Economics Questions

Re: Schiff: Is he right?

jimmy — Sat, 13 Dec 2008 16:01:09 GMT

For those of you who are interested, this forum thread caught my attention and so I put together a short article that looks at the Murphy vs Shiff argument in a bit more detail:
http://mises.org/Community/blogs/jimmy/archive/2008/12/13/murphy-vs-schiff.aspx

It may well be that there was some miscommunication between Schiff and Murphy on the matter but the fundamental question itself is interesting, which is what I've attempted to find a solution to in the article.

Re: Schiff: Is he right?

Ivan Ivanov — Wed, 10 Dec 2008 13:36:51 GMT

meambobbo:
Bob Murphy has daily articles on this site about why he disagrees with Schiff's analysis of the trade deficit. I suggest starting here. His conclusions are that manufacturing can be overrated and that perpetual, sustainable, and healthy trade deficits are possible.

Actually there was more of a communication problem between them rather then an actual disagreement. Murphy doesn't believe deficits are allways good, and Schiff doesn't believe deficits are always bad. Both of them agree that the current deficit is bad. There's an interview with Schiff by Tim Swanson where this comes up.

Tim: Writers such as Bob Murphy had given you a hard time on what seemed to be your anti-trade deficit views, though Murphy has since admitted that you are right in your assessment of our current mess. Do you think a trade deficit is always bad for a country?

Peter: No. Trade deficits are OK under certain circumstance. 1. An emerging nation imports capital goods necessary to enhance its productivity. 2. A developed nation, with a current account surplus, uses some of its investment income to finance the purchases of additional consumer goods from abroad.

The problem with our deficit is that we import consumer goods we can not afford to pay for with either exports or foreign earnings. As such we accumulate external liabilities that we will never be able to repay and our nation's future productive capacity continues to deteriorate. We are de-industrializing and are condemning ourselves and future generations to falling standards of living.

Re: Schiff: Is he right?

Brian — Tue, 09 Dec 2008 05:56:51 GMT

I can definitely see the pull between inflation and deflation. In Schiff's world though deflation was never a possibility. In fact in late 2007 he devoted a article on it saying no way consumer prices would fall. His ego is too big to say he was wrong.

I had gold and silver before Europac and haven't sold it. I think that it will hold value and its the ultimate financial insurance.

Re: Schiff: Is he right?

meambobbo — Tue, 09 Dec 2008 05:51:31 GMT

I think Jim Rogers is definitely a better guide to investing - he tells you what he's buying, but he says you should not invest unless you know a lot about what you are investing in. Especially right now. I think Jim is more right about Asia than Peter is about Europe.

Money stock measures are growing fast. Price inflation will be here soon enough. I'd think it will hit commodities hard. Jim says he expects agriculture to have the best gains. Many are predicting a gold surge. Silver (paper) is surely underpriced.

I think the biggest things right now are deflationary expectations and deleveraging. Both are causing strong demand for cash, pushing prices lower, causing a feedback cycle. A strong stock market rebound could change this. And once inflationary expectations return, cash demand will fall, causing greater inflation in the opposite cycle. The difference is that there are multiples more in bank reserves now, allowing a much larger wave of credit than what fueled the housing boom.

This is a real simple market analysis. The only investments I have are physical gold and silver. They cannot go bankrupt.

And I would not discount anyone's analysis right now. No one really knows what's coming next. Just because a stock goes up 10% in this environment doesn't mean anyone could've listed a solid reason to buy it before it did so. The market is nuts, and government action is making it worse. When the housing market hits bottom, we should see a clearer direction. Then we can say who's wrong or right.

Re: Schiff: Is he right?

Brian — Tue, 09 Dec 2008 05:13:02 GMT

thanks for the kind words on my losses.

I listen more to Depew, Shedlock, North on global deflation so I don't anticipate the stocks coming back anytime soon (the ones that survive). I really don't know the true health of these other stocks as its hard to research ones overseas. I might eat my losses and get cash to invest in foreign CDs as I feel the dollar rally will end a bit.

Investing with Schiff - buyer beware.

Re: Schiff: Is he right?

Brian — Tue, 09 Dec 2008 05:08:12 GMT

sorry about the assumption you were in US ..

I'm a big boy and can take losses and say hey the guy was trying to invest the best he thought how. I wouldn't give him another dime but I can take it.

The frustrating thing is listening to him on tv and print get all this attention as some kind of prophet. He correctly predicted the bubbles in US stocks & real estate but was totally off the mark in the world economy bubbles. His last radio show he insisted that there was no deflation in the world! He talks more about how many youtube video hits he is getting or his reviews on Amazon (where he asks people to outpost the negative ones) than the foreign stock market. He used to call out guests on CNBC and FOX business when they made wrong predictions and now he is the one trying to cover his own up.

Sorry about the venting. I also talked 2 relatives and a friend into investing in Europac and they are all down around 50% or so. Its just ridiculous to hear this guy act like he was right when he was big time wrong in investing.

Re: Schiff: Is he right?

Austroglide — Tue, 09 Dec 2008 04:54:04 GMT

Brian:
As a Europac account holder I can tell you I don't listen too much of what Schiff says anymore. My account is 1/3 of the investment I put in. I don't think he analyzes and takes in new info to well.

In the bit of research I've done since posting, mostly reading Mr. Murphy's articles, it seems as though Mr. Schiff places too much importance on manufacturing. You hear him constantly rail against what he calls the United States' "bubble (service) economy". I need to do more reading, but it looks as though the United States' economy isn't as horrible as Mr. Schiff says, at lesat in terms of our lack of manufacturing.

Sorry to hear about your losses. I suspect Mr. Schiff has a bit of tunnel vision. However, I would be hard pressed to bet against him in the long run - your portfolio may indeed make a serious comeback if Mr. Schiff is correct about the future.

Re: Schiff: Is he right?

liberty student — Tue, 09 Dec 2008 04:48:50 GMT

I'm a Canadian, so believe me when I tell you, I am not US focused.

That said, I bury my money in jars.

Sorry to hear about your bad fortune. I hope it turns around.

Re: Schiff: Is he right?

Brian — Tue, 09 Dec 2008 04:39:18 GMT

Libertystudent -

So why am I complaining? Lets talk dividends first. What is the dividend from a bankrupt company? Or say 3 bankrupt companies? I went over my "diversified portfolio" of 18 stocks with my broker and 3 are basically bankrupt (mining). I have to write them off .. I have now 15 stocks.

As for other dividends, they are going to go down. Its a no brainer that company profits around the world are being squeezed. As I look at my "dividend stream" they are getting less and less. I don't have the current payouts but keep in mind these bankrupt companies used to pay a dividend as well. My broker said others will slash it as well.

We are so US focused with our problems that we think we are the only one with issues. Schiff didn't see it was a commodity bubble, real estate bubbles across the world, ect... As Shedlock wrote about Schiff .. Hugely Right, Enormously Wrong

Re: Schiff: Is he right?

liberty student — Tue, 09 Dec 2008 04:20:47 GMT

Brian:

As a Europac account holder I can tell you I don't listen too much of what Schiff says anymore. My account is 1/3 of the investment I put in. I don't think he analyzes and takes in new info to well.

As long as you are receiving your dividends, and the companies you are invested in are still fundamentally healthy, why would you worry about your valuation in a crashing market?

I listen to people call in and complain all of the time on his radio show. He wasn't going to help you pick stocks you could flip in trade for a profit necessarily. He was supposed to help you get out of the dollar, and into high dividend yield foreign stocks.

His whole approach is long, not short. I don't understand why people are so concerned about their short position. The market is a dangerous thing to play that way if you can't really afford to be so heavily into it.

Re: Schiff: Is he right?

Brian — Tue, 09 Dec 2008 04:08:51 GMT

As a Europac account holder I can tell you I don't listen too much of what Schiff says anymore. My account is 1/3 of the investment I put in. I don't think he analyzes and takes in new info to well.

Re: Schiff: Is he right?

Austroglide — Wed, 03 Dec 2008 02:38:14 GMT

meambobbo:
Bob Murphy has daily articles on this site about why he disagrees with Schiff's analysis of the trade deficit. I suggest starting here. His conclusions are that manufacturing can be overrated and that perpetual, sustainable, and healthy trade deficits are possible.

For anyone similarly interested in the question of whether and to what degree Mr. Schiff is correct, I recommend looking at Bob Murphy's work - some very good information. Meambobbo, thanks for the link.

Re: Schiff: Is he right?

Austroglide — Tue, 02 Dec 2008 23:32:25 GMT

nhaag:
Bottom line, I would not base a strategy on the belive that all Keyisans are "dumb" and therefor have no clue about the real world. I would rather use the hypothesis -sorry for that positivistic sidemark- that one can act as a Keynesian without beliving what he preaches. This way, my strategy would not suffer from a false assumption regarding the intelligence of my counterpart.

I see. Yes, at bottom one must make a generalization on the level of ignorance of these "Keynsian decisionmakers" - namely, are they "wise to the game" or are they not?

I just don't see how on balance they could be. Most people the world over, indeed most ECONOMISTS the world over, are nearly completely ignorant of Austrian economics. Thus, they are nearly completely ignorant to the possibility that a truly viable alternative to Keynsianism even exists.

It seems most reasonable to conclude that, in fact, decisionmakers are, like everyone else, currnently deluded by the spell cast by Keynes, rather than that they are wise to it and use it to their political advantage.

Re: Schiff: Is he right?

nhaag — Tue, 02 Dec 2008 23:09:31 GMT

Austroglide:
Sorry, I don't follow. It seems - though I can't tell for sure - that you disagree with my thesis that (1) it's a Keynsian world and that, therefore (2) Keynsian decisionmakers around the globe are simply ignorant of the likelihood that the U.S. economy is fundamentally unsound.

Yes, that is exactly what i mean. You seem to belive that Keysian decisionmakers are ignorant of the fact that the U.S. economy is "fundamentally unsound. You might be right on this. Yet, I like to be on the sure side of an issue. So, I would like to think, that those Keynisian decisionmakers are first "discisionmakers" and second Keynisians. A decisionmaker usually can be thought to be someone who knows what is in for him. If I am wrong with this and he is "just" stupid, it wouldn't harm me. If I am right and he is a "decision maker" that asks for "what is in for me" I would have to employ other means to "fight" - excuse that martial term- him.

Being right is one thing, another thing is being successful. To be succesfull you have to develop strategies that have the capability to put your "rightness" into something usable.

Bottom line, I would not base a strategy on the belive that all Keyisans are "dumb" and therefor have no clue about the real world. I would rather use the hypothesis -sorry for that positivistic sidemark- that one can act as a Keynesian without beliving what he preaches. This way, my strategy would not suffer from a false assumption regarding the intelligence of my counterpart.

Does that make sense?

Re: Schiff: Is he right?

Austroglide — Tue, 02 Dec 2008 22:49:02 GMT

meambobbo:

Bob Murphy has daily articles on this site about why he disagrees with Schiff's analysis of the trade deficit. I suggest starting here. His conclusions are that manufacturing can be overrated and that perpetual, sustainable, and healthy trade deficits are possible.

This is a large part of the dollar argument. Schiff contends that Americans spend borrowed money on consumption, not investment, and thus will be unable to repay. When this day comes, the dollar will be pushed to hyperinflationary levels.

I don't know. What if our debtors intend to be paid back in military aid, not money? We could produce that.

Just think about this; if the world were to abandon the dollar, what would replace it? Another fiat currency? If the biggest and suposedly most reliable fiat currency just crashed, wouldn't the market be hesitant to accept another? Gold? Possible, but it'd be a huge transition. There would also be large shifts in purchasing power. Plus there are attempts to prevent this by governments and central banks. Finally, there's the 50+ years of gold bashing in "expert" economic schools.

Basically, it's not as simple as swapping out dollar IOU's for "sound" IOU's. Without dollar hyperinflation, there's probably too much unacceptable short-term damage in trying to abandon the dollar to establish a long-term money system.

Excellent. Thank you. The winds of reasoned discourse at last begin to fill the sails.