According to Peter Schiff, monetary tightening aimed at reducing inflation to 2% would cause the collapse of the American financial system. The Fed finds itself faced with a difficult dilemma, between price control and support for growth.
The disaster scenario drawn by Peter Schiff
In a recent tweet with an alarmist tone, economist Peter Schiff paints a catastrophic scenario in the event of a drastic tightening of monetary policy. According to him, aggressively raising key rates with the sole aim of curbing inflation would have apocalyptic repercussions.
This shock therapy would lead to nothing less than the widespread bankruptcy of the banking system, a massive default by the American federal government on its sovereign debt, the explosion of the financial markets, an exponential surge in unemployment and the collapse of the economy. real economy.
In short, a financial Armageddon that Mr. Schiff judge fortunately unlikely, as the Fed is not prepared, according to him, to undertake such destructive monetary tightening. He sums up his thoughts with this shocking formula:
“ If the Fed raised rates high enough to bring inflation down to 2%, every major U.S. bank would fail, the U.S. government would be forced into default, markets would collapse, unemployment would explode, and the economy would collapse. would collapse. That’s why it won’t happen.“
Between inflation and the explosion of debt, an insoluble dilemma?
However, the Fed finds itself with its back against the wall. Because easing monetary policy too soon would risk reigniting inflation, ruining 11 months of efforts to contain it. Conversely, prolonged tightening could trigger an equally devastating debt crisis, as Jerome Powell recently reminded us.
During a recent interview with CBS News, the chairman of the Federal Reserve issued a worrying warning regarding the unsustainable trajectory of American public debt. This spiral seriously jeopardizes the budgetary future of the country and the well-being of younger generations, he worries.
Faced with this insoluble puzzle, the Fed is navigating on a tightrope. Torn between its contradictory mandates of guaranteeing price stability and supporting growth, it sees its room for maneuver dangerously narrowing.
Peter Schiff’s acerbic analysis bluntly highlights the strategic impasse in which the Fed is struggling, forced to choose in the short term between an inflationary relapse or a devastating recession. The American central bank therefore has its back against the wall, ordered to make an almost impossible soft landing.
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