The Next Financial Crisis Is Coming... And This One Has No Bailout

Joining us now to to really kind of unpack all of that is chief economist at BNY Investments Vincent Reinhart who worked at the Federal Reserve for 24 years as an economist and director of the division of monetary affairs. And Peter Schiff, Euro Pacific Asset Management chief economist and market strategist who for years has warned that the Fed should have been raising rates to quell inflation. Vincent, again, that was a very very quick meeting. It was almost like somebody yelled fire and war said, "Oh, I'm getting out of here." I mean, what do you make of that? What message does that send? >> Uh that the chair is in control. I was impressed that the vote was 12 to zero. >> Mhm. >> Uh I was thinking that maybe a governor or two would dissent given their previous comments. So, he got his governors on board and he also kept them quiet. That's very hard to do in this day and age. The other thing I'm impressed at is there was no news report before the meeting from some unnamed source saying definitively what the Fed would do. He didn't want that. Uh no more leaks from uh C Street and 20th anymore. Uh he's keeping a tight ship. Both the length of the meeting, the length of the press conference, and [clears throat] the uh the that battening the hatches on information. >> Well, it also could mean that the fact that it was unanimous and everybody said we need to tighten rates means that the situation may be a little bit worse than we think it is. Peter, give me a sense. How does today's move measure up against what you believe is needed to control inflation? >> Well, I mean, Powell may have succeeded in reducing the length of press conference, but he's not going to succeed in reducing inflation. And in fact, I don't even believe his statement that the Fed made this decision independently on its own. I I don't think the Fed wanted higher rates. If they did, they would have done it in meetings ago. I think the Fed was backed in corner this point. They had been talking tough pal how I mean war shot about how how he's going to be vigilant and fight inflation is going to hike rates. I think at this point it was put up or shut up with a 90% probability of a hike. If they failed to deliver, they would have lost a lot of credibility and I think that's the reason it was unanimous. I think they knew their credibility was on the line and so they wanted to show that this was unanimous. But a 25 basis point rate hike is nothing even if they follow it up with another one in December. It is much too little too late to derail the inflation train. Inflation is going a lot higher. So are interest rates. You know, he said that inflation has been too high for too long. Well, interest rates have been too low for too long and that's not a coincidence. They go hand in hand. And both are headed a lot higher thanks in large part to the Fed, but also to the US government under both Democrats and Republicans. They have created all the deficit spending that the Federal Reserve has monetized, which is the cause of the inflation problem that is going to get much worse over the over the ensuing months and years. >> It was almost as if cuz we were counting how many times he said inflation was bubbling up too much. It was almost as if he was sending a message maybe to even Donald Trump who has really wanted rates down. Here's to some of what Kevin Warsh kept repeating. Listen. >> At our July meeting, we all agreed that inflation remained too high. Yet for more than five years, inflation has been running above target. We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Today, the FOMC decided that this standard has not been satisfied. Uh inflation is the problem. >> Inflation is the problem. Vincent, we just heard the JP Morgan, and this is pretty much expected, but JP Morgan, the first bank to hike its prime rate to 7% by 25 basis points. Explain to our viewers why that matters to them, their credit card rates, their possibly their mortgage rates. >> No drama there. The prime rate follows in lockstep with the policy rate, and what it means is it will show up in your bills. A lot of credit card rates, some mortgage rates, a lot of borrowing rates are tied to the prime rate, and it's headed higher because of what the Federal Reserve did today. Probably hot headed higher from here because notable in what Kevin Warsh said was no stopping rule. He talked about inflation being a problem. He talked about financial conditions still being accommodative. It's It sounded like a committee that'll be raising rates some more, in which case the American consumers will be paying more in interest costs. >> that's not helping the financials. We've got the spider XLF for financials down 2 and 1/2%. I would note the Dow is now down nearly 850 points. Peter, let's talk a little bit about the housing market because the mortgage rate, the 30-year fixed mortgage rate topping 7%, and when you look and see where it was September a year ago, 6 and 1/3%, January it was even lower. This past January it was at 6.1%. The housing market's already been struggling. Can you give me a sense of what you anticipate this might do to home sales? >> Well, I mean, eventually home prices will collapse, and that might invigorate home sales. But between now and then, uh mortgage rates are going to keep rising. I agree the Fed's is going to keep hiking rates for a while, but unfortunately they won't hike them enough uh to slow inflation. And as far as where mortgage rates are headed in bonds, we are in a major bear market in bonds. We had a 40-year bull market in bonds from 1980 to 2020 where the yield on the 10-year Treasury fell from 16% to less than 1%. We are now 6 years into this new bear market. We are going a lot higher. Rates are still low in the scheme of things. 5% on a 10-year is cheap, especially when you're 40 trillion in debt. And so mortgage rates are headed back into the double digits. How high they ultimately rise, I don't know. Uh but they're going a lot higher and the housing market, I believe, is already a bigger bubble than the one that popped in 2008. And so there is another financial crisis around the corner. Except this time it could be a lot more catastrophic for the economy because it may end up being a sovereign debt and a currency crisis, which would be a lot worse. And it also means no bailouts. >> I'm looking at the home builders right now. You've got Meritage, uh which I believe Berkshire Hathaway uh purchased um recently, but down 3 and 1/2%. You got KB Homes down 3%. Hovnanian down 2%. Uh it's just not not a great day for them either. Um and again, we're keeping a very close eye, folks, on all of the market indicators here. And the S&P down 68, Nasdaq down 138. Vincent Peter, thank you so much.