Peter Schiff: No Way Out

Peter Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, an SEC-Registered Investment Adviser and a full service broker/dealer, shares his thoughts on the Federal Reserve's policy, QE3 open-ended money printing. According to Schif that is not the proper medicine that will heal the US economy, it will only make things worse.

By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3.

Now that those moves have failed to deliver economic health, the Fed has doubled the size of its open-ended money printing and has announced a program of data flexibility that virtually insures that they will never bump into limitations, until it's too late. Although their new policies will create numerous long-term challenges for the economy, the biggest near-term challenge for the Fed will be how to keep the momentum going by upping the ante even higher their next meeting.

The big news is that the Fed is now doubling the amount of money it is printing. In addition to its ongoing $40 billion per month of mortgage backed securities (to stimulate housing), it will now buy $45 billion per month of Treasury debt. The latter program replaces Operation Twist, which had used proceeds from the sales of short-term treasuries to finance the purchase of longer yielding paper. The problem is the Fed has already blown through its short-term inventory, so the new buying will be pure balance sheet expansion.

To cloak these shockingly accommodative moves in the garb of moderation, the Fed announced that future policy decisions will be put on automatic pilot by pegging liquidity withdrawal to two sets of economic data. By committing to tightening policy if either unemployment falls below 6.5% or if inflation goes higher than 2.5%, Bernanke is likely looking to silence fears that the Fed will stay too loose for too long. While these statistical benchmarks would be too accommodative even if they were rigidly enforced, the goalposts have been specifically designed to be completely movable, and hence essentially meaningless.

Bernanke said that in order to identify signs of true economic health, the Fed will discount unemployment declines that result from diminishing labor participation rates. It is widely known that a good portion of unemployment declines since 2009 have resulted from the many millions of formerly employed Americans who have dropped out of the workforce. But like many other economists, Bernanke failed to identify where he thinks "real" employment is now after factoring out these workers. So how far down will the unemployment number have to drift before the Fed's triggering mechanism is tripped? No one knows, and that is exactly how the Fed wants it.

Peter Schiff: Riding Into the Sunset or Brick Wall?

Peter Schiff shares his thoughts about the Federal Reserve, QE3 and the economy of the United States of America in his column in Townhall.

A month ago, I presented the case for why Fed Chairman Bernanke would have strong motivation to launch another round of quantitative easing (QE) before the election. In short, it would save him his job. Now, I didn't predict with certainty that he would do so - only the few men at the FOMC knew that for sure - but it seemed likely. Shortly thereafter, Bernanke not only announced more stimulus, but promised to keep it flowing to the tune of an additional $40 billion a month until conditions improve. As I had written, this is essentially the election platform of the Obama-Bernanke ticket: we will keep the party going indefinitely.

Unfortunately, though these are two powerful men, they are not above the law of economics. While critics have dubbed this program "QEternity" or "QE-Infinity", it will end much before that. We are witnessing a massive bubble in US government debt, and we've reached the point where no one in charge believes it will ever end - an excellent contra-indicator.

Rather than going on for eternity, this third round of QE is only hastening the day when there is a flight of confidence from the dollar and US Treasuries. This will cause a sharp rise in market interest rates and surging consumer prices across America. If you think $4 a gallon gas is bad, wait till you see it going up by 25¢ or more per week.

At this point, the Fed Chairman will have a choice to make: keep printing, which will push the dollar into uncontrollable hyperinflation, or begin tightening, which will bankrupt the US government and banking system.

I have long written about this Sophie's choice confronting the Fed, but so far the printing option has been too easy. With the world only slowly abandoning the dollar as the reserve currency and the euro crisis offering a distraction, the Fed has been able to more than double the money supply without US consumers seeing out-of-control price hikes at the store. Not that there hasn't been inflation - look at housing, gas, or the stock market - but it hasn't reached crisis proportions. When prices start rising fast enough for the average person to figure out he's being screwed, then there will be riots in the streets.

Peter Schiff and Jim Rogers comment on Q3

A number of various analysts have come up with different opinions on the future changes after the official announcement of the third round of quantitative easing (Q3). The majority of them assume that a fiscal cliff is coming. Others like Jim Rogers and Peter Schiff have not been quiet about their hatred for the policy of quantitative easing.

To begin with, Peter Schiff has said and read a lot about this policy, which clearly is a heated subject, given the fact what his opinion on it is. According to Schiff, the Federal Reserve should have let the economy fail 3 years ago and that all the rounds of quantitative easing are just delaying the inevitable. He thinks that the bold policy of Ben Bernarke will in fact inhibit job creation and growth. He has also been quite vocal that the Fed will never succeed in producing a vibrant economy by means of money printing. Schiff has also predicted the dollar index dipping to even 20 and that the real assets like gold or silver are the best thing for investors.

Jim Rogers is the second one who has voiced his opinion on the policy. He is of the opinion that the Federal Reserve do not know what they are doing and the strategy of printing money will not do a difference to the economy. Jim has predicted another deep recession in the next 5 years and both he and Peter Schiff feel that there is a financial crisis coming.

Rogers wants to take a dig at the presidential candidates and he does not care about the outcome of the elections. According to him, neither candidate understands the real issues of the economy nor is none of them able to fix it. He has touted investments like precious metals and agriculture, even though he has stated many times that he thinks silver is a better investment than gold.