Schiff on VRIC Media: Expect QE, Higher Long-Term Rates

Peter recently joined Darrell from VRIC Media to discuss a brewing contradiction in monetary policy, the political risks to Fed independence, the nonsense of tariff “dividends,” and why gold remains the only reliable monetary asset. He warns that even if the Federal Reserve cuts short-term rates, a return to quantitative easing and rising long-term rates are likely — a toxic mix for an economy swimming in debt.  

On the interest-rate picture and the likely policy response, he warns the Fed can’t paper over the problem with cuts alone and sees inflation and QE on the horizon again:

And even if the Fed continues to cut short-term rates, I believe that long-term rates will rise. And that’s gonna be very problematic for the US government, for the housing market, for the overall economy with so much debt out there. And I think it’s a problem for the financial sector. And in order to alleviate that, I think we’re gonna get a return to quantitative easing. And that just means much more inflation, higher consumer prices, and ultimately higher long-term interest rates too, because higher inflation erodes away the value of bonds.

Peter connects central-bank credibility directly to political risk, noting that attacks on the Fed’s independence — like the “Lisa Cook situation” — would weaken the dollar and undermine trust in monetary policy:

The Lisa Cook situation, I think that if the Supreme Court upholds Trump’s right to fire her, I think that’s a negative for the dollar and for a loss of Fed credibility. Because if he could fire Lisa Cook, they’re pretty much gonna say he could fire anyone he wants. That it’s really up to his discretion to define what causes. And if it’s just because he doesn’t like her policies, that’s still gonna work. Because it’s pretty clear that he’s not firing her because of the mortgage situation.

On trade and political optics, Peter calls out the tariff dividend idea as a shell game: the government extracts value via tariffs and then hands the money back to the same people who paid it — so the policy defeats its ostensible purpose and creates winners and losers without solving the underlying economic harm:

But of course, the biggest fraud of the tariff dividend checks is that we’re giving the tariffs back to the people who are paying them in the first place. So they’re not really getting a windfall, they’re just getting their money back. Now, some people might get a windfall because they may not have bought that much stuff. And so, you know, they may win at the expense of somebody else who loses on the deal. But they also defeat the very purpose of the tariff.

Where Peter really leans hard is on sound money. He frames gold as a uniquely durable, non-replicable asset central banks should prefer over foreign treasuries — especially in a world where political actors can weaponize financial claims:

Gold is the only clean shirt that’s not in the hamper with all the others. Gold is the best monetary asset for central banks to own because not only can’t it be created out of thin air by any central bank, but you don’t have any counterparty risk if you keep the gold in your own country, you don’t have to worry about a default or inflation. You’ve got the gold and you can’t be sanctioned, nothing! So that’s a far superior situation than holding dollars and investing them in US treasuries to get a low yield, but also leave yourself vulnerable to the whims of the United States to yank your treasuries out from under you whenever we decide that it’s something that we wanna do.

He also notes a shift in mainstream finance toward acknowledging gold’s role, pointing out that major firms that once ignored bullion are now recommending it to clients — a telling sign of the times:

It’s the first time in my career– I’ve been in the investment business, I think for better than 35 years. And during that time, I mean, other than myself, I mean, nobody really recommended physical gold who is in the brokerage industry. Certainly if you were in the gold business and you were selling gold, you recommended it. But I don’t recall a firm like Morgan Stanley ever telling their customers to buy gold. And now they’re telling their customers to buy a lot of gold.

For Peter’s latest analysis of markets and the Fed, check out Friday’s SchiffGold Gold Wrap podcast!