Peter Schiff Has the Best Rant You'll Hear All Week

For your listening pleasure, fiscal hawk and U.S. Senate candidate Peter Schiff tells a harrowing tale of the death of the dollar. Your hackles will be raised, your eyes will bug out, you'll kill yourself just to get the gold out of your own fillings. I'm not sure where this speech is from, and I'd check it out, but I prefer to think this is a voicemail Schiff left on Larry Summers' answering machine:

Comments

[Emperor Norton]

This is all so hyperbolic it's a bit hard to take it seriously. Comparing the US to Zimbabwe? Really?

After the Japanese saw the collapse of their own bubble their central bank (eventually) made the same moves that the Fed is making now. While I wouldn't want to be Japanese right now (for a whole bunch of reasons) the Yen has yet to be obliterated in the way Schiff is predicting. Why is the dollar so different?

[j1]

Japan is different because they don't have the reserve currency. Half of the dollars are outside of the U.S. That's not true for the Japanese yen. So when a run on the dollar starts, they are much more dollars to dump, and there can be a truly supply shock.

[Emperor Norton]

That sounds plausible. On the other hand, we haven't seen anywhere near the level of international cooperation necessary to make the switch from dollar reserves. We've heard some threatening noises and that's it. If that's the ultimate cause of the dollar's destruction, we should expect to see a slow-motion trainwreck over the course of several years, and no reasonable person can posit with anything close to 100% certainty that foreign central banks will follow that course.

[Jeffersonian]

I think Schiff is saying we're more likely on an Argentina/Brazil trajectory, EN, than Zimbabwe, though the mechanism is the same. We're printing so much money and throwing it into such stupid endeavors that it's inevitable that the dollar will be devalued.

[Emperor Norton]

Devalued is one thing. Schiff seems to be claiming that the dollar will essentially go to zero. That is a far bolder prediction. And when he claims that he's "100% certain" that events will follow this course, well...

Heck, who knows? This could be the Austrians' moment in the sun. If I have to start carrying around stacks of bills to pay for milk I'll remember that I heard it here first. I wouldn't bet on it, though. One of the things that I've always liked about Reason is that they haven't been taken in by the fear-mongering and disaster predictions of the right or the left. Reason readers are terrified of neither brown people overrunning and destroying Western civilization nor global warming cooking the planet. It's a little unsettling as a Reason fan to see this kind of thing posted unironically.

[anarch]

It's a little unsettling as a Reason fan to see this kind of thing posted unironically.

Uh...

you'll kill yourself just to get the gold out of your own fillings

[Emperor Norton]

Yeah, but that's like background radiation levels of irony compared to most TC posts. Maybe I should have said "mostly unironically." This post contains close to the bare minimum amount of snark found in anything Cavanaugh writes.

[anarch (mind the gaps)]

Won't quibble, except to note that the sentence composed entirely of manifest hyperbole = 1/3rd of the piece. The other 2/3rds being "mostly," your revised assessment is unassailable.

Anyway, can't say more since I've killed myself just to get the gold out of my own fillings.

~ Jack o'lantern, 2009 edition.

[Random Dude]

Dude,

just look at the monetary base over the last year. It has DOUBLED!

With fractional reserve banking and general fear, the current reserves would make the dollar worth a cent.

[Lee Kelly]

Random Dude,

Why hasn't it? I was much more sympathetic to Schiff's predictions until they didn't happen.

The monetary base may have doubled, but the demand to hold money increased sharply, especially given the Fed's decision to start paying interest in bank reserves. In other words, there is ample deflationary pressure to offset the inflationary pressure created by the new monetary base. This fact has been born out by the rather modest rate at which the price level has been rising -- exactly what one would predict in a monetary equilibrium framework.

Remember, it's supply and demand for money no different than anything else.

[Random Dude]

Yes, but the Fed's interest on reserves is low. The money will be lent eventually when risk-taking through leverage becomes attractive, and as always, the Fed will not be able to reign in the money supply in time.

The "rather modest" rate of inflation you are talking about is CPI--however the recent market rally is very much due to re-leveraging of the investment banks. It is not "modest" by any means, and the zombie banks are in even worse shape and leveraged than before.

Inflation in CPI terms doesn't happen immediately--the monetary inflation will spill over into the CPI numbers not because it has to, but because the Federal Reserve has a horrible track record.

The one time they have actually done the right thing was Volcker '82. However, do you think the Fed would allow an overnight rate of 10% much less 21%. If your answer to this is no, then you pretty much are guaranteed that the Fed will overcompensate on the inflation side. Given the magnitude of these colliding trains of inflation/deflation, the delta will still be enormous. Considering the 1970's (a much more prudent era) saw a devaluation of the dollar of 70%, it's hard not to see at least that devaluation over the course of a decade.

Schiff has maintained that deflation would be the preferable situation if the government stepped out of the way; however, government policies will inevitably lead toward CPI inflation. The government cannot have a deflationary situation because of our long-term fiscal debt situation.

[Random Dude]

I should clarify my comment about CPI inflation doesn't have to happen. The normal course of events if the Fed did nothing from here on out would be a delayed CPI hyperinflation due to radical monetary inflation. However, the Fed can pull the money out and most certainly will pull a great deal out. However, they will not balance that fine line between deflation/inflation for the reasons mentioned above.

[yonemoto]

You should have listened to Mish (also an austrian). If you read Schiff's book, his flawed reasoning was that the government of the US is dumb while the government of China, miraculously, would be smart. Basically Schiff was too panicked.

Eventually Schiff's predictions will come true, the question is when will we be going from a Mischean era to a Schiffean era? I call Mid-to-late 2010-ish.

[John C. Randolph]

his flawed reasoning was that the government of the US is dumb while the government of China, miraculously, would be smart.

Schiff never claimed that the Chinese government is any smarter than any other government. After all, they've been buying US bonds for decades, which he'll tell you is an egregiously stupid move.

-jcr

[prolefeed]

With Tim "Crying During Passive Anal Sex" C., the default assumption should be irony.

I'm going with that here.

[Br'er Rabbit]

I like his politics but Schiff's financial prognostication (for his investment clients) has lost fortunes.

[mccleary]

Full disclaimer: cherry-picked clips, too much client money sat on the sidelines for too long, eventually every nay-sayer will be right, etc. Still did anyone get 2008 as right as Schiff? I bet there were clients who made out just fine taking his advice from 06-08.

http://www.youtube.com/user/jd.....I0QN-FYkpw

[Br'er Rabbit]

All kinds of people got 2008 much more right than Schiff(Treasuries rocked for one).He was prediciting a dollar collapse and pushing people into foreign equities.

Schiff seems to think the US can collapse while the rest of the world is just fine.Maybe someday but not then,not now, and not next year.

[Br'er Rabbit]

Here is a good take on Schiff's performance through 2008.
http://globaleconomicanalysis......wrong.html

If his clients stuck with long positions in commodities and foreign equities I assume they have recovered somewhat but bthey took a beating in 2008.

[Random Dude]

Check the date.

That post is bullshit considering Schiff's massive exposure to gold, which never dropped, and Asian equities, which have risen much more over the decade and even more the last year.

You can't say that he's unsuccessful because for a 6 month interval (while hedge funds were de-leveraging) that his clients lost money but over a year are up significantly over those who invested in U.S. stocks.

[yonemoto]

Yes, yes, Mish was right and Schiff was wrong. Still, schiff correctly predicted the housing collapse, and got his clients out of the stock market. So as he correctly points out he didn't lose his clients as much as other people did.

If you read Schiff's book, the logical inconsistency that is apparent is that he considers the US gov'munt to be dumb but the command and control economic oligarchies in foreign nations (esp. china) to be smart.

[Voros McCracken]

That strikes me as excellent campaign commercial fodder. Not that he was right or that the clips aren't cherry picked, but that the other guys _laughed_ at him frequently.

From a critical thinking standpoint that's hardly conclusive, but in terms of election campaign material? It's gold and we know how much Schiff likes that.

[Bob]

If nothing else, it's nice to hear a senatorial candidate loudly and explicitly yell, "BULLSHIT!"

[Paul Krugman]

Don't listen to this quack. He advised Ron Paul, for crying out loud.

[sc]

and we're supposed to listen to you????

[Jonathan]

Ron Paul was the only presidential candidate that actually knew what he was talking about. Paul Krugman is a Keynesian witchdoctor.

[James]

I have a question for you Mr. Krugman. Why have Schiff and Ron Paul been right on every prediction while every thing that comes out of your freakin' mouth dead wrong?

[Flex Nasty B.I.G.]

Schiff is too hyperbolic for my tastes as well.

And, while he does occasionally make some great points, for the most part he sounds like a broken record. Yes, Peter, we get the point. The Fed is printing too much money. Printing too much money leads to inflation. Americans need to stop spending and start saving.

Can he elaborate on the above in any detail? Does he have any other great insights for us? Apparently not. Apparently he would rather rant and rave for hours, simply repeating the above handful of points.

[Random Dude]

Detailed speech in 2006 regarding the mortgage market.

Recent speech where he goes into detail about future projections.

[joshua corning]

Apparently he would rather rant and rave for hours, simply repeating the above handful of points.

I think the point that cell phones and computers have been dropping in price for a long long time yet people keep buying them is a pretty novel point. A point that the deflationary spiral crowd has never explained.

[Tim Cavanaugh]

Is it just me, or when prices fall, aren't people supposed to be more likely to buy? That's what I never understand about the deflationary spiral argument.

[Br'er Rabbit]

The argument is that people will begin saving to buy cheaper goods in the future in a deflationary economy rather than using credit to buy cheaper goods now in an inflationary economy.
In the consumer "walking around" economy that is ridiculous.People want neat stuff even before they can afford it,most of them anyways.

[Flex Nasty B.I.G.]

I've only read about this in passing, but IIRC the deflationary spiral crowd believes that people will see prices dropping and keep holding out for them to drop further before buying.

In other words, if you know the flat screen TVs are dropping in price by $10/week, you're going to continue to hold off buying. Or something like that. I don't buy it that much either.

[prolefeed]

A real life example of how deflation in computers work: I know damn well that the longer I wait to buy a computer, the cheaper and/or more powerful it will get.

So I want to hold off, but I USE computers, and so do my wife and kids, and that value of that use greatly exceeds the marginal drop in value.

Which is why we currently own THREE computers, all rapidly depreciating in value, but creating far more value in the present.

[Space Fiend]

The rapid depreciation is what is driving demand - computers have a very short shelf life, they aren't really a durable good.

On the other hand, if the price of washing machines or refrigerators is dropping while you have a perfectly good one still, you (as a rational consumer) will hold off buying as long as possible. That's the problem.

[Slocum]

Computers are quite durable -- it's just that they're improving so fast, that people upgrade. I've replaced lots of computers over the years, but none of them because they no longer worked.

Refrigerators, on the other hand, are a much more mature product that change very slowly. So it doesn't matter whether the prices of refrigerators or washing machines are going up, down, or staying the same -- those I'm not going to replace under any circumstances unless and until they break and aren't worth fixing.

[SimpleFreedom]

So you're arguing that in your view of a prosperous society, people will throw out perfectly usable washing machines and refrigerators and buy new ones. That's just silly.

[Dello]

Um, they do that with cars every day.

[Jonathan]

What do you think Cash for Clunkers was?

[hmm]

The "novel" point is predicated on technology producing the next desirable thing. It's not really novel. It's the same thing as horse buggies falling in price as cars became more popular. Notice all the things he mentioned were cutting edge technologies that are highly competitive and reinvent themselves on a fairly rapid cycle. People like new shit. (see iPhone)

I always look at the deflationary spiral as being based in price being tied to quantity being tied to labor which dives price. You are only looking at a portion of the problem if you just consider price and quantity. One way I got a general idea of the relationship between just the price and quantity and how they move (leaving out labor) is two firms competing either in a Stackelberg Competition or even just a plain old Cornout game.(variations on the same model)

If price drops (for whatever reason in general) the quantity produced drops especially when operating in a best response framework. As quantity produced decrease need for labor decreases. As the labor market decreases people demand less. As people demand less quantity produced drops. I personally don't see the deflationary spiral as the huge self feeding monster some do. People like to consume, and that factor seems to be left out or given little weight. For instance the huge retail season during Christmas or any other national holiday with gift giving tied to it is as much about buying shit and being happy as getting shit and being happy. If that's true then buying for the sake of buying could be seen as a hole in deflationary spiral, although a small hole. The other problem I see is people will view points on the way to the bottom as being a bottom and start purchasing durable or storable goods for the long run. (kind of like the trends seen in the equity markets) I just see a lot more things stopping a deflationary cycle than an inflationary cycle. I also think the involvement of government or central banks having a large impact on inflation scarier than deflation which to me seems more based in market fundamentals and not the direct decisions of those smart people.

Just my 2 cents. Which are barely worth a penny and head to being worth zero.

[hurlybuehrle]

You've stated the deflationary spiral argument nicely. Where it fails is in the first sentence of the 3rd paragraph. Why does the price drop in the first place? It's certainly reasonable to guess that the market is signaling to the producers that they don't value the good quite that much. Which suggests that decreasing the quantity produced (and freeing up labor for other areas of production) is in fact a sensible thing to do.

[hmm]

I don't think this is always a case of value. The customer may really want to purchase, most do. But the inability or fear of future problems may hinder their purchasing. Like I said the variables are numerous. Would there be other production to take up the slack in labor? If the entire economy is seeing a braod price drop and therefore a broad drop in production...You get the picture, just add broad in front of all events. Then where is the labor to go? Besides to the Capital Mall to protest.

It turns into a chicken or the egg argument for why prices drop. At least I haven't seen any good way of absolutely delineating an if/then case that is absolute and not relative to another inverse if/then case. If that makes any sense.

[Random Dude]

Tim,

while not a logical argument, Tom Woods provides an empiric, historical rebuttal to the deflationary spiral argument with the downturn of 1920.

During this one year, deflation was between 13-18% depending on the study. Nothing at all was done and the recession was over in 18 months.

[Dustin]

I'm pretty sure this is from his weekly podcast/internet radio show.

http://www.europac.net/radioshow_archives.asp

@Br'er Rabbit, the only people who have lost money with are the ones who got in late and sold their stocks early after the initial drop. If you stayed in for the long haul, I imagine you'd be pretty happy right about now with huge gains overseas and gold, silver and other assets he recommended at highs (nominal highs, anyways). I like Mish. I agree with a lot of what he says. But, that article just seems like he's trying to snag up some of Peter's clients. Which, if his clients were unsatisfied, would be a great place for them to go to. I just think they are two different kinds of investors and are both right with Mish being right in the short run and Schiff being right in the long run.

[Br'er Rabbit]

I've got no idea what either of them recommends for actual investments at what time period.According to Mish:
Schiff's Overall Thesis

* US Equity Markets Will Crash.
* US Dollar Will Go To Zero (Hyperinflation).
* Decoupling (The rest of the world would be immune to a US slowdown.
* Buy foreign equities and commodities and hold them with no exit strategy.

Schiff was correct about point number 1 above. The US equity markets crashed. That was a very good call. Unfortunately, his investment thesis centered on shorting the dollar in a hyperinflation bet, and buying foreign equities rather than shorting US equities.

Furthermore, Schiff made no allowances for being wrong and had no exit strategy whatsoever.

There is no decoupling and ,although down, the dollar is still holding in there."Flee the dollar to what" is the question for Schiff. Most any significant disturbance in the world economy will result in a flight to the dollar.It is down because many perceive we are in a "recovery". Systemically, much of the world is still fucked.

[Voros McCracken]

I don't know much of anything about econ, but I read a lot of baseball books in my time.

It sounds like we might be looking at a repeat of something Bill James wrote once. And I'm paraphrasing:

"Growing up we knew a kid who we were just sure would be dead of a car wreck before he was 30. Every one of us was 100% sure of it. We were wrong. He was dead of a car wreck at 37."

It seems to me from my ignorant point of view that government intervention would have to be a major wild card in any financial forecasting. I mean even if you knew the crash was coming and had a general idea what would be done, you couldn't possibly know the extent to which it would be done and which companies would be saved and which would be allowed to crumble.

And that's just our own government intervention. Most every other government in the world is up to the same shenanigans.

Fortunately, I'm pretty much broke so I don't have to worry about picking winners in the markets. I lose regardless. 🙂

[Joe]

Voros, I'm a fan. But I thought you were the king of separating out what is predictable and what is unpredictable? No GIPS? 🙂

[Space Fiend]

The dollar is hanging in there? Is that a joke? The Euro just broke $1.5, from its low of $1.25. There is no possible way the dollar isn't going to continue to get hammered.

[John C. Randolph]

his investment thesis centered on shorting the dollar in a hyperinflation bet,

No.

He hasn't advocated shorting the dollar at all, he's advocated getting out of the dollar. If you're shorting the dollar, that means you're selling dollar futures, and you'll be toast if the dollar rises.

-jcr

[Jason S.]

Notice that he rails against heroin and alcohol but is suspiciously mum about cocaine.

It's sad to listen to a man in crack fix frenzy leave a voice mail message on his foreign equity cocaine dealer's smartphone. Right? Right?

He might be right, though.

[Lee Kelly]

Although Schiff is impressive in many respects, his understanding of monetary economics is, in my opinion, deeply flawed. His analysis always holds the demand for money constant; that strikes me as a highly unrealistic assumption, but his most frightening prophecies depend upon it.

[hmm]

With the market in the US primarily operating on debt don't the relationships of the demand for money start to move towards less importance, at least when looking at the US consumer. The US consumer has just recently managed to have a positive aggregate savings and that has begun to fall. Which implies to me that the demand for money, with respect to the US consumer, has damn near remained constant and insatiable as long as debt is cheap. And it doesn't look like the price of to borrow is going up anytime soon, so wouldn't demand remain strong or at least high. Put bluntly people are fucking retarded and greedy when the price to borrow is 0. Even if that price is variable.

[Lee Kelly]

When Schiff says that the interest rate is zero, he is talking about the federal funds rate. The federal funds rate is the interest rate at which banks lend federal funds to each other overnight. Why would banks lend and borrow federal funds? At the end of each day banks are expected to satisfy the reserve ratio, but if a bank has too few reserves, then it can borrow from a bank that has too many. The federal funds rate is the interest rate that emerges in this interbank market for federal funds. What could drive the federal funds rate to zero? When the Fed uses its open market operations to buy assets, it swells reserves in the banking system. If the banking system is so flooded with reserves that banks have little trouble satisfying the reserve ratio, then demand for overnight borrowing of federal funds almost entirely disappears. In other words, the federal funds rate falls to zero because banks needn't to borrow to meet the reserve ratio.

Ordinarily, banks have an incentive to lend out any excess reserves. However, the Fed has recently turned reserves into a zero-risk interest bearing asset. This has reduced the incentive of banks to extend credit, especially in the present climate of uncertainty. In consequence, private borrowers must convince banks that lending them money will generate greater returns than holding it in reserve. Although the Fed embarked upon an unprecedented expansion of the monetary base, it also enacted an equally unprecedented policy of paying interest on bank reserves. When this and the significant increase in money demand (i.e. fall in velocity) are considered, the Fed's monetary policy probably hasn't been expansionary enough.

It has been a while since I heard Schiff express his views, but I do not recall him taking into account any of these pertinent facts. The real threat of inflation, in my opinion, has not been the Fed's recent monetary policy, but the Federal Government's long term fiscal policy.

[Space Fiend]

The Fed has no mechanism with which to remove the excess reserves it is holding.

As the economy recovers, interest rates will have to go up from 0. When that happens, the banks will want to begin taking more and more of their reserves out of the Fed, in order to lend it to third parties which would push rates back down and completely break the system. Thus, the Fed has to raise interest rates on these reserves continually, which will in turn increase the supply in the excess accounts, resulting in a spiral.

The Fed has to attempt a balancing act where they slowly bleed off a very small amount of money from the excess reserves, which amounts to less than the amount the higher rates are taking out, probably in perpetuity, so that it very slowly winds down. Given both the incredible technical challenges of this approach and the antiquarian 'lets all meet in a big boardroom every once in a while' way the Fed is set up, combined with the volatility this situation will introduce to the interest rate, this will almost certainly prove impossible.

[hmm]

I understand fed funds. You said the demand for money which is generally used to describe the amount of money people or the market want to hold. Which is the inverse of what people want to invest, in a simple model, in bonds and equities. Fed funds are the supply side not demand side. Just because there is more money doesn't mean it will be used. (I think you stated that in a round about way) The demand for money is determined, in theory, by the market.

You're arguing that the banks aren't lending to each other has an effect on the demand for money by the market which is determined by the market.

Just because there is a glut in the reserves doesn't mean there is no demand or even an effect on the demand in the market. The FOMC drove the rate low using the NY trading desk. Your glut is as much a part of the rate being driven low at the desk as it is TARP. To me it looks like you are doing what Tim did with quantity and price, assuming only tow variables are acting in concert when there are several more things going on with equal or greater influence.

I think we should be glad banks are still holding the crap load of TARP funds and not releasing them into the market. It's a lot easier and less painful to remove funds from the heavily regulated banking institutions than the market as a whole. I'd rather not see interest rates multiple times higher than Volker's in my life time. If the money gets out we are fucked, and I'm pretty sure Timmy, Ben, and the banks know that. I just don't know how much self control any one of those entities have.

[John]

Of course the banks will begin lending their excess reserves, just like they have ALWAYS done. People argue, why would anyone lend when asset prices are falling? Well, the entire fiat system is based upon credit, and the only way to push asset prices back UP is to lend. If the creditors (banks) waited until all debt was repaid, there would be no money in existence.

With double the monetary base, you can rightfully assume that half of the existing leverage will produce the same total money supply/credit as that existed before the crash (and before the Fed's balance sheet was expanded astronomically).

Yes, banks are making interest on their reserves, but, as stated before, that will just increase the monetary base further, and the Fed will have to further raise the interest rates paid to banks to keep that money out of the system.

With all the manipulation in the system, I don't think any asset is safe - they are only safe relative to other assets. I believe gold spoke volumes during the crash late last year as it held it's values as all other asset prices tumbled. It's got my bet. For everyone else out there, load up on your treasury bonds - that surely isn't a bubble waiting to pop 😉

[hmm]

Peter Schiff isn't alone in his assumptions. There are many very successful investors who say the same thing to varying degrees on just about every point of the financial and economic scale. Jim Rogers didn't bail on the US for Asia in 07 because he saw it staying a power house. I'm not a huge fan of Quantum, but anyone who can play a central bank the way they did has to have a good head on his shoulders when it comes to predictions.

[j1]

Don't forger Marc Faber

[Warren]

I agree with every word

[James]

As I get closer to getting my undergrad degree, I keep thinking that starting to invest in the current economic climate wouldn't be such a great idea.

Especially considering that so many things in the economy seem to be so artificial.

I don't even like the idea of credit because it seems to inflate the quantity of money that's available for a consumer to spend by betting on future income.

Whenever I hear about the Feds lower the interest rate, which I remember from high school economics being defined as "the cost of money", it seems insane for a government body to be in control of the cost of our currency. The Wizard of Oz wasn't far off the mark with the man behind the curtain.

[Frank]

Someday, people will say "Peter Schiff was right" as characters in "Atlas Shrugged" ask, "Who is John Galt?"

[Gowron]

Perhaps. But not today.

[Aresen]

Much as I share Schiff's concerns about the Fed's monetary policy, I would prefer a little more fact and a lot less rant.

[Ahmed]

This all fits perfectly into everything I have read here--all sound and fury signifying zilch. Is anybody making money on this shit, or is it some sort of charity for nutjobs?

[Brandybuck]

Now is the time for the Austrians to shine... But Schiff is embarassing them all. He's got too much of his dad's nuttery in him.

The dollar is in trouble, but it's not going to die. We will have inflation, but it's not going to be hyper. Remember folks, the last time the 100% reserve goldbugs were screaming this loud for people to panic was right before gold tanked.

[sage]

This sums up my sentiment nicely. The reason I think we won't see deflation is that the elites and rich folks would be hurt, and that won't happen (as a whole). And we won't see hyperinflation because people with debt (most of the rest of us) would win as our debt got devalued to almost nothing. So mild to moderate inflation is really the only thing that makes sense.

[Brandybuck]

With the recent actions of the Fed, I do expect some strong inflation. Whether this will be balanced out by other factors I don't know. Inflation doesn't work as simply as some of the "Austrian Economics in One Easy Lesson" folks would have you think.

[William Walsh]

It's later than you think.

[TP]

That rant was even better than Steve Wynn on CNBC last week at that Baron thing. I think Becky Quick is still a little wet from that interview.

Sorry Becks, you know I love ya.

[Leon]

This was recorded in early 2009 when the dollar rally was ending.
Repeat: this is not a recent recording of Peter Schiff.
His comments in this recording are bout the push to "stimulate" earlier this year and the complete reversal of the dollar rally(happening currently).
This clip was edited and reposted recently by a advocate of 2012 doomsday predictions and does not reflect Peter's mood on the topic today.
At the time I think Peter was furious at the Keynesian deflation propaganda being pushed in the media and he showed it.
Once More: This article is NOT a recent recording of Peter Sdhiff.
Here is a recent recording on the same topics:
http://www.youtube.com/watch?v....._embedded#

[Suki]

Posting in this secret thread feels so decadent! Lots to learn too, I have no clue on monetary policy.

I am getting the hint that people who own gold are trying to cause a panic and make gold more expensive.

[TP]

Time for a trip to Dubai?

[Rice Bingham]

I am getting the hint that people who own gold are trying to cause a panic and make gold more expensive.

That's cuz yer retarded, Guy.

[I, Kahn O'Clast]

Mild deflation is a net positive, but only in the context of an increase in productivity (and profits). That allows for benefits to accrue to both the producer and consumer. Deflation that comes about from a lack of demand (often from a contraction in credit), or a supply shock (sudden increase in supply of a good beyond producers expectations) causes dislocations including bankruptcy for producers but at least a sharp decline in investment spending -- which is contractionary.

What Bernanke fears is the viscous cycle: fall in credit to system leads to contraction in demand, leads to falling prices, leads to falling investment and production, leads to higher unemployment and further contraction in spending, etc etc. That's what happens in Depressions: you get a cycle of ever less spending ever falling prices and bankruptcy.

This is made all the worse by the very high levels of indebtedness which does not deflate. In real terms, debt levels rise compared to prices and become unsustainable. Example: Computer company in perfect balance - sells enough machines to cover all expenses including labor, debts service, capex, taxes, etc. Sudden collapse in credit leads to sharp fall in sales. Prices fall and suddenly there is not enough income to support expenses. Hence layoffs, cut in capex, tax burden more difficult and then bankruptcy as debts unpayable.

Bernanke believes that if we can keep credit to system alive, then we can avoid the cycle. That's his whole theory.

In Japan this version of quantitative easing was not tried until 2001-2002 after a decade of failed fiscal attempts to revive the economy. It seemed to work ok. Biggest diff btwn US and Japan: they started as net savers with very low debt. That kept the cycle from leading to personal and business bankruptcies (aside from banks which were bailed out) but did lead to stagnation. Of course it has lead to a massive increase in public sector debt which will eventually prove unsustainable.

Our prob is too much personal and business debt: hence the printing press to try to inflate us out of it.

[OMG]

Good analysis ... and I would buy it if credit in the general economy was expanding in any meaningful manner as a result of the Fed's quantitative easing. Instead, the funds that go to banks at zero has been pilled right back into Treasuries, and the banks are pocketing the spread.

[I, Kahn O'Clast]

This is the problem: there is no money multiplier since the liquidity infusion does not go into the general economy but rather stays inside the banking system. Once banks balance sheets are better repaired, then the theory is that they will start lending again.

[I, Kahn O'Clast]

More specifically, there is no velocity to the money..... my bad.

[Mike M.]

By the way, late last week Moody's warned that the United States could potentially lose its Aaa credit rating within the next three years if we don't change this insane course we're on.

[R C Dean]

Let's not forget that the US is committed to printing at least a trillion new dollars every year into perpetuity as it borrows to finance its federal deficit.

When the government sells a trillion dollars worth of debt and then spends the trillion dollars, it has just injected a trillion brand new dollars into the money supply. Sure, there's an offsetting debit sitting out there due sometime in the future that, but those trillion dollars are there now, and when the debt comes due, that trillion dollars will simply be transferred to a new owner. Its not going away.

[Tyler]

Also keep in mind that if the Fed is the one buying the Treasuries, then a lot of that money will be lent to banks which will actually increase the money supply a lot more since their reserve requirements are so low.

It could get out of hand pretty quickly. My petty prediction is that it will get out of hand, the question is when and who goes down with the ship.

[R C Dean]

Also keep in mind that if the Fed is the one buying the Treasuries,

The Fed is buying a lot of Treasuries, either at auction or shortly after (as Our Masters try to disguise the weakness of demand for Treasuries with backroom deals).

[DJC]

I've listened to this recording of Schiff and I've read all the comments. The question I have is this: Do you really think Schiff approved release of this recording without some kind of editing, at least re: the foul language?

Yes, I think Schiff is angry, becasue most don't get it. Ya gotta ask what's behind Reason's reasons for publishing this unedited and probably unapproved recording????

If you want a clearer take on Schiff's monetary position check out this link:
http://www.capmag.com/article.asp?ID=5688
Here's an excerpt of Schiff's message:
"To save our currency, the Fed must get very aggressive with interest rate hikes and reign in the supply of dollars that have flooded the world over the past few years. The federal government must also do its part by cutting spending, which means no more stimulus and no more bailouts. Undoubtedly, these actions will have unpleasant economic and political consequences. A student who studies harder may have to miss a party or two. A simple analogy, but unfortunately it is that simple".

[Greg]

This sound byte is from his Wall Street Unspun show from 12/17/09. Check out his website http://www.europac.net. The whole thing is there. The rest of it is great.

[Br'er Rabbit]

This sound byte is from his Wall Street Unspun show from 12/17/09.

Well if it's from the future he must be right!

[concerned]

I must admit. Rant or not. 1. Consumer spending has topped 70% of gdp. 2. Deficit is over 40%. 3. Dollar is dropping. 4. Fed is still not raising rates, is till printing massive fiat money and buying us treasuries even after 3.5 growth. 5. Unemployment heading toward atleast 11% or is it 20%. Hyperinflation will happen over night. Sooner than you retards understand. It is basic economics.

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