Peter Schiff: The Only Way To Fix The Economy Is To Let It Fail

Peter Schiff is no stranger to voicing his opinion. Whether it is his prediction of gold hitting $5,000 per ounce, or urging the U.S. to return to a gold standard, Schiff has no problem with the spotlight and his somewhat bold opinions. In a recent article, Schiff continued the trend by making a few strong statements on the state of the U.S. economy. Schiff stated that our economy’s growth has been sluggish at best since the recession began, and that current policies and plans to help put it on the right track are actually hurting us in the long run [for more economic news and analysis subscribe to our free newsletter].

All of the money printing and quantitative easing is doing more harm than good according to the investing expert. “There is an ongoing three way debate between those who believe the Fed should do more to strengthen the recovery, those who believe that the recovery is strong enough to continue on its own, and those who believe that the economy has been so fundamentally altered by the recession that no amount of stimulus can succeed in pushing unemployment down to pre-crash levels. As usual, they all have it wrong (although some are more wrong than others)” says Schiff.

He debunks the theory that the recovery is on the way or the least bit sustainable, and also combats the idea that the Fed is able to do anything more with its asset purchasing programs and printing. “The simple truth however, is that our economy has a disease that all the quantitative easing in the world can’t cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface” he says. Schiff then suggests that rather than continue with QE programs, the Fed should not only not implement a third round, but it should remove whatever actions are already in place [see also Why Bill Gross Thinks The Fed is Ruining The Economy].

Of course, this would mean a big dip in the economy and likely a sizable drop in stock markets, but Schiff feels that the market needs to naturally recover from the misallocations that have been made in an effort to keep our country afloat. He acknowledges that the road will be a very difficult one and will likely be more painful than the 2008 recession given our high debt levels and the amount of borrowing that consumers have been encouraged to participate in via zero interest rates.

While monetary stimuli may create jobs or wealth in the short term, Schiff points out that “any jobs created as a result of cheap monetary stimulus are jobs that won’t be able to survive absent that support”. He compares the Fed actions to a construction crew continually building skyscrapers on bad supports. All in all, his theory depends on a rise from the ashes while we essentially let the fire burn out and run its course. Of course, it would be political suicide for whatever administration is at the reign next year to blatantly allow the economy to fail, but it may be necessary to stimulate some real and sustainable growth.

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Disclosure: No positions at time of writing.