Peter Schiff Says The UNTHINKABLE Is About To Happen To SILVER!

Fed Chair Kevin Warsh delivered a speech the market labeled hawkish. Gold dropped about $140. Silver reversed after nearly touching $71. Odds of a September rate hike jumped from about 37 percent to about 57 percent.

Schiff said none of that changes what the Fed is actually doing.

Warsh talked tough about bringing inflation back to 2 percent.

The Fed balance sheet is still growing. M2 has been expanding at roughly a 6 percent annualized pace since Warsh took the job.

“He is creating inflation despite the fact that he’s talking about putting out the fire.
He continues to pour gasoline on the fire.”

What Warsh left out mattered more to Schiff than what he said. There was no mention of a $40 trillion national debt. There was no mention of the Treasury’s expanded Operation Twist. Schiff called that silence the real story.

Treasury already doubled bond buybacks from $2 billion to $4 billion. Officials also floated using the Treasury General Account, a pool on the order of a trillion dollars, to help fund those purchases.

Schiff warned that this is not free money and not a spending cut. If the government uses cash to buy long bonds and keeps spending at the same pace, it still has to issue new debt. The average maturity of the national debt shortens.

That leaves Washington more exposed if the Fed ever delivered the rate hikes markets are now pricing.

“They’re trying to create a situation where when he doesn’t do that, it looks as if he’s not politically motivated.”

Warsh accepted blame for 65 straight months of inflation above the 2 percent target. Schiff said that confession is incomplete. Inflation is a two player game. Congress and the White House spend money they do not have.

The Fed then accommodates the deficits to avoid a bond crisis. Let fiscal policy off the hook and the Fed cannot really crush inflation even if the speeches sound stern.
Warsh also said forward guidance has outlived its purpose. Schiff treated that as another piece of the show: get markets to price tighter money while policy stays loose.

Then came the line that stunned him. In comments tied to the same bond intervention, a military option for getting yields down was raised.

“He said there also is a military option to lowering interest rates, getting bond yields down, that if we have to, we’re gonna resort to our military. What the hell is he talking about? Buy these treasuries or we’re going to bomb you?”

Schiff also walked through the week’s economic bruises. Chicago PMI collapsed to 47.1, the biggest downside miss in eleven years. He spent a long stretch on the boat market as a preview of what cheap money does and then undoes. Boat prices have fallen about 50 percent. Lenders are taking keys. West Marine filed for bankruptcy. He argued housing is set up for a similar hangover after a Fed made boom.

Gold and silver sold off because traders bought the hawkish headline. Schiff’s conclusion is that the headline is the point. Officials want the market benefit of fear of tight money without the pain of tight money.

Debt keeps rising. Buybacks keep growing. Money supply keeps expanding. Until that changes, he says the inflation fire is still being fed, no matter how loud the speech.