Peter Schiff Predicts Significant Economic Downturn

Peter Schiff agrees with other prominent financial experts like Paul Singer that the Federal Reserve is partially to blame for the most recent financial crisis. He commented, “in case the people in this room didn’t know, the financial crisis of 2008, which I had been forecasting for some time, and the Great Recession that ensued, was caused predominantly by the Federal Reserve.”

The Federal Reserve and the United States government took several measures in 2008. They have conducted a bailout, restructure the banking system (by letting some banks fail, and rescuing others), nationalizing firms like AIG, and preserving the financial system. Unfortunately, the Federal Reserve and the government used several similar measures to stimulate the economy. Their overall strategy by reducing interest rates, pursuing easy money policies, and other efforts have led to related negative issues. Debt levels remain high, asset values seem overvalued, and the economy seems to be slowing down across the world.

Schiff argues that the coming financial downturn will be largely due in part to the Fed’s current efforts to revitalize the economy, exacerbating underlying problems, without fixing key issues. He notes that “the economic collapse that is going to follow the bursting of this bubble is going to be far more dramatic.”


A Recession is Coming But Prior Revitalization Methods Will Not Work
Experts such as Schiff, Ray Dalio, and others note that prior Federal Reserve tactics will not work, largely due to various forms of insolvency. Interest rates have been at historic lows, and growth still largely seems anemic. Federal Funds Rates are currently at 2.04, indicating that there is minimal room to adjust the rates downwards in an economic downturn.

The Federal Reserve is also indicating that it will likely continue its easy monetary policy into the near future. The Federal Balance Sheet will likely continue to expand. Schiff tweeted, “looks like the Fed did another $104.15 billion of Not QE yesterday. The Fed claims it’s only temporary. But that’s what Bernanke claimed when the Fed started QE1. Milton Freedman once said, “Nothing is so permanent as a temporary government program. The same applies to QE! “

Increasing debt levels means that raising interest rates will cause undue debt service burdens. We are between Scylla and Charybdis, a proverbial rock and a hard place. We view countries like Japan to see potential paths for the United States in the next recession. We might see zero interest rates, negative interest rate policies, variants of QE, and possible implementations of modern monetary theory.







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