Peter Schiff explains the sharply lower GDP growth in the fourth quarter of 2014 and shares his predictions for 2015. Peter asks the ultimate question that everybody seems to be ignoring – How can analysts expect the United States to experience better GDP growth in 2015 when they also expect the Federal Reserve to raise interest rates and refrain from further stimulus? It’s the Fed’s monetary policies that stimulated this phony recovery in the first place.
Follow along with this partial transcript:
“The government released its first estimate of GDP growth for the fourth quarter of 2014. Remember, for the third quarter of 2014 we had that 5% number that got everybody excited. As I explained at the time, I thought that was an anomaly. I thought that was driven largely by a big build in inventories on anticipation of more robust consumer spending in the future, and because of the quirk involving expenditures on Obamacare, which were largely reflected in that third quarter. So I thought we would have a substantial slow down in the fourth quarter. In fact, that’s what happened.
“The government reported GDP growth in Q4 at 2.6%. That was well below the 3.2% that had been forecast. Of course, the forecast was higher earlier, but they had revised it lower to get down to 3.2 and it came out at 2.6. I think what’s even more remarkable is if you look at the inflation assumption the government made. Remember, they always have to deflate the nominal GDP to get a real number. Now, in the third quarter when it was 5%, the deflator was 1.4. So that meant nominal GDP growth was 6.4. When they took out the 1.4, we were left with 5. This time, the estimate was for 1% deflator. Instead, it was 0. The government assumed zero inflation on an annualized basis for Q4. So nominal GDP was also 2.4. If we had 1% inflation, like everybody assumed… Instead of reporting 2.6, it would have only been 1.6. If the inflation was the same in the fourth quarter as they assumed for the third quarter, it would have been 1.2.
“I don’t know what it is. I don’t believe any of the numbers. I think inflation is more than the even 1.4 that we got last quarter, which means the economy is still in contraction. But even if you believe the government’s numbers, you gotta scratch your head at the recent number being so much lower than people had estimated…
“The commentators I saw kind of shrugged it off, because they’re still optimistic that we’re going to get 3% growth in 2015… Why would we get 3% growth? We only got 2.4 for the entirety of 2014, and that was the best in five years… For all the hoopla about this great recovery and this plunge in the unemployment rate, we barely improved upon [2013’s] 2.2. Remember, we had QE for almost the entire year, and we had zero-percent interest rates for the entire year. 2015, according to the Fed, and according to what everybody believes, we’re going to have no quantitative easing… And sometime around mid-year, the Fed’s going to start raising interest rates. If that’s going to happen, [and] we can only manage 2.4% with the Fed throwing everything but the kitchen sink at the economy to stimulate it, how are we going to do better than that this year without any of that stimulus?
