Peter Schiff: Commodities, dollar, interest rates, chinese inflation, U.S. deficits

The Austrian money manager, Mr Peter Schiff is back with another one of his Schiff reports. In this YouTube he tries to seek out what is catalysing a weak dollar, weak bonds, and rising commodity prices.

He thinks Catalyst #1 is the increasing inflationary heating in China, caused by their export of goods to the U.S. in return for container ships full of U.S Treasury I.O.U.s, to import uncontrolled American inflation into China, with Chinese food prices rising 12% in the last calendar year.

Schiff describes the only way China can reduce its inflation rate, which is to let the Chinese Yuan rise. When they do this — which Schiff thinks is inevitable — then price inflation will funnel back to the United States, which will produce higher U.S. interest rates, which will then pull the rug out from under any of the Fed’s “stimulus” money printing programmes.

Catalyst #2, says Schiff, was Obama’s platitudinous set of folksy homilies delivered last weekend, which promised more tax cuts, more unemployment benefits, and more government spending — all paid for with fresh air and fairy dust — as combined with the thoughts of Chairman Ben Bernanke, as broadcast on 60 Minutes, on how this sagacious doge stands ever-ready with a firm hand on the plunger wired up to nuke the printing press, which absolutely no-one, including himself, believes he will ever press.

If Ben Bernanke does fail to raise interest rates in 15 minutes, when the Tsunami of price inflation washes in from China, says Schiff, then all of the U.S. government spending obligation chickens will come flying home to roost, plucked and ready to cook; this will then send the U.S. into massive price inflation. Hoist by his own petard, if Mr Ben Bernanke does raise interest rates in 15 minutes, as he promised to do on 60 Minutes, then the gargantuan U.S. economic collapse he has been holding off with massive money printing for the last two years will melt down the roost, instead.

Either way, thinks Schiff, this is a Sophie’s Choice that the Federal Reserve has long been dreading, while it has been cowering for the last two years betwixt a rocky printing press and a hard monetary fire pit, hoping beyond hope that all those dreadful people shouting at it will go away when the leprechauns at the World Bank find some fiat currency solution to this horrible mess that it has created for itself in the last forty years of its insane money printing madness.

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3 replies on “Peter Schiff: Commodities, dollar, interest rates, chinese inflation, U.S. deficits”
  1. I’m not impressed by Peter Schiff. I listened to his talk. Andy Duncan’s summary is a fair one.

    Schiff’s reason for thinking a revaluation of the Yuan will cause inflation in the US is (to quote) that the Chinese will “keep their products and they’ll let us keep our money” as a result of which US inflation will allegedly “run out of control”.

    Well now, the U.K. devalued the pound about 18 months ago, and probably by far more than any forthcoming Chinese revaluation. (Devaluing the pound is the equivalent of every other country revaluing relative to the pound). So our devaluation raised the price of ALL our imports, not just the proportion of imports coming from ONE COUNTRY. Plus there is all that money we “kept” in the UK on account of imports being too expensive. The inflationary effect should have been catastrophic, if Schiff is any guide. But it wasn’t.

    Moreover, the additional money “kept” in the U.S. would only be inflationary if the US economy was near capacity. Presently, it’s nowhere near capacity!

    And even if it WAS near capacity, the US government or Fed, know how to take deflationary measures to damp down any inflation.

    Of course US citizens will do something with the money they “keep”: they’ll spend it on purchasing from alternative sources, either within the US or some other country. As regards the former, this WILL mean paying higher prices. But a secular rise in prices does not equal inflation. Inflation is a continuous rise in prices, i.e. a wage price spiral.

    So that is Schiff’s first “catalyst” dealt with. His second catalyst is equally flawed, but I think I’ve gone on enough about catalysts.

    Having criticised Schiff, I agree with his objections to trying to reflate burst bubbles, like housing bubbles, or bubbles consisting of fraudulently run banks half of whose assets are toxic!

  2. says: John Howard

    Inflation is a settled fact waiting to be revealed in rising prices. The FED pays bankers not to lend with interest rate rewards for holding the inflated masses of dollars in FED accounts. Thus prices do not rise because dollars not lent are not spent. The FED claims it can undo inflation by selling the worthless assets for which it has overpaid. But sell to whom? To the banks who would rather get paid to hold their cash at the FED rather than spend it on junk which has been labeled “assets” or loans to more deadbeats?

    Chairman Ben’s choice is clear: depression or massive price rises. His policy now is to deny the nature of the choice.

    Who needs fiction? This is wonderful entertainment, watching counterfeiters pretending that they aren’t and pretending that their chickens coming home to roost aren’t chickens and aren’t coming home and it’s not a roost. Grab some popcorn.

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