Peter Schiff On Glenn Beck: Inflation Nation?

The Glenn Beck Show ^ | October 13, 2008 | Glenn Beck and Peter Schiff

[Designer]

"I’m not yet convinced that the US government will print their way out.."

Aren't they already doing it?

FYI: There is no actual money in the Socialist Insecurity "lock-box".

[Travis McGee]

In the debate between the deflators and hyperinflators, there are two team captains. One is Schiff for inflation, the other is Mike “Mish” Shedlock, on his excellent blog and elsewhere. Both make strong arguments. I don’t know if the unwinding credit will deflate into a black hole faster than govt’s can inflate (Shedlock’s position) or not.

But I’d read Mish every day, to get his side.

http://globaleconomicanalysis.blogspot.com/

[Designer]

" I’ll put you down with AndyJackson and Travis McGee"

Thanks.

They be some of my favorite FReepers.

[ThePythonicCow]

So are you still a very pessimistic bear these days, or are you growing vealish in the least.

Short term (next decade) I am less bearish ... which is to say something in pain between the 1970's and the 1930's.

I expect something between a serious and a very serious recession.

What has changed?

What's changed in my perspective is that I no longer think we have a fiat currency limited only by the power of the printing press and the integrity of our bankers or politicians.

Rather we have a currency that is based on Treasuries, which have value because they reliably pay interest, obtained from the tax revenue extracted from Americans. The American economy has been between half and a third of the entire worlds economy since World War II, and has been "as good as gold".

Recently a huge pile of debt and derivative paper was levered on top of that monetary base, which will have to be shrunk down to a manageable and less risky size, without the basic banking and finance mechanisms of the world blowing up entirely. This appears to be happening, with great drama, but apparent success.

Those of us who have under read the Constitution or understood the meaning of liberty are offended by the blatant thievery and socialism in this winding down process, but that is really just making more visible what was already a fait accompli.

Much business and economic activity will be impacted for a while, as adjustments are made to the new financial circumstances. That will happen. Some people will adapt more quickly than others.

Since I had the good luck, or foresight, to sell my California real estate and all my stocks a year ago, and down size my cost of living dramatically, it is easier for me than for some to be sanguine about the present and near term disruptions.

Mostly I am enjoying a once in a lifetime opportunity to see more of how our currency, banking and financial systems really work. Sometimes the only way to understand the strengths and weaknesses of a car frame are to smash the car into a concrete wall and see what breaks. Of course, such experiments are easier to view for the person who got out of the car first, than for those still inside the car.

Our Treasury based dollar will hold, give or take, until America is at risk for not continuing to pay interest on Treasuries. That will be at least a decade out, perhaps several, perhaps much longer.

[Freedom_Is_Not_Free]

I don’t know if the government is already printing. I’m not that sharp. I rely on others for such information and the hard part is finding those who know through all the noise.

For ages and ages people would claim that the government was already printing. Yet, Lee Adler at the Wall Street Examiner, was able to show that the government was removing liquidity from the system, not adding it. That is NOT printing.

I don’t know the status lately but it is a foregone conclusion that the government must print. The Treasury is broke and can’t fill the nearly $2 Trillion in commitments promised by all of these bailouts and related loans. Nobody knows the losses that Treasury will incur because the losses are long-term and not knowable at this time. There is no transparency about the actual expected losses on all the mortgage backed securities that were written.

No, the Fed was not printing as of a month or two ago. I don’t know if they are printing now or if they are not. Soon, and for a long time to come, they MUST print. It is definitely coming.

The question is, for how long, how much, and how badly will they debase the currency.

If I knew those answers, when the smoke clears I would be hosting parties for Warren Buffett and giving him investment advice.

[Freedom_Is_Not_Free]

Insightful. Thanks. I have to give that more thought.

[ThePythonicCow]

The trouble with the "inflation" versus "deflation" arguments is that one has to be careful as to what is inflating or deflating. The riskier, more levered debt and derivative paper that was piled high is deflating massively, while the underlying Treasuries and the corresponding dollar are increasing in volume and becoming more precious at the -same- time.

[Uncle Miltie]

I think we're both right. They'll cut the baby in half and do some of each (inflation and reneging on promises).

There's just no way they'll get their act together to avoid the demographic / actuarial end game. Bush proved that when he attempted to fix Soc Sec and found no takers.

[B4Ranch]

Too many Americans didn’t believe it could happen, lose your home, your retirement, and now you don’t have a job! All because you tried to live like the Jones’. Mom and the kids all have a serious case of spending disease.

That probably fits a easy 5 to 15% of the US population. People hate to cut spending. Just the idea of turning off the cable for the TV is a major heart wrenching decision. Sure it’ll save them $1,200 a year but everybody else has cable and I want it too!

We still want to go out for dinner at least once a week at $40 to $80 a person. Buying coffee for $2.00 a cup and drinking $8 a gallon bottled water have become a way of life. Another $3,000 bucks a year pissed down the drain so they can be cool, like everybody else. Hummph!

I had lunch with a local banker the other day and guess who is sliding backwards on their credit card and loan payments? Middle and upper middle income homeowners. Their personal savings account deposits hit bottom a month ago. Now the bank is seeing withdrawls and account transfers weekly. All because they refuse to change their lifestyle!

I am expecting that with mismanagement of the federal, state, local and personal budgets, it will bring on an extended solid recession.

[ThePythonicCow]

inflation in basic necessities will continue

In what time frame are you speaking? Over the last few months, I thought that base metals, food, and oil were declining in price, as the portion of their price that was due to spill over from the massive inflationary speculation in debt and derivative paper has been evaporating like drops of water on a hot skillet.

[Freedom_Is_Not_Free]

Help me out, if you know, or if anybody knows.

The Inflation/Deflation debate is raging, and to date I think they break down as follows. If I have anybody’s take wrong, then please somebody correct me, as I can’t be reading everybody’s work all the time...

So here is my list of people who think the liquidity crisis ultimately ends in either inflation or deflation overall as an endgame.

The inflation camp contains

Peter Schiff
Eric Janszen (iTulip)
Gary North
Walter J. Williams (not the Walter Williams on Rush Limbaugh)
Doug Noland (Prudent Bear)
Whoever controls “Motley Fool” (don’t know their name)

The deflation camp contains

Mike Shedlock (MISH)
Nouriel Roubini
Lee Adler (Wall Street Examiner)
Paul Kasriel
Richard Russell
maybe Robert Schiller

Am I missing any of the prominent players who have been right and on-board about the liquidity crisis.

Did I put any of the above players in the wrong column?

Thanks all for the help. I would like to know those saying the crisis will end in massive deflation, vs. those saying the crisis will end in deflation with the resulting collapse in asset values and soaring unemployment.

I was in the “deflation camp” but now I can’t be sure as government is throwing everything at this problem they can find. I am still gently in the deflation camp as I think the government doesn’t have enough arrows in the quiver to prevent ultimate deflation. They can’t run the presses long enough, unless they continue after the deflation is done, and do what Travis McGee is predicting...

Deflation FOLLOWED by inflation.

[Freedom_Is_Not_Free]

Doesn’t one have to overcome the other? Can you actually have both at once?

In the near term, I know you can. We saw falling house prices during a commodity bubble.

But now we are in a severe economic crisis that will end in slower growth and less economic activity and higher unemployment. At some point the crisis will end either because all houses achieve market value and all resulting losses have been incurred, or because massive inflation has reflated house prices and all resulting losses have been halted.

How can you have both in the long run after the crisis has run it’s course? I’m confused.

[Freedom_Is_Not_Free]

You are right of course that they will not just cut. They will print to some extent. That is for certain.

I agree: we are both right. Some cutting and some printing. Nice insight.

[Freedom_Is_Not_Free]

Wow, great points! You are dead on.

The cable comment strikes close to home. My own brother earns very little and gets suckered into spending on fun by his friends who own more. He is in a bit of economic trouble. His only debt (besides his truck loan) is $5,000 on credit card he still has trouble paying down. One day he decided to cut out cable and cancelled. He was paying $110 per month on cable, for $1,300 per year.

And he has 3 coffee drinks a day for $12-15 daily. As you said, $3,000 per year. You have him nailed. And my brother’s debt is really modest. I know people in the $50,000 of credit card debt and rising. Incredible.

I admit to being no saint. I throw a lot of money away that I could be saving because my own lifestyle has risen dramatically over the years. I am debt free with savings and a nice nest egg in a 401(k), so I am not one of the at-risk people, or one of those who participated in causing these credit bubbles, but I read your post and I had to look inside and I can’t say I’m blameless either.

But you are right. Rather than reduce lifestyle, people are just racking up huge debt and hoping and praying for that miracle that will kiss it and make it all better. The lower class are constantly doing this, and do you know what they are counting on to bail them out? The lottery. THE LOTTERY! They EXPECT to win!!! I kid you not.

Like my mother says. “We need a depression so people learn to behave again”.

[ThePythonicCow]

Can you actually have both at once?

Do you mean both inflation and deflation?

Yes, easily, in my humble view. Something can inflate while something else deflates.

I tend to think Mish confuses (1) debt and derivative paper with (2) Treasuries and Dollars when he sees deflation. However, my respect for Mish's understanding of these matters is greater than for my own understanding, so I must consider the possibility that it is I, not he, who is confused on this matter.

[politicket]

Are you Peter Schiff???? Inquiring minds want to know. LOL.

LOL!! Nope! I only came across his name about 2 weeks ago. He has some great advice, but I am careful about what he says since he doesn't seem to base his opinions on biblical principles. I may be wrong - it's just the perception that I get.

[Freedom_Is_Not_Free]

I realize you can have inflation and deflation in the short term.

My question was , could this crisis end in both? Could we have both deflation and inflation after all the losses are taken and after the economy struggles to get started again or wouldn’t there be a clear outcome that either money expended or contracted?

I can see how we can have both in the short term. I can’t see how we can have both in the long term.

With Travis McGees suggestion, I can see how we could have deflation win, and then the government keeps printing so much for so long after deflation has won, they spur a new inflation. I can see that. But I can’t see inflation and deflation occurring simultaneously in different sectors after the crisis has run its course.

But then, I’m not very smart.

[RegulatorCountry]

Over the last few months, I thought that base metals, food, and oil were declining in price, as the portion of their price that was due to spill over from the massive inflationary speculation in debt and derivative paper has been evaporating like drops of water on a hot skillet.

I was speaking of "inflation" in the sense of rising price at retail, rather than increasing the money supply there, sorry for the confusion. The commodities collapse isn't showing up with food at retail yet, and may not, due to transportation costs, which have yet to work their way entirely through the supply chain. Yes, fuel prices are dropping rapidly, too. It'll be a while, before that is reflected anywhere other than at the gas station, and even then, spot shortages are not out of the question, which would send prices on the upswing again. Quite a tangled up mess we've got, isn't it?

[Freedom_Is_Not_Free]

That was as good as a post gets. You could post it as it’s own thread for thought provoking insight. This place has so many deep thinking individuals. Again, the only challenge is cutting through the noise.

I was going to refer to one Freeper in particular, but he hasn’t been bothering us in a long time and I would rather keep it that way than call him out and have him ruin every economic thread. These discussions are really enlightening and I don’t want to invite the trouble-makers to turn them into flame wars.

Notice the absence of flame-wars since the economy turned down in earnest? There is no more talk of us being “doom and gloomers”. There is no more false optimism and glossing over the true structural problems in the economy. Those folks are staying off our threads and letting us just cut to the heart of the discussions without all the disruptive noise.

I’m going to enjoy it while it lasts. Only the people really interested in knowing where the economy is going and what is happening in this crisis are really paying attention in these threads right now.

In previewing this, I apologize for sounding egotistical. That is not my intent and there is no avoiding that egotistical tone in writing. My point was only, we can get down to the business of business and not be diverted having to defend ourselves from capricious attacks or waste a lot of time rebutting ignorant statement. It is a nice change in the tone of the discussion. It is like having all adults in the discussion as opposed to the previous, where the kids were just being disruptive.

[RobRoy]

Debt problem? NO problem! Just monetize it.