Hey! Let’s compare what the Washington Post has to say about current economic conditions and the Federal Reserve’s monetary policy with what Peter Schiff has to say about it. C’mon, it’ll be fun!
Here’s the WaPo version, the conventional view you are supposed to accept:
Top officials, including Chairman Ben S. Bernanke, have pointed to the rebound in real estate and the soaring stock market as evidence of the success of the central bank’s policies.
The Fed is spending $85 billion a month to lower long-term interest rates and stimulate the economy. It has also kept short-term interest rates to near zero. That has helped push stock markets to record highs, while home prices have jumped by the most in seven years. Consumer confidence is at its highest point since February 2008. Officials hope those factors will eventually result in more consumer spending power.
“I think we’re at an inflection point,” said Beth Ann Bovino, senior economist at Standard & Poor’s. “We’re seeing things turn around. And that’s where the optimism comes in among households.”
Now here’s Schiff’s version, the radical view you are supposed to dismiss and ridicule, just as Schiff was laughed at when he was correctly predicting the last financial crisis:
The questions we should now be asking ourselves is why are prices rising, are those higher prices sustainable, and what are the costs to the broader economy?
The truth is that most buyers cannot afford today's prices without the combination of government guarantees and artificially low mortgage rates. The Federal Reserve has been conducting an unprecedented experiment in economic manipulation. By holding interest rates near zero and by actively buying more than $40 billion monthly of mortgage-backed securities and $45 billion of Treasury bonds, the Fed has engineered the lowest mortgage rates in generations. At the same time, Federal control of the mortgage industry has become nearly complete, with government agencies Fannie Mae, Freddie Mac, and the FHA buying or guaranteeing virtually all new mortgages. In addition, a variety of Federal programs, such as the Home Affordable Modification Program (HAMP) are in place to help keep underwater homeowners in homes that they could not otherwise afford. Taken together, these programs create far more favorable terms for home buyers than those that existed before the crash.
…[B]y blowing more air into a deflating housing bubble, the Fed is misdirecting money into a sector that investment capital should be avoiding. A successful economy can't be built on housing. Rather, a robust real estate market must result from a healthy economy. You can't put the cart before the horse. As a nation, we do not need more houses. We built enough over the last decade to keep us well sheltered for years. Private equity funds should be using their investment capital to fund the next technology innovator, not wasting it on townhouses in Orlando and Phoenix.
Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can't afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?
Take your pick who to listen to.
