Mish Rebuts Schiff
Submitted by SyntheticSolutions on Mon, 11/10/2008 - 10:41
Thought this may be of interest to some of you out there.
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Ron Paul said
live within your means.
If you are heavily in debt, this deflationary period if it goes on for a long time, will be murder.
Deflation is nature's way of forcing everyone to live within their means.
Wages go down, prices of goods and services go down, raw materials go down, commodities and futures go down...it's all going down
except for those loan payments.....credit cards, cars, houses.
I'm debt free. Things get tight, well then I start eating very humbly. Can't afford my rent? I move to a smaller cheaper place to live. I can't afford gas? I drive less.
contraction is necessary.
living within your means, that you recognize the windfall, you recognize the good times, and save like a little squirrel for winter....it has to be done.
Americans have been on an orgy of excess the last 10 years. The dotcom blow up should have been the red flag...but the government fooled many of us.
anyway, people who are the most out of balance on their debts, will lose their homes, their cars, go bankrupt, their credit scores will go into the crapper, etc etc etc...
same thing for companies
the clearing out has to happen.
only then can the economy move forward
I SEE IT HAPPENING ALL AROUND ME. WHAT A CHANGE!
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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government of the people, by the people, for the people
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jzneff
Consider reading Crashproof... and dropping all the LOLs. ;-)
I can't help but chime in...
In Crashproof, Peter argues the counterpoint to the "China needs us" argument so well you might even agree with him. BTW, Jim Rogers said with the bailout, China is officially more capitalistic than America. With respect to freedoms, this crowd might dispute our freedoms vs. theirs too. Our least free American could be on par with their least free Chinese anyways. Cliff's Notes on Schiff's first book's argument? Ok. China does not need us, in fact, they need us like serfs needed lords. More? Ok. Why? The bullets of Peter's argument are that the Chinese actually do have tremendous savings rates and so do we (just tremendously bad as in negative), their central bank has a LOT of actual reserves (savings aka real capital so real capitalism, not our brand) as they announced today they will invest nearly $600 Billion (again in real money not created or borrowed like ours) on their own stimulus package (to build not bail out) which is not simply created out of thin air, serfs never needed their lords taking a percentage of their crops and making their lives harder, and when the serfs were free they KEPT the extra fruits of their labors and saved, reinvested, or spent them on themselves... as will the Chinese... and he agrees it could be a painful, yet worthy, transition for them.
What does he say makes it worse? In the major recession in the '70's Americans had great savings, our debt was nearly all held by Americans, and it was in 30 year notes. This time, we have a huge negative savings rate, our debt is largely held by foreign interests who may not like us, and it is all short term instruments (an ARM as Peter says). So............ what happens when we have to slow or stop printing money to spend on bailouts as to preserve what's left, if anything, of the dollar's value? Rates will go up and our ARM will reset. With a bludgeoned economy, awash with layoffs, how do we service a national debt we currently only barely service the interest on even with all our combined incomes? Rhetorical here, we don't. Massive spending cuts will occur, only because they will have to, shocking the system even further. Regardless, he'd note that tax revenues are about to plummet while our national debt ARM is about to reset up. For the record, Obama has promised an additional $1 Trillion in spending on top of our current $2 Trillion in spending. But, I digress. China and India (the world's 2nd largest holder of gold, mostly passed on at marriage) are better off without us. They (the creditor nations, without us in the debtor nations) have already realized this and have their own meetings going on planning their own post-dollar worlds. They are in the middle of decoupling themselves from us as we speak even though you never hear it through MSM. It's on. Stay tuned. I for one tend to agree with Peter and some will conveniently forget they LOLed at Peter's ideas about China and the other BRIC nations (Brazil, Russia, India). Read Peter's newest book for more great arguments on their futures. If you read his books and some of the more adventurous, and frighteningly accurate, gold guys like Jim Willee, you may start to agree and shake your head at how you used to think, a lot of us do that around here, huh? :-)
I think maybe Peter's right yet again, and so is Ron, it's a tangled web unwinding and their macro views are still on. The dollar is doomed, the seeds are sewn in these bailouts and can't be undone any more than the housing or credit bubble could. Buckle up.
"Do you want to know who you are? Act. Don't ask. What you DO will delineate and define you." - Thomas Jefferson
DEFLATION MUSICAL CASH! When the music
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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stops, grab CASH. READY? sheee...listen... Is the music still playing? Are you sure?
government of the people, by the people, for the people
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Thank you for this post.
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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government of the people, by the people, for the people
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So when did the definition of inflation change?
just curious could have sworn it was simply an increase in the money supply. Or the complicated version was too much paper chasing too few of goods. It has very little to do with consumer spending. On the flip side hyperinflation is dependent on consumer behavior.
look at the last time we experienced inflation...they called it stagflation for god sakes. Did you not get the memo on the late 70's economic conditions. They had out of control inflation with no growth. So the argument that just because consumers quit drawing credit does not mean we are headed for deflation. besides the injected funds are already out there and it doesn't matter if you see day cares closing down or unemployment through the roof. The government will force the new dollars into the money supply. Don't you remember the articles about the banks that didn't want to sign the bailout deal? They were told they couldn't leave the room till they signed on the dotted line. Soon you will be receiving more economic stimulus packages and if you can read a chart you will see that gold has bottomed and it will be shooting past 900 by year end.
If you believe this garbage about deflation you are buying into the faith based money system. I expect more out of this crowd. I expect a real hard look at facts and economic principles (that do not change, just like the laws of gravity) .
we ARE experiencing
we ARE experiencing deflation at this point. Anyone that says otherwise just doesn't really grasp that after an inflationary boom there is always a deflationary bust. They are busy pumping in credit to try and stave off deflation. Schiff has said as much.
Never mind. 5 weeks.
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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government of the people, by the people, for the people
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I think something's got to give
I get the argument that all of the global inflation means the dollar is no worse off than other currencies and therefore will not crash relative to them. However, since all the world is running the printing presses on overtime, would that mean that the whole world is actually getting richer? Or does it mean that the currencies of the world will all be crashing at some point? It seems obvious to me that all the fiat currencies in the world will not prevent the realization that there is nothing of value behind any of them. If, therefore, a time comes when someone is holding something of value, say food, and decides he doesn't want paper currency in payment, then all paper could crash and become worthless at the same time, relative to actual valuable assets. That's my thinking, and I wish I had some gold. The truth is, Schiff and Paul are right, it's just taking a longer time to play out because of all the interference in the markets. Try to buy gold or silver right now, and you'll find that the spot price is a complete fantasy.
Love Mish and Hussman Funds.
Love Mish and Hussman Funds. Peter Schiff's portfolio is getting slammed. Gold bugs don't do well during deflation.
no gold bug here
but I own precious metals.
and I can take a roll of silver eagles and sell them this week on craigslist
the proceeds will buy the same amount of gas, food, energy, clothes, land, building materials, and misc supplies that it did 9 months ago.
now if your biggest worry is the fixed cost of the "bit off more then I can chew" mortgage and car loan....then yea, if you didn't leave yourself enough cash to cover those fixed payments, and went heavy on the precious metals, you screwed up.
during deflation, everything is adjusting....well almost everything, people loaded up on debt can't adjust very well, if at all.
why do you think we see the fire sales around the globe? institutions owned huge quantities of assets....on credit, and are now divesting to raise liquidity.
gold and silver bugs who don't have any debt, and have just a little cash...will do just fine.
Well Schiff's idea was that
Well Schiff's idea was that China would stop printing up so much Yuan and let the Yuan float freely and rise in value so that Chinese would have the money to buy their own products. With the recent 4 trillion Yuan bailout though- not sure that's gonna happen now.
i've lost more money
Good Article. I have bought into Schiff and Ron Paul completely. Placed most of my money in foreign stocks, gold, and even traded on the euro. What do I have to show for it. Big losses. Of course my wife who was more conservative lost money too. Every investment seems to be going south, but I definitely lost more investing away from anything that touched the dollar.
I still agree in the long run that the dollar will continue to fall, we only need to look back in history. However, the only thing I learned about finances since following Schiff and Paul is that I know nothing. Predicting prices is much more complicated than the "Fed is bad."
Money & Markets
The facts:
1. Based on the Federal Reserve's Flow of Funds report, there are now $52 trillion in interest-bearing debts in the U.S.
2. Based on estimates provided by the U.S. Government Accountability Office and other sources, it's safe to assume that there are also at least $60 trillion in contingency debts and obligations now starting to kick in — for Social Security, Medicare and other pensions.
3. Separately, the Bank of International Settlements reports that the total value of debts and bets placed worldwide (derivatives) is $596 trillion, or more than a half quadrillion!
In contrast, even after the most reckless outpouring of government bailouts in recent months, the total rescue money announced in the U.S. so far is $2.7 trillion — a huge, unwieldy amount, but still minuscule in comparison to the massive debt build-up.
Debts: Too Big For Government to Control!
The numbers are not directly comparable, but just to get a sense of the magnitude of the problem, compare the size of the debts and bets outstanding (the first three bars in the chart) with the size of the $2.7 trillion in bailout commitments thus far (barely visible in the chart).
Still, most people insist,
"If only Washington can avoid the mistakes it made in the 1930s ... if only Washington can preemptively nip this crisis in the bud ... if only Washington can be our lender and spender of last resort ... Great Depression II will never come to pass."
What they don't see is the fact that the debt build-up in the U.S. today is far greater than it was on the eve of Great Depression I. Indeed, in the chart below, Claus Vogt, the editor of Sicheres Geld (the German edition of our Safe Money Report) shows how ...
Prior to the 1930s, the total debt in the U.S. was between 150% and 160% of GDP. Now it's close to 350% of GDP.
U.S. Debt Build-Up Worse Than 1929
Detective Krum Investigates:
http://victory1project.wordpress.com/
http://v1-p.com/
Detective Krum Investigates:
http://victory1project.wordpress.com/
why did you sell?
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if you build it he will come..........Ron Paul 2012.
digg http://digg.com/autos/First_Genuine_Chevy_Volt_to_be_Complet...
One thing you have to remember...
... is that
Schiff even said in that latest interview he did (can't remember what station but it was an older guy and some idiot woman) that his investment advice of late hasn't been good for his investors. But you have to accept that with all of the turmoil in the markets lately there is no way he could guarantee anything. Not that he would EVER guarantee anything, but when the government votes to bailout the banking industry he doesn't know if it's going to be approved or not. He doesn't know how the market is going to react. Hell, I would have expected a rally like we've never seen after passage of the bailout, instead we got record drops.
Don't blame Schiff for your losses. He's been right about almost everything, and in the long run I would bet you'll be much better positioned to benefit from the decline of the dollar that is most certainly coming.
The one thing that Mish
The one thing that Mish seems to omit is that there is a huge difference between the monetary system that was in effect prior to the Great Depression and the one we are currently enslaved under. The monetary mechanics are quite different.
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I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
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"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
they won't benefit. but
"Why is China going to benefit from this huge debt we own them? What mechanism will they become a capitalist boomtown when they have no customers and no middle class?"
they won't benefit. but they are in a better position to recover then we are. they still have a solid manufacturing base, we don't.
Laissez-faire Blog
LOL
And what are they going to do with the stuff they manufacture? The Chinese don't have any money to buy it. The Europeans are going broke too. The Indians don't have any money...
So this manufacturing base is going to somehow manufacture customers?
We have a solid manufacturing base. We make more goods than you will ever believe until you step foot into our country's production plants. I live in that world, and I know quite a few men who would punch you in the face if you told them we don't manufacture things in America.
What do you think about the war on drugs?
How about Operation Wall Street?
Shout it today!
http://www.youshouts.com/index.php
What's made here?
Honestly, I'd be very interested in knowing what we still make here--aside from cars. Is there a list?
machines
Turbines, Large Mining trucks, bull dozers, exavators, tractors, combines, large engines, machining centers, Boeing airplanes, food...
There are only 2 other contries that can actually produce high quality heavy welded steel fabrications as good as the US. Thats because we taught them how under the marshall plan...Japan and germany. Large steel castings are in the same boat. They seem simple but for some reason no one else can do it with high quality...must be an art.
We are the center of capital goods production still. Capital goods are what other entrepreneurs purchase to make the finished products for consumers. While we may not be making the consumer goods you buy regularly, we make a good portion of the tools used make finished products. our GDP is still the largest in the world and will be for quite some time. We have a pretty decent agriculture industry too.
We actually manufacture
a lot of things that are considered well made luxury goods that are (were) sold to the Chinese upper class. Furniture is one. Ironically, in China, WalMart is considered a high end luxury goods store that is famous for selling Made in America products.
Somewhere in hell, John Maynard Keynes is laughing maniacally and dancing a jig.
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"the only thing that keeps the banking system from failing is general ignorance about how the banking system works."
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A list of things I've seen made with my own eyes.
Rebar wire (reinforced concrete wire)
Aluminum cans
CO2 cylinder cans
Cyclone fencing
Baseball bats
spring wire
washing machines
piano wire
oilfield tubing
oilfield valves
power transmission poles
bycicles (frames)
A short list off the top of my head...want some more?
What do you think about the war on drugs?
How about Operation Wall Street?
Shout it today!
http://www.youshouts.com/index.php
Ummm....we migt not be making cars here either.
I understand that with the money the car industry is getting they are going to open a new plant in.....Russia.
I'm not saying that china is
I'm not saying that china is in a great position. clearly they are not. but they are in a better position to stave off the current crisis than the US is.
and i was not suggesting that we don't produce anything. i didn't think i had to explain that. the problem is that our manufacturing base has significantly eroded over the years as we've shifted to consuming much more than we produce.
Laissez-faire Blog
I disagree
I think China will feel any hit felt in the US tenfold. The US has more stored wealth that China could dream of.
There are around 3,000,000 millionares in the United States
There are also 400 billionares in the US.
China has around 5 times as many people as the US
There are 415,000 millionares in China
There are 20 billionares in China
We consume much more than we produce, but this is a trend that is reversing itself quickly. The trade gap was 70 billion a month 2 years ago. In August, it was below 60 billion a month. We also import about 60 billion dollars of oil per month...and crude is about 1/2 the price it was in July.
If you truly believe in the power of Laissez-faire, you have to understand that the complete opposite is hardly a force that we'll ever have to recon with. Collectivism will collapse, and it will be glorious.
What do you think about the war on drugs?
How about Operation Wall Street?
Shout it today!
http://www.youshouts.com/index.php
Big bad China?
Wasn't this the neo-capitalist society that was about to own the US? Aren't they supposed to be taking advantage of our spendy ways and overtake the US? Wasn't this the great leap forward the Commies have been predicting since 1918?
Wait...I thought they were supposed to grow despite the US's troubles. I mean, they have so much US debt how could they not be overtaking us. They have been saving, and we spending...how is this?
The Chinese lack a big part of what makes growth sustainable...their own customers. They have grown very fast (using wildly inflated stats) because their biggest customer was spending like a drunken sailor. When those customers dry up...who's to buy their cheap plastic crap?
What about that massive growing middle class in China? Why can't they buy up this crap we won't use? There are 2.5 billion people in China and India...almost 10 times the people in the US...so why do they still need us as their customer?
The simple answer, is we've been duped again. Just like the Russians were going to overtake us in the 1970's...just like Japan in the 1980's.
Sorry...but like the USSR's growth, and like Japan's growth...you were looking at a national bubble. A manufactured growth which produces amazing results, until the bubble pops and they are struggling to feed their people.
Lesson to be learned...more freedom will always defeat collectivism. You have nothing to fear from collectivism...let it do it's thing and it will inevitably collapse. It always does.
We have nothing to fear from China, but everything to learn. Respect for private property rights and economic freedom is the only path to sustainable growth.
What do you think about the war on drugs?
How about Operation Wall Street?
Shout it today!
http://www.youshouts.com/index.php
they are still at a 10%
they are still at a 10% growth clip... the point being they are turning from a commie society to that of capitalist. I think ultimetly it will not work because of the reasons you mention in your last sentance.. but just exactly what property rights do we have here. what economic freedom? our freedoms are being taken away daily. what it looks like to me is they become more capitalist, while we become more socialistic and meet in the middle.. its not good!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
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LOL
The growth is horribly inflated. You may have had 14% growth in the city centers of their 5 major cities...but this is still very much an agrerian communal country...where 90%+ of their people own nothing and work on coop farms. They generate enough money to feed their families, provide some clothing, and very little else.
If you think the US manipulates numbers, imagine China doing so by a factor of 10. This is a centrally planned, mercantilist, and collectivist country and any idea that it is otherwise is severely wrong.
I've known a number of Chinese nationals, through work and travel, and they all paint me one picture...then I have the national media speaking a completely different picture. They live in a world where a PhD chemist makes $300 usd per month...and they are considered very wealthy.
Sure...they are moving toward capitalism (very slowly) and we are moving toward collectivism...but we are still WAYYY far ahead of them in the freedom department. We may someday meet in the middle, but it's not happening any time soon.
What private property and economic freedoms do we enjoy in the US? Perhaps you should ask Michael Nystrom. Do you think this website would be allowed in China?
What do you think about the war on drugs?
How about Operation Wall Street?
Shout it today!
http://www.youshouts.com/index.php
isn't peter schiff saying
isn't peter schiff saying that AFTER the deflation occurs that is when the inflation will hit???