Schiff on Kitco News: The Fed Will Print More  

Last week, Peter joined Kitco News to take stock of the Federal Reserve’s stealth return to quantitative easing and what it means for inflation, the dollar, and precious metals. He walks through why short-term Treasury purchases are no different in effect from longer-term QE, why the Fed will likely have to expand its interventions, and why that reinforces his long-standing bullish case for gold and silver miners. He also touches on tokenized gold versus Bitcoin and warns that extreme dollar weakness could prompt capital controls.

He opens by explaining why buying short-term Treasuries is effectively the same thing as classic QE (quantitative easing), meaning money printing and debt monetization, and why that will likely expand soon:

But the fact that they’re buying short term securities rather than long term, which is what they were doing when it was an official QE program, is really a distinction without a difference. The bottom line is they’re going to be printing money, expanding their balance sheet, you know, by buying U.S. government debt instruments. So that’s, I mean, that’s inflation. That’s debt monetization. But I agree that ultimately, and not even that far, I’m sure sometime next year, maybe even the first half of next year, they’re going to end up expanding that to more than $40 billion. And they’re going to extend the maturities on what they’re buying.

He notes the Fed is trying to push down interest rates by soaking up Treasuries because private buyers aren’t stepping up — and that short-term purchases are really a sign of weak demand for government debt, not prudence:

Well, who knows? I mean, you know, they obviously have some information that we’re not privy to, you know, as far as what’s going on behind the scenes there at some of these banks. But look, they’re trying to bring down interest rates. They have to buy up Treasuries to do that. And so that’s what they’re doing, they’re expanding their balance sheet so that they can buy up these Treasuries, because there obviously isn’t enough private sector demand for them.

Peter warns that once the Fed starts, it won’t stop — the program will accelerate as tolerance for the same stimulus grows, which is predictable if you accept an Austrian-style view that monetary fixes create incentives for more of the same:

I think we’ll exceed the all-time high by next year, because I said they’re going to ramp up this QE program rather rapidly, because they’re going to find that as they start doing it, they’re going to have to do more of it, right? It’s like, you know, it’s like with any kind of drug, you start taking it, and then before you know it, you need more, because what you took before doesn’t work anymore, because you start, you know, you build up a bit of a tolerance. So you need more and more, you know, to get the same kind of high. And so that the same thing is going to happen with the Fed and the money printing and the Treasury buying.

When the conversation turns to tokenized gold and Bitcoin, Peter clarifies the specific debate he was invited to: tokenized gold operates with blockchain verification similar to crypto, and that legitimacy comes from verified delivery of physical metal — but he also distinguishes between using tokenized instruments for settlement and carrying around physical kilo bars as everyday money:

Well, the whole debate was supposed to be Bitcoin versus tokenized gold. So a kilo bar of gold was not even relevant to what we were supposed to discuss. But yeah, you know, if you’re dealing in tokenized gold, it’s just as easy to verify as Bitcoin because they work on the same principle where there’s a blockchain. And, you know, if you get tokenized gold delivered, then it’s legit. 

Finally, he raises a sober warning about what happens if the dollar plunges and Americans rush to exit the currency: governments historically respond to severe capital flight with controls, and a quickly falling dollar could produce the very restrictions that free-market advocates fear most — an argument for acting early to protect purchasing power:

You know, if things really get out of control and Americans are really trying to flee from the dollar, yeah, the government may block the exits. I mean, that’s a typical thing that governments would do is try to impose controls because they think they have to stop the bleeding because as more Americans want to sell their dollars, you put more downward pressure on the dollar and that creates a self-perpetuating downward spiral.

If you missed it, be sure to check out Peter’s latest interview on Palisades Gold Radio.