Noted economist Peter Schiff has been critical of the government’s rescue plan for the tainted Silicon Valley Bank, owned by SVB Financial Group (NASDAQ:SIVB).
What Happened: On Monday, Schiff took to Twitter to offer his take on the monetary policy stance of the Federal Reserve under Jerome Powell.
Catch-22 Situation: Powell was wrong about the banking system and the economy’s ability to withstand higher interest rates as well as the Fed’s ability to bring inflation to 2%, Schiff said.
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“I turn 60 in less than two weeks. Inflation will not return to 2% during my lifetime. I’m in good health,” he said.
The Fed is facing a catch-22 situation, the economist said. The more the Fed hikes interest rates to fight inflation, the more inflation it is forced to create, he said.
“That’s because the more the Fed raises rates the more losses it imposed on banks. That means it will do more quantitative easing to swap treasuries and mortgage-back securities for cash,” he said.
Buy Gold: Schiff sees all U.S. bank deposits are at risk, not due to bank failure but from inflation. As the value of all bank deposits will likely fall due to inflation, he recommended parking one’s funds in gold.
He noted that during the 2008 financial crisis, the Federal Deposit Insurance Corporation raised the covered deposit limit from $100,000 to $250,000. He said the present financial crisis has worsened so much that the Fed effectively raised the limit to infinity.
“This adds about $7 trillion in additional unfunded liabilities to the U.S. Govt.,” Schiff said.
He reiterated the urgency for pivoting to gold and asked not to wait until the Fed pivot to buy gold or gold mining stocks. The government action constitutes a pivot, he said. “It’s about as close to an engraved invitation from the Fed to buy gold as you’ll ever get,” he added.
Photo: Courtesy of Wikimedia Commons
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