Peter Schiff On The Fed's Audacity

Tyler Durden's picture

Submitted by Peter Schiff of Euro Pacific Capital,

There can be little doubt that last week's Fed announcement was an epic attempt at rhetorical audacity. The message they hope to convey is that they are tightening monetary policy by loosening it. Based on the market reactions, the trick has seemed to work. 
I believe the Fed was forced into this exercise in rabbit pulling because it understands far better than the cheerleaders on Wall Street that the economy, despite the soaring gains in stocks and real estate, remains dependent on continued stimulus. In my opinion the seemingly positive economic signs of the past few months are simply the statistical signature of the QE itself. There is little evidence to suggest that the trends are self-sustainable. But seemingly strong data had made the arguments in favor of continued QE increasingly untenable. As they could no longer stay the course the Fed had to do something. Ultimately they decided to play it both ways.
As far as the headline grabbing taper decision, the Fed's hands were essentially tied by widely held expectations. Perhaps spurred by a desire to initiate the end of QE before he leaves the chairmanship, Ben Bernanke did surprise some by announcing the taper now instead of allowing Janet Yellen to do so in March. The $10 billion reduction has convinced many that the QE program will soon become a thing of the past. At his press conference Bernanke affirmed that he expects QE to be fully wound down by the end of 2014. Look for those forecasts to change rapidly.
Without QE to support the markets, in my opinion, the economy will likely slow significantly and the stock and real estate markets will most likely turn sharply downward. As a result, I expect the Fed will do its utmost to keep the markets convinced that the QE program is in its final chapters. But these "Open Mouth Operations" likely represent the full inventory of the Fed's policy options. I suspect that when the economic data begins to disappoint, the Fed will quickly reverse course and increase the size of its monthly purchases. In fact, the Fed statement was careful to avoid any commitments to additional tapering in the future. It merely said that further changes in the amount of purchases will be dependent on the data. This means that QE could go in either direction.
But more important than the taper "surprise" was the unusually dovish language in which the Fed decided to wrap its seemingly bitter pill. The statement went significantly farther than any prior communications in assuring that interest policy, its main monetary tool, will remain far more accommodative, for far longer, than anyone previously predicted. In fact, they have now committed themselves to keep rates at zero until "well after" the unemployment rate has fallen below 6.5%. On this score the Fed is not simply moving the goalposts, they are running away with them. With such amorphous language in place the FOMC appears to be hoping that it will never have to face a day of reckoning in which they will be forced to actually raise rates. On that score they are similar to the legislators on Capitol Hill who want to pretend that America will never have to pay down its debt. 
Despite the slight decrease in the pace of asset accumulation, I believe that the Fed's balance sheet will continue to swell at a pace that would have shocked Wall Street even a few years ago. As the amount of bonds on their books surpass the $4 trillion threshold, market watchers need to dispel illusions that the Fed has any intention to actually shrink its balance sheet, or even stop its growth. Already fears of such moves have pushed up yields on 10-year Treasuries to multi-year highs. Any actual tightening could push them significantly higher. But we are still seeing much higher leverage than what would be expected in a healthy economy, and as a result, the gains in stocks, bonds and real estate markets are highly susceptible to rate spikes. If yields move much higher I feel that the Fed will have to intervene to bring them back down. In other words, the Fed will find it much harder to exit QE than it was to enter.
As he left the stage from his final press conference, Ben Bernanke should have left a giant bottle of aspirin on the podium for his successor Janet Yellen. She's going to need it.

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DaddyO's picture

Aspirin indeed!

Oxycontin would be more appropriate, or maybe cyanide depending on your point of view.


Chris Jusset's picture

The Fed is committed to sustaining this last, final mega-bubble into perpetuity.  As such, it will never VOLUNTARILY raise rates.

old naughty's picture

the fed will "allow" the market (or certain soverign nations) to push up rates so not be blamed...

besides it was never on its agenda to exit anything, since established in 1913, no?

NoDebt's picture

I love Peter Schiff but I think he's preaching to the choir on ZH.  I swear he learned half of what's in that article from posts on this site.

You mean we can't print our way to a growing economy and a higher standard of living?  Unpossible.

old naughty's picture

i learnt most of con-temporary finance from this site. What should he be 50% different?

markmotive's picture

Less crack doesn't mean you're no longer a crackhead.

Christine Hughes: Fed is trying to wean us off the dope

Boris Alatovkrap's picture

Boris is sudden epiphany!

If Central Bank retract monetary supply, asset (of collateral class) price is collapse and money in shadow bank system ("bank-o-sphere") is quick panic flee to chase hard asset (of tangible utility class).

If even taper, smart bankster is quickly move from soft "bank-o-sphere" asset to hard asset and is cause for collapse. So, to prevent collapse, Fed (and other is Central Bank) must expand, expand, expand monetary supply. Must to keep up illusion for bankster and investor so is keep money invest in risky asset. This is how do you say, chase tail, but someday, dog is exhaust and is quit.

Boris is summarize, do not to be worry of taper or tighten of monetary supply. Do not be to worry of rise of interest rate. Do not save, do not invest, but is get ready for collapse because slope on graphing of monetary supply is presently go asymptotic. Buy Gold, Silver, but especial BUY COPPER!

Balvan's picture

Peter Schiff, what a clown. Watch his brilliant prediction from aug 2011. Pay attention to the Dow, gold, usd/chf at the time and listen to him at 4:30.

Boris Alatovkrap's picture

Boris is listen to Mr. Schiff in 2007 and 2008. Why so gloom fill!? Boris is look at USSA and Global Real Estate Market and financial industry and is wonder what could be go wrong. Mr. Schiff is just pessimist. Boris is watch Mr. Schiff and both Mr. Nassim Taleb. Even if Mr. Schiff and Talebs is to make resonant truth, but Boris is too much enjoy real estate investment in Lithuania and Estonia and is purchase Lehman Bro MBS and other financial product.

Then, complete wipe out! Boris is never ignore truth again! Maybe Schiff is pessimist and is early in prediction, but better for getting out with shirt than out without shorts. When Mr. Schiff and Taleb is speak econobabble, Boris is stop listen, but now and for mean time, you are clown if you are to ignore obvious, even if some prediction is premature or early. Do not be mistake of alway greater fool there is.

maskone909's picture

Anyone here on ZH so bold as to predict when qe will be increased? The yield on the 10y is fast approaching 3%

2.98 tick tock

VD's picture

timing is impossible to call, but when 10Y moves to 4% and takes indices down, the QE delta increase will be 2x the %age equities drop at first, then going exponential if 5% is in sight.

Boris Alatovkrap's picture

Too much math and numerical analysis for Boris,... Peter Schiff is succinct summarize,

"the seemingly positive economic signs of the past few months are simply the statistical signature of the QE itself"

Wordy analysis is obfuscation of truth to hide that Central Bankster is rob citizenry blind. Boris is tired of game and stupid sheeple play along... where is anger and outrage?! Forget Europe, where is voice in America to rise up!?

rodocostarica's picture

Love ya Boris but you are too much. Or is to much

Boris Alatovkrap's picture

Boris is love you too... in manly way.

NoDebt's picture

6 months, poke your head up and look around.  They don't make changes in direction quickly.  Takes time to phony-up data to support a change in direction.  Although I suspect in this case they won't have to work very hard to phony up the data in a downward direction.  Look for a pause in the tapering rate first (when everyone is expecting another $10B/mo. to be knocked off QE purchases but they don't do it).  After that it's game-on.

Quaderratic Probing's picture

At some point they will write down the bad mortgages they bought from the banks dropping the balance sheet. Or they will increase interest rates collapsing the face value of anything with value and sell the bonds to GS or others at fire sale prices.

Boris Alatovkrap's picture

Design of Bankster is increase monetary supply, first is in Bank-o-sphere, then is base asset class (collaterlized asset), so mortgage is not to be write down, but all property of default status is sudden to be "above water" and banks is put Robo-Signer back on staff. Linda Green is come back in town!

Cast Iron Skillet's picture

Castironski is want channel Boris for 1 Post only ... is want say thank you Boris very much for your many good& intelligent posts.  is much appreciated. 

Quaderratic Probing's picture

We will see Linda Green did not cost the banks very much last time. They have set up an new clearing arrangent for CDO next time similiar to the Canadian commercial Paper ( holders have to wait 8 years ). So not sure they care about imbalance in CDO anymore, if out of balance you will have to wait to clear maybe for many years.

Obchelli's picture

Fed won PERIOD. Anything they do - works even better than they expected it to work... Lucky bastards just got away with everything...

If Not Taper Market rallies because of stimulus... If Taper Market rallies on beleive that idiots in Fed have great grip on economy and they are confident it's growing sustainably... What can go wrong.

Dapper Dan's picture

It's all about the oil.

A former British Petroleum (BP) geologist has warned that the age of cheap oil is long gone, bringing with it the danger of "continuous recession" and increased risk of conflict and hunger.

At a lecture on 'Geohazards' earlier this month as part of the postgraduate Natural Hazards for Insurers course at University College London (UCL), Dr. Richard G. Miller, who worked for BP from 1985 before retiring in 2008, said that official data from the International Energy Agency (IEA), US Energy Information Administration (EIA), International Monetary Fund (IMF), among other sources, showed that conventional oil had most likely peaked around 2008.

Dr. Miller critiqued the official industry line that global reserves will last 53 years at current rates of consumption, pointing out that "peaking is the result of declining production rates, not declining reserves." Despite new discoveries and increasing reliance on unconventional oil and gas, 37 countries are already post-peak, and global oil production is declining at about 4.1% per year, or 3.5 million barrels a day (b/d) per year:

"We need new production equal to a new Saudi Arabia every 3 to 4 years to maintain and grow supply... New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover – but production is still falling at 4.1% p.a. [per annum]."

The quote below is from the comment section  of Guardian article.


23 December 2013 8:50am


Old news but it is good to hear someone talking about it again.

Bush was an oil man and knew Peak Oil was upon us back in 2000.

That is the why we have Homeland Security - to "cope with" the effects of peak oil on the civilian population during this era of resource wars and serial recessions.

That is why we had to have the "War On Terror" - starting ASAP in Iraq, where a "terrorist" was sitting on top of one of the world's last great oil fields.

Dr. Miller is certainly right when he says, ""The government will do anything for the short-term economic bounce." That includes currency wars of debasement... an ongoing phenomena now that we are at the End of Growth of the industrial era.

honestann's picture

Anyone with half a brain (or more) is shaking their heads (at the predators-that-be in the fed and federal, not Schiff).  The theories these people have are stunningly stupid.  Of course they don't believe their own stories, but they do expect the sheeple to believe them, and apparently most of the sheeple actually do.

But think about some of their main theories for a second.  For example:

Super-high house prices are good for the economy.

Sure Bernanke, we're supposed to believe this?  So, someone who buys a home at a super-high price, and therefore has no money left each month after they pay non-optional expenses (mortgage, utilities, car payments, fuel payments, insurance payments and basic poison food)... is supposed to "spur the economy"?

Really?  Having no money to spend spurs the economy.

Yeah.  Right.  Brilliant plan... NOT.

What would be good for the economy?  Massive deflation.

Which is exactly what the predators-that-be at the federal reserve are most intent to prevent.

What would the result of deflation be?  Well, manufacturing efficiency has soared over the past 20 years with the deployment of cheap computers and robotics.  Therefore, massive deflation simple puts prices of goods back at the levels they would be if not for manipulations by the predators-that-be in the federal reserve and government.

Of course, the federal reserve is ALL about lending money.  ALL the owners of the federal reserve are in the business of lending money, and making a profit thereby.  So their interest is NOT in a world with prices so low that nobody wants or needs debt to live a good life.  That would be a horror for them!

So, for the past 30 years especially, the predators-that-be in the federal reserve have done everything they possibly could to get everyone they possibly could as deep in debt as they possibly could get them.

With so many people buying far more than they earned, this did of course cause a bit of a demand-boom while almost everyone got deep, deep, deep in debt.  Of course most of the increase in demand went straight to China, where their cheap labor force was unleashed.

So the policies of the predators-that-be at the federal reserve and federal government have now pulled so much demand forward, and gotten so many people so deep in debt, that... the economy sucks.

To manipulate prices up at this point is just... nasty.  And highly destructive.  Just look at the affordability of homes (in an article today in ZH).  New homes have never been less affordable (prices never higher in affordability terms).  They are actively consuming the very last scraps of economic viability that remains.

The end is near.

dick cheneys ghost's picture

Tyler Durden from 2010..........this is epic

''David obviously agrees on the deflationary theme of the collapse. Where he disagrees is on the timing the jump to hyperinflation (oddly enough he quotes Albert Edwards who, just like us, believes in hyperdeflation followed by a Weimar Republic-like loss of faith in the currency, resulting in monetary collapse or hyperinf, whatever one wants to call it). We do not have enough confidence in our ability to pick the point where the bond bubble goes from an ebb to a flow. We are 100% confident that point will come.''

honestann's picture

I was mostly talking about letting natural deflation return.  But yes, what they did by getting everyone to "buy today" and "get deep into debt"... also creates a huge deflationary force "when nobody remains with money to spend".

Of course, their plan is probably to increase the level of debt that people are allowed to carry... because... well... what other choice do they have?  And they let the predators-that-be in the federal government borrow what they will never repay, so "what the hell... we just create it out of thin air at no cost", so who cares.

As for timing...

Timing is always the trick!

dick cheneys ghost's picture

There is not much left for these crooks to steal from the middle class, so I mostly agree with what you wrote above....

The end is near..........

tony bonn's picture

all of this taper blather is utter crap....the idea that 10b is anything but a rounding error in the real "asset" purchases is laughable.....the fed lies its ass off - and hasn't told the truth once in its miserable 100 year existence....the size of the purchases are closer to 200 billion per month....and everyone is peeing his pants that the 10b might be catastrophic? idiot-whorants on cnbc might believe it, but anyone with an iq of 101 or higher will see through the lies....

the nazis controlling the fed will continue to play shell games with money to aggrandize themselves and further subjugate amerika.....they have already admitted many times that they can't control themselves and will take advantage of any opening offered them....they are immoral psychopaths...

this table crumb of tightening was a bone thrown to the dogs which will be reversed just as soon as the queen whore takes her blood stained throne.

Moe Howard's picture

Yes, you are correct. The hidden electronic "printing" of FRNs is many times the numbers given for QE.


ebworthen's picture

This is because the FED is a lie.

The conception, implementation, and procedures of the FED are a LIE designed not to improve employment and control inflation but to debase the currency while shoveling taxpayer money to their bankster masters.

Good God I can't believe that so few know it!


DanDaley's picture

Good God I can't believe that so few know it!


This is why I've been handing out copies of The Creature From Jekyll Island to just about anyone that I think has at least half-a-brain. That book is it!

Hedgetard55's picture

"FED Balance sheet" = oxymoron.

It is merely a summary of how much FRN they have printed.

If you don't understand that you are a fucking twit.

Questan1913's picture

The very concept "balance sheet" is the greatest swindle ever devised. and it is the foundation of all others including the operations of all central banks.

Murf_DaSurf's picture



He should have left a seppuku for her when he left the podium.

kchrisc's picture

The dilemma: Pull the rug out and allow the sheeple to realize that they have been stripped naked in a roaring blizzard or keep stealing via "printing" and hope that the pull of the trigger this time registers a 'click' and not a 'bang'.


"Fall from high enough and even water is like concrete."

BeerBrewer09's picture

Serious question: What date marks the day that a $100 bill is worth less than a single sheet of toilet paper?

Murf_DaSurf's picture




Peter Pan's picture

As a friend of mine would say, "why would you wipe your ass with shit?"

Constitutional Republic's picture

That's right, Peter. You tell' em! Would have voted for you in CT, btw.

Just passing by on Christmas Eve. Musn't weaken! (Just getting a little peace and quiet on my own for the moment, truth be told. Now, back to the tinsel and song.).

Happy Christmas to you and yours (and Hannukha. Oops. Missed that opportunity to say that).


q99x2's picture

Yellen and Bernanke should be in prison not Schiff's father.

Arrest them. Don't let them get away.

Peter Pan's picture

In jail at age 84?
Well it's one way to escape nagging.
It's also a great way to meet people a lot younger than those in a nursing home.
It's a crazy world.

eddiebe's picture

Yes, the control of money is important to the elite. What I worry about more than that is what they have planned for us in the population control department.  Coming to your neighborhood soon.

Bokkenrijder's picture

IMHO I think Bernanke tappered so that he can secure his place in history as;

1) the one who 'saved' us from another great depression in 2008, but also

2) so that in 10-20 (?) years time when the big hangover comes, he can say something like 'look, I was tappering in 2013, and I would have continued to taper if I would have stayed in office for one more term.'

With his recent taper, Bernanke covered his ass and both deflationary and inflationary bases.

Yellen IMHO can and will untapper as soon as she will find an excuse, be it a stock market crash, disappointing employment/Xmas shopping numbers or perhaps an 'unexpected' military conflict in the Middle East.

Moe Howard's picture

I don't think organized crime figures like Benjamin Shalom Bernake give a rat's ass about their "place in history" or what anyone thinks of them in the future. He is a public face for private bankers who pull the strings. To think he ever made a decision on his own, or did even one thing as Fed Chair that was independent in any fucking way, is to be delusional.

Moe Howard's picture

I like Peter but really, I personally predicted the housing crisis, it was obvious. I am not a TV talking head so nobody says how smart I am / was - because you didn't have to be smart to understand that when the banks are lending a half million FRNs to iillegal alien lettuce pickers to purchase RE in California, that the end is niegh. It was only a question of when. When was determined by the price of oil, one spike and all the sheeple living paycheck to paycheck couldn't make the payments anymore. Since the RE shakedown, Peter talks a good game but I suspect if you followed his investment lead you would be a net loser at this point. Please correct me if I am wrong.

Personally, I find him entertaining and I enjoy his videos, but I make my own investment decisions.

devo's picture

Schiff said, "The FED can NEVER taper", and they just did with markets up 300pts. Bernanke crushed his credibility; Bernanke wins again.

moneybots's picture

"Ben Bernanke did surprise some by announcing the taper now instead of allowing Janet Yellen to do so in March."


The vote was 9 to 1.  It's not like Bernanke overruled the other voting members.

KingTut's picture

The Fed's audacity has nothing to do with rhetoric, but its purchase of stocks.  The announcement of tapering this summer tanked stocks, bonds and gold went up.  So they needed a way to do a token taper without tanking the markets.  A couple minutes after the taper annoucement the markets turned on a dime.  How did that happen? Simple: the Fed is in there buying stocks.  Of course, they won't tell us about it.

They had telegraphed the taper for so long and so often, therre was no way they couldn't actually do one: their credbility was on the line.  Now they have taken manipulation to the next level.

TacticalZen's picture

When is it common knowledge that American oligarchs are the same as Russian oligarchs without the PR spin?  I also wonder out loud how long the FED can string this thing out until something fundamentally changes the game?  The dollar is King right up to the moment it isn't.  Just like when the Chinese failed to bid on Fannie and Freddie bonds and started the tsunami to gain specific guarantees from our government.

It makes you wonder what industries and assets are being offered as incremental collateral.  Boeing?  The gold mining companies?  Apple?

We live in such strange times.