The first fallacy in Schiff’s argument is when he claims that interest rates would go up if the U.S. tried to borrow long-term instead of short-term.
The second fallacy in Schiff’s argument is when he claims that lenders will no longer be willing to loan money to the U.S.
His 3rd fallacy is when he claims that we can inflate our way out of debt.
His 4th fallacy is when he claims the Fed will be *forced* to raise interest rates. Look at a Japan. Japan has had 0% interest rates for two straight decades.
Schiff doesn’t get it.
His 5th fallacy is that the Fed buying U.S. debt debases the Dollar. That’s not how the Yen has played out for Japan.
So here’s a shining, multi-decade example of what happens when you buy your own debt in Japan, and Schiff can’t see it.
You don’t get runaway hyper-inflation when you are in a liquidity trap.
Think for a moment what inflation means. Forget the eggheads who say “it’s an expansion of the money supply and has nothing to do with prices.”
Inflation means that too many Dollars are chasing too few goods...that people are bidding up houses...that people are bidding up stocks...that companies are bidding up salaries and poaching employees from each other...that the speed of money has accelerated.
That’s not where we are. Look at Japan. Japan’s speed of money has declined. Japanese real-estate today is worth half what it was worth back in the 1980’s. Japanese stocks today are worth only a quarter of what they once brought back in the 1980’s.
Yet Japan has borrowed and spent **VASTLY** more than has the U.S.
What Japan worked itself into by 1989 was overproduction. Too many goods being chased by too few buyers.
The entire world has this overcapacity problem now. Too many shopping malls. Too many ships. Too many trains. Too many aircraft. Too many office towers. Too many homes. Too many factories.
And all of that production capacity was debt-funded. Everybody owes money on every factory, office tower, ship, aircraft, shopping mall...everything.
You can’t game overcapacity by simply “running the printing press.” Deflation won’t be fooled.
What you *can* do is delay the correction by propping up values at unnatural levels. You can delay the day that the Markets find a true bottom in real-estate, labor, and stocks.
But that also delays the recovery. Those artificially high prices won’t stay high forever. Eventually they will fall to their real bottom.
Deflation.
Not hyper-inflation.
The opposite.
Deflation.
I keep reading your post over and over trying to digest it.
Those predicting hyperinflation - the basis for the prediction is a loss of confidence in the currency leading to debasement.
Japan’s 2 lost decades is a result of a failure to lose confidence in the yen. I don’t know why this is so. I don’t know if their debt is not yet sufficiently large for the Japanese people and the world to have lost confidence in it, or if it is because the Japanese and others know that the Japanese people have the ability to pay down the debt over time with high savings rates.
In any event, the lost decade of Japan’s deflationary era is a result of confidence in the yen.
I have to wonder if the dollar will get the same benefit being based on a nation of historically over-consuming people with miniscule savings rates. What is it that the US post-FIRE economy is supposed to do that will let us grow the economy and pay down the debt? I don’t know.
Default is coming, just a matter of how. I take it your conclusion is that the US government will one day tell China, Japan, Canada and the Saudis, “thanks for the bond money, we can’t pay you, sorry”.
And if we did that, would that result in more deflation or collapse of the currency?