Exactly. Mainstream actually educated economists are right, not people hyperventilating about money printing.
On top of what you said about the effect of printing making valuations high, only temporarily and only on paper, the opposite lack of printing, is actual redistribution towards the rich in a much more real and persistent way.
Insufficiently inflationary money can be used as a way for the rich to withdraw from the private economy when things are getting too turbulent and park their wealth in government paper having greater than market rates of returns (on a risk adjusted, liquidity adjusted basis). If government money didn't exist, these people would have to stay in the turbulence when the economy hits a storm.
In a private economy, it's normal for returns on assets to occasionally turn negative. Wealth is sometimes difficult to keep constantly growing year after year. With low inflation, the rich can divest from private assets at the first sign of trouble, shrink or close businesses, kick employees to the curb and they get to park their wealth in government guaranteed paper. A deflationary government currency is basically a subsidy for causing unemployment and destroying careers, a subsidy that often gets indirectly paid by the poor. Money printer keep going brrr please.
I note that the Nobel Prize in Economics was created by funding from a banker. 'Mainstream economists' have certainly not 'conferred the greatest benefit on mankind' nor has 'trickle-down' lifted all boats ... only the boats in the marina. As ye sow ...
Because I am fairly pro market but read enough mainstream economics to know that government paper retaining value more than private assets is much more of a distortion than said paper gradually losing value towards its intrinsic value of nothing.
The thing is, stable money that predictably loses value is a great thing to have for the economy as it allows people to negotiate contracts and conduct business in a predictable manner. Medium of account, medium of exchange etc. Money being a store of value is an unfortunate consequence of it being a medium of exchange that often has to be mitigated. Fiat should never be widely used for saving. Money is just an IOU. When everyone's savings are IOUs, on average everybody indirectly owes everybody else their savings. Instead, savings should be tied to real stuff such as businesses, inventory, production capacity etc. not just all be pure promises. When too many people hoard pure promises and all believe that it's true wealth, bad things happens.
Hard currencies while not good for conducting business since they are too unstable might be better as stores of value as they fluctuate and have negative returns when they should so tend to not crowd out other asset markets as much as government stabilized currencies do when inflation is not high enough. Just make sure the government does not try to stabilize hard currencies. That caused the great depression.
If people just create their own new currency (lets call them index funds) doesn't that defeat the whole point? Because that is exactly what happened. The dollar deflated but the real currency kept its value, meaning that everyone's salaries were cut in comparison to the people who stored their money in the real currency. That is how you see "growth" in a recession like we just did and how printing money hurts the poor.
Def made me think alot. Seems you can replace your entire argument with crypto. Money printer goes brrr, money gets locked in crypto, does nothing for the economy, leading to massive inequality. Crypto can be though of as "Savings" in your analogy. BTC might cause a economic meltdown if $10T gets locked in'Savings'.
Even without a money printer and everyone mass adopted bitcoin, massive inequality would still ensue. This is because Bitcoin is inherently deflationary. Both inflation and deflation are natural drivers of inequality... they just work in different directions.
Bitcoin is inherently deflationary...if the entire world moves to bitcoin, and somehow we prevented the extension of credit based on bitcoin collateral by financial intermediaries...
Which is already happening.
Financial institutions are already extending credit (aka 'printing money') based on bitcoin and other cryptocoin collateral.
>we prevented the extension of credit based on bitcoin collateral...
>Which is already happening.
Is in direct contradiction to:
>Financial institutions are already extending credit...
Regardless, the amount of bitcoin is set to be capped and finite - therefore unless this changes it is inherently deflationary. Aside from mining out the remaining unmined bitcoin, no institution is "extending credit" (aka 'printing') bitcoin, they're extending credit via (as you mentioned): other collateral.
Bitcoin is EVENTUALLY deflationary. Right now, about 900 coins are created every day leading to inflation of ~$45M a day that buying pressure needs to eat up. Every four years that inflation is cut in half, but it's still inflationary.
I've been wondering about that. I'm not sure if crypto coins without being stabilized by central banks are a powerful enough force to cause the type of havoc that gold did during the great depression.
Then again, the potentially stronger network/memetic effects of cryptocoins, along with the amplification factor from markets being synchronized through instant all-encompassing global communications nowadays might make them dangerous to the economy without government involvement. We saw how much people can get hypnotized by these things during the Gamestop episode. I don't think unsophisticated investors' hoarding is enough to cause big problems but it is a bit unsettling that Tesla jumped on the cryptocoin train. If enough businesses follow suit, you get into scary territory. Last time it lead to Hitler and WWII. It makes me second guess my cybertruck reservation. I was on board partly because of Musk's audacious and epic attempts to bring humanity forward. This is a non negligible risk of going in the opposite direction of creating economic carnage that leads to new Hitlers (but with nukes).
I understand that I kinda Godwin'd myself but if you read the wikipedia page on the Weimar Republic:
"The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[8] On 30 January 1933, Hindenburg appointed Adolf Hitler as Chancellor at the head of a coalition government. "
or
"In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[59] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's NSDAP."
Now the above paragraph puts emphasis on businesses with debt but even non-indebted businesses can get caught in these currents if they are put in a position where it's more advantageous to hoard currency than to invest in maintaining or growing production.
It's a fairly low probability that cryptocoins could create this kind of disastrous Nash equilibrium without the involvement of a powerful central bank. However, when I see the fervor in parts of the cryptocurrency movement and the fact that businesses are starting to hoard large amounts, I wonder...
Stocks are also IOUs on a certain level but they are not far removed from a real productive assets creating real value (the company that the stock gives you ownership of). Things can get speculative with stocks too, though usually far less than in the cryptocoin realm.
If you add up all the IOUs in the economy, financial assets are cancelled by financial liabilities and what remains is real stuff which in economics is called "investment". The nomenclature can be a bit confusing because in finance they use the same word to mean the contract, the claim or the IOU not the physical asset.
The equation for GDP is Consumption plus Investment (sometimes government consumption and investment and exports are broken out). Investment is not financial assets or money or bonds which all cancel out at the global level. Investment means factories built, equipment built, less tangible things like knowledge and intellectual property count too in theory but are sometimes hard to measure. It's important to have a good level of investment. Promise hoarding can crowd it out when things get too speculative. The economy can get into a bad Nash equilibrium where people are chasing IOUs instead of producing real value.
You are only permitted to own real stuff to the extent that other people can be somehow dissuaded from taking it, and instead of working against you, can be convinced to work together and to trade instead of taking things by force. It’s all trust or the lack of it, just agreements to keep moving society forward instead of reverting to more competitive models of subsistence
> Mainstream actually educated economists are right, not people hyperventilating about money printing.
This statement is so vague, I don't know what it means. Are you implying that all "mainstream actually educated economists" (whatever those are) are all in agreement about something? What exactly are they "right" about here?
That's rather extreme. If he always predicts gloom and doom sometimes he will be right. Especially within the last 15 years. Wasn't he predicting the last financial crash for a couple years before it happened?
The boy who cried wolf was eventually correct too. A broken clock is right twice a day. Etc.
Peter Schiff currently believes Bitcoin is going to collapse, that anyone who buys it is a fool and charlatan, that hyperinflation is around the corner, and the only solution is a return to the gold standard. Do you agree with this?
I don’t like Bitcoin (too many grifters) but even I can admit it has value as a hedge asset against systemic shocks. He just doesn’t like that it may supplant Gold.
I don't see that at all. He's basically saying that the way our governments and banking systems interact with the economy is fundamentally flawed and causes issues.
Getting the timing right is not easy, sure. He was right about 2008.
You may choose to believe that 2008 was an isolated event or it was just another systematic failure.
I think we'll see another one soon, following the way governments treated covid.
I wish Bitcoin would succeed and bring us a step closer to anarchy - but Bitcoin doesn't have any backing and it's not a physical asset which can be used, worst case scenario, as jewellery. Its technology can be replicated entirely by a different coin (and it has, already). Its intrinsic value is null.
The reason the price is so high is because people hope to speculate on it and make money (which they have!) and because people expect the market and currencies to do badly, given the high point they reached. Also, governments' stimuli brought a lot of money in the hands of rich people; this money needs to go somewhere given the risk of inflation, so rich people are investing in growth stocks (eg. tech) and cryptocurrencies.
I'll be honest, I was expecting governments to destroy cryptocurrencies by now, but even without government intervention, I don't see Bitcoin ever holding any value or being stable, without backing. Maybe stable-coins will solve this.
I agree that going back to the gold standard would be an improvement, even better, I'd prefer if private companies could just print and back their own currencies.
Instead of backing currencies with gold, you could back them with different commodities (eg: wood, iron, oil, etc).
The machinery of freedom has an interesting chapter about how such a system may work.
He was not right about 2008. Saying that “US stocks will crash because of [WRONG REASON]” doesn’t make you right. Anyone that listened to Schiff or invested with him wound up losing a LOT of money.
Going back to the gold standard would not be an improvement. I highly recommend reading Karl Polanyi’s The Great Transformation for an analysis of the problems of the gold standard.
He has been consistently wrong for 15 years, if he was right, it was a half truth by accident. Let’s look harder at his theses since 2007 or so:
1. US Equity Markets Crash.
Okay, that happened in 2008. But, did it he get the reason why?
He claims it is all about Debt and easy money. That interest rates should be up and ultimately we should be tethered to hard currency. That’s a really, really simplistic and ahistorical take. It’s like saying, let’s cause issues with the financial economy to completely wipe out the real economy because it is “healthier that way”. Seems to be a big price to pay for a very nebulous benefit. Thoughts like that led to World War 1. (I highly suggest “Lords of Finance” from Liaquat Ahmad and “The Great Transformation” by Polanyi).
As opposed to what we ARE doing loosening the liquidity strings to allow the real economy to continue to function, albeit damaged by the lack of regulations + greed in the financial economy causing it to make terrible risk exposure decisions.
Yes there was plenty of bad behaviour in the housing market and in the whole Lon trading and mortgage trading market (which I was a part of in the past, as a wall st software dev). The interaction of mortgage backed securities and collatorized debt obligations propped up too many balance sheets and weren’t properly valued for systemic risk, and amassing credit default swaps as a hedge quickly unravelled the institutional insurers like AIG .... requiring a massive liquidity injection by the Fed and Congress so that everyone from Wall St to Main St didn’t wind up completely broke. Ultimately it was the only practical solution available given the political will.
2. US Dollar will crash (Hyperinflation)
Completely false and made him and his investors lose their shirts
3. Decoupling of foreign economies from the US slowdown
Also false, the US rebounded far quicker due to a variety of Obama era policies, the world still is not really decoupled as Eurozone troubles and Trump’s trade wars showed.
4. Foreign equities and commodities (gold) will grow and are where you should invest.
Except foreign equities crashed worse than US equities back in 2008! And austerity policies prolonged their suffering.
My criticism isn’t “overboard”, this is public record. If you are an investor and listened to Peter Schiff, you’ve lost a lot of money.
You mean because his reasoning is Austrian and not Keynesian it is wrong even when the crash happens which he predicted would happen? That's convenient.
Gold has also done pretty well hasn't it?
You can list wrong predictions all day, but if the guy is occasionally right you need to give credit.
There's still no reason for anyone to carry around a broken watch and no reason to listen to wolf criers who are more wrong than not. Pete Schiff as an anachronistic goldbug is a curious oddity to point out every now and then for amusement. He isn't someone worth listening to though.
There’s an old saying that Austrians claim a lot of things, but ultimately become Keynesians in a foxhole.
There is no “there” in Austrian economic reasoning or modeling: the fundamental premise is to reject empirical evidence in favour of Praxeology. This is useless for forming economic policy.
"Mainstream actually educated economists are right, not people hyperventilating about money printing."
The thesis of your post is literally a fallacious argument - the argument from authority. The textbook definition.
Yes, the "experts" are always right, like the experts that ran LTCM, the hedge fund run by rocket scientists that crashed the economy (until being bailed out by the Fed) /s
I would go on with more examples of fallacious "argument from authority" logic gone wrong, but I don't have the time.
I didn't make an argument about education. I made a comment referencing mass financial and economic illiteracy in America.
An economic theory is not right or wrong, good or bad, or otherwise based what the "educated, mainstream experts" believe. The history of human knowledge is essentially a history of paradigms (sometimes temporarily useful) being proven completely wrong, with some non-mainstream ideas being proven right. QE and mainstream economics, in my opinion, will turn out the same way, and end up causing the destruction of arguably the wealthiest nation in human history.
It's only a "burn" if you actually think it's a legit argument. I was just pointing out that it is not.
"One of the great commandments of science is, "Mistrust arguments from authority." ... Too many such arguments have proved too painfully wrong. Authorities must prove their contentions like everybody else." - Carl Sagan
On top of what you said about the effect of printing making valuations high, only temporarily and only on paper, the opposite lack of printing, is actual redistribution towards the rich in a much more real and persistent way.
Insufficiently inflationary money can be used as a way for the rich to withdraw from the private economy when things are getting too turbulent and park their wealth in government paper having greater than market rates of returns (on a risk adjusted, liquidity adjusted basis). If government money didn't exist, these people would have to stay in the turbulence when the economy hits a storm.
In a private economy, it's normal for returns on assets to occasionally turn negative. Wealth is sometimes difficult to keep constantly growing year after year. With low inflation, the rich can divest from private assets at the first sign of trouble, shrink or close businesses, kick employees to the curb and they get to park their wealth in government guaranteed paper. A deflationary government currency is basically a subsidy for causing unemployment and destroying careers, a subsidy that often gets indirectly paid by the poor. Money printer keep going brrr please.