Submitted by QTR's Fringe Finance
On Monday, I wrote about Mike Novogratz and the hubris of cryptocurrency bulls, many of whom are in the process of receiving their long-overdue shit-coin comeuppances.
One of the things I pointed out in my article was an interview from November 2021 where Celsius CEO Alex Mashinsky made statements regarding crypto that I thought were extremely irresponsible, not the least of which were the claims that bitcoin “pays a yield” and that gold “has no value”. Here we are, months later, and many people who listened to Mashinsky’s advice back in November have been trounced by the collapse in cryptos, led by the stablecoin shit-show that Terra/Luna kicked off.
In similar fashion, I had trouble picking my jaw up off the floor when watching Real Vision’s latest “debate” between Peter Schiff and Ross Gerber.
Released yesterday, the debate was filmed all the way back in late March so, to some degree, Peter’s assertions (that inflation would continue and that speculation in growth stocks would slow while investment in value stocks would increase) have been proven correct thus far. Ross Gerber’s assertions (basically that this time it’s different) have, so far, proven to be incorrect.
But of course, that’s only a short term assessment and things could change going forward.
I don’t take exception with Ross Gerber having a different point of view than Peter Schiff. In fact, I would’ve respected the interview much more if Gerber had even just delivered a coherent case for modern monetary theory, as opposed to juxtaposing garbage CNBC talking points with incomplete Stephanie Kelton-sounding arguments and a brutal misunderstanding of any type of economic theory - then passing it off as a some type of “position” against Schiff, who stuck to his normal schtick.
There were numerous points in the debate I found noteworthy. At around 14:55, while discussing Tesla, Schiff raises the point that as innovators succeed and prove their concept, they face competition from other companies who realize there is demand for the new product. This, in turn, can lead to the original innovator’s success contributing to its undoing.
“The growth that you thought was going to be there ends up not being there because it becomes a victim of its own success,” Schiff says.
Gerber retorts: "That never happened with Apple!"
Except, Ross, it did. Microsoft (and IBM and the others who licensed Windows) ate Apple's lunch in the 1990s, resulting in Apple's stock price tanking and chaos in the boardroom, notably while Gil Amelio was President, right before Steve Jobs wound up coming back.
“I’ve owned Apple for 20 years!” Ross argues, seemingly unaware that before he was a buyer, the company faced the literal exact situation that Schiff lays out.
Apple was days away from bankruptcy near 1997, before Jobs came back. And then, even after he did, he had to take on a $150 million investment from Microsoft, one of the company’s largest software/OS competitors, who committed to developing software for the Mac.
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From there, the discussion turns to inflation. It becomes clear that Ross Gerber thinks that the Fed is in full control and can just wave the magic wand to end inflation whenever it is ready to, sans consequences.
At about 25:26 in the video, Gerber says:
"The Fed has a very easy tool book to end inflation if they want to - and it's simply taking away the cash. And so, as they start to raise interest rates right now, we have every confidence that it will work in slowing the economy and slowing down inflation.
So basically, if the Fed can raise rates to any amount to kill inflation, then - and we know that that works, as we saw in the early 80s - then they absolutely have a playbook to control and maintain inflation."
To which Schiff responds:
“You’re proving my point. They’re talking about raising them from 1% to 2% - that’s not going to slow inflation. Inflation will get faster with these little hikes, because you still have negative interest rates. It’s not going to slow inflation - it’s not going to have people stop spending and start saving. If inflation is 8% and rates on your mortgage go from 3% to 3.5%, you’re still getting paid to borrowed money.”
It appears that Gerber doesn’t realize that if rates move any higher than 3%, we run a high chance of blowing up the entire global economy.
It becomes clear later in the video exactly why Gerber “thinks” this way.
“The long term rate of inflation is not going to stay at 8%. The long term rate of inflation over the last 30 years is 2% to 3%. 8% is not a real number,” Gerber says.
“It’s higher than that if you want to get real,” an exasperated Schiff responds. “Let’s say the Fed has to put rates at 10%. So mortgage rates go from where they are now to 11% or 12%, all the adjustable rate mortgages. Also, the Federal government’s interest on the national debt goes from about $300 billion a year to $3 trillion a year. Now we need a massive tax hikes on the middle class - we probably have to double or triple taxes just to cover that cost,” Schiff says.
Gerber responds: “If they raise rates to 2%, inflation’s done.”
“So why didn’t that work for Volcker?” Schiff asks.
The debate is chock full of examples like the above that really make it clear how the two sides of the argument think.
I’m not even recommending that you watch this debate to just rip on Ross Gerber - at this point, that’s too easy and there’s not much left to be said.
Instead, I am recommending you watch the interview in hopes that you will truly grasp the vast delta between the reality of the conundrum that the Federal Reserve and our economy are respectively are in and the blindingly naïve and misinformed psychological state from which perpetual bulls/Keynesians tend to operate.
As I wrote in a couple pieces (here and here) earlier this year, decades of confirmation bias for “successful” money managers who have benefited from an epoch of ultra low interest rates and horrifically irresponsible monetary policy are hard to shake off.
Some people aren’t going to see it until they fly face first into the mountain. As Peter Schiff says during the interview to Ross at one point :
“You are living in a fantasy land!”
Watch the full debate here, via Real Vision on YouTube:
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