A Quote by Peter Schiff
Every time the market has corrected, since 2008, it's always been the Fed that's made the bottom. The Fed has always saved the market either by cutting rates, launching QE, or threatening to launch another round of QE.
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QE and other aspects of Fed policy increased inequality pretty significantly. This is reinforced if you take into account all the other non-standard measures the Fed used to bail out the banks early on in the [2008] crisis.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
I studied what happened in the bond and the stock markets during previous periods when the Fed stopped manipulating the bond market. In every single case, the moment the Fed announced that there would be a cessation of intervention, stocks declined and interest rates went up.
Initially, QE contributed to a pretty significant increase in inequality. It raised asset prices, which are owned primarily by the wealthy, while having relatively small if any positive impacts on bank lending, employment, wages or economic growth, so ordinary people haven't had much help. By the third round of QE in 2012-2014, the effects had likely muted quite a bit. There were probably not big impacts on asset prices from QE and the positive effects on employment growth might have strengthened somewhat.
Since 2008 you've had the largest bond market rally in history, as the Federal Reserve flooded the economy with quantitative easing to drive down interest rates. Driving down the interest rates creates a boom in the stock market, and also the real estate market. The resulting capital gains not treated as income.
The market needs to set prices, including interest rates and allocate resources. If it were up to me, we would abolish the Fed and return to the gold standard. Absent that, the Fed should be completely removed from the political sphere, its dual mandate replaced by a single mission to provide the nation with sound money.
The impact of QE on generating more lending by Wall Street to Main Street and in generating more employment and increasing overall investment in the economy is quite modest. QE probably limited the initial collapse of the economy in 2008, and likely had a very small positive impact on economic growth, but its broader impact on jobs and growth in the economy seems not very big.
The Fed's buying is far more important to the market price of U.S. debt than any other economic variable. If the Fed stops buying, it doesn't matter whether unemployment goes up or down. It doesn't matter whether inflation is higher or lower. Its influence on the market is dominant.
If we are going to have a Fed, it should not fall into the tyranny of experts with the a fatal conceit that a few wise people can determine interest rates. Interest rates should be driven by the market, and people's time preference, and we see these boom-bust cycles.
Just as outright euphoria is often a sign of a market top, fear is for sure a sign of a market bottom. Time and time again, in every market cycle I have witnessed, the extremes of emotion always appear, even among experienced investors. When the world wants to buy only treasury bills, you can almost close your eys and get long stocks.
If you let interest rates be freed, be set by the free market, they would rise dramatically. There would be a lot of broken furniture on Wall Street. It needs to be broken. The back of the speculative bubble would be broken and we could slowly heal the financial system. That's what I think we need to do but it's never going to happen because there's trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and shovel $85 billion a month of liquidity into the market.
Here's the interesting thing: the fact that QE and lowering interest rates almost to zero has worsened inequality, does not mean that raising interest rates will help reduce inequality.
When the former Fed chairman was in, Alan Greenspan was in, there was a saying back in those days that you called the 'Greenspan put.' Any time the treasury secretary - for the Fed chairman - said something, the market saw that as good news, and it took off.
Going to set, every day, and working with the incredible actors I get to work with is fulfilling. I've been doing this since I was nine years old, so it's always been something that I've been passionate about. It's always fed me.
The bond market is debating with itself what the intent of the Fed is. I don't think the Fed has a multi-step process. They are taking it step by step.
And we have a Fed that's doing political things. This Janet Yellen of the Fed. The Fed is doing political - by keeping the interest rates at this level.
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