Federal Reserve chairman Ben Bernanke said Wednesday in a press conference that he doesn't believe the Fed is fueling a stock market bubble with its easy money policies, as pointed out by the Washington Times.
Yet as Peter Schiff, CEO of Euro Pacific Precious Metals contends, the Fed has a poor track record when it come to detecting bubbles.
“In fact, Ben Bernanke himself said there was no real estate bubble even after the real estate bubble burst,” Schiff tells The Daily Ticker. "I don’t think there’s necessarily a bubble in the stock market. There’s certainly a bubble in certain types of stocks that are way overvalued as a result of all the cheap money Ben Bernanke has been creating."
That doesn't mean the Fed's unprecedented policies of near-zero interest rates and bond buying are without consequence. Quite the contrary, if you ask Schiff.
"What he is doing with his reckless monetary policy is causing our resources to be malinvested," Schiff continues. "We’re spending too much on housing right now because of what Ben Bernanke is doing. He's bragging about the fact that we’re building more houses and home prices are up, but they’re only up because of the artificially manipulated prices thanks to the Fed, and all of this is a mistake and is going to be unwound in a very painful way."
Schiff, for his part, is credited for detecting and warning of a real estate bubble ahead of its bust in 2007 and 2008. And when it comes to other possible crises resulting from Fed policies, Schiff has for years been warning of a dollar collapse.
Yet, since the beginning of the year the dollar, measured against a basket other currencies, has been rising. This comes even as Bernanke just this week committed to continue $85 billion in bond buying a month until the labor market sees sustained improvement, meaning the Fed is on track to have a $4 trillion balance sheet by the end of this year. And when crises across the globe drive investors to safety, the dollar as the reserve currency benefits, too, as we've seen this week with the crisis in Cyprus.
"At some point that is going to change," Schiff says, sticking to his thesis. People are going to realize or call the Fed's bluff, that our economy is stimulus-based. There is not a real exit strategy. The Fed is going to print money indefinitely."
Related: There are No Bubbles, QE Is Working!
He adds, "the dollar is weak, it's just that other currencies are also weak, so that's masking how truly weak the dollar is."
The dollar may be measured against other currencies, hailing from economies dealing with their own respective pressures and central bank easing policies (the euro crisis, the Bank of Japan's commitment to devaluing the yen). Still, where we sit now is a far cry from dollar collapse. So what have dollar bears like Schiff missed?
"The only way you can say dollar bears have gotten it wrong maybe is on the timing," Schiff concedes. "I've been talking about a weak dollar - the dollar has been weak, and look at how weak the dollar has been against gold."
- Politics & Government
- Peter Schiff
- Ben Bernanke