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Jim Rickards and Peter Schiff warn about the coming monetary collapse

Kitco News

Editor's Note: This is the second segment in this three-part series. Watch the first part here . The final segment will be aired on Monday, August 3.

(Kitco News) - The Federal Reserve has gone past the point of no return and is unlikely to be able to unwind their balance sheet in the foreseeable future, according to best-selling author Jim Rickards and Peter Schiff, CEO of Euro Pacific Capital.

Rickards and Schiff discuss the .consequences of the Federal Reserve paying for the nation’s expenses, or as Schiff called it, “free money.”

On Modern Monetary Theory (MMT), which is an economic philosophy that has been gaining some mainstream notice in recent times, Schiff said that such policies have been proven to fail in the past.

“I don’t even think it’s a theory because we already know it doesn’t work, so there’s nothing theoretical about it. We’ve had plenty of examples in history where currencies have been destroyed based on what they now call Modern Monetary Theory. The whole idea that you could print all this money and not have inflation…printing money is inflation, so by definition, you’re creating inflation,” Schiff said.

The result of printing money will be inflation, Schiff added, which in itself is like a tax.

“We’re about to see that this is going to be a complete disaster, because the dollar is going to collapse,” Schiff said.

Supporters of MMT, especially from the political spectrum, are interested in the concept of printing money to finance their own political agendas, Schiff said.

Rickards noted that it will be difficult for the Federal Reserve to taper at this point.

“The Fed dug a hole and they can’t get out of it,” Rickards said. “The Fed is trying to get out of this, they’re trying to normalize their balance sheet, trying to normalize interest rates; normalization meaning they’d love to get rates to around 3.5% to 4%. They’d love to get their balance sheet down to maybe $2 trillion from a level of $4.5 trillion where it was in 2014 and a level of interest rate of zero,” Rickards said.

Importantly, the Fed’s actions have caused a dilemma; it is unlikely that the central bank can prevent a recession without causing one, Rickards noted.

“That’s exactly what happened in 2018, between October 1 and December 24, 2018, the stock market dropped 19%, it was one point away from a bear market at that stage,” Rickards said. “And that’s when Jerome Powell threw in the towel.”

The situation is even worse now than two years ago, Rickards said, as interest rates are back to zero an the Fed balance sheet is larger than ever.

“The failure has manifest, they’ve proved that they can’t get out of it,” he said.

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