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Peter 'Dollar Demise' Schiff Versus John 'Dollar Reprise' Mauldin
Based on the coming 'oil revolution', John Mauldin makes the point that the US can run $300-400 billion deficits and the Fed "can print trillions" and the dollar will surge (since the rest of the world demands it). Peter Schiff begins quietly adding that "we don't have that much oil" then goes on to discuss the 'ifs' in Mauldin's thesis, beginning the wildcard that "we can't suppress interest rates indefinitely" as we await this supposed oil export boom to begin - and that somehow the US is expected to generate a budget surplus when even the perpetually optimistic CBO in its most recent forecast gave up on expecting a surplus in the future of America. Ever. The ensuing 3 minutes or so is worth the price of admission as Dollar bull meets Dollar bear in a nose-dripping, face-ripping trip into the future.
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i just lost any respect i had for John Mauldin. He doesn't understand Schiff's point. He keeps repeating himself like a fool.
GDP = C + G + I + (NX)
Schiff is saying, +G => -I (since government doesn't rpoduce anything it must tax savers, thus any governemnt spending implies negative savings in the private sector)
Mauldin is saying +G has no effect on I, and is directly linked to GDP.
Thinking in REAL terms (not nominal GDP) Schiff is correct. You can hide the impact if you dilute the measuring stick (i.e. fiat currency). Then Mauldin would 'appear' to be correct (print money and give to government to spend. I in nominal terms would not be impacted but G in nominal terms would increase)
We can only keep printing USDs with abandon whilst the rest of the world a. prices oil, gold and most commodities in dollars and b. accepts payments in USD.
In a few months we will see if Mauldin/Krugman is right or if Bass/Schiff are correct, since we are the Japanese path, their experiment with infinite deficits will soon come to an end
Best line in the clip, "goverment debt = profit free risk"
Best line in the clip, "goverment debt = profit free risk"
eh, is this Dr. Krugman the real Krugman? sounds and looks like him.
he will be lonely here.
eh, is this Dr. Krugman the real Krugman? sounds and looks like him.
he will be lonely here.
If a frog had wings, it would not bump it's butt. If you catch your excretions in one hand and hope keynesians solve the debt problem in the other then see which gets full first. Just because govt. spending is in the formula for calculating GDP does not mean it should be. There must be a better way to reflect reality.
If shit tasted like butter, you could spread it on yer toast.
Odd organisation [Global Resource Investments, Ltd], doesn't even have it's own entry on Wikipedia =S
Anyone know much about the founder beyond the company webpage spiel?
the whole situation is miss understood in a basic sense.
Basically the Govt has two options for systems to expand the money supply, One is the current one, where the Gov issues debt when they spend more than the tax revenue (and other revenues) they receive, They issue bonds and in extreme case can have the central bank buy the debt which basically increases the money supply (i.e. dilutes the currency) to pay the debt.
The other possible option is to have no central bank (like was done before the FED) in which case the Govt can simply increase the money supply to cover excess spending.
Historically the second options has been looked down upon because the Got will be tempted to spend excessively causing large inflation and possible currency collapse (i.e. so they destroy all the peoples wealth),
In the current situation the FED use to only target short term rates via money market operations to control rates (and expand / contract the money supply) .. By buying long term bonds they are greatly increasing the risk of chaotic interest rate spike if inflation ever gets out of hand and possible they may create hyper inflation because they have diluted the currency to much.
So the real question is has the FED increased the money supply too much and thus is the US headed for excessive inflation and possible rate rise shock, which could lead to Govt funding collapse. or
has the increase in money supply by the FED been required because 1) the contraction in money supply was so large during the 2008 crash that such a large increase in money supply was required to compensate and 2) the contraction in demand from changing demographics (i.e. aging baby boomers) is further leading to a contraction in demand and hoarding of cash for retirement (again contraction of money supply) so say a 5-10 year period of unusually excessive money supply is required until the tax receipt / pension payouts balance again .. and then the supply can be reduced as the budget balances.
I think no one knows which is correct or which way this is headed but its all about the money supply and weather FED increase is excessive or required.
ie Govt debt can always be paid by increasing the money supply its weather the required increase ends up making the currency worthless or is sustainable..
the whole situation is miss understood in a basic sense.
Basically the Govt has two options for systems to expand the money supply, One is the current one, where the Gov issues debt when they spend more than the tax revenue (and other revenues) they receive, They issue bonds and in extreme case can have the central bank buy the debt which basically increases the money supply (i.e. dilutes the currency) to pay the debt.
The other possible option is to have no central bank (like was done before the FED) in which case the Govt can simply increase the money supply to cover excess spending.
Historically the second options has been looked down upon because the Got will be tempted to spend excessively causing large inflation and possible currency collapse (i.e. so they destroy all the peoples wealth),
In the current situation the FED use to only target short term rates via money market operations to control rates (and expand / contract the money supply) .. By buying long term bonds they are greatly increasing the risk of chaotic interest rate spike if inflation ever gets out of hand and possible they may create hyper inflation because they have diluted the currency to much.
So the real question is has the FED increased the money supply too much and thus is the US headed for excessive inflation and possible rate rise shock, which could lead to Govt funding collapse. or
has the increase in money supply by the FED been required because 1) the contraction in money supply was so large during the 2008 crash that such a large increase in money supply was required to compensate and 2) the contraction in demand from changing demographics (i.e. aging baby boomers) is further leading to a contraction in demand and hoarding of cash for retirement (again contraction of money supply) so say a 5-10 year period of unusually excessive money supply is required until the tax receipt / pension payouts balance again .. and then the supply can be reduced as the budget balances.
I think no one knows which is correct or which way this is headed but its all about the money supply and weather FED increase is excessive or required.
ie Govt debt can always be paid by increasing the money supply its weather the required increase ends up making the currency worthless or is sustainable..
the whole situation is miss understood in a basic sense.
Basically the Govt has two options for systems to expand the money supply, One is the current one, where the Gov issues debt when they spend more than the tax revenue (and other revenues) they receive, They issue bonds and in extreme case can have the central bank buy the debt which basically increases the money supply (i.e. dilutes the currency) to pay the debt.
The other possible option is to have no central bank (like was done before the FED) in which case the Govt can simply increase the money supply to cover excess spending.
Historically the second options has been looked down upon because the Got will be tempted to spend excessively causing large inflation and possible currency collapse (i.e. so they destroy all the peoples wealth),
In the current situation the FED use to only target short term rates via money market operations to control rates (and expand / contract the money supply) .. By buying long term bonds they are greatly increasing the risk of chaotic interest rate spike if inflation ever gets out of hand and possible they may create hyper inflation because they have diluted the currency to much.
So the real question is has the FED increased the money supply too much and thus is the US headed for excessive inflation and possible rate rise shock, which could lead to Govt funding collapse. or
has the increase in money supply by the FED been required because 1) the contraction in money supply was so large during the 2008 crash that such a large increase in money supply was required to compensate and 2) the contraction in demand from changing demographics (i.e. aging baby boomers) is further leading to a contraction in demand and hoarding of cash for retirement (again contraction of money supply) so say a 5-10 year period of unusually excessive money supply is required until the tax receipt / pension payouts balance again .. and then the supply can be reduced as the budget balances.
I think no one knows which is correct or which way this is headed but its all about the money supply and weather FED increase is excessive or required.
ie Govt debt can always be paid by increasing the money supply its weather the required increase ends up making the currency worthless or is sustainable..
What our Dr. Krugman is talking about is correct, that is always the behavior of the economic symstem. What is important is what he is not talking about, the long term effects of accelerating the rate of monetization on the correct functining of the markets. It is a lot more complex and you have to use chaos theory to model this, but put it simply, once you start monetizing, at the rate we are now, you can not stop, without crashing the system, imagine Ponzi stopping his money taking. But as soon as the markets realize that this is your problem, they second guess you and the rally to infinity starts, since they know you can not stop. At that point the power of the FOMC decision makers becomes too big over maker functioning worlwide. That power, (or gain as youn would model it into your system) is so large that the system becomes unstable, that means, it goes into a state of apparent stability but where any event can destabilize it. In engineering we call this METASTABILITY. Once the destabilization starts, you can not stop it, all your checks and balances in the system become powerless to stop the flood.
Krugman and the FOMC theorists know they are playing with fire, the big mathematicians of the Federal Reserve system have already modeled this. I passed (it was a lot of work but we are all connected :) and I had a very credible career in my field) them the theory and they modeled it and saw what I was saying since 2007, that you can not monetize the problem and expect a stable outcome, that the probability is that you will loose control of the system (by the way that means something that terrorizes central bankers, that you move the knobs and the system doesn´t respond the way you expect).
Then, why are they doing it the way they are, sadly, the reason is pretty simple, but sad: It is that they don´t have any other plan...
If you doubt me, read the minutes of the last FOMC meeting, the part about "markets starting to not function correctly". This will only get worse...
Until next time,
Engineer
commodities mkts collapse as profit center, no more front running HFT;
isnt there any way to fraud anymore, front run the FED?