Once again, the financial world watched the Federal Reserve this week in the hopes of hearing some real news about whether or not interest rates would be raised in the near future. While the Fed continued to taper its quantitative easing, it said that interest rates would remain at zero for a “considerable time.” To economists like Peter Schiff this is more or less an open admission that the United States economy is in terrible condition. If the economy was improving, why would it need the continued intervention from the central bank?
In his latest written commentary, Peter compares historical Fed policies to the central banks’ actions in the past eight years. He explains clearly and succinctly why we’re in a new age of “forward guidance” and how disastrous it will be for the economy. Don’t look for interest rates to be raised at all, Peter argues. Instead, another dose of QE is probably right around the corner.
“The truth is the Fed knows the economy needs zero percent rates to stay afloat, which is why they have yet to pull the trigger. The last serious Fed campaign to raise interest rates led to the bursting of the housing bubble in 2006 and the financial crisis that followed in 2008. This occurred despite the slow and predictable manner in which the rates were raised, by 25 basis points every six weeks for two years (a kind of reverse tapering). At the time, Greenspan knew that the housing market and the economy had become dependent on low interest rates, and he did not want to deliver a shock to fragile markets with an abrupt normalization. But his measured and gradual approach only added more air to the real estate bubble, producing an even greater crisis than what might have occurred had he tightened more quickly.”
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