Peter Schiff: Is the Fed finally losing its credibility?
12:40a ET Saturday, February 24, 2007
Dear Friend of GATA and gold:
Euro-Pacific Capital's Peter Schiff speculates that the surprising strength of gold shows that the markets are calling the Federal Reserve's bluff about guarding against inflation.
In his new essay, "Is the Fed Finally Losing Its Credibility?," Schiff writes:
"Gold investors may have finally concluded that when it comes to fighting inflation, the Fed is all bark and no bite. Despite the tough talk, many are now convinced that [Fed Chairman Ben] Bernanke will not risk pushing the U.S. economy into recession in an effort to contain inflation. With the sub-prime mortgage market unraveling, the last thing the Fed wants is to add kerosene to the fire in the form of higher interest rates.
"If gold investors now believe that the Fed will tolerate higher inflation, then any signs of heightened inflation can now be seen as purely bullish for gold.
"This is an extremely significant development with profound implications for U.S. financial markets, particularly long-term bonds, the housing market, and the entire U.S. economy. If investors are finally wising up to the Fed's bluster, a run on the dollar can not be too far off. To maintain international confidence in our currency, the Fed must be credible in its resolve to fight inflation. If our foreign creditors decide that 'Helicopter' Ben is more concerned about keeping housing prices up than he is about keeping consumer prices down, they will rush for the exits.
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