Saturday, February 21, 2015

Money Printing is Going to Crash the Economy

When I wrote Crash Proof in 2005/2006, I wrote that book, and I wrote about the coming economic collapse. It wasn’t the one that happened immediately after the book came out. It wasn’t the ’08 financial crisis, even though that was a large part of my book. I wrote in detail about that coming crisis and what was gonna facilitate it, and I wrote a lot about the housing market and what was gonna happen when that bubble burst.

But the first book basically laid out the premise that after the housing bubble burst and it brought about a financial crisis and the greatest recession since the Great Depression and I wrote that we’d have trillion-dollar budget deficits and double-digit unemployment – I wrote about all the things that were gonna happen. I then wrote that in response to that, the government would make the mistake, the Fed would make the mistake of trying to stimulate the economy with cheap money and re-inflate the busted bubbles. So I wrote about the fact that they would do all this quantitative easing. I just didn’t know what they were gonna call it, but I just said this is what they’re going to do. They’re gonna slash interest rates. They’re gonna print a bunch of money, and they’re gonna start buying up debt.

And what I’ve said is that, that action was what was gonna bring about the economic crash, that it wasn’t this disease that I was diagnosing that was the real problem, but the government’s cure that I anticipated would be administered. And that’s happened. The only thing that’s happened that has surprised me from the vantage point that I was at back in ’05 when I was writing that book is the length of time that has transpired between the ’08 financial crisis and the economic collapse that I thought it would usher in, because it hasn’t happened yet. It’s taken longer. The financial crisis and the next crisis, the gap between them is longer than I thought, and I think it’s because I made the mistake of overestimating the intelligence and the ability of the rest of the world to recognize the problem even after the 2008 financial crisis.

It’s amazing the level of financial and monetary ignorance that still permeates the establishment. I mean, the academics and the big money managers and the economists still don’t get it even after having been so spectacularly wrong about the state of the U.S. economy leading up to the financial crisis. They’ve learned nothing. They haven’t questioned any of their premises or any of the dogma that they’ve accepted as fact. Their confidence wasn’t jarred by that. In fact, if anything, they have more confidence than ever in the Federal Reserve and their ability to micromanage the economy and save us, even though the Fed was so wrong and so instrumental in causing the last crisis and so completely ignorant in understanding it. But I think that crisis is coming, and I think what’s gonna start it is going to be as the U.S. economy relapses into recession officially, maybe as soon as next year, and if the Federal Reserve has to call off the rate hikes and replace it with QE4, maybe then the light bulb will start to go off in enough people’s heads to perceive the box that we are in.

And the reason that people have confidence that this is gonna work is because they believe that it’s all temporary, that the low interest rates are temporary, that the Fed can remove the stimulus, shrink its balance sheet and everything is gonna go back to normal. When people realize that this is permanent, that to maintain this artificial economy requires permanent zero-percent interest rates and permanent QE, that the Fed can never back way, that the balance sheet has to keep growing exponentially to prevent a collapse – and when people realize that, that’s what brings on the currency collapse, because if it’s true that the Fed can never raise rates and if the Fed has to keep on printing money forever and there’s no endgame, there’s no exit strategy, then there’s no way to stop the dollar from collapsing.

And that’s what people haven’t figured out. They think that the dollar’s already rising. It has been rising recently based on the anticipation that the Fed is going to raise rates, but they can’t raise rates without precipitating another financial crisis, which would mean that they would have to flash rates. But that also means that as the economy starts to weaken simply on the anticipation of higher rates, that the Fed is forced to cut rates or do another round of QE before they ever get to the rate hike. That’s the catch-22 that people just haven’t figured out.

- Source, Peter Schiff via Wall Street Daily