Peter Schiff: Jerome Powell Couldn't Be More Wrong

By SchiffGold

The new Fed chairman has swooped into Washington D.C. like a hawk this week.

In his first testimony before Congress, Powell talked up the economy. He's also indicated he plans to continue pushing interest rates higher. In fact, many analysts are now talking about four rate hikes in 2018, with the first on tap for this month. Powell said his personal outlook for the economy has strengthened since December, and he sees little risk for a recession.

In his latest podcast, Peter Schiff said Powell couldn't be more wrong.

Peter called the whole congressional testimony thing "a show," noting that nobody in Congress really cares what the Fed chairman says. The only people really paying attention are people on Wall Street and they weren't particularly thrilled with Powell's plotline.

Powell oozed optimism during his testimony at the House.

"The next couple of years look quite strong. I would expect the next two years to be good years for the economy."

Peter said that's no shock.

"What does anybody expect? I mean, how would he not be bullish on the economy? He's on team Trump, right? He's a team player. Just like Ben Bernanke said he was a team player when he was talking about how great the economy was under Bush, well Powell has now joined a similar team - a Republican team. He's a Republican, so the Republican narrative is everything is great. The economy is booming, and so Powell is going to tow that same line."

The markets didn't like the upbeat tone. Why not? Investors are reading between the lines and seeing rate hikes. The Dow dropped 380 points on Wednesday after plunging 299 points the day before. It fell 4% in the month of February, the first monthly loss since 2016. Wall Street apparently isn't really keen on having its easy-money spigot shut off.

Peter said the real irony here is that Powell's view of the economy is totally wrong.

"Powell is talking about the economy getting stronger - it's not getting stronger."

Peter pointed out that at the same time Powell was talking up an economy so strong it was in danger of "overheating," the Atlanta Fed was releasing its latest downward revision in Q1 GDP. Currently, the bank projects a 2.6 growth rate. The last estimate was 3.2 and just three weeks ago, the Atlanta Fed was talking 5.4 GDP growth. That's better than a 50% reduction in the estimate in less than a month.

Of course, when the estimate was at 5.4, everybody was talking it up. It was all over the financial media. Now, hardly anybody is talking about the much less impressive 2.6.

Peter said he still thinks it has a long way to go - down.

"I think it's still in orbit. I think we still have to see more revisions. In fact, if you look at the economic surprise index, we keep getting more and more bad news that comes as a surprise."

Peter went on to say he thinks the Fed is actually wrong on two counts.

"Powell is talking about how the economy is going to be so strong, and that inflation is going to stay under 2%. He's confident that it's going to get back to 2%, but he doesn't think it's going much higher. So, the Fed is wrong on both counts. They're wrong in thinking the economy is going to keep growing. It's not. Growth is going to contract and we're heading to recession. And they're wrong their belief that inflation is contained at 2%. It's not. It's going much, much higher than 2%."

In other words, we're heading for the stagflation we saw in the 1970s. Peter said that's not an abnormality. That's the norm.

"Weak economies are also apt to have rising prices because they don't have the production. But we're going to have both. We're going to have stagnation, recession, and we're going to have inflation. So, Powell couldn't be more wrong."

Peter said the real problem is going to be when the markets figure out what's really going on. They still believe all of these rate hikes are coming down the pike. That's why the dollar has gained a little strength and gold isn't going anywhere.

"When the markets figure out we're not going to get all the growth, which means we're not going to get all the rate hikes, that's when the dollar really tanks. And of course when the Fed has to come to the rescue of both the economy and the markets with more QE and rate cuts, that's when the bottom drops out of the dollar and that's when the roof is blown off of the price of gold."

Comments

[Trade17]

Peter Schiff,

You have been right about the subprime crisis but you have continued to be negative on anything the government does.

I used to follow you and praise you -- but you now only stick to your viewpoint. And that's dangerous, matter of fact just as dangerous as all the Republicans belief that everything is fine.

You're sticking to the Australian economic thought a bit too much -- as if that's the bible. Instead, we should look by comparison as Bill Gross says, the U.S. has the least dirty shirt of them all.

[E.D. Hart]

Trade 17,
The Austrian (vs. Australian) School has been one of the few frameworks that explains the effects of the debt cycle on economic recovery and growth. The timing of Schiffs predictions might be wrong, but the conclusion is pretty solid. We are headed for lower growth, more QE; meanwhile the Fed will have to choose between saving the dollar, and saving the economy/markets. They will chose to save the economy---and the dollar will be devalued at a steeper and continual rate. Good for real assets.

[martivolio]

Meanwhile the price of oil remains lower than $60 boe WTI...CERO possibility of a recession.NO CHANCE at all...cheap gas at the pump allows the common Joe to keep a normal consumption pattern.Since USA can print money...lets assume 10 years down the road ,USA declares that their HUGE DEBT is cancelled by order of the president,with Congress approval.Nothing will change...the monopoly game keeps going...the regular guy doesnt care at all...your stocks still will be there,and more valuable.The HUGE debt is a ideological issue,which rich guys will like to have a debt free country...at the end NOTHING changes,cause USA owns the printing machine!!!Buen dia

[E.D. Hart]

USer 48etc,
Debt is NOt ideology--it is the way money is created and destroyed, and directly relates to asset prices. Everything will change during the governments policy of manipulated markets and money. The average Joe will care as his wages stagnate, and prices climb. Printing presses help the government---they harm the people---and the presses harm those in the lower and middle classes most.

[1504661]

He doesn't have to be right or wrong, he just has to make money for those who put him in power.

[dorkmeyer]

"He doesn't have to be right or wrong, he just has to make money for those who put him in power."

If, by "those who put him in power" you're referring to the power brokers, the recently enacted tax-"reform" bill has certainly fulfilled his obligation; if instead you're referring to the set-upon, white middle-class, disproportionately male voters who considered him their last chance to keep up, well, they're still waiting and hoping.

[AlexTheCat3741]

"Peter called the whole congressional testimony thing [of Powell] "a show,"

Aren't they all? I remember the appearances of Alan Greenspan and Helicopter Ben Bernanke in particular. Both could talk for hours without saying anything meaningful and they say the Federal Reserve is apolitical yet have some of the most ardent practitioners. AND WE CAN'T EVEN VOTE THEM OUT OF OFFICE DESPITE THEIR IMPACT ON OUR LIVES.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson

[1504661]

"AND WE CAN'T EVEN VOTE THEM OUT OF OFFICE DESPITE THEIR IMPACT ON OUR LIVES."

Even though the public doesn't make the appointments, we do get a chance (and a choice) every four years to push an imperfect system forward. This is why it is so crucial to vote for integrity, character and intelligence. When people prioritize social issues, vote with resentment, or out of fear or hate, they are actually voting themselves a couple steps backward without fully realizing it. This is a prime example. If this weeks events have told us anything, it should be that the next 3 years will be extremely uncertain.

[MonteQuest]

"This is why it is so crucial to vote for integrity, character and intelligence. When people prioritize social issues, vote with resentment, or out of fear or hate, they are actually voting themselves a couple steps backward without fully realizing it. "

My advice has always been to vote for what the mule train is hauling, not the jackass who wants to lead it. :)

[Cal Stanke]

Peter is a POOR market timer but not the proverbial stopped clock that cnbc clowns claim.

His calls have been 5-6 years too early for the most part judging by the dot com and housing collapses.

That being said his reasoning has merit. Too bad the account drawdowns are so high in his PM fund -50% !!!

Sure on a 10+ year time frame we should see better performance, but nobody wants to see -50% that quick.

If his strategy is going to play out it's going to be the next 4-6 years or never.

[Purple Rhino]

A strong economy doesn't tremble every time the Fed Chairman looks at it in a funny way. Nobody there is deluding themselves to the gravity of the situation. My intuition is that the Fed's only objective at this point is to raise rates to a somewhat respectable level before they have to drop them again. A market crash at sub-2% would leave the Fed helpless and humiliated.

[j2kpn]

10 Trillion in additional debt since the 2008 financial crisis.....no biggie

[E.D. Hart]

rjroberts----how did you arrive at the worth of gold?

Lets meet back in a year to discuss this...

[wmikemarshall]

rjroberts must be a Harry Dent fan?! If gold hits $800, the world economies just died.........forever. Gold has done well considering all of the diversions like the 3x's P/E's on S+P, crypto's, pot stocks, lots happening in the casino right now before the next mega crash. If you thought 2008 was bad, we ain't seen anything yet. Trades wars just getting started between the biggest economies in the world to boot.........oh joy, glad I own gold/cash!!

[rjroberts]

Inflation will subside in a year after the 2017 natural distsasters rebuild projects across the US are satisfied; the FED's 2% normal inflationary goal will be kept through the next few years. Foundationally the economy has a pretty good outlook, no doubt about it; yet trouble always lies in overcapcity rearing its ugly head leading to a downturn.

One can pay the current 50% premium on gold for insurance against Armegeddon, but there are so many alternatives to gold to produce profit from. Why lock up one's resources today on gold that is not worth much more than $800/oz.? If it helps you sleep better, GO FOR IT!

Credit growth above GDP does not equal an economic time bomb on an economy. Short term(5 years) that credit growth may revive a sleeping economy.

[Anthony Miano]

Yeah $300 billion is a lot in damages, but hurricane projections for 2018 aren’t pretty either. To say thats the only reason why the government is in a bind would be ridiculous. On the annual report they stated there was a NET LOSS of $1.3 trillion. Thats during a good year. Imagine a scenario where there is a financial crisis, war, or another horrific year for natural disasters. The inherent issue with the US is that we constantly consume more than we should. The government will not cut costs and has continuously raised the debt ceiling. If the debt really isn’t important why dont we just wipe it all away like it never happened? The fact is we’re facing bankruptcy.

[jadejet]

So why don't you short gold...my point is anyone can talk but do they back it up with action. Think of all the money you can make riding JDUST all the way to a gold price of $800. lol

[wmikemarshall]

Peter's right but just like the warnings in 2004, 2005, 2006, 2007 some just are not able to look at the macro picture or learn from history. Our economy is a house of cards built on debt the world has never seen before, nor is it realistically ever repayable. This is a global issue, not just the USA. There so many things that are "wrong vs right" in today's economy not sure why so many would risk their life time retirement plans on this casino system that is scheduled to collapse. The Plunge Protection Team can only keep up this sham for so long. Markets have been good, albeit for the wrong reasons, so if you made money, good for you but remember, you've made "nothing" until the day you sell. Good time to sell and side line safely into cash, gold, silver, PM's, miners. Not worth the greedy FOMO fear and risking losing years of gains. Right now, it's a contest between the USA and China as to who will fail first and trigger this next crash. There is a big difference between being negative and being realistic. Global economic conditions/fiat monetary policy all looking bleak. Monetary system reset will have to happen in this next crash to stabilize world's economies but not before an historic crash. Horrible demographics in US and China++ just add to the problem. Easier to see this mess coming than a freight train while stalled on the tracks.

[LEGaLiZeIT]

Great viewpoint mike.

People seem to have forgotten that this "recovery", as it's still be called here in it's 10th year, has been bought and paid for with massive central bank intervention, and trillions of gov't credit across the globe. Why are global central banks still creating trillions of credit if everything is so "strong" and healthy? Why are deficits around the world at or approaching record highs again if the economy is so strong? Shouldn't it be able to stand on it's own feet without these enormous liquidity inputs if it were in such great shape?

In the last 10 years, central bank + sovereign credit has outstripped GDP growth rates 3 fold. The continuation of this is mathematically impossible without one of two ends: crippling deflation or massive inflation to 'adjust' the credit imbalance to sustainable levels.

The reality is that the enormous systemic leverage that has been piled on top of this economy has rendered it incredibly fragile and sensitive to marginal changes in risk. It's far from being strong and healthy - it could of, hadn't we stacked 60 trillion more in credit on top of it during the last decade. But the reality is it's there. And the fixed cost associated with the debt service is why we can't get interest rates over 3% without toppling the apple carts, despite everything being so "strong". Like any business, when you raise the fixed cost margin, good times have a lot less wiggle room available to keep them in the green, and buffer sliding into becoming bad times.

Debt systems necessitate infinite growth, as the interest always has to be paid out of existing capital. Thus, if credit growth outpaces economic growth, there is never enough capital ever to cover all the extended liabilities. Unless of course the receivers of the interest on those extended liabilities have to end up covering it - i.e a massive haircut where large swaths of paper get wiped out, reducing credit back to sustainable levels.

This can be done either through inflating them away to render them zero - through capital loss of interest rates outstripping their fixed rate (Inflation), or by outright default where repayment is nulled.

The latter is much more abrupt and can meltdown the system temporarily, or semi-permanently. The former is the choice being pursued, and it's no secret - just read a central bank PR. 15 trillion new issued reserves over last 10 years.

In the long term, growth of credit beyond underlying economic levels can't continue forever, so the ponzi runs out of gas and collapses to sustainable levels. Paper required to get it there is wiped out. This is why there is a demand for gold, and why Peter has continued advocating it.

The fat lady hasn't sung yet. Central banks have literally bought time, another decade past 2008. It was all she wrote at that time, before they threw us additional rope to add to our noose.

[MonteQuest]

"It was all she wrote at that time, before they threw us additional rope to add to our noose."

And if they lower interest rates and return to QE, the dollar is burnt toast. Uncharted waters with known sharks. Beware of more rope.

[aaphipps2026]

Great overview, thanks. But there's one more arrow in your quiver not yet mentioned. A lot of countries are tired of having to pay for their imports (oil and other commodities) in depreciating US dollars per Bretton Woods. Along comes blockchain technologies, cryptos and multi-national agreements to bypass dollar-based exchange (India, South Africa, Russia, Brazil, China, etc.). Voila! Gee, I wonder why Japan and China aren't buying into the latest round of treasuries...? Gee, why is the SEC suddenly so interested in regulating cryptocurrencies? I think someone once said "something's rotten in the state of Denmark" and I don't think it's the garbage.

[cbinvest1000]

Have to disagree. The economy is strong. Rates will rise but gradually which is okay and called for with a strong economy. Staying bullish as gold doesn't produce anything it's basically a hedge for a dooms day but there is no recession coming the markets will continue to grind higher gradually through 2018. Rates will probably be in the 3 to 3 and half % percent by the end of the year possibly close to 4% but honestly don't think it may even touch 3 and half %. Staying invested with quality stocks and assets that I want to hold long term.

[breezeEvaflowin]

could you elaborate on why our economy is strong? Do you believe a bull market is the only indicator of economic health? Is the budget deficit still increasing towards 22 trillion? The trade deficit in January was over 74 billion, would you characterize an economy who imports more than they export by 74 billion as strong? How's the consumer doing, how is household debt? Are consumers Credit card debt, auto loan debt, student loan debt increasing or decreasing? Would you characterize an economy who's debt levels have steadily been rising on both a macro and micro level as a strong healthy economy?

[MonteQuest]

2017 GDP was only 2.3%, .1% better than the last 4 yr average. It keeps being revised down. Q4 from 2.6% to 2.5%. I don't see any "booming" economy. I see a continuation of a long-term trend of slow growth with escalating debt to fund it.

[Cal Stanke]

The economy is do damn strong that after 10 years of ZIRP , qe 1, 2 ,3 ,we are only now cautiously talking about finally raising rates to a meager 1.5-1.75% when normalized interest rates are easily 4-5%. Meanwhile inflation and therefore gdp are under and over reported respectively.

If that's not a strong economy idk what is. Oh did I mention labor force participation rate or the massive debt issuance.

Buying a pallet of popcorn to watch the great Powell pull a rabbit out of his hat unwinding the balance sheet without obliterating you strong economy

[Some Lazy Bum]

An interesting podcast for an "infomercial."

[cbinvest1000]

Talk about a negative nelly.

[rjroberts]

It is in his blood.

[E.D. Hart]

yeah, what a buzzkill...really kills the party vibe.

[nateboling]

Schiff makes a living off selling doom porn

[Cal Stanke]

Analysts on cnbc make a living selling greed porn. They pumped stocks with no earnings during the dot com bubble, houses 500% overvalued in 08' and now literally EVERYTHING besides gold silver. How is that any different? equal and opposite no...

[Alpha Man]

When has Schiff not been bullish on gold?

[LEGaLiZeIT]

When has global sovereign credit not outstripped global GDP?

Since the 90's... which coincidentally (actually not) is when gold started this large secular bull.

Until credit growth recedes below global GDP, which is nowhere in the foreseeable future, and is actually accelerating, then there is a time-bomb waiting in the wings for debt markets. Thus, every reason to continue owning gold as insurance against this situation.

Many prominent fund managers also seeing this - Bill Gross, Gundlach, Tudor out yesterday with commentary...

[LEGaLiZeIT]

Gold and Oil stocks for 2018.

[ifollow]

Greenspan just on CNBC agreed with your Peter “stagflation” coming.

[Scarsdale Skeptic]

How can anyone take seriously a commentator who quotes the Dow in points, and not percentage changes?