Nov 13, 2023
The Federal Reserve says it continues to prioritize the fight against inflation.
“We understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal,” Fed chair Jerome Powell told reporters Nov. 1.
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That statement did not sit well with Peter Schiff, CEO and chief global strategist at Euro Pacific Capital.
“Since inflation is caused by the government, and caused by the Federal Reserve, it’s the government and the Fed that are creating that hardship. It’s not like it’s just happening out of left field,” Schiff said in a recent episode of his podcast, The Peter Schiff Show.
Moreover, Schiff is not optimistic that the U.S. central bank will ever achieve its target rate of inflation.
“Waiting for inflation to go to 2% is going to be like waiting for Godot. It’s never going to happen,” he said. Godot is a reference to the play "Waiting for Godot" by Samuel Beckett, where two characters wait for the arrival of someone named Godot, who ultimately never appears.
Increased burden
To be sure, headline inflation has come down over the past year. In September, the U.S. consumer price index saw an annual increase of 3.7%, down from its peak 9.1% increase in June 2022.
But the price of many necessities, like food and shelter, remain elevated.
According to Schiff, inflation is like a tax in that it chips away at your hard-earned money.
“The government created this hardship because the government decided to tax everybody with inflation,” he said.
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“Now, had they used another form of taxation, had the Biden administration, and the Trump administration for that matter, had they raised taxes enough to pay for all of these government programs, that would have created hardship, too. Families would be struggling under the burden of crushing taxation.”
Because inflation erodes the purchasing power of money, investors may be looking for ways to hedge against spiking price levels.
Schiff is a proponent of gold, which happens to be a prime example of an inflation-fighting asset. The precious metal can’t be printed out of thin air like fiat money.
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Putting the cart before the horse
Powell said that, for the third quarter, real GDP in the U.S. is estimated to have risen “at an outsized annual rate of 4.9%, boosted by a surge in consumer spending.”
But Schiff does not believe that spending is a pathway to economic prosperity.
“You produce your way to prosperity. You save your way, and then invest and produce your way into prosperity,” he said. “We’re not doing that. We’re trying to put the cart before the horse.”
When the cost of many goods and services continues to rise, saving money can be a challenge. According to the figures from the Bureau of Economic Analysis released Oct. 27, the personal savings rate — defined as personal savings expressed as a percentage of disposable personal income — was 3.4% in September 2023. The rate has seen a decline each month since May.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
