Schiff: “The Fed’s Illusion That There Was An ‘Endgame’ Is About To Be Shattered”

Via SchiffGold.com,

Peter Schiff has been saying that the price of gold and silver are going to take off.

But why?

Peter isn’t just taking a wild guess or gazing into a mystical crystal ball. He’s basing this prediction on the unavoidable economic consequences stemming from decades of Federal Reserve mechanizations. In s nutshell, the central bank has checked us into a monetary roach motel. Once it entered the current policy there was no way it would ever be able to leave.

In this SchiffGold Videocast, Peter explains exactly what the Fed has done, what it’s doing now, and why no matter what it does next, gold and silver are going much higher!

Despite checking us into a monetary roach motel, somehow, the central bankers managed to convince the world that it could indeed check us out. After holding rates at zero for some seven years and initiating three rounds of quantitative easing, the Fed somehow made everybody believe it was going to normalize rates and shrink its balance sheet.

The Fed fooled the markets.

In the early days of the post-2008 crash easy money era, the markets weren’t quite so sure. Gold rose to $1.900 per ounce in 2011 and silver was as high as $50 per ounce. But a lot of people don’t realize that the bull rally in gold and silver actually started as the Fed’s easy-money policies blew up the housing bubble in the early 200os. In 2001, gold was under $300 per ounce and silver was under $4.

After that 2011 peak, the gold and silver market went into a correction. What sparked that? The false belief that the Fed could actually succeed in unwinding its balance sheet and normalizing interest rates.

Ironically, gold hit the bottom of this correction at the same time the Fed started to raise rates. At the time, naysayers claimed that gold was about to really tank as the central bank pushed rates up. The opposite happened. Gold began to climb. The interest rate increases had already been factored in. In fact, the market was anticipating more hikes than we got.

And now the hiking is over. In September, the Fed delivered its second rate cut. But as Peter pointed out, something more significant happened. The Fed basically launched the equivalent of QE4.

What the Federal Reserve is doing is expanding its balance sheet, creating money out of thin air to buy government debt and other debt to artificially suppress interest rates.”

Of course, they aren’t calling it “quantitative easing,” which was actually a term made up in the first place to make people feel good about the policy. Now quantitative easing has a bad rap so they’re calling it POMO (Permanent Open Market Operations.) Peter said no matter what you call it, it’s basically just good old fashioned debt monetization.

That’s what banana republics do. America is doing the same thing except we don’t have the bananas.”

When you boil it all down, quantitative easing is creating money out of thin air to increase the money supply. It is inflation. It’s not a good thing, so the Fed tried to make it sound good by calling it something else that didn’t sound so bad – quantitative easing.

Interestingly, in the early days of the Great Recession, then-Fed Chairman Ben Bernanke assured Congress that the Fed was not monetizing debt. He said the difference between debt monetization and the Fed’s policy was that the central bank was not providing a permanent source of financing. He said the Treasurys would only remain on the Fed’s balance sheet temporarily. He assured Congress that once the crisis was over, the Federal Reserve would sell the bonds it bought during the emergency.

As Peter put it, he was lying through his teeth. Most of those bonds are still on the books. And they’re about to add more.

So now, what was once an emergency tool that would be used only in a dire emergency like the worst financial crisis since the Great Depression, right? the Fed had to reach for this tool in an emergency Now, just as I said, this has become normal operating procedure — central banking 101. Because as I said from day one, once the Fed took us down this road, there was no going back. Once you hook somebody on drugs, they’re hooked for life. They can’t kick the habit without going through massive withdrawal.”

In effect, the Fed has created a phony policy that is dependent on the continuation of these easy-money policies.

The illusion, the myth the Fed created that there was an end-game, that there was an exit strategy, is going to be shattered.”

Remember, the reason gold went into correction was the wrongheaded belief that the Fed really could end QE and normalize interest rates.

When the markets figure out that QE is infinite, it’s permanent, it’s never going to end, that interest rates are stuck at zero indefinitely, then the price of gold is going to take off. Because the only reason that it stopped rising back then is the false confidence that the central bankers were able to engender. All that confidence is going to be lost. People are going to be rushing out of fiat money, the dollar in particular, into gold, into silver.”

Eventually, interest rates will be forced higher. We already saw these rumblings in the repo market. And the Fed isn’t going to have any choice. If it keeps trying to suppress them indefinitely, we’ll end up with hyperinflation.

Regardless of whether or not the Fed ultimately makes the right or wrong choice, before that happens, the price of gold and silver are going much, much higher. If they make the wrong choice, it will go infinitely higher.”

Peter said he doesn’t know how much longer the window to buy gold and silver will stay open before it makes new highs.

But those people who are waiting for new lows, people who are waiting to buy gold below $1,000, or maybe buy silver below $10, that’s not going to happen. You’re not going to see those prices. What you need to do now is just buy into the market.”