By: Saumya Vaishampayan
September 10, 2013
It doesn’t matter who takes over as the next chair of the Federal Reserve because the central bank isn’t going to slow its monthly asset purchases.
“It’s like choosing how you want to be executed,” said Peter Schiff of Euro Pacific Capital in an animated address ahead of an investment banking conference held by his firm in Manhattan Tuesday.
Schiff’s remarks come as investors brace for a reduction in the Fed’s asset purchases as soon as next week, and as investors also anticipate President Obama will name the next Fed chair by December. That decision, which analysts say is likely down to front-runner Larry Summers, a former Obama Administration adviser, and Fed Vice Chair Janet Yellen, has taken on new urgency because of the impending shift in monetary policy.
“Ben Bernanke is a pilot,” said Schiff, known for his doomsday forecasts for the U.S. economy, including calls about Zimbabwe-style hyperinflation in 2008.
Bernanke learned how to take off and fly, but has no idea how to land the plane, Schiff said. He instead has to pretend he has a landing strategy, or strategy for stemming monetary stimulus.
“Eventually the plane is going to run out of gas,” he said.
Fed Chairman Ben Bernanke has made the timeline for the slowing of the central bank’s bond buys, currently set at $85 billion a month, dependent on data showing a recovery in the U.S. economy. These bond purchases are part of a five-year program of stimulus that went far beyond its traditional tools of low lending rates, enacted by the central bank in the wake of a severe financial crisis and recession.
Schiff isn’t convinced the stimulus worked. The so-called recovery in the housing market, he said, is based on speculation spurred by cheap money, said Schiff. That’s evident from the number of houses paid for in cash, he added.
“He thinks he sees a light at the end of the tunnel [but] doesn’t know it’s an oncoming train yet,” Schiff said of Bernanke.
Contrary to economic data, which showed the U.S. economy grew faster than expected in the second quarter, Schiff said the economy is contracting. He also repeated earlier views that the U.S. government is operating a Ponzi scheme and an infinite amount of quantitative easing would lead to a currency crisis.
He advised investors to avoid dollar-denominated debt and, if forced to do so, stick to short maturities. He also plugged investments in gold and silver, as well as gold and silver mining stocks. Of the rout in emerging-market currencies, Schiff said there could be a turnaround as those countries decouple from the U.S. dollar.
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