February 9, 2018
Peter Schiff, the chief executive of Euro Pacific Capital and financial commentator, said President Trump will end up getting blamed for market and economic turmoil caused by the Federal Reserve’s misguided policies.
That means Trump will lose the White House in 2020, and be replaced by a left-wing candidate who will expand the government’s role in the economy, Schiff said.
“Unfortunately, Trump is going to be the ‘fall guy,’” Schiff said in an interview with InfoWars. Inflation will rise too fast and pinch the spending power of Americans whose wages can’t keep up, leading to slower growth, job losses and the end of a stock bubble that Trump touted, he said.
“This thing is all going to collapse while he’s president,” Schiff said. “He owns the stock market bubble. He and the Republicans own the economy now, thanks to these tax cuts.”
Trump campaigned on a pledge to “Make America Great Again” by cutting taxes and regulation, re-working free-trade deals and spending $1 trillion on infrastructure like roads and bridges. He approved sweeping reforms that cut taxes for businesses and most workers, but the U.S. Treasury is going to need to borrow more than $1 trillion to make ends meet this year.
“The budget deficits are going to soar. The trade deficits are at record highs,” Schiff said. “These rising twin deficits, increasing interest rates – it’s reminiscent of 1987 before the market crashed.”
Schiff blames the Fed for 30 years of misguided policies that tried to lessen the effect of recessions by expanding the money supply with lower interest rates and debt-buying programs. The idea was to spur economic growth by encouraging businesses and consumers to borrow more money and boost their spending power.
Critics of the Fed’s policies say the central bank not only has created repeated asset bubbles, but also has encouraged borrowers, especially the U.S. government, to go deeper and deeper into debt. The Fed kept rates near record lows during most of the Obama administration and the federal debt almost doubled to about $20 trillion.
“Unfortunately, that’s what Trump has inherited from Obama, but it’s not even really just Obama. It’s the Federal Reserve,” Schiff said. “It’s the monetary policy that has been passed like a baton from Clinton, to Bush, to Obama, and now to Trump. The Federal Reserve made the mistake of creating a huge bubble economy that completely depends on extremely low interest rates to survive.”
The central bank responded to the 2008 financial crisis by cutting interest rates to record lows near zero percent. It also began a program of “quantitative easing,” or buying trillions of dollars of government debt and mortgages to keep cash flowing through the economy.
As the U.S. economy showed signs of stable growth and falling unemployment, the Fed in 2015 began raising interest rates in an effort to “normalize” policy and give itself more room to provide stimulus for the next recession, whenever that may be. The problem is that the Fed Funds rate is still only about 1.25 percent to 1.5 percent, which doesn’t give the central bank much room to cut.
But while the economy keeps growing, the Fed is expected by Wall Street economists to keep raising rates for the next two years. That could spell trouble for the stock market and for Trump.
From Critic to Cheerleader
The president cheered the 45 percent rise to a record high for the Dow Jones Industrial Average since he was elected. But the stock benchmark fell as much as 12 percent in the past week as investors started to worry that stronger wage growth signaled rising inflation that would compel the Fed to raise interest rates at a faster pace to cool the economy.
“What Trump should have done is leveled with the American people like he kind of did when he was a candidate,” Schiff said. “He talked about how bad things were, but he didn’t really say what needed to be done to fix it….part of the cure for the economy is deflating these bubbles. It has to be done. Someone has to rip this Band-Aid off.”
Instead, Trump set himself up for failure by touting the stock market’s rise, Schiff said.