Peter Schiff joins CNBC on December 29, 2010 to discuss the US dollar, the price disconnect occurring in commodities markets, and inflation as the driving force:

What’s driving commodities is inflation. It’s governments around the world, particularly the Federal Reserve, creating too much money and debasing the value of the dollar.

As we speak the dollar is at an all-time record low against the Swiss Franc today, it’s at an all-time record low against the Australian dollar, you need $30 to buy an ounce of silver, you need $1400 to buy an ounce of gold, you almost need $14 to buy a bushel of soybeans. We’ve  never seen these prices.

Oil – you need almost $92 to buy a barrel of oil. But you’re seeing these high commodity prices during a time when the economy is very weak.

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The economy is not going to strengthen, especially with rising inflation and ultimately rising interest rates. There are a lot of people that are jumping to the false conclusion that rising interest rates or rising commodity prices somehow indicate that the economy’s going to strengthen.

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It’s inflation. If the government creates money prices have to rise to compensate for the loss of value for our money. So what’s going to happen is people are going to buy a lot less stuff, but the stuff they buy is going to cost a lot more money.

It really is very simple. The US government, with the assistance of the Federal Reserve, has chosen to inflate our money supply by trillions of dollars. There are many people out there suggesting that this money is locked up in the banks and it is not being lent. While we can agree that lending has been restricted, it is clear that the money is not sitting locked up inside of a bank vault somewhere – it has been put to work in global stock markets. The evidence can be seen in the significant rise in commodity prices, domestic equities and even Chinese stocks. The big banking houses that have access to easy money have been borrowing like crazy, and slamming that money into stocks (likely through the Plunge Protection Team aka The President’s Working Group on Financial Markets).

There is absolutely no other reason for why stocks have been rising for the last couple of years. It certainly isn’t because our economy is growing or showing signs of recovery.

Rising prices, as we have seen by yet another currency devaluation in Venezuela and rising stock markets like we saw in Zimbabwe, don’t always mean economic growth or recovery.

Watch Peter Schiff on CNBC: