The Federal Reserve released December’s FOMC meeting minutes this week, and the tone was decidedly more “hawkish,” leading most analysts to believe interest rate hikes and quantitative tightening will remain on track in the coming year.
As Bloomberg reported, “officials in December debated the risks to the US economic outlook, with some concerned about low inflation and others pointing to robust growth that was about to get a further boost from tax cuts.” In fact, inflation was at the center of debate. But generally, the concern was that inflation expectations remain too low. In his latest podcast, Peter Schiff said this attitude shows just how clueless investors, and the general public are.
“If they don’t think there’s going to be inflation, they’re wrong. Those expectations are totally wrong. People are ignoring what is going on in the currency market, what’s going on in the commodities markets, what’s going on in the bond markets. All of this stuff is flashing inflation – at least the way you measure it – consumer prices.“
Peter specifically mentioned oil. The price has pushed above the $60 per barrel mark, the highest levels in two years. Of course, when the price of oil rises, it reverberates through the economy. Peter called it a gigantic tax hike for consumers. But the Fed is still worried prices aren’t going up fast enough and that they won’t hit the mystical 2% goal.
“They’re going to hit that out of the park. They’re going to be looking at 2% in the rearview mirror – in the distant rearview mirror. That is going to be the big story. They’re going to way overshoot and they’re not going to be able to do anything about it.”
The FOMC also talked a lot about tax cuts. Most analysts still believe the tax cuts passed last month will spur economic growth. We have argued persistently that tax cuts without a corresponding decrease in the size and scope of government will not produce the promised growth. But the mainstream is banking on growth. Peter said these people are ignoring the structural problems in the economy.
“The reality is we are in worse economic shape now. This is a bigger bubble. There are more structural problems underlying the economy than there were in 2006.“
As he has on numerous occasions in recent months, Peter once again emphasized that coming crisis will be a currency crisis.
“It’s not a mortgage crisis, it is a dollar crisis. That is the only place we are headed. In fact, this is the exact crisis that I have been forecasting since the very beginning, because it is a byproduct of the monetary mistakes that I knew the Federal Reserve was going to make in the aftermath of the ’08 financial crisis – to reflate, or attempt to reflate, the stock market bubbles and the housing bubbles that they had created but that had popped.“
The central bankers have certainly succeeded in their efforts to reflate the bubbles over the last eight years. Peter said they have actually succeeded beyond his wildest imagination. But that’s not good news.
“So, they have inflated the mother of all bubbles, and when the air comes out, or in order to prevent the air from coming out, they have to crash the dollar.”
And that brings us back to inflation.
“Rising commodity prices, a falling dollar – that is an inflation story. It is not a growth story … As consumer optimism is met with reality, the growth is not going to be there, but the inflation will. That’s not what people expect. It’s the opposite of what people expect.”