Peter Shiff: The credit crisis is just the daughter of the mistakes of the Fed
During the press conference following the FOMC meeting, Federal Reserve Chairman Jerome Powell reiterated that the US banking system is sound and resilient . This was despite the failure of First Republic Bank just days before the Fed meeting. Peter Schiff appeared on the Claman Countdown program on Fox News and argued that Powell and others were wrong. He said the US economy was in a worse financial crisis than it was in 2008.
Who is Peter Shiff
Peter David Schiff, nicknamed “Dr. Doom”, is an American stock broker, financial commentator and radio personality. He is the managing director and chief global strategist of Euro Pacific Capital Inc, a broker-dealer based in Westport, Connecticut. He predicted the 2008 financial crisis, as he said in an August 2006 interview: “The United States is like the Titanic and here I am in the lifeboat trying to get people off the ship…. I see a real financial crisis coming for the United States."
That said Peter Shiff
Liz Claman asked Peter why the Fed raised rates another 25 basis points despite the banking sector's woes. Peter replied that they did it because it is exactly what the market expected.
“That's what the Fed does, what the markets expect.”
But Peter said the Fed's move will do nothing to reduce inflation.
“The elephant in the room with regards to inflation is fiscal policy – the debt, not the ceiling – but the fact that we are running these huge deficits. But until the federal government cuts spending, those quarter-point increases will be totally ineffective.”
According to Peter, the problem is that Powell refuses to question Congress and say that the driving force behind all inflation in the US is reckless government spending.
“And as long as the government keeps spending, inflation will get worse, as will the current financial crisis. Nobody wants to admit that we are in a financial crisis. It's worse than the one in 2008. It's only just begun. Ultimately, the Fed will cut. But it will cut because inflation is accelerating” .
Liz showed a clip of Jerome Powell saying the Fed is paying close attention to tightening credit conditions and its impact on bank lending. He also pointed out that Peter has already said that the Fed has screwed up everything that is a function of interest rates. So how are these things specifically going to impact the economy going forward? Peter said it will affect banks in particular.
“I have been warning for years that banks may start to collapse for exactly why they are collapsing now. The Fed has kept interest rates at zero for so long. This has allowed financial institutions to accumulate overpriced, low-yield government bonds, mortgage-backed securities and other loans. In addition, US government auditors, the FDIC, have encouraged banks to buy these Treasuries and long-term mortgage-backed securities because they have given them favorable accounting treatment. Banks didn't have to value them on the market, as long as they could pretend to hold them to maturity. Thus, the entire house of cards was erected by the Fed and the US government. Now it's collapsing and they act like they have nothing to do with it. They're trying to figure out how to put out a fire they've started. And of course they're not putting out the fire. They're pouring gasoline on it."
Brenner noted that there are approximately $1.9 trillion of unrealized losses on the banks' books. Liz pointed out that a study by Stanford and Columbia Universities found that 186 US banks are in trouble. Brenner reiterated: "There is no doubt, the banking crisis is by no means over."
Peter said that everyone with debt will feel the pain of rising interest rates.
“Debt becomes difficult to service. And of course there's a lot of debt that's still low because it hasn't matured yet. Many companies, many players in the real estate market, especially the commercial one, borrowed money two, three, four, five years ago at a very low rate. And when rates are higher, it will be much more difficult to obtain the financing to renew them when the loans mature. And then there's the prospect of very messy bankruptcies across the economy."
Therefore, according to Shiff, the FED first pushed the banks to absorb US debt with very low yields, when it said that in any case "Inflation was transitory" and therefore there would not be a real increase in rates. Then, when inflation didn't turn out to be so transitory, he raised rates, penalizing the assets of the banks and laying the foundations for the collapse of the weakest. The regional ones, also loaded with distressed commercial mortgages, were the first to pay.
The FED therefore cannot complain about the crisis: it created it, and only it can solve it.
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The article Peter Shiff: the credit crisis is only the daughter of the mistakes of the FED comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/peter-shiff-la-crisi-del-credito-e-solo-figlia-degli-errori-della-fed/ on Wed, 10 May 2023 08:30:28 +0000.