Euro Pacific Capital CEO Peter Schiff has said that the ultra easy monetary policy being followed by the US Federal Reserve for the past five years is more challenging for the US economy than the fiscal cliff. Schiff who has been highly critical of the Fed’s Quantitative Easing or QE believes that the Fed policy is not appropriate and will lead to runaway inflation.
The Federal Reserve has so far expanded its balance sheet to $2.86 trillion through its Quantitative Easing (QE) program and intends to continue the program in 2013 and expand the balance sheet to nearly $4 trillion.
Schiff, who is a major investor in the US markets told CNBC that “Bernanke is a much bigger threat to the US economy than the fiscal cliff.” He said that the QE policy would actually worsen the problem and make the fiscal cliff bigger and result in the devaluation of the dollar.
The comment from Schiff comes even when the Federal Reserve has shied away from outlining new stimulus despite a recovery which Bernanke terms as disappointingly slow. Schiff believes that the fed policy will enhance inflation. Investors should look towards gold as an alternative to paper money and stocks, he recommends.
Schiff has said many times that the gold is expected to surge to a high of $5,000 per ounce once the Fed’s policy erodes the value of the dollar. The Fed continues to print more money to finance its ballooning debt levels and this is what is weakening the dollar, Schiff said. The gold market is likely to very bullish if the US is able to avoid the cliff which means the trillion dollar plus deficits will perpetuate. He believes that the more money that is created by the Federal Reserve to buy bonds which nobody wants, the higher will be the appreciation in the price of gold.
The recent increase in the stock markets has been mainly due to the artificial support provided by the Fed policy, Schiff said. “All the moves that we are getting in the US stock market are driven by inflation and not because the economy is getting better or that real earnings are going to improve,” Schiff added.
According to Schiff, although the precious yellow metal is going to outperform stocks, the latter are likely to outperform paper (money), certainly bonds.