Analyzing Peter Schiffs Adamant Claim The The Federal Reserve Will Abandon Its Interest Rate Hike During The Recession – Why He Could Be Right and Why He Could Be Wrong – September 4, 2022,

As an investor, you always want to listen to the extremes on all sides; nothing bores me more than listening to a person who doesn’t put all their chips on the table. Peter Schiff is loved by many because he embodies the true American spirit of simply not giving a F*ck, being rugged, looking the popular beliefs right in the face, and pushing a completely different narrative.

One of the reasons the Far Left often gains so much traction is because they’ll often replace one ridiculous action with another one; for those of us who imagine common sense will eventually win the war of the day, we forget that LIBERTIES and FREEDOMS are fought for, they’re not guaranteed, Peter Schiff is fighting for freedoms, and he’s passionate about it, so when he speaks, even you disagree with him, as an investor you should listen.

When it comes to the Federal Reserve or central banks in general, I drift into the main reason for a central bank in the first place, which is to prevent ECONOMIC DEFLATION. When the government has no levers of control over the economy, the market, AS IT SHOULD, leads society to prosperity. However, the road to prosperity has peaks and valleys. If you’re the president or some sort of political leader during these High and Low economic times and you can’t BUY votes, you will likely get thrown out of office.

I was listening to Fox News today, and some political leader in Wisconsin (I don’t remember his name and don’t have the desire to look him up) was angry because the Democrats were on a smear campaign claiming that this REPUBLICAN was AGAINST Social Security? In my head, I’m thinking to myself, you f-ing coward, but then I remembered, oh yea, that’s why most Americans vote for the Democrat Party; why waste time with these cheapskate Republicans when I can get the Full Big Government experience?

When I hear things like this, I have to ask myself, why ISN’T Peter Schiff right? My only answer is that is ECONOMIC DEFLATION. The only thing in my mind that could make the Peter Schiff call incorrect is economic Deflation; higher CONSUMER prices is DEFLATONARY to the economy; it’s also deflationary to ASSET prices because as consumer prices go up, it’s HARDER for me to purchase ASSETS.

If you’re an existing asset holder, let’s imagine your asset is a house that has a mortgage that requires servicing; well, the U.S PRIVATE Banks weren’t as reckless with their mortgages as they were in the 2007-2008 housing crisis, so I don’t know if we’re going to see a WAVE of bankruptcies in the housing space, because the wave of bankruptcies in the housing market in the U.S was due in large part because of those teaser rate mortgages, and those No income, no asset (NINA) loans.

In Canada, where I’m from, we never had a housing crash because the majority of the applicants who got a mortgage in Canada had to be properly vetted by the Private sector, PROFIT DRIVEN banks, who also had to adhere to government regulations which were written mostly by EXPERIENCED private bankers. George Bush, at the time of the NINA Loans, was trying to buy votes with Minority communities, and U.S Private banks embraced the NINA Loan with the expectation of being bailed out.

One of the reasons I believe Barack Obama was CHOSEN to be the President of the United States was because the first Black President who just happened to be charismatic was the perfect tool to BAIL OUT WALL STREET. But to remain on point here, those conditions no longer exist in 2022, and as a Canadian, nothing I’m well aware of are these state Owned enterprises called Crown Corporations in Canada that hide just how BANKRUPT the Canadian Federal government really is.

As an example, the U.S Postal Service is a known branch of the U.S Federal Government whose debts have to be included in America’s national debt; well Canada has a post office model more similar to DHL in Germany in that Canada Post enjoys a monopoly on postal and in many ways courier services, and their debts aren’t necessarily included as part of Canada’s Federal Government debts.

Canada has several of these Crown Corporations that force Canadians to pay INFLATED prices for things, which, from a MACRO perspective, helps to shrink the Federal government’s deficit. The long-term damage of this, ofcourse, is that Canada, since 2015, has voted for a FAR LEFT politician, who is spending everything he can, regardless of the economic conditions, this obviously leads to malinvestments, and in Canada, we’re seeing more PUBLIC SECTOR employees going on strike in the face of ECONOMIC DEFLATION.

When I look at what the Joe Biden Democrats are doing, and I’ll use the Student Loan forgiveness as an example, they’re seeking to take debts from the private individual and put those debts on the government’s balance sheet, thereby freeing up Americans to SPEND more. If this is indeed what Joe Biden and the Democrats want, well, it would be wise for Jerome Powell to raise interest rates because the Federal government easing debt burdens is a clear economic indicator that the American economy is doing great.

As we all learned recently, the Democrats have REDEFINED recession; sure, to anyone with common sense, this is ridiculous, but this also means that Federal Reserve based on the NEW data, should continue to raise interest rates. I’ve also read that the Democrats might win in the midterms, meaning that there are enough Americans who like the direction the U.S is heading in; again, this is a reason for Powell to raise interest rates.

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Putin’s Price Hikes

You’re only supposed to LOWER interest rates if times are hard, and well, it’s currently September 2022 when I’m writing this, and the price of oil is declining. Now, based on my analysis, the price of oil is declining because CONSUMPTION is declining, and I predict that once OPEC gets accustomed to the new deflating economy, they’re going to push prices right back up again; HOWEVER, in the meantime, it wouldn’t surprise me in the least if the Democrats didn’t take CREDIT for lowering gas prices, but… we still have this PESKY consumer price inflation problem looming? What’s a Fed to do?

Should the Federal Reserve pause rates or lower interest rates? Or will the Federal Reserve continue to raise rates? I don’t have the answer to that question, but they’re in the position to continue to raise rates because it’s not like consumer price inflation is coming down. Quite the opposite, wage earners are still DEMANDING a pay increase, and a lot of salaries have already risen to reflect PAST consumer price inflation.

 

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Does anyone think private employers are going to give their employees a pay cut? Before that happens, I’d expect there to be LAYOFFS! So far, no massive bankruptcies, so far layoffs are happening but not at an alarming rate, meaning that Powell is in his right to continue to raise rates. Now, if Powell stops raising rates, then what? Well, as I wrote about, if gas prices begin to climb again while interest rates rise or are cut, CONSUMER PRICE INFLATION will fuel economic DEFLATION.

 

You have to remember that the oil and gas crisis in the world is a SELF INFLICTED wound; for the most part, it’s government regulations RESTRICTING DOMESTIC oil and gas development that is fueling consumer price inflation, but Powell’s role as Fed Chairman isn’t to get DIRECTLY involved in the political process. Apparently, Americans are sold on the idea that the world will end if the government doesn’t BAN oil and gas.

Currently, there is NOT a viable replacement for fossil fuels, and Joe Biden is effectively starving the goose that lays the golden eggs, meaning that the Federal Reserve could be interpreting the data from a standpoint that it needs to do EVERYTHING in its power to stop consumer price inflation, which could mean prolonged rate hikes.

Again a lot of private banks in the U.S were NOT lending money to unqualified people during Zero Interest Rate Policy(ZERP). A lot of Americans right now are FLUSH with cash, sure, there are Americans who are broke, but if firesales ever came onto the market right now, it wouldn’t surprise me if there BIDDING wars that drove prices of certain things UP.

 

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What I’m getting at here is that I do see the potential for prolonged rate hikes, sure I could be wrong; sure, Peter Schiff could be right, but as an example, I still have money sidelined for what I think could be a huge buying opportunity for Gold, all it takes is for the Federal Reserve to hike rates a few more times and the state of mind for the markets will SHIFT!

People are beginning to shrug off rate hikes now; others are welcoming it; if I have $1 million dollars in the bank, divide that by 12 at a 5% interest rate, that’s $50,000 per year in interest or $4166 per month in interest payments, is that not a good way to stimulate the economy? I’d argue yes, it is. I’ve also stated in other posts, don’t be surprised if, in a few months, Dividend-paying stocks don’t start RAISING their dividends; now, in your mind, you’d be saying, well, whose going to pay for this? My answer is THE CONSUMER. Consumer price inflation HELLO!!!!

It’s not like this is the first time this has happened; only 40 years ago, a 3-bedroom house was like $50,000. Eventually, a new normal was born, yes, the poor got poorer, but let’s be honest, I’d rather be poor in America than poor in Honduras, for example. Even people living in TENTS in America enjoy a much better standard of living than most people in world countries.

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In California, some politicians want to FORCE hotels to take in homeless people; what could go wrong? When solving a problem when you can double down on what’s not working. I’ve said it before I’ll say it again, it wouldn’t surprise me if the Federal Reserve outlived America. I absolutely think eventually you’re going to get a wave of secession movements in the United States, but I don’t see these secession movements necessarily breaking up America, but what they will do is change the role of the Federal Government

Before that happens, America has to experience a little pain, and I personally imagine that this pain in the near term will come in the form of interest rate hikes. But I’m open to being wrong!

 

Interesting times ahead!