Most Banks Would Fail Stagflation Stress Test – Ep. 365
The Peter Schiff Show Podcast23 Jun 2018

Most Banks Would Fail Stagflation Stress Test – Ep. 365

Stagflation
Nobody realized just how bad the economy is, but they're about to find out. All of the economic data that came out this week points to stagflation, if you look at the data. Look at the Philly Fed - dropped down to 19. It is the biggest drop in 4 years; the lowest since the election. Look at the manufacturing PMI - those numbers came out yesterday - dropped to a 7-month low, the lowest since November 2017. If you look at the actual numbers - new orders fell sharply but input cost rose to their highest since September 2013. So you have rising input costs, yo have falling orders; to me this is all stagflation.
The Fed's Stress Test was too Easy
As I pointed out, even Alan Greenspan, not too long ago on CNBC talking about stagflation. He can see it. But you know who can't see stagflation? anyone at the Federal Reserve. The Federal Reserve announced the results of their stress tests, and surprise, surprise! Everybody passed. So the Federal Reserve designed tests to measure the banks that they regulate would perform under adverse economic scenarios. First of all, if a teacher gives a test, and everybody gets an A, then the test was too easy. Clearly the Federal Reserve designed this test so that everybody would pass, which of course, is why the test means nothing. Obviously they don't want to announce that the banking system is not sound, so they want to run these bogus stress tests to create a false sense of confidence in the banking system.
Look at the Fed's Assumptions
I want to actually look at the stress test. You really can't tell anything unless you look at the assumptions. What type of stress is the Federal Reserve assuming the economy might encounter? First of all, you have the most likely scenario they assume - their base case. Their base case scenario, which is their forecast is that everything is great. The economy continues to grow 2 - 2.5%/year - a little bit more this year but then it slows down. Inflation stays right at 2%, interest rates stay about where they are, unemployment goes a little bit lower - everything is great, right? Now, their adverse scenario goes as follows: the U.S. has a mild recession, and during that mild recession the Federal Reserve is able to lower interest rates down to about zero again. The yield on the 10-year falls to about .75%, so 10-year yields fall below 1%; Inflation falls; they don't say how low but it falls below 2%, unemployment rises and peaks at 7%. This is their adverse scenario. Interest rates go back down to zero. That doesn't sound that horrible. Inflation goes down - what is so horrible about lower inflation? This is not that bad.
The Elephant in the Room is Stagflation
But then, you've got to look at their extreme. In that scenario, we have a bigger recession, and according to the Federal Reserve, there is a global aversion to buying government debt, like bonds. So because of that aversion, the yield on the 10-year doesn't fall to .75% the way it does under the adverse scenario, it stays where it is - right around 3%. So because interest rates do not fall, there is a bigger decline in asset prices - I think they have a 65% decline in stock prices, a 30% decline in real estate prices, unemployment rises to 10%, and inflation falls to 1%. I can't help but laugh at this severely adverse scenario, where inflation is only 1% and the Fed is able, again to lower interest rates down to zero. What is the Fed missing? The elephant in the room: stagflation.
The 2008 Financial Crisis Was Not Even Close to the Worst Case Scenario
There's an old saying that generals always prepare to fight the last war, and the same is true with central bankers. What was the last war? It was the 2008 Financial Crisis. What happened during that crisis? Interest rates went down, inflation went down, the dollar went up (by the way, the adverse scenario also assumes appreciation of the dollar, Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

Episoder(1084)

A Dove in Hawk’s Clothing – Ep. 49

A Dove in Hawk’s Clothing – Ep. 49

* Fed's official statement released yesterday * Received by the market as hawkish, Fed is still reiterates "patience" * The statement noted unguarded optimism about the U.S. Economy * Fed ignored unstable markets, Europe, oil prices and strength of the dollar * Response: the market sold off and the dollar rallied * Gold declined on Fed's expectations * The Fed's underlying goal may be to talk the dollar up and talk the markets down * Strong dollar buys time * Continued "patience" indicates Fed's true agenda Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

29 Jan 201517min

Weak Earnings and Bad Economic Data Pummel Stocks – Ep. 48

Weak Earnings and Bad Economic Data Pummel Stocks – Ep. 48

* Wall Street spared blizzard only to be buried in bad earnings and bad economic news * December durable goods down 3.4%; expected to come in at +.7 * Consumer confidence up to 102.9; contrarian indicator * Last time consumers were this confident was in the middle of 2007 * Number will collapse when reality has a violent confrontation with perception * P&G earnings down 31% * Caterpillar warned * Microsoft stock down 10% today * UPS announced they overestimated holiday sales * Businesses geared up for a recovery in late 2013 that was not going to happen * Layoffs coming in 2015 * This may give the Fed an excuse to delay rate increase * How can a strong dollar be good for America but a weak euro be good for Europe? Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

28 Jan 201535min

Obama Misstate of the Union – Ep. 47

Obama Misstate of the Union – Ep. 47

* The President is taking credit for an economic recovery that is a bubble created by the Fed * Obama voters' salaries are much lower now than when he was elected * We have fewer full-time jobs during Obama presidency * Obama is offering freebies to the middle class, promising to tax the "wealthy" * Getting money that you didn't earn is "fair" * Higher taxes on earned money is "fair" * Capitalism built the middle class * The Government has destroyed the middle class * Obama actually claimed that he "reduced" the national debt Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

23 Jan 201510min

Central Banks Wage War Against Low Prices – Ep. 46

Central Banks Wage War Against Low Prices – Ep. 46

* Big action from the Central Banks this week * Bank of Canada lowered rates from 1% to .75% * The ECB announced the launch of first QE program * The Euro plunged against gold * Central Banks' goal is to raise the level of inflation to guard against falling prices * Falling prices accelerate economic activity * Regulations and taxes slow down economies * QE in Europe lets the politicians escape the consequences of regulations and taxes * QE will send European money abroad * Inflation is an obstacle to economic growth Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

23 Jan 201523min

Gold Rally Continues, Yuan/Dollar Peg Explained – Ep. 45

Gold Rally Continues, Yuan/Dollar Peg Explained – Ep. 45

* Biggest 7-day surge in Gold prices since 2011 * U.S. GDP will be lower than in Canada this year * Canadian gold production will rise in 2015 * Gold is rising against most currencies except the Swiss Franc * The IMF still believes the U.S. economy is recovering * Outlook for gold in Australia is also positive * The Yuan will probably be the next peg to go, allowing it to rise against the dollar * The American workforce is being rewarded for incurring large debt to engage in unproductive careers Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

21 Jan 201522min

Will China Pull a “Switzerland” on the U.S. Dollar?

Will China Pull a “Switzerland” on the U.S. Dollar?

* Thursday, January 15, will be remembered as the day Switzerland abandoned its peg to the Euro * The Swiss defended their policy to peg to the Euro, but suddenly reversed, limiting their losses * They admitted they were wrong * Although the Swiss stock market went down in their currency, it was up in every other currency * Gold is up against everything except the Swiss franc * The news in the Swiss market will be a tremor compared to the earthquake if the Chinese abandon their peg both to the Hong Kong Dollar and the Yuan * America will win the currency war to the detriment of the American people Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

17 Jan 201524min

Switzerland Loses Currency War Swiss Win – Ep. 44

Switzerland Loses Currency War Swiss Win – Ep. 44

* The Swiss people have given up the inflation ghost to win the currency war * Media reports negative on the news: "silly decision" * Oil down against the Swiss Franc * Swiss stocks up in U.S. dollars * Wall Street expects Eurozone QE, but without Swiss, QE might be less likely * Gold up against other currencies * Franc surging in value against the dollar * This move may signal economic reform * Unfortunately Janet Yellen is not going to get this memo * Volatility from Swiss move is nothing compared to consequences of a U.S. QE 4 * This move is bearish for the U.S. market * Buckle up, it's going to be a bumpy ride Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

15 Jan 201517min

Denial Runs Deep From Wall Street To Bitcoin – Ep 43

Denial Runs Deep From Wall Street To Bitcoin – Ep 43

* Dow down 600 points in between Tuesday high and Wednesday low * Stock market and real estate are pillars of the phony recovery * Loose government lending standards encouraging mortgage defaults * Dollar down and gold up on low retail sales numbers * Fed not likely to sit out a U.S. recession, trading support for Wall Street over the dollar * The next QE could be bearish for bonds and the dollar * Demise of the recovery illusion will also hurt stocks * Bitcoins down on more bad news * Price does matter as investors seek value * Irredeemable digital currencies will never be money Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

15 Jan 201533min

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