Federal Reserve

Peter Schiff: Just like Obamacare, the Fed's policies will fail

Forget rate hikes, the Fed will be rolling out easing measures: Expert

The recent troubles plaguing Obamacare are comparable to what will happen with Fed stimulus, according to economist Peter Schiff, who is predicting the downfall of both.

In his latest blog post, the frequent critic of the Federal Reserve seized on the negative Obamacare headlinesAetna shuttering exchanges, surging costs, reported layoffs due to the national health plan. He said they're to be expected when the government ignores market realities and overreaches.

"After only four years of operation, there is now wholesale defection by insurance companies to abandon the Obamacare marketplace because they are hemorrhaging money faster than just about anyone predicted," said Schiff, who pointed to this post four years ago in which he said there would be trouble. "To believe that any other outcome was possible would have been the equivalent of believing in the Tooth Fairy."

The founder of Euro Pacific Capital has long been predicting doom for Fed stimulus as well. In seeking to pull the economy out of the 2008 financial crisis and accompanying recession, the central bank has kept interest rates anchored and instituted three rounds of quantitative easing, a monthly bond-buying program that ended in October 2014 but not before it expanded the Fed's balance sheet by about $3.7 trillion.

While the stock market is up about 225 percent since the March 2009 lows, the economy has struggled. Inflation has remained low and gross domestic product has never grown more than 2.5 percent for a full calendar year.

Throughout the recovery Schiff has been predicting it will end badly, and he has been a strong proponent of gold. He believes his warnings will prove prescient. Asset prices, he has said repeatedly, are in a bubble that soon will pop.

The market under the Fed (stimulus began in 2009)

Peter Schiff
Rick Wilking | Reuters

The Fed's moves "have clearly inflated prices in the bond, stock, and real estate markets, an outcome that was an expressed aim of the policies. There is also clear evidence that these asset prices will come under intense pressure if interest rates were allowed to rise."

Schiff joins the rest of Wall Street and the investing community in speculating about the future path of interest rates. He has been doubtful the Fed will follow up on its December 2015 quarter-point hike with another move this year, and so far he's been right.

However, Fed officials lately have been stirring the pot with more hawkish talk, even though the minutes from the July Federal Open Market Committee meeting indicate that the prevailing sentiment is to wait until inflation heats up before moving. Traders in the fed funds futures market consider a hike before the end of the year to be about a toss-up, with a 53.5 percent chance of the Fed tightening in December.

"[G]iven how close the economy could be trending toward recession, can anyone seriously believe that the Fed will risk kicking a potential recession into high gear by actually delivering another rate increase?" Schiff said. "It should be clear that it won't, but somehow the best and brightest on Wall Street appear convinced that it will."

In the end, he believes the Fed's policies will be proven wrong for an economy "dependent on monetary support just to tread water."

"To me, the fate of the Fed's stimulus policy is as clear as that of President Obama's failed experiment in health care," he said. "It's a disaster hiding in plain sight."

To read Schiff's full post, go here.