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Hyperinflation, Who's Right, Mike Shedlock 'MISH' or Peter Schiff?

Economics / HyperInflation Nov 30, 2012 - 07:56 AM GMT

By: Mike_Shedlock

Economics

Peter Schiff was on Capital Account with Lauren Lyster on Tuesday. For that show, he was asked, and he agreed to debate me on hyperinflation. Thus, I semi-expected to be on the show as well.

I even received email confirmation from Demetri, the Capital Account producer last Sunday.


The headline of the email was "Peter Schiff is Good".

The body of the email was "I let Schiff's people know that you were the guy he will be debating and they were cool with it so we are definitely on for next Tuesday at 12:30pm your time."

Minus Mish (which I will gladly explain below), here is the Schiff interview with Lauren Lyster.

Lauren challenged Schiff with "Whatever happened to hyperinflation?"

I heard an amusing response from Schiff as follows "I still say that hyperinflation is a worst case scenario. I never say we are going to have it for sure."

Really Peter? Really? Never?

Here is a partial transcript of a Schiff Audio On US Hyperinflation

The whole idea is to get out of the US Dollar. It is on the verge of collapse. The people who don't get out of the US dollar are going to be completely broke and that is obvious. Look at what Ben Bernanke did. Interest rates are zero. Money is free.

Bernanke is going to run up printing presses as fast as he can. This is pure inflation Latin American style. This is hyperinflation; this is Zimbabwe; this is the identical monetary policy of the Weimar Republic.

I am just as convinced that people who have their money in US dollars are going to be just as broke as people who have their money with Madoff.

I do not know how much time you have. With the dollar dropping 5% a week at this point, could it snap back? But what if it keeps falling? What if it's down 5% next week? And 5% the week after that? And then what if it drops 10%? and another 10%? At some point a year from now the dollar could be dropping 5% a day.

The inflation rate in Zimbabwe is over 100 million percent a year.

Unfortunately that audio display of nonsensical hype has been removed. Conveniently perhaps?

Now, in a massive display of revisionist history, Schiff claims that hyperinflation is a "worst case scenario".

In a further amusing turn of events, Schiff further backs down down from his previous hyperinflation stance telling Lauren Lyster:

"At some point the specter of hyperinflation is so enormous, and the dangers so apparent that will change. But before we get to that point w will have very very high inflation. Much, much higher than we had in the 1970s. If inflation is 30% a year or 40% a year, technically is it hyperinflation? Probably not."

Really? When?

Semi-Expectations

Before offering further comments on the prospect of 30-40% annual inflation, let's back up to the opening paragraph where I stated "I semi-expected to be on the show as well."

Actually, I fully expected Schiff to wimp out, and I even told Demetri in a phone conversation, in advance, that the debate would never happen.

"But he agreed to it", said Demetri. "It will never happen" said I, and it didn't.

You see, I have been through this multiple times before.

Schiff once told Max Keiser that he would debate anyone. Max asked me if I would debate Schiff. I replied "of course, but Schiff will not debate me." When Max said Shiff agreed, I said "set it up then".

As with Capital Account, once Schiff found out who he was debating, he backed out.

The reason I told Max that I was certain Schiff would back out is that I went through the exact same setup with a CNN radio affiliate.

Charles Goyette Fundraiser

When Peter Schiff was running for Senate, best selling author and radio talk show host Charles Goyette (who happens to like both of us), tried to patch things up between Schiff and I.

Goyette agreed to moderate a discussion between us, and I told Schiff that I was willing to stress the things I agreed with him about (and there are a few). I even told Schiff we could record the session and if Schiff did not like the results we would not play it.

I did not grant myself the same "no play" opportunity.

Yet, Schiff would not even agree to that. And a fundraiser Goyette planned for Schiff never happened.

By the way, Goyette has two excellent books that I highly endorse. Goyette's latest book is Red and Blue and Broke All Over: Restoring America's Free Economy. Here is my review of his first book, The Dollar Meltdown.

Ironically, both Schiff and I endorsed Goyette's first book on the back cover.

Question of the day: How many Senate candidates will pass up a fundraiser opportunity from a NY Times best-selling author out of a personal grudge?

Bear in mind I even did a post I Endorse Peter Schiff For Senate.

That's one hell of a grudge folks. Since then I put up with numerous email challenges such as "Are you afraid to debate Peter Schiff?"

I draw the line with this documented wimp-out by Schiff coupled with his blatant revisionist history.

Agreements With Schiff

I have two major agreements with Schiff.

  1. We both like gold and silver.
  2. We both agree with the need for small government.

I was willing to stress those points in a three-way conversation with Goyette and Schiff but that never happened.

Right now, with the 10-year treasury yield at 1.62% I see no value in treasuries. Schiff would surely agree with that position (going much further of course, to outright loathing of US treasuries).

Like Schiff, I also think the US will indeed have a day of reckoning. However, I think the Yen, the British Pound, and the Euro are all likely to have a day of reckoning first.

Being too US dollar focused (to the point of outright hatred of the US dollar), has been a major Schiff downfall. So has been his love of China (which I will also gladly debate Schiff about anytime he wants).

Sad State of Affairs

This whole saga has been a sad state of affairs. And topping off the list is having to read Paul Krugman blast Schiff in in his post on Thursday Varieties of Error

Some readers may recall the "Peter Schiff was right" campaign of 2009, a sort of public-relations blitz claiming that Schiff, an Austrian-oriented commentator, had foreseen everything correctly. It wasn't really true even then; still, Schiff became a fixture of right-wing TV shows, constantly warning about how expansionary monetary and fiscal policies were about to produce hyperinflation.

Well, Cullen Roche catches a TV host actually putting Schiff on the spot, pointing out that he's been predicting that hyperinflation since 2008, so where is it?

Good question. And I'd like to pursue the question a bit more, not just or even mainly about Schiff, but more broadly about the role of predictions -- including wrong predictions -- in economics. ...

I certainly have no problems with Krugman blasting Peter Schiff, because quite frankly Schiff deserves it.

Peter Schiff was wrong about massive inflation in 2008 and in my opinion, Schiff still is wrong today.

So why does Schiff refuse to debate me? He gave Capital Account an excuse something along the lines of not wanting to give me any credibility by debating me.

The ultimate irony is that Schiff needs credibility, not me.

I believe the most likely reason he will not debate me is he is afraid of debating anyone sufficiently able to challenge his ideas. It's easy when you can stand up and preach. It's much tougher facing someone who does not bow down at your feet.

Pragmatic Capitalism

Krugman linked to an article on Pragmatic Capitalism by Cullen Roche. So, let's take a look at Roche's article What About That Hyperinflation?

Regular readers know I am a big fan of getting called out on things. Not because I like to be wrong or making other people look silly, but because I sincerely enjoy the constructive criticism. Over the years I've been wrong about plenty of things. That's totally normal in this business. When you write as much stuff as I do about things as hard to understand as the monetary system then you're bound to get tripped up. It's one incredibly long learning curve we're all walking on here and I doubt anyone ever gets to the end of it. The world of money and finance is one big complex puzzle and I enjoy working with readers and other people trying to solve that puzzle. Anyone who tells you they've solved it is probably lying or misleading.

Anyhow, there's a real power in being wrong. The quote "there are no mistakes, only lessons" is completely true if you actually live your life that way. I like to say "it's in being wrong that we learn to be right". So when I see people being called out for their mistakes (in a respectable and mature way) I think that should generally be applauded because it provides the platform for learning and improvement.

So I loved it tonight on RT when Lauren Lyster asked Peter Schiff "what about the hyperinflation...you've been predicting since 2008?" I've had a lot of fun over the years at the expense of the people who called for hyperinflation in 2008 (Schiff certainly wasn't the only one), but I've only done that because it provides a great lesson for many others. Obviously, Schiff is sticking to his guns, but that's not the point here. The point is to seriously consider why was Schiff wrong and why I have been right? Was I working from a superior understanding of the monetary system? Or have I just been lucky? You need to decide that for yourself, but you need to really explore those questions and truly consider both approaches and why one seems to have worked out far better than the other.

In regards to hyperinflation I do not think Krugman, Roche, or I were lucky. Rather, I think hperinflationists in general made four major errors.

Four Major Errors

  1. Schiff and many others simply fail to understand the role of credit in a credit-based economy.
  2. Many of those calling for hyperinflation were too US-dollar focused.
  3. There are numerous currency problems elsewhere that should have been easily seen.
  4. There is an absurd faith in China (of all places) even though money supply growth in China has far exceeded money supply growth in the US.

I could actually go on with numerous other flaws in many hyperinflationist's calls but they are now so obvious that even Peter Schiff has felt a need to resort to revisionist history to duck them.

Austrian Point of View

The problem I have with Krugman's pounding of Schiff is the lumping by Krugman of Austrians as if there was one Austrian point of view. There's not. I have been harping for years about those four points above, as well as numerous other reasons hyperinflation is highly unlikely.

Yet, we have to suffer from another "I told you so" kind of post from the Krugman even though some of us Austrians have been in agreement with Krugman all along that "hyperinflation is nonsense".

Krugman concludes his article with "But as far as I can tell, very, very few people have been willing to let the evidence speak."

I agree, and the final irony is that I can say the same about Krugman.

Why can't Krugman look at Japan and see the US is heading down the same path, except that Japan will have its currency crisis first. What happens after that is uncharted territory.

After all, Schiff is right that the path the US is on is not remotely sustainable. I think even Krugman would agree. It's just that Schiff's timing, endgame, and sequence of events between now and "eventually" are horrendously off.

Side Note on Comment System

Many people have been unable to login and leave comments. I believe the problem has been rectified.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2012 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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Comments

elboertjie
15 Dec 12, 15:05
Peter's response to Mish Shedlock's article

Peter Schiff has responded to this article by Mish Shedlock.

Peter states how Mish is unfairly and inaccurately accusing him. His response can be heard on the Youtube video called 'Peter Schiff talks about Mish Shedlock':

http://www.youtube.com/watch?v=x3TIo009RoA


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