Forget about higher interest rates. To starve off an economic collapse, the Federal Reserve may have to resort to another round of quantitative easing. At least, that’s according to famed investor Peter Schiff.
“It’s not just a 580 points we drop today or the 530 on Friday or the 350 on Thursday,” he explained in an interview with Newsmax earlier this week. “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.” (Source: Newsmax, August 24, 2015.)
The idea is simple: both the stock market and the real economy have been too comfortable with the eased monetary environment. If the growth we see in the U.S. economy was a result of these artificially low interest rates, a Fed rate hike could potentially cause an economic collapse.
To make his case, Schiff points out that despite the hundreds of points of daily loss on the Dow during the past three trading days, it would be nothing compared to the loss if the Fed hikes rates.
“They’re going to back away. The Fed’s going to call off the rate hike. In fact, I don’t think they ever planned on raising rates. The whole thing was a bluff. The markets just haven’t figured that out yet.”
The contrarian investor not only believes that the Fed would not hike rates, but also predicts more quantitative easing with QE4. That is a bold statement, especially when all talks are surrounding when the rate hike would happen.
“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.”
But a QE would not solve the problem. Instead, it would exacerbate it. With more money pumped to the asset markets, the bubble would continue to build.
“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.”
How should investors protect their wealth in the event of a stock market crash and potential global economic collapse? Schiff recommends investors store their wealth in hard assets like gold and silver.
“Gold is up $80 in the last two weeks but it’s not getting the safe haven flows because people still haven’t figured out what it is they have to flee,” he explains. Eventually, investors will warm up to gold “when they figure out that at zero percent interest rates forever and we’re getting another round of quantitative easing.”