While analysts insist inflation isn’t a problem in the US because the bond market isn’t signaling any inflation concerns, veteran stockbroker Peter Schiff argues that you can’t rely on this bond market to tell you anything.
“There are a few elephants in the living room in the form of other central banks that are distorting the bond market,” Schiff said in his podcast, explaining: “The bond market is not working the way it has in the past because the Fed is artificially manipulating interest rates. The biggest buyer is the Federal Reserve.”
The economist points out that “the bond market is broken, thanks to the Federal Reserve.” It is rigged and it is sending false signals.
“The Fed is trying to affect policy. It’s trying to influence the economy, stimulate the economy, prop up the stock market. That is the purpose of the Fed buying Treasury bonds. So, the Fed is not looking at Treasury bonds yielding under one percent and thinking, ‘Wow, this is a lousy buy. Why do I want to buy these bonds at less than one percent and hold them for 10 years? We’re going to take a big loss.’”
According to Schiff, the regulator doesn’t care about the losses because it doesn’t have to work for its money. It creates it out of thin air. “Why do the guys at the Fed give a damn how much they lose by buying these low-yielding bonds? And so, when you have the Fed in the market, the whole thing is distorted.”
Schiff says the Fed’s presence in the bond market also encourages speculators. “They can flip the bonds back to the Fed as the Federal Reserve is trying to keep a lid on long-term interest rates because the economy is so loaded up with debt – and again, thanks to the Fed. The Fed has to keep interest rates at rock bottom so people can afford to pay. Also, the Fed is trying to maintain these excess stock market valuations. And the key to the overvalued stock market is the overvalued bond market.”
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