Top US stock broker Peter Schiff has given a stark warning about what lies ahead for the global economy if we don’t get on top of inflation.
Schiff told Yahoo Finance the inflation problem in the United States had become so dire, there was not much that could be done to fix it.
“You can’t avoid it anymore,” he said.
“[The US Federal Reserve] spent years creating this problem. The cat’s out of the bag.
“But they can stop making the problem worse. They can stop printing money, right now.”
Schiff said while stopping printing money would technically solve the problem, it was not a likely option, for obvious reasons.
“They won’t do that of course because it would create the worst financial crisis since 2008,” he said.
“The problem is, doing the right thing causes incredible economic pain in the short run, but doing the wrong thing causes even more economic pain in the long run.
“And so politicians are always trading short-term pain for long-term pain, even if the long term pain is worse.”
How did we get here?
Schiff said the US economy had become a bubble, as had the US dollar, which couldn’t be sustained for much longer.
Schiff said it all came down to inflation, which he said had become so bad that the US Federal Reserve had run out of “wiggle room”.
“They can’t keep pretending that we don't have enough inflation because we already have too much,” Schiff said.
“The Fed can’t keep propping up the economy and propping up the market without worsening the inflation problem.”
US Fed chair Jerome Powell recently acknowledged the inflation problem by dropping the word “transitory” to describe the issue.
“We tend to use [the word transitory] to mean that it won’t leave a permanent mark in the form of higher inflation,” Powell told Congress last month.
“I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
Schiff said the Federal Reserve had found itself in a “Catch-22” situation, after trying to create inflation for so long that now it had too much.
“The Federal Reserve was describing what we're seeing now as transitory. But I think it's just the tip of a huge iceberg,” Schiff said.
“I think there's a lot more inflation beneath the surface than what we've seen already.”
What can we do?
Schiff said the safest place for your money was in traditional safe havens like gold.
“Gold is historically one of the best ways to preserve purchasing power during periods of rapid inflation,” he said.
“And we're clearly in one of those periods now. I think we're just at the beginning of it.”
And, for those people arguing Bitcoin is also a safe-haven asset that can be used to hedge risk against a volatile stock market, Schiff disagrees.
“I think cryptocurrencies represent the ultimate risk asset,” he said.
“They have gone up as a result of all the cheap money and as that cheap money is withdrawn, I expect those currencies to collapse.”
You can watch Peter Schiff debate economist Harry Dent at the Economic Global Crisis Debate for free at 11am AEDT on Tuesday, 7 December, here.