Peter Schiff and Ron Insana can agree on one thing: The Federal Reserve probably won’t be able to raise interest rates in 2015.
And that’s it. Finished. Done. Complete.
From that point on, they disagree on practically everything else. But each has a wealth of knowledge on the subject of the economy, central banks, monetary policy and more.
Here’s what they said.
Insana: Not Now, But Soon
Insana is a fan of the Federal Reserve. He thinks they have done the right things and are dying to both raise interest rates and normalize policy.
He cited a number of reasons. First, Insana said the S&P 500 is up 212 percent from its March 2009 low, corporate profits are up 200 percent and corporate cash is at $4 trillion, with the cleanest balance sheets since the 1960s.
Insana also pointed out the capital base for American banking is considerably stronger than it was during the recession from 2007 to 2009, in addition to all-time highs for both car sales and retail sales.
Indeed, the auto industry had its best year in 2014 since 2006, and retail sales hit an eight-month high this past November.
“A great deal of this has been facilitated by Fed policy, particularly in the absence of any proactive, countercyclical fiscal policy from a completely dysfunctional White House and Congress,” he said. “The Fed was the only game in town.”
The U.S. economy has emerged from the worst crisis since the 1930s, but Insana explained that doesn’t automatically lead into the next one because the Fed doesn’t have to do QE4. In fact, he said the Fed may sit back and do nothing for a while since there are other positives in the U.S., like technological innovation and the return of manufacturing.
Finally, Insana said the dollar had its best year in a decade during 2014 because "Fortress America" has become the safe haven of the world.
Schiff: Later, If At All
Schiff’s view of the Fed could not be more different than Insana’s. He thinks that if the Federal Reserve was dying to raise rates, it would have done so years ago.
Schiff believes that bank stocks should have gone down 100 percent during the financial crisis, instead of only 90 percent. The Fed came in and prevented them from them completely diminishing, Schiff said, adding that the Fed’s actions created an aftermath that is going to “come back and bite us.”
He went on to say that the Federal Reserve put the U.S. in a situation where it will destroy the dollar, even though it’s rising right now.
In addition, Schiff said U.S. companies have turned into large hedge funds, where earnings are manufactured with share buybacks of debt.
“If the Fed raised interest rates, stocks would implode, along with their earnings because a lot of revenue would dry up,” he said.
Schiff thinks there is a sub-prime boom in auto lending and that the Federal government is basically doing direct-lending through its subsidiary areas so almost anyone can buy a car with a loan that looks like a mortgage.
“The problem is that we have the Fed micro-managing this economy and blowing these bubbles. If we had real interest rates, if we had a smaller government, we would have a more vibrant economy,” he said. “We are not having that because of the Fed.”
Schiff and Insana also talked about energy, unemployment and the global economy.
Listen to their full debate here:
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