Schiff on Soar Financially: Rate Cuts Will Fuel Inflation

Last week, Peter joined the Soar Financially channel to lay out a clear warning: the Fed’s hoped-for rate cuts won’t rescue growth, they’ll stoke inflation and leave the economy worse off. He connects loose monetary policy to fiscal excess, presidential meddling, and a renewed flight into gold — a classic signal that sound money advocates have long warned about.

He starts by questioning the logic behind cutting rates when the economy is supposedly strong, and warns that easing will have the opposite of the intended effect:

If we really have such a great economy, why is it so important that we get these massive rate cuts? But I don’t think the rate cuts are going to strengthen the economy. I think they’ll strengthen inflation, which will weaken the economy. And I think that’s the box that we’re now in. Because I think anything the Fed does on an interest rate basis or quantitative easing, which I think is the next policy, I think it’s actually going to undermine the economy even more.

He rates the Fed’s forecasts as disconnected from reality and skeptical analysts’ methods, suggesting their confidence is little more than wishful thinking:

Look, I don’t think they have any clue. I think they just pulled the numbers out of their ass. You know, in fact, there was in the last press conference, somebody asked Powell, you know, hey, you’ve got a projection for inflation coming down to 2% in two years. Two years ago, you had the same forecast that we have 2% inflation in two years. Well, you know, we’re obviously not there.

Peter ties the macro problems back to politics and fiscal policy, warning that concentrated power and massive deficits make the central bank’s job impossible and set dangerous precedents:

The problems are the massive government spending, the huge deficits, the fact that now you have the president trying to hijack the Federal Reserve and stack it with a bunch of cronies to remove even a pretense of Fed independence. And then you have Donald Trump shaking down private companies, extracting concessions, taking stakes, micromanaging the United States as if it was his own private company. This is all part of Trump enterprises. I think this is a horrible approach to government. I think it sets a lot of dangerous precedents for future presidents to abuse the powers that Trump is usurping.

He then explains why gold is the market’s real signal, not a fashion for jewelry or sentiment — it’s acting in its role as money:

This is gold. It’s not like Americans or everybody else all of a sudden wants a lot more jewelry. There’s not a run on the jewelry stores. Gold is going up because of its monetary properties. It is a monetary metal. And when gold is rising like this, it is a warning sign; it is the canary in the monetary coal mine.

Peter points out that the largest buyers of physical gold right now are foreign central banks — the insiders in the monetary system — and reads their behavior as a meaningful shift away from dollars and Treasuries:

The biggest buyers of the gold are foreign central banks. Now, don’t you think they know something? I mean, they’re the insiders in the monetary system. And they’re buying gold as fast as they can. And it’s really like they’re selling dollars; these are insiders that are dumping dollars and they’re dumping treasuries and they’re buying gold.

Finally, he notes that even mainstream institutions are starting to move their thinking. Morgan Stanley’s tweak to the long-standing 60/40 portfolio is a big signal: replace some bonds with gold because inflation can’t be ignored:

Morgan Stanley tweaked for the first time the 60-40 portfolio — that’s sacrosanct 60% stocks, 40% bonds — they decided to cut the bond portion in half and make it 20% bonds, 20% gold. Now, I’ve never seen this. I’m 62. I started at 24 in this business as a licensed stock broker, and during all those years, almost 40, I’ve never seen this. I was always like a lone voice in the wilderness on Wall Street telling my clients to buy physical gold; now, all of a sudden, more wire house firms, institutional investment banks are for the first time saying, you need to sell bonds and buy some gold because there’s a lot of inflation that you need to hedge.