Peter Schiff: Federal Reserve caused Black Monday crash, will launch QE4
Black Monday saw stock markets all over the world plunge by triple digits. At the start of Monday’s trading session, the Dow Jones collapsed 1,000 points (SEE: Stock Market Meltdown – a brief look at Monday’s market openings), while other markets fell anywhere between 400 and 1,300 points. Although the massive drops generated global media coverage, it also presented an opportunity to purchase some stocks at cheap prices.
Many people are blaming China’s weakened economy, yuan devaluation and monetary policy (SEE: Donald Trump warns Chinese financial crisis will lead to depression), but one contrarian investor thinks it’s the Federal Reserve that has spooked markets everywhere. This will eventually cause the United States central bank to launch a fourth round of quantitative easing.
“The media is blaming this on China. Look, the Chinese market is going down for the same reason that the U.S. market is going down. It’s not that China is causing our market to go down,” he said.
“Both markets are responding to the Federal Reserve’s threat to raise interest rates. It’s the Federal Reserve that’s been propping up the U.S. economy and more specifically the U.S. markets to the detriment of the U.S. economy but the Fed was propping up our markets with quantitative easing and zero percent interest rates.”
Schiff noted that the Fed has ended QE and is threatening to end artificially low interest rates, but without any of these “props” the market will collapse, and this is pretty much what’s happening right now.
“It’s not just a 580 points we drop today or the 530 on Friday or the 350 on Thursday. We have thousands and thousands of points to surrender if the Fed is actually going to follow through with its threats to raise interest rates,” he said.
The Fed has kept interest rates at near zero since 2008. Fed Chair Janet Yellen has continually hinted that a rate hike is coming in September, but Black Monday may prove as a deterrent for the central bank. Schiff concurs that the Fed will back off from a rate hike, adding that he thinks the Fed never intended to raise rates in the first place.
Rather than raising interest rates, Schiff believes the Fed will start QE4. “The Fed is going to come back with QE4. It’s going to hurt the real economy just like QE3, 2 and 1 did but it is going to blow some air back into the stock market bubble.”
The bestselling author of “Crash Proof” alluded to those who have prognosticated a boost in interest rates.
“When the year began, we were divided between two camps. Those that thought the Fed would move in March and those that thought they would wait until June. They were both wrong,” he said. “I was the only one that was saying the fed won’t move at all in 2015 because they can’t do it without pricking their own bubble.”
So how can an investor protect themselves? Schiff explained that gold doesn’t have the moniker of being a safe haven anymore because investors don’t know what they should be fleeing from. Investors are still buying the dollar and the euro. He stated that the only currencies that are rising against the greenback are commodity-linked currencies and emerging market currencies.
“The game is changing but ultimately people are going to move to gold, especially when they figure out that at zero percent interest rates forever and we’re getting another round of quantitative easing.”
At the time of this writing, gold is trading in negative territory by $16.30 at $1,137. Silver is also down at $14.58.
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