by Peter Schiff, Schiff Gold:
The Federal Reserve has launched QE infinity. As Peter Schiff put it, the Fed has gone all-in on quantitative easing.
So, what does this mean? What are the ramifications of all this debt monetization and money printing? In his podcast, Peter said this is where the problems really start.
The US stock markets got a mega-boost Tuesday as the reality of QE infinity began to sink in. The Dow Jones saw its biggest point gain in history, up 2112.98 points. It was the biggest percentage gain since, 1933, during the bear market in the midst of the Great Depression.
Peter said he was expecting a stimulus-related rally or correction.
I don’ know if this is just a one-day wonder or if it is the beginning of a larger correction. I do not believe it’s the beginning of a new bull market nor the end of the current bear market. But it is typical of bear markets to have these kinds of rallies.
In fact of the five biggest rallies in the Dow, four of them occurred during the Great Depression and yesterday’s ranks as number four. Of the top 10, two more were during the depression and two were during the 2008 crash. The final rally was after Black Monday in 1987.
Nine out of the top-10 days happened in the middle of bear markets or early in bear markets, so I’m sure this is not the exception. … But I would not get to excited about this rally in the stock market.”
But Peter said he wouldn’t be surprised if we see a bit of an upward correction, especially given all of the stimulus that’s been promised.
On Monday, the Fed announced it would buy an unlimited amount of US Treasuries and mortgage-backed securities. It also said it will begin buying corporate paper for the first time ever. (Peter gave the basic outlines of QE Infinity during a live video session.) The central bank didn’t even bother to put a dollar- amount on the program. It’s just “whatever it takes.”
This goes far beyond what the Fed did in 2008. (And it did a lot then – to the tune of about $4 trillion). Peter said the central bank is going to buy all the bonds – corporate bonds, municipal bonds, bonds backed by credit card debt, bonds backed by auto loans.
I mean, you name it, they’re going to buy it.”
As he put it in his videocast, they are going to back up the truck and buy the whole bond market.
Peter has been expecting this massive quantitative easing program for a long time. The coronavirus just accelerated it.
The Fed has no choice but to move into the private debt market. If it only bought Treasuries and government-backed mortgages, it would push up interest rates on private debt due to the inflationary pressure of all that money creation.
When everybody is so levered up, people can’t afford, or companies or states can’t afford, to pay the higher interest. So, I said in order to keep the rest of the bond market from imploding, in order to keep a lid on corporate interest rates and municipal interest rates, that the Federal Reserve would be forced into monetizing all of those bonds too. And that’s exactly what happened.”
This is where the problem really starts. If the Fed is going to monetize everything, the amount of inflation it will create will be enormous. In his videocast, he called it a “tsunami of inflation.”
With this major bid that the central bank has put in the market, the Federal Reserve is effectively saying, “We are going to overpay for bonds.”