Peter Schiff says we’re living in a financial twilight zone. Despite signs of persistent high inflation, gold continues to languish. Peter talked about what’s going in this bizarro economy during his podcast.
Inflation continues to Spiral Upward
Inflation continues to spiral upward. The August core personal consumption expenditures price index increased 0.3% for the month and was up 3.6% from a year ago. This measure excludes food and energy costs and is a favorite Federal Reserve metric. The index is at its highest level since 1991 and led Fed Chair Jerome Powell to call persistent inflation “frustrating.”
Oil is close to $80 a barrel and climbing. Other energy costs are rising quickly. Many commodity prices are skyrocketing. The US is threatening to default if Congress can’t get the debt ceiling raised. Janet Yellen warned that the dollar could lose its reserve status. Read here.
“This is a real twilight zone. The price of gold should be soaring. The dollar should be getting killed. None of that is happening.”
Peter said he thinks one of the reasons gold and gold stocks are not responding positively to this inflationary environment is because investors are frustrated that they’re not responding to this inflationary environment.
“I think a lot of other people are very frustrated because they were right and they’re not getting paid.”
People who loaded up on gold and gold stocks a couple of years ago did so because they expected a lot of inflation. The Federal Reserve obliged and showered the world with trillions of freshly minted dollars.
“I pointed out, and I was one of the only people who was doing it back then [at the beginning of COVID], that the real effect of COVID was going to be a double-whammy on inflation. Because COVID was going to have the effect of reducing the supply of goods, thanks to fewer people producing goods, while increasing the demand for those goods because of all the extra money the governments were going to print to stimulate the economy and try to protect everybody from the adverse effects of COVID. And so, it was the perfect storm of inflation.”
We’re seeing the manifestation of this today. And some people are finally starting to see the writing on the wall.
St. Louis Fed President James Bullard admitted he was concerned that inflation is here to stay.
“I am concerned that the risks are to the upside, that we will continue to get higher than anticipated inflation and that this higher inflation will persist into 2022. It will dissipate somewhat but not down to where we would like it to be in 2022.”
As Peter pointed out, that flies in the face of the repeated assurances from Powell that the Fed will not let inflation run persistently above 2%. Powell has said the Fed has tools it can use to keep rising prices in check. This is why gold and silver have suffered despite rising inflationary pressures. The markets assume the Fed will act. Investors believe the Fed will tighten monetary policy to battle rising prices.
“Everybody believes the Fed, that they will not tolerate the high inflation. So, the more evidence that the markets see that inflation is worse than thought, the more they sell the gold stocks. Because that inflation data provides them with more evidence that the Fed is going to tighten — that the Fed is going to fight off inflation and succeed. It’s going to win this battle.”
Why do People believe this?
Because Jerome Powell says so.
“And for some reason, no matter how wrong Fed governors have been in the past — remember Ben Bernanke ‘don’t worry about subprime; it’s contained.’ So, the Fed was completely wrong there — yet for some reason, none of the Fed’s credibility is lost. And so, when Powell says. ‘Don’t worry, inflation is transitory, and if it’s not we’ve got the tools. We’re going to fight it,’ the market believes it. And so, all this inflation, all the evidence that it’s getting worse, instead of buying gold and buying gold stocks, they’re selling gold and dumping gold stocks expecting the Fed to do something.”
But Bullard has let the cat out of the bag. He’s given us a peek at the cards Powell is holding.
“I’ve been saying it’s a bluff. He’s got no intention of raising interest rates and fighting inflation. But of course, the one thing he can’t do is admit that. So, he’s got nothing in his hand. And so he has to bluff. So, he pretends he’s going to fight inflation. But I keep pointing out that if the Fed could fight inflation, it already would have!”
If the Fed is afraid to fight inflation now – how will it fight it later when it’s even worse?
In this podcast, Peter also talks about how the digital revolution has made gold more valuable than ever, the possibility the Fed’s composition will change for the worse, Janet Yellen and the debt ceiling, and more.