Despite Fed Chair Jerome Powell throwing cold water on the prospect of a quick economic recovery last week, there is still a lot of optimism out there. There is also an appalling lack of concern about all of the debt and money printing going on. In a recent podcast, Peter said nobody expects this to lead to an inflation crisis or a dollar collapse. But what can’t last forever won’t. And it won’t be a crisis — until it becomes one.
File this under another sign that we’re not in for a quick economic recovery. Another 3 million Americans filed for unemployment according to last week’s jobs report. Peter asked a pretty poignant question: if things were on the upswing, why would employers who have held on to workers this long let them go now?
They held off this long. Why are they still laying off so many workers? Clearly, employers are not sensing this huge recovery that’s around the corner, because if they did, they would be holding onto these workers. They wouldn’t be letting them go now after they kept them for these last couple of months. Obviously, if they’re laying them off now, they think this is going to be a much more protracted decline and therefore, we’re not going to get the back half of that V.”
Meanwhile, the Federal Reserve’s balance sheet swelled by another $212.8 billion to $6.934 trillion last week, as money supply surged another $198.6 billion. To put that into perspective, when the Fed did QE3 during the great recession, it was expanding the balance sheet by $80 billion a month. We just did over $212 billion in one week. The highest the Fed balance sheet got during the last crisis was $4.5 trillion. We’re now approaching $7 trillion with no end of QE in sight. Peter said this is inflation that is being generated on an unprecedented scale.
We’re doing the same thing that we did during the 2008 financial crisis, just on a much greater scale. And of course, we’re doing it in an economy that’s far more heavily indebted and in much worse shape structurally and economically than it was back then.”
During the 2008 crisis, Peter was talking about inflation, the possibility of hyperinflation and even the prospect of $5,000 gold. When that didn’t come to pass, he took a great deal of criticism.
I was right in that the Fed was creating inflation. What happened was that inflation just manifested itself in ways that people weren’t worried about because it showed up in stock prices and real estate prices and bond prices and things like that. It wasn’t showing up as heavily in consumer prices.”
On top of that, the Fed was able to convince everybody that it could normalize interest rates and shrink its balance sheet. Meanwhile, as the US was talking about winding down stimulus, the European Central Bank ramped it up. As Peter put it, that made the US look like the cleanest shirt in the hamper.
People started to have faith in the dollar, so we didn’t see the big increase in consumer prices that I was warning about. Well, we’re going to see it now. We’re going to see it much worse than what we would have seen had it started back in 2011, 2012, 2013. Because not only are we going to have to deal with the consequences of all the money the Fed is printing right now, we’re going to have to deal with the consequences of all the money that it printed earlier that temporarily went into financial assets before it migrates into consumer goods.”
There is always a lag between money creating and price inflation. The lag isn’t normally a decade. After 2008, we got an extremely long lag. Peter said we won’t get as long a lag with this massive money-printing expedition the Fed has embarked on – certainly not a decade lag.
The dollar is going to end up falling much further now than it would have fallen had it started to decline a decade ago. The impact on the bond market – the ultimate rise in long-term interest rates is going to be much bigger. And gold is going much higher. I used to be calling for $5,000 gold. We’re going to go much higher than $5,000. … All the things that I have been warning about — all of that stuff is going to happen. It’s going to happen in spades.”
But a lot of people in the mainstream are still convinced we can print all of this money and run massive government budget deficits with no problem because we’ve managed to get away with it for this long. After all, we’ve had massive budget deficits and money-printing for years. Since we’ve haven’t seen inflation, a weak dollar or high long-term rates, we can just keep on as we have. Peter called this a very dangerous assumption to make.
Just because we’ve gotten away with it for this long doesn’t mean we’re going to get away with it forever. … I think we’re very, very close to a major collapse of the dollar, a major breakout in the price of gold, to a breakdown in the bond market. And it isn’t going to happen overnight. It’s going to sneak up on people when they least expect it. … It’s not a crisis until it becomes a crisis. And then it becomes a crisis very, very quickly.”
In this podcast, Peter also talks about some of the other economic data that came out last week and discusses gold and gold stocks.