A lot of the economic data that came out last week looked pretty good. GDP growth came in big in the first quarter. Personal income rose by a record amount in March. The mainstream spun it all as positive, raving as if the economy is earning an ‘A.’
But in his podcast, Peter Schiff argues that the only reason the economy isn’t getting an F is because the Federal Reserve is cheating on the test.
Dallas Federal Reserve President Robert Kaplan made some comments Friday that were widely viewed as somewhat hawkish. He warned about “excess imbalances” in the financial markets and warned about “historically” elevated stock prices, tight credit spreads, and surging home prices. And he said it’s time for the Fed to at least start talking about tapering bond purchases.
This was the exact opposite of what Fed Chair Jerome Powell said in his press conference after last week’s FOMC meeting.
Peter said it is probably safe to pretty much ignore what Kaplan said. But on one thing, Peter said he agrees with Kaplan – there are imbalances in the markets and in the economy more broadly.
They’re much bigger than what he’s letting on. It’s not only appropriate to start talking about shrinking the balance sheet. They should already be shrinking it. In fact, it was inappropriate to blow it up to the size that it’s already at. And they shouldn’t start raising rates in 2022. They should be raising them now. In fact, they should never have cut them this low in the first place. What they should have done is irrelevant to what they are going to do. And it doesn’t really matter what they say. The markets still haven’t grasped the idea that the Fed is in a box. Sure, it can talk about the need to taper its asset purchases. It could talk about normalizing interest rates. But that’s all it could do. Talk is cheap. Actions are expensive and they can’t afford to pay the price.”
The economy certainly can’t afford to pay that price. The US government can’t afford to pay the price.