March 28, 2023
Peter Schiff appeared on Real America with Dan Ball to talk about the bank bailout, the unfolding financial crisis, the Fed and inflation. He said this is a sequel to 2008 and like all sequels, it's going to be worse.
Dan started the interview by referencing Sen. Elizabeth Warren's assertion that the failure of Silicon Valley Bank and Signature Bank was caused by "deregulation." Peter said this deregulation "exists in the fantasy of her mind," and pointed out that banking is one of the most heavily regulated industries in the world.
It would be much safer if it was regulated by free market forces instead of government."
The fact that the FDIC guarantees everybody's deposits makes the system that much riskier.
Peter noted that we currently have record-high credit card debt.
It's not a coincidence that both the borrowers and the lenders are broke. You know, the reason for that is the Fed. The Fed kept interest rates artificially low for more than a decade encouraging people to go deeper and deeper into debt and banks to extend them the credit. And now that they're forced to raise interest rates, something that was always going to happen - they have created another financial crisis, which is something I've been warning about for years."
Of course, the media doesn't want to call it a financial crisis. Instead, they call it a "banking crisis."
The financial crisis of 2008 was a banking crisis. Nobody wants to say what it is because they don't want to invoke memories and comparisons to 2008. But this is a sequel to 2008. And like all sequels, this one is going to be worse."
Peter explained that the 2008 financial crisis was due to the Fed holding interest rates artificially low at 1% from 2002 until late 2004. That gave rise to a proliferation of adjustable-rate mortgages, zero-doc loans, no money down, and all kind of other crazy lending schemes. This ultimately blew up the real estate bubble. Predictably, a lot of those loans went bad when the Fed started normalizing rates. (It eventually got rates to a peak of 5.25% in 2006.) That precipitated the 2008 financial crisis.
The government and the Fed managed to cut the financial crisis short with zero percent interest rates and quantitative easing. Then it left rates at zero for more than a decade.
The Fed has made far more monetary mistakes since the 2008 financial crisis than prior. And so, it has inflated a much bigger credit bubble. Now the banks are in far worse shape than they were in 2008, especially the 'too big to fail' banks that we bailed out and are now much bigger than they were back then and even more insolvent. So, as a result of what the Fed has done after the 2008 financial crisis, this new financial crisis that just got started will be much worse. And my fear, which is already being validated by last week's balance sheet, is that this crisis is going to be so bad that the Fed is going to pull out all of the stops and print as much money as possible to bail everybody out. Then the inflation that we saw in 2021 and 2022 is just the tip of a huge iceberg and we're going to be looking at double-digit inflation rates as far as the eye can see."
Peter also talked about the insolvency of the FDIC. It doesn't even have enough money to cover deposits up to $250,000 as promised. Peter pointed out that during the Great Depression when there was no FDIC, people only lost about 2% of their deposits, even with all the bank failures.
The banking system was much sounder before we had an FDIC than it is now. Because back then, banks had an incentive to be responsible because their customers held them accountable. But now there is no accountability."
Peter said the push to raise FDIC limits even higher is nothing but doubling down on a bad policy.
It's just going to create a bigger moral hazard. But they're trying to undo the damage from the moral hazard they created by bailing out some banks and leaving the impression that some might be vulnerable. Now they've created a run on solvent banks as people rush to put their money into insolvent banks."
All of this raises a bigger question: where is the government going to get the money for this?
That's just another unfunded liability that has to be piled on top of a massive unfunded debt on top of the funded debt that's unpayable already. So, it's all going to be inflated away. That's what people have to worry about. Everybody's bank account is at risk because inflation is going to destroy the purchasing power of your money. It doesn't matter if your bank fails because the money that you deposited in the bank, that's going to fail."
This originally appeared on SchiffGold.com.