff notes that “We still have a QE high. But as the stimulus is wearing off, the hangover is setting in," he says. "The U.S. economy is rolling over and I think we’re going to head into recession in 2015 if we don’t get QE 4 and I think we might get it before the end of the year."

Schiff says in the second half of the year the U.S. will see unemployment tick up, the GDP tick down and pressure will grow on stock and housing markets. That, he says, will lead to a QE 4 here at home even bigger than the one Mario Draghi just announced.


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