After the Federal Reserve increased its interest rates by another 25 basis points during its meeting on March 22, Fed Chairman Jerome Powell stated that the US banking system is ” strong and resilient,” justifying the increase in interest rates despite the fact that three American banks had recently failed and the government had to act as a guarantor for customer deposits.
However, well-known economist Peter Schiff is convinced that the reality is quite different: “It’s a “house of cards” that could collapse at any moment.”
The root of the problem lies in the Federal Reserve’s monetary policy. In an interview with NTD News, Schiff explained that it all started with the Fed creating a “bubble,” the culmination of which was the 2008 financial crisis. But instead of finally taking action, more money was injected into the market, which led to the formation of an even bigger “bubble.”
The era of very low interest rates prompted banks to hedge their bets on long-term government bonds and mortgage-backed securities. According to Schiff, banks thereby took on high risks that no longer worried bank customers, since the government would step in if market conditions were disrupted.
While in the US, everyone in the government and authorities thinks that the current situation has absolutely nothing to do with the financial crisis similar to the one of 2008, Peter Schiff sees clear parallels:
“This is a banking crisis, and banks are financial companies. I think most people don’t want to talk about a financial crisis because they don’t want to remember 2008 and they don’t want to make comparisons. They don’t want to admit it.”
However, such denial precedes every crisis. Schiff recalls that in 2007, when substandard mortgages collapsed, even politicians said there was no cause for concern.
“The first signs of a serious financial crisis are still obvious. Make no mistake, we are on the threshold of such a crisis. And it will be much more massive than the previous one,” Schiff said.
He warns against a scenario in which the economy falls into recession and inflation remains high:
“As inflation devalues people’s money, they will want to withdraw it from banks, and banks can no longer pay a high enough interest rate to compensate for losses. When there is insufficient liquidity on the interbank markets, banks’ demands turn to the Fed, which will be forced to intervene through open-market operations or quantitative easing, thus increasing the available money supply, thereby accelerating the inflationary spiral.”