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The Inflation/Deflation Debate: Maloney & Schiff Face Off (Video)

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What is coming next to the United States – massive deflation or inflation? Peter Schiff & Mike Maloney have different opinions on this economic question, though they both agree that the US dollar’s days are numbered. In part four of their one-on-one conversation, Peter and Mike debate what will happen to the US economy in the more immediate future.

View part one: Peter Schiff & Mike Maloney’s First Face-to-Face Discussion
Part two: Is Gold Heading to $13000?
Part three: Saving Your Retirement Nest Egg from the Next Market Crash

This is part four of a series we’ve produced from this valuable discussion. Videos on new topics will be released weekly for the rest of the month.
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Follow along with this full transcript:

Mike: Back in 2005, ’06 and ’07 when I was writing my book, I wrote that there would be inflation and then the threat of deflation. I said that Ben Bernanke would be the next Fed Chairman, and he would over react with big helicopter drops of currency, which he ended up doing. So the threat of deflation was the popping of the stock market and the real estate bubble in 2007 and ’08. And then he would over react which will drive us into big inflation but then, there would be a real deflation, a contraction of the currency supply. That’s a popping of the bond bubble, is what I see. That would bring real deflation, and then all the world Central Banks in unison will be over reacting potentially bringing us into hyperinflation. I call it the “Roller Coaster Crash.” You believe that we are going straight into inflation, right?

Peter: We already have that. They have already tried to scare us with deflation. They’ve tried to say, “Oh, we have to fight deflation. We have to make sure that we have more inflation.” The Federal Reserve has a target of 2% inflation, and they’ve told us now that inflation is not high enough, that we need more inflation. So we’ve already had that boogieman, this funny scare. So the government is doing everything that they can to prevent a healthy deflation. Deflation is the solution to our problems, but the government has a different agenda. The government is trying to continue to prop up asset markets.

And, of course, inflation benefits debtors, and the government being the world’s largest debtor, and not just our government, other governments, rather than defaulting, they want to inflate. They want to pretend to pay people back with money of diminished value. So I think we’ve already seen that, and I don’t think the governments are going to let the bond bubbles burst because there’s too much at stake. They should but I think just as people want out of these bonds, the governments are just going to step up their efforts. I don’t think we’ve seen anything yet with respect to quantitative easing. I think they can come back. They were doing 85 billion a month before. They can come back with 150-200 billion a month. Whatever they do…

Mike: And they will.

Peter: The will do whatever it takes. But I don’t think we are going to see… When you talk about deflation, I know that we are going to see is situation where the cost of living actually comes down in terms of dollars. We could see some declines in [crosstalk] prices…

Mike: What about the contraction of the currency supply because I go for the Austrian definition of inflation and deflation, which is an expansion or contraction of the currency supply and then prices follow.

Peter: But even if currency supply were to contract, if the velocity were to pick up at the same time…

Mike: Yeah, it’s affected.

Peter: It’s the question of if the people want that currency. And ultimately, if nobody wants the money at all, it doesn’t matter how much you contract, if nobody wants the… there’s no demand for that money or if people want to get rid of it as soon as they get a hold of it because they don’t want to be caught out when the music stops. I think we’ve already passed that point.

Remember, we had a big rally of the dollar in 2008, when I think people reacted the wrong way due to financial crises. And even with that big rally of the dollar, we still didn’t have falling consumer prices in the United States in 2008. Prices still rose even in an environment where the dollar strengthened dramatically. And in fact, we’ve just had a big increase in the value of the dollar and consumer prices are still rising. We’re on a precipice of something huge and you’ve got the powers that will be telling us everything is great, and there’s nothing to worry about. But there’s a lot to worry about and people have to do what they can on their own to protect themselves.

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2 thoughts on “The Inflation/Deflation Debate: Maloney & Schiff Face Off (Video)

  1. Ben Wheeler says:

    There’s been much debate over the last five to ten years whether the current economic situation is going to result in an inflation, (wage/price spiral) or deflation, (defult) and opinions very to what extent? What puzzles me, and something worth considering is this. The current boom of the last ten years has been funded by debt, so much debt, that the combined debt of the western economies far exceed its earnings. However, more importantly, the debt, almost all funded by houses prices, ie mortgages, and mortgage equity withdrawal has be used by the establishment to mask a much greater problem.

    That greater problem is the fact most of the western power’s industry has been shipped of to “low cost” countries where the wages are significantly lower.

    The reason for the governments doing this is quite clear. The establishment knew that as they started playing around with property prices/rents, that the unions would start to responed by demanding larger pay rises? So to put the workers in their place they decided to put them all in to service sector jobs, or other “minimum wage” roles.

    Here, they’ve made a big mistake? Once you export all your manufactoring jobs, you export your tax base, this means, for every job you export, you loose one sorce of income tax/national insurance? At the same time, you have to pay out an extra lot of unemployment benefit. It’s no coincidence that all the western economies with the exception of Germany, are running massive budget deficits.

    The real problem we have, is that our governments, by allowing our debt to exceed our earnings several times over, have backed us in to a hole. They can’t put up interest rate up, as that will be the final nail in the debt coffin, and force tens of millions into bankruptcy? On the other hand the can’t lower them any further, as it will spark inflation. Bear in mind, we already have negative savings rates, interest rates on savings being as low as 2%, when inflation, including property prices/rents being nearer 5 or 6 percent.

    What bothers me is, this unique position, was has not happened in most people’s living memory, and only before ever occurred in times of war is going to result, for May be the first time in history, in “double jeapody on on the inflation/deflation front?

    Double jeapody is basically this. The first thing that will happen, is that the central banks of the western economies will be forced to hit the printing presses in an attempt to stop deflation setting in, as prices start to rise, people will fight for pay rises, causing a wage/price inflationary spiral. This will see inflation go well in to double digits, and possibly beyond, but bazzarly result in a property price collapse as people simply give up on ever repaying the overvalued mortgages, which are actually a liability for the banks, not an asset?

    The second part of double jeapody is roughly this, as the wage/price spiral starts to take effect, the western economies currencies will start to significantly devalue, not just due to inflation, but as a direct result of the fact that we have nothing to sell the outside world anymore, and that our currencies simply will not be wanted, or even needed. The simple reality of the situation is that our currencies are only need all the time we have something to sell?

    If this situation gets out of hand, and carries on running its current course unchecked, in a few years time, we in the west won’t be able to afford to import the stuff we used to make ourselves?

    The future looks very bleak. And I personally don’t see a way out.

    • Joe says:

      I don’t either friend, seems to be a pretty big global mess awaiting us all, spreading my assets around the world and among the variety of categories of asset classes is all I can think of to not lose it all. Just hoping I can weather the storm with the essentials, regardless the economy can’t take my spirit.

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