A lot of the economic data that came out last week looked pretty good. GDP growth came in big in the first quarter. Personal income rose by a record amount in March. The mainstream spun it all as positive, raving as if the economy is earning an ‘A.’
But in his podcast, Peter Schiff argues that the only reason the economy isn’t getting an F is because the Federal Reserve is cheating on the test.
Dallas Federal Reserve President Robert Kaplan made some comments Friday that were widely viewed as somewhat hawkish. He warned about “excess imbalances” in the financial markets and warned about “historically” elevated stock prices, tight credit spreads, and surging home prices. And he said it’s time for the Fed to at least start talking about tapering bond purchases.
This was the exact opposite of what Fed Chair Jerome Powell said in his press conference after last week’s FOMC meeting.
Peter said it is probably safe to pretty much ignore what Kaplan said. But on one thing, Peter said he agrees with Kaplan – there are imbalances in the markets and in the economy more broadly.
They’re much bigger than what he’s letting on. It’s not only appropriate to start talking about shrinking the balance sheet. They should already be shrinking it. In fact, it was inappropriate to blow it up to the size that it’s already at. And they shouldn’t start raising rates in 2022. They should be raising them now. In fact, they should never have cut them this low in the first place. What they should have done is irrelevant to what they are going to do. And it doesn’t really matter what they say. The markets still haven’t grasped the idea that the Fed is in a box. Sure, it can talk about the need to taper its asset purchases. It could talk about normalizing interest rates. But that’s all it could do. Talk is cheap. Actions are expensive and they can’t afford to pay the price.”
The economy certainly can’t afford to pay that price. The US government can’t afford to pay the price.
Even if higher interest rates are appropriate, and they are, they’re not going to happen because they’re not appropriate for maintaining the bubble economy. And the bubble economy is all we’ve got.”
Also on Friday, we got the personal income and spending numbers for March. Personal income increased by over $4 trillion, a record 21.1% increase. Consumer spending was up by 4.2%. The savings rate was also way up. The financial media broadly reported this as fantastic news signaling a booming economy. Peter said the problem is that this big increase in income isn’t associated with any real economic activity.
It’s not that American citizens were a lot more productive in March and their productivity resulted in enhanced incomes. That didn’t happen. Where did all this income come from that Americans received? They didn’t really earn it. They just received it. And they got it from the government.”
In fact, 34% of household income in America is coming from the government. The government doesn’t produce anything. It just transfers money from one group to another. And Peter said a lot of this money isn’t even being transferred. It’s just being printed out of thin air.
So, inflation is what is powering increased incomes. The Federal Reserve just creates money out of thin air and makes it available to the US government, which then writes a check and sends it to American households, and that is where the added income is coming from. So, this is totally artificial. We should not be celebrating this record surge in household income when the income was not earned.”
Peter said it’s like a parent bragging about her child getting an ‘A’ on the test when the kid cheated.
You’ve got to earn your ‘A’ honestly if you’re going to brag about it. The US is cheating right now. We’re like an athlete that’s all doped up on steroids, and we’re trying to claim we’re setting all these records. Yeah, because we’ve got the steroids, this artificial stimulant that is enhancing performance.”
Of course, steroids ultimately do long-term damage to the health of an athlete.
What the Fed is doing to goose the economy in the short run is going to have tremendous long-term damage.”
The US will not prosper due to this surge in personal income because it’s not real income. People are sitting at home producing nothing and spending government money on goods and services made in other countries.
All this means is that prices are going to go much higher as people try to spend the money they didn’t earn buying products that they didn’t help make.”
In this podcast, Peter also broke down some of the other economic data that came out last week.