Schiff predicts this recession will be worse than it was more than a decade ago
After GDP fell by 0.9 percent in the second quarter, experts are debating whether the US economy has officially slipped into a technical recession.
Economists at the National Bureau of Economic Research (NBER), the arbiters of what defines a recession, have yet to make their formal statement. Until then, Wall Street and Washington will be debating whether the current situation qualifies as a recession.
While opinion and analysis on the state of the US economy is mixed, famed economist and investor Peter Schiff, founder of Euro Pacific Capital, sees a different perspective: the US is slipping into an “inflationary depression”.
“I think that the economic weakness will be so pronounced and for such a long period of time that it would not even be justified to speak of a recession,” he told the Epoch Times. “I think depression will be a more accurate description of what we’re going to go through.”
While the country will spend most of this decade in a state of depression, “prices will rise much more this decade than they did in the 1970s,” he added.
economic forecasts
Many of the economic prospects of the big investment firms and banks range from a slight recession to subdued growth rates in the next 18 to 24 months.
For example, Wells Fargo recently revised its base-case forecast for 2023 from an economic soft landing to a slight economic downturn in the middle of next year. TD Economics has indicated an average growth rate of 1.4 percent for the next year.
The Federal Reserve’s economic forecasts (pdf) show that real GDP will grow by 1.7 percent this year and next.
In addition, the Atlanta Fed Bank released its first GDPNow model estimate for the third quarter, showing a growth rate of 2.1 percent.
So far, not too many financial pundits have alluded to the 2008-2009 economic meltdown. But Schiff says that’s a mistake, comparable to what happened in 2007, when economic forecasts called for at best a moderate slowdown. The economic catastrophe turned into the worst financial crisis since the Great Depression.
According to Schiff, this recession will be worse than it was more than a decade ago.
“I think this recession is going to be deeper and longer than this one,” Schiff said.
“People forget that this recession is about six, seven months old now,” he said. “We are already in a recession with low unemployment. Now unemployment will rise as the recession deepens. If unemployment really starts to rise, it will put more pressure on the economy.”
Headlines point to a still strong labor market, something many policymakers repeatedly allude to when arguing that the country is not in recession.
Peter Schiff, CEO of Euro Pacific Capital, speaks to The Epoch Times, March 6, 2014. (Seth Hirsch/NTD Television)
Other figures are beginning to point to a slowdown in the employment situation.
Initial jobless claims rose to the highest level since November 2021, hitting 256,000 in the week ended July 23.
This week, economists are forecasting that the July jobs report will show 250,000 new jobs, well below June’s 372,000. If true, it would be the lowest month for job additions since April 2021.
“We’re just getting started with job losses that will really accumulate over time,” Schiff added.
Has the Fed Curbed Inflation?
After the consumer price index (CPI) hit 9.1 percent in June, there are hopes that inflation has peaked. This is a growing expectation now that energy prices have fallen by a remarkable amount.
West Texas Intermediate (WTI) crude fell 9.37 percent in July on the New York Mercantile Exchange. The national average for a gallon of gasoline and diesel fell 15 percent and 8 percent, respectively, from their highs, according to the American Automobile Association (AAA).
The Fed hiked interest rates by 0.75 percentage points for the second consecutive month, to a range of 2.25 to 2.5 percent.
Not everyone is convinced that the central bank’s fight against inflation will succeed.
Former Treasury Secretary Larry Summers called this “wishful thinking” and told Bloomberg Television that “it is inconceivable that an interest rate of 2.5 percent would be anywhere near neutral in such an inflationary economy.”
Whether this is true or not, financial markets rallied when the term was spoken.
Schiff believes the Fed needs to do more to curb rising prices. Eventually, Schiff says, the Fed will raise interest rates above inflation.
At the same time, according to Schiff, the central bank cannot do this alone. Business will also require the federal government to cut spending.
“We have to balance the budget; Deficits are too big,” said Schiff. “The Fed doesn’t have the political courage to push this back. They talk about quantitative tightening, but they won’t do it. They will print more money because that is the only way the government can fund this debt.”
Looking ahead, Schiff claimed that inflation is likely to have peaked for a few months and may fall to around 6 percent. “But the next thing you know, it’s 10 or 11 percent.”
“So we’re a long way from the peak of the cycle because monetary policy is still fueling inflation,” he said.
Last week, the personal consumption expenditure (PCE) index — the Fed’s preferred measure of inflation — rose to 6.8 percent year over year in June, the highest since January 1982. The core PCE price index, which includes the volatile food and energy sectors, rose also to 4.8 percent. These numbers were again higher than expected by economists.
Ultimately, the consensus is that the United States is on track to slow economic growth. It remains to be seen in which direction things will go in the coming months or years, whether stagflation or recession. Whatever the case, “we are reaping the consequences” of the massive fiscal and monetary stimulus from the pandemic era, Schiff says.
consequences
Andrew Moran covers business administration, economics and finance. He has been a Toronto-based writer and reporter for more than a decade, with bylines for Liberty Nation, Digital Journal and Career Addict. He is also the author of The War on Cash.
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