the renowned crypto critic outlined how markets have been rendered “drunk” and inefficient due to the Federal Reserve’s decisions.
Schiff believes that today’s record-high inflation figures have resulted from decades of “cheap money,” rather than a simple ‘late response’ from the Federal Reserve in raising interest rates within the past two years.
“The severity of malinvestments, of the misallocations of resources, of the monumental mistakes that have been made throughout this economy by the government, the private sector, corporations, individuals — everybody has made mistakes because of this cheap money,” said Schiff during episode 849 of his podcast on October 19th.
Government spending has skyrocketed over the past two years, with the total national debt now surpassing $31 trillion, per the U.S. National Debt Clock. That’s compared to less than $5 trillion that the U.S. collects in tax revenue every year and the nation’s $25 trillion annual GDP.
Treasury Secretary Janey Yellen claimed last year that vast amounts of debt weren’t an issue due to the country’s low-interest rate environment. However, the Federal Reserve has been forced to hike interest rates 13-fold since that time in response to persistent inflation, which Yellen later admitted was not “transitory.”
According to Schiff, former President George Bush was correct in stating that Wall Street got “drunk” on cheap money after the 2008 financial crisis, leading them to make many foolish investment decisions.
“Why was everybody on Wall Street drunk? Where did they get the alcohol? Who liquored them up? That was the Federal Reserve. That was Alan Greenspan. He was the bartender. He kept serving the drinks. That’s why Wall Street was drunk,” Schiff continued.
The Tide Goes Out
Invoking Warren Buffet, Schiff suggested that when the economic “tide goes out,” everyone sees who has been “swimming naked.” In today’s case, he believes everyone has been naked, and is being exposed right now – to an even greater degree than in 2008.
“The real crash is the one we’re headed for right now. And we were going to have that crash regardless of the mistakes the Fed made in 2021,” he concluded.
Other notable investors, including Stanley Druckenmiller and Elon Musk, have aired similarly bearish forecasts for the future economy. The former said a recession is bound to arrive before the end of 2023, while the latter estimates that the economy won’t recover until Spring 2024.