Peter Schiff and Nouriel Roubini Get Charged Over QE

Peter Schiff, forecaster of the 2008 crisis and Global Strategist at Euro Pacific Capital battled it out with Nouriel Roubini, cofounder of Roubini Global Economics and Professor of Economics at NYU's Stern School of Business. The two sat on a panel of four, but quickly turned the debate towards themselves as they went back and forth around the future of inflation and the Fed's management of quantitative easing policies. The debate started friendly, but quickly escalated to the point where both Schiff and Roubini were attempting to cut each other off or continue talking beyond their allotted time. Peter Schiff had his time in the spotlight first. “I think we're getting sicker,” Schiff started as he spoke of the economic recovery. “[The recovery] is jobless because its not a recovery. All the fed has done is managed to reflate asset bubbles.” He cited markets in Real Estate, Stocks, and Bonds that have benefitted only a small portion of the population. Due to the Fed's Quantitative Easing (QE) efforts, Schiff states there has been artificial inflation as a result of the Fed's activities, causing a decline in the standard of living for real people. “They're [middle class citizens] experiencing the negative effects [of QE].” He continues on that, “the idea that the fed can taper to zero and raise rates is absurd. If they did that, the markets would implode and we would face an economic collapse worse than in 2008.” “Stop price fixing interest rates. We need to allow savings to finance legitimate capital investment.” Schiff is getting vocal as he continues his discussion. In a tone of concern he says, “If we get to the inflection point where we start to see inflation at 3, 4, or 5 percent, can the Fed afford to jack interest rates to 8, 9, or 10 percent? Can the government afford a $2 trillion interest payment?” As if making a plea to the audience, Schiff wraps up, “The longer we postpone taking the medicine, the more awful the taste is going to be.” The moderator turns to Nouriel Roubini, who has sat silently, but very keen on what Schiff has said. Before Schiff wraps up his final thoughts, Roubini shoots out, “I totally disagree with Peter. Deflation lead to Nazi's coming to power in the 1930's and has been associated with bad economic growth.” Turning to face Schiff, “What you're saying about deflation is nonsense.” Roubini asserts the importance of the Fed's QE and easy monetary policy, saying it was the right decision at the right time. If our economy fell into a period of deflation, we wouldn't just experience a decline of prices, but it would be a decline in demand and a decline in wages. Forcing the Fed into a hands-off platform wouldn't be enough. He continues on that Schiff's hawk view is incorrect and that continued QE is necessary, noting that the Fed's exit strategy is vital to the stability of the recovery. If the Fed is too slow to exit, the excess money in the system will create another bubble, which, according to Roubini will, “create a major problem for the fed in maintaining financial stability.” At the end of the very emotionally charged session, the week's host, Mark Jeffries polled the audience. He asked those who felt better about the future of the economy to raise their hands. Not a single hand went up. After a brief chuckle, he asked who felt less certain about the future. Half the hands shot up, inducing another round of laughter from the audience.