Peter Schiff...the PT Barnum of Economics

Peter Schiff...what more need I say?

Wrong on interest rates
Wrong on unflation
Wrong on US growth
Wrong on the dollar
Wrong on gold
Wrong on China
Wrong on US stocks
Wrong even on housing

And there's poor little Lauren Lyster of RT, trying so hard to save this fool and make him look smart. Keep trying, Lauren...keep trying.

Fed says it will remove income for the next two years. Markets rally.

To show you how perverted and misguided things have gotten.

Suppose you told someone that the government would remove significant amounts of income from the economy over the next two years. You could even call it a tax. Do you think that person would run out and buy stocks and other risk assets?

Absolutely not. They'd probably take whatever cash they had and hang on to it, real tight, out of fear that the economic future was about to become very bleak.

But that was the opposite of how investors reacted to today in response to the Fed's statement.

Here's what the Fed said:

“low rates of resource utilization and a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

That was the surprise in the statement today. The Fed EXTENDED the length of time that they would hold interest rates at zero for more than a year. (They originally said, mid-2013.)

But we know that this policy removes income from the economy. Case in point: over the last four years the Fed has removed $400 bln in interest income from the economy. That's HUGE. That's the equivalent of almost 3% of GDP. And we're only growing at 1.8%!!

Yet when investors hear this today they bought stocks...and gold and commodities and other risk assets. And they sold the dollar even though this is all hugely deflationary.

It's QE Redux. Haven't we been through this before? Everyone piles in on the false belief that this is inflationary. They push up stocks, gold, commodities and foreign currencies and then it all comes tumbling down when the buying stops.

Same, exact thing will happen this time.

Draghi giveth and Draghi taketh away

Draghi giveth and Draghi taketh away.

First the monetary part...

Today the ECB/Draghi came out with extending nearly free, unlimited euros for banks for three years (a bit longer than expected), looser collateral rules (lower rated, riskier assets can be used) and a cut from 2% to 1% capital requirements. There was an initial relief rally.

But then Draghi followed it up with this...

Statements in which he basically implied that no major sovereign buying by the ECB is forthcoming. In addition, he said that "lending money to IMF to buy Euro bonds is not compatible with the treaty."

So where does that leave us?

It leaves us in an environment where European leaders truly believe that the problem is with the deficits and that the deficits have to be brought down to “normalize” national bond markets. Their prescription is more of the same—austerity—which has done nothing but collapse economic output and INCREASE the size of deficits.

With these policies it is safe to say that Europe has entered in a vicious circle down, which will eventually culminate with “blood in the streets” as all economic collapses do.

Wasn’t it Barron Rothschild who said, “Buy when there’s blood in the streets?”

But not before!

As for the U.S. there is strong reason to believe that we are decoupling from Europe as deficit spending remains high enough to sustain economic growth around the 2% level. In addition, households’ rising propensity to take on debt and banks’ willingness to provide that credit, can help sustain momentum in the economy. If we can get the payroll tax extension and unemployment insurance extension out of the way, it looks like 2012 can be a decent year and that's likely to help Obama.