Federal Reserve Chairman Jerome Powell, Chief executive Biden and other government officials insist the US economy is within a strong position to handle a good inflation fight.
In his podcasting, Peter Schiff explains the reason why they are wrong. In fact , America has never been in a weaker placement to take on an inflation combat.
There are a lot of people already claiming inflation provides peaked and that the Federal government Reserve is winning the particular war against inflation. Yet on what evidence?
“ Certainly, simply looking at the price of oil, coming from done nothing to combat inflation. In fact , if you take a look at actual evidence that’s on the market, we are further behind the particular inflation curve than i was when the Fed began the fight. And that’s because from the fake fight. The Given is talking, but they’re not acting. They’re pulling their feet on both rate hikes and quantitative tightening up. ”
There is several evidence that the central bank may have finally started endeavoring to shrink its balance page. We saw a slight drop in total assets held by Fed in April. Yet how long can it keep up quantitative tightening?
“ How long before they call it off and go back to quantitative easing? Because that is ultimately going to happen. As well as the way that you know that’s going to happen is because nobody in Congress is talking about major tax increases for the middle course. Nobody is talking about significant cuts to government investing, including middle-class entitlements such as Social Security and Medicare insurance. Because that’s what will be required in order for the Given to actually follow through on its commitment to shrink the balance linen. Because after all, if the Fed is going to shrink the balance sheet, how is the government going to sell all of these bonds if it continues to spend the same amount of money? ”
The federal government depends on the central bank to create artificial demand for its provides. When the Fed shrinks the balance sheet, it will move from being one of the biggest bond buyers to a bond seller. Instead of helping the Treasury sell bonds, it will turn into a competitor in the marketplace. Even if the Fed doesn’t actually sell Treasuries, but simply allows bonds to roll off the books without replacing them, it’s a difference without a variation. That still means the Fed will have to sell a lot more Treasuries to make up for what the Fed is no longer purchasing.
Absent Fed purchasing, interest rates will have to continue to escalate in order to entice people to buy all of the Treasuries necessary to fund government spending. The government are not able to afford to have its borrowing costs increase.
“ So , the only alternative is to replace the Federal Reserve with the taxpayer. So , we need to have more fees, or we have to cut investing. But since neither of those is usually under consideration, that quantitative tightening up can’t happen. They can begin, but they can’t complete this. ”
Peter said this is furthermore how you know we won’t make any headway on this inflation fight.
“ Because raising interest rates again is not enough. And the Fed is not raising interest rates enough anyway because they have to make interest rates more than the inflation rate. They need real interest rates to be positive, and we’re not going to obtain anywhere close to positive. Wish not even going to get to zero real interest rates. ”
In Apr, the CPI had been 8. 3% on an annual basis . That means the Fed needs to raise prices to over 8. 3% just to get the real rate to absolutely no. And that’s using the cooked government CPI formula that understates inflation.
President Joe Biden keeps stating he’s committed to fighting inflation. But you can’t be committed to fighting inflation without a commitment to cutting government spending or even raising taxes. And not just increasing taxes on the rich. That won’t generate enough revenue. They will have to raise taxes to the middle class — some thing Biden says he refuse to do.
“ If the government continues to be relying on inflation as its way to obtain funding, if that’s how all of this government is being paid for, nicely, if we’re going to stop producing inflation, then we need an alternative solution way for paying for government, or in the alternative, we have to reduce the size of government since there’s no way to pay for it. ”
Philip said the public needs to understand that there is no free lunch.
“ Any government we have, we have to purchase. The government doesn’t support the individuals. The people must support the federal government. Right now, we’re supporting the government with inflation. That’s the tax that we’re paying. Costs are going up because the govt is spending all this money and not collecting taxes. Therefore , the only way to get relief from the inflation tax is to either get relief on the cost of government by having the government cut spending, or we have to pay higher taxes as a tradeoff for lower inflation. Therefore , all these politicians that declare they want lower inflation — unless they also claim they need higher taxes or much less government spending — they are lying. ”
Biden claims we are going to going into this inflation combat in a position of economic power, thanks to his policies.
“ The contrary is actually true. Not only is the US economy not inside a strong position to combat inflation; we are in a weakened position. In fact , we have by no means been in a weaker place to fight inflation than we are right now. ”
Again — in order to fight inflation, you need to raise interest rates and reduce the money supply.
“ But the ALL OF US economy is more addicted to cheap money now and low interest rates than in the past. How can you fight inflation when we have so much debt? How can you raise interest rates high sufficient to fight inflation whenever there’s so much debt plus nobody can afford to pay home loan high enough to efficiently fight inflation? And when you are running record budget deficits, how do you pull the area rug out from under that? How do you fight inflation, meaning diminishing the money supply, when the government is running the biggest spending budget deficits in its history? Certain, they’re slightly smaller compared to they were at their overall peak during the COVID pandemic. But relative to where they’ve been historically, and relative to our current level of taxation, we now have enormous budget deficits. And so, how do we fight inflation with such big loss when fighting inflation is going to require the elimination of those deficits? It’s never going to happen. ”
In this podcast, Peter also talks about the May jobs numbers and points out that employment is a lagging financial indicator.