It’s not hard to get Peter Schiff, president and chief global strategist of Euro Pacific Capital, to go after the Fed. After all, he remains one of the most vociferous dollar bears and harshest critics of the U.S. central bank.

When IndexUniverse.com Managing Editor Olivier Ludwig caught up with Schiff, Schiff went after the Fed by way of arguing that German Chancellor Angela Merkel is talking like eurozone policymakers won’t be printing money the way the Fed has. So what’s to stop the Fed from launching more “quantitative easing?” Another big crisis, or if China decides it’s time to stop buying Treasurys.

Ludwig: What’s your take on the latest goings on in Europe?

Schiff: Well, Chancellor Merkel seems to be saying: “We’re not going to print money, the ECB is not the Fed and won’t be the lender of last resort, and that these governments have to cut spending.” She’s also saying it’s her intention for the euro to be the strongest currency in the world.

If she’s going to stick to that, then there’s no quantitative easing, no bailout, and Italy and France or Greece or Spain—everybody in Europe—is going to have to cut back on government spending.

That would be a very positive thing for Europe. Because if they did the opposite thing we did, it’s the right thing to do. And if they want to have the world’s reserve currency, they can have it, at least for a while. They can take the economic mantle from the U.S., and that is going to plunge us into the economic abyss.

Ludwig: So what is the U.S. doing?

Schiff: We’re doing the wrong thing. We’re doing exactly what Merkel is saying Europe is not going to do.

Ludwig: So what does the near-term pain look like in Europe from where you sit if we take Merkel at her word?

Schiff: The near-term pain is for people who are collecting checks from the government. The near-term relief is for the people who are paying the taxes. They’re going to see a stronger currency, lower prices and a more vibrant economy.

I don’t think there’s a lot of short-term pain associated with cuts in government spending. I think the pain is already there. If they cut government spending, it’s going to be a big positive.

Ludwig: On this side of the Atlantic, with the Fed, what’s your outlook? Do you see a QE3?

Schiff: I think QE3 is going to happen—if it’s not already here in disguise. They will officially acknowledge it. The government just revised downward its estimate for third-quarter growth from 2.5 percent to 2. I think we’re relapsing into recession because we never really fixed our problems—we just added more debt and more government.

I think the Fed will be looking at oil prices, which will be well over $100 a barrel shortly. We’ll be seeing record-high gasoline prices seasonally, and probably we’ll see heating oil prices the highest they’ve ever been in the wintertime.

The Fed will unfortunately react to this thinking: “Oh no! We need cheaper money because higher energy prices are going to be a drag on the economy.” But, of course, the higher energy prices result from all the cheap money.

So I think we’re going to see more easing and more pain, which means higher gas prices, higher food prices and a weaker dollar.

Ludwig: So, when does the Fed have a change of heart?

Schiff: It’ll take a crisis. We’re not going to do it differently until there is no other choice, until there is a full-on sovereign debt crisis where U.S. Treasury prices, long term, are really under pressure and the dollar is falling fast, and prices are really soaring.

That’s when the Fed will potentially do the right thing. But as long as it can delay doing the right thing, it will. And that ultimately means that doing the right thing will be that much more painful for the economy because of how long the Fed will have delayed.

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