History never repeats itself, but it does often rhyme.
We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...
If we go by another Peter, Peter Lynch in this case he would say no one can predict inflation or interest rates long term. Secondly his words is there is always something to worry about when investing - like when oil went to 40 and there would be a depression or when Japan was going to take over the world leading to Americas downfall - or when Japan was crashing and going to cause a depression. Or when oil went from 40 to 10 and would cause a depression. Or when in 82 the prime rate went to 20 and there was stagflation that no one predicted in 80 or 81. Now Schiff may be right and we are heading for this finally after years of slow growth from 2010-2018 when inflation was lower than the feds target of 2% something no one would have predicted in 2008. Schiff may be right after predicting multiple large depressions to finally get one right.
Over the years as my perspective has become more global I've come to realize what a privileged position the US is in, economically:
* Ports on both the Atlantic and Pacific
* A very effective transportation system in between
* In the big growth sector where points 1 and 2 don't matter, tech, it's still #1 in the world anyway
* A market of 350 million high income people (by global standards) under one regulatory framework
No other country can compare. No one else has this. These in-built advantages are incredibly hard to beat.
There will be crises but the key insight for me was that because of these advantages the US is almost always going to be better prepared to weather those crises than the rest of the world. That is why it enjoys such a huge inflow of capital and immigration (currently #1 recipient of FDI in the world, most immigrants of any country in the world).
It's just a big risk to bet your money against the success of the US, no matter how dumb its leaders get.
It probably also helps that Americans tend to flip out and go full doomsday mode when anything goes wrong inside of their borders, I mean it's stressful, it's not very well planned, but it does make problems hard to ignore.
No other country can compare. No one else has this. These in-built advantages are incredibly hard to beat.
It's why it's on our currency - "e pluribus unum".
It's also why Russia and China are constantly working to erode the unity of the American people, whether it's through false narratives that "we're more divided than ever", driving a wedge into political parties, fomenting rage-mode across social media, utilizing Twitter for propaganda or TikTok to keep American minds drained of their creative motivation while they ban the apps in their own countries... the list really goes on.
A cord of many stands is not easily broken, but others will do their damnedest to try.
Italy for example (second exporter in Europe, tenth by GDP in the world) has notorious issues with its legal system (for a variety of reasons) where trial may take many years to be concluded.
That export sounds like a suspicious claim, do you have sources? afaik DE, FR and NL are much bigger exporters, and a random Google result seems to back that, placing Italy 5th in EU absolutely and almost last by GDP [1] [2]
You're right, I don't know where I got that factoid. Perhaps it was an industrial goods only statistic? I can't find it anyway now, so I may have just misremembered it.
The other advantage is the total net worth as opposed to GDP. You hear a lot about GDP and the US has the biggest economy by far.
But the total net worth per person in the States is even further ahead of the rest of the world. Only Switzerland is ahead of the US in per-capita net worth (only by a hair though) and one suspects that’s partly due to so many Americans parking their money there.
Having had the biggest GDP for decades led to a amazing amount of wealth being concentrated in the USA.
Actually the U.S. in 3rd place behind Switzerland and Luxembourg in terms of mean wealth per adult and Hong Kong is not far behind. But you are right that the other countries on the upper ranks are mostly smaller nations with large banking sectors: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...
While I agree that the U.S. has an enormous built-in advantage over other countries, I would really highlight one other piece of data: In terms of median wealth, the U.S. is eclipsed by half the E.U. and many Asian countries including diverse economies like France. This points to a terrifying concentration of wealth, which has also been highlighted by researchers like Picketty and this could (or arguably already does) put the social fabric of the U.S. under enormous strain.
While it is true that the US mean is much higher than the median, the median person still benefits greatly from that wealth. The rich invest their wealth in business, real estate for rent, and real estate for themselves, making all these things better.
I'm currently in the EU, in a country that outperforms the US in median wealth by about 20%. While it's clear that life here is good, I'm also struck by how much worse everything looks here, from the rental real estate where I'm staying, to the generally unprofessional standard of business.
So just looking at the slightly-higher median and ignoring the 2-3x higher mean also skews the picture.
> After accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries.
This "study" (not peer reviewed) is questionable in various ways and published by a "think tank" that has a strong libertarian agenda and an obvious axe to grind.
First of all, it compares figures from two different data sets. That is usually something that is quite hard to do correctly, because different data sets usually use different definitions for stuff like "household consumption" etc. Without a peer review it is really hard to tell if they've done it correctly and given the intricacies of economic statistics, my guess is they didn't.
But maybe even more importantly, the data concentrates on "private consumption" and thus leaves out all the goods and services that governments pay for – which is the entire point of public services like a public health care system. I.e. when a poor person in the U.S. visits a doctor, they pay for it out of pocket, the transaction will be registered as "private consumption". If I (in Germany) visit the doctor, no money ever changes hands. My contributions to the public health care system are deducted from my income before it ever reaches my account and about half don't come out of my own paycheck anyway, they are the responsibility of my employer.
So my guess would be that this "study" undercounts exactly what it professes to account for: Goods and services consumed (but not necessarily paid for) by the poor.
But how about we measure outcomes? For example in terms of life expectancy, the U.S. is much more "unequal" (if you are poorer, your are more likely to die younger) than other developed economies: https://ourworldindata.org/life-expectancy#inequality-of-lif...
And because the U.S. has worse life expectancy than other developed economies in general, poor people are likely to die younger in the U.S. than in, say, Germany in absolute terms as well. That is just one indicator but if you accept that "the number of years you live" is an important indicator for general quality of life, the U.S. seems to score quite badly on this.
True, but look at the rental markets for the majority of Americans that don't live in the rich coastal areas. And talk about unprofessional business - you have unprofessional legal professionals in parts of the US.
Where America is great, it is great. But for the rest of it, it can be a very differently life for most of the inhabitants.
Compare "poor" America with poor (insert geographic area here).
There's no comparison. It's hugely, vastly better in the States. The only other places that have large backwater areas that can compete are maybe Canada and Australia. This is due to investment by rich people in rental real estate and businesses such as Walmart, Costco, Amazon, etc.
When a family like the Waltons have a net worth in the 100's of $Bn's, this money isn't kept in gold bars in a safe. It's actively deployed in a variety of businesses. So the poor don't get a cut of the 100's of $Bn's, but they do benefit from the investment. And in very equal countries, the opposite is true. Everybody's OK, but there aren't really any systems that stand out as being amazing.
It's an empire. Empires are good at concentrating wealth by extracting it from their surroundings.
Personally I would absolutely not want to be a poor person in the US. High crime, police violence, abusive work conditions, random shooters, health care bankruptcy, Fentanyl being pushed by medical professionals, zero Covid protections - it's a dystopian horror show.
This may surprise you, but there are locations around the world with much lower GDP and much happier people.
I find this a weird take. In my country we're always amazed that there are places in most largish US cities where it simply isn't safe to be if you aren't a native, and lethal violence is a daily occurence.
I'm not sure the Waltons are a great example to be honest. They pay many of their employees so poorly that they're in receipt of state benefits. Society is effectively paying a portion of Walmart's labour cost. Until that's no longer the case I don't think the Waltons deserve a penny.
To address some of your other points:
A poor person in my country is allowed to take time off for illness without fear of being fired. That time isn't subtracted from their legally mandated minimum number of holiday days.
A poor person in the US will show up to work sick because they know their boss can let them go. Their colleagues might then get sick.
While I'm not sure how common it is, I've seen US news articles lauding co-workers for donating sick days to a colleague with a life threatening illness. While they're obviously doing a good thing, the necessity of the act honestly comes across as barbaric.
A poor person in the U.S. more likely as not does not have proper health insurance, no unemployment benefits to speak of, is highly unlikely to receive disability benefits even when diagnosed with a disability, is subject to a highly prejudiced and often violent police force, must rely on a famously expensive legal system to press civil claims, must content with a social environment that in many places is shaped by easy access to drugs, has no access to government housing, can be fired at will, etc. etc.
Yes, there are many countries where being poor is even worse. But among developed economies (so about a quarter of all countries), it is hard to come up with a worse place for being poor than the U.S.
The individual taxpayer was paying ~hundreds of millions per year into an $86 billion dollar budget. It's kind of wild that an individual would be paying a tenth of a percent (or so) of a state's income taxes, but it's maybe not a substantial fraction.
New Jersey certainly has had budget issues and pension issues. But the current leadership has done fairly well with a budget suppress and continuing to fund the pension system. So as of now the loss of the single taxpayer while a loss to the budget hasn’t put a huge hole in the system. Obviously fully funding the pension after years of under funding will take time so we will see how it turns out.
It's basically impossible to do any financial transactions in Switzerland as an American. Even something as mundane as opening a bank account to receive your salary is extremely complicated as most banks refuse to do business with Americans. A lot of Americans there renounced their citizenship because of this.
I'm not sure this is the best example. The reason America puts Swiss banks with American customers under extra scrutiny is specifically because Swiss banks are infamous for enabling tax evasion.
All that but most of all,
the fact USD is the world reserve currency is the biggest privilege. Every other countries have to stock up on USD/ have swaps in place and follow US when they raise fed interest rates instead of doing what’s best for the domestic economy.
For example, South Korea’s USD reserves has been sharply going down as they’ve been trying to resist following the recent rate hikes to soften the blow to the economy. This is happening all across the globe.
However, US can do (and seems to be doing) whatever they want.
within reason of course. it's a position of privilege, but that position used to below to the UK. they lost that position over/after the world wars, and we got it. it is possible that doing whatever we want could push people to the euro as the reserve or the pound. it seems far fetched, but I could see a world where the euro the the world's reserve currency
The privilege is maintained by having the biggest military force in the world - which is why the UK used to be in that position, and the US is in that position now.
It's not inconceivable China could take over. Russia won't (lol...) and the EU doesn't have much interest in becoming militarised.
Does anyone seriously believe the US military is forcing the world to use dollars? What’s the leverage? Does France get invaded if the Euro becomes too important?
The yuan may be the competition we should fear. Since we disconnected Russia from our financial systems, Russia is willing to do business with our biggest rival, China, in their currency.
The yuan has capital controls. You can't move money freely in and out of China even (especially) if you're a Chinese national. Absolute non-starter for any kind of reserve currency idea.
Well, what do you expect? The US over the past several decades has effectively crippled economies for its own interests by cutting off USD access. When you do this to a non-trivial number of countries they get around it by trading among themselves and dumping the USD for their own currencies. There are many countries including India, Japan, Korea, China, Russia, etc who are opening up bilateral or trilateral agreements to trade in their own currencies bypassing the USD. The US has pissed off a significant portion of the world that its days as reserve currency are certainly numbered. However, unbelievable it might sound today but the world is inching closer to non-USD centric future.
In a kinetic war with a hypersonic wielding power, those 11 carriers will be at the bottom of the sea in the first week. Any threatening surface ship, really.
I’d argue the real power are the US underwater assets.
That only works when the US has to fight military super-powers that rely on sea-transport in order to feed their people and their military, like Japan had to do in WW2.
The moment another super-power stops depending on sea routes in order to provide basic needs for its people and its military then things start getting more complicated. Case in point, the current Russia + China alliance. They could basically sustain a conventional war against the West while avoiding sea routes basically forever, thanks to Russia's fertile lands and minerals and with the help of China's human capital. There's no US aircraft carrier that would be able to stop the logistic links going through Central Asia.
You forgot the most important thing, especially for war. Oil.
China imports a fuckton of it. But not from Russia, but the Middle East (by sea) because it’s cheaper and easier.
It’s actually very difficult to move that much oil over land. The best way is by pipeline but that takes many years and is fairly easy to disrupt. And it still leaves you with the problem of having to distribute it at the other end.
I personally do not think it is that difficult. It is indeed more expensive compared to sea transport, definitely (I said the same thing regarding the transport of grains in another comment), but it's certainly doable.
In case of a war starting I do think China won't look at the money getting spent anymore, so at that point importing oil from Iran via train [1] or from Russia (again, via train) won't be a problem for them in terms of money.
I also do think they'll switch to "war economy" mode pretty soon after the war starting, so no more private cars on the roads and such, which will greatly alleviate China's oil-related needs.
Later edit: And there's also the Northern route. I don't think any US aircraft career will be brave/stupid enough (depending on how you look at it) to position itself close to the Sakhalin Island or close to Kamchatka, that's prime hunting ground for the Russian subs. Never mind going into the Arctic Sea itself.
The real purpose of the carriers is not to fight a war, but to assert control of sea lanes. In a globalized economy your country needs access to maritime shipping lanes to survive. The carriers basically act as an area denial threat, preserving the ability of the US and its allies to trade and prosper, denying that to anyone who messes with them.
If Russia and China decide they're going to get together and be super trade buddies but the US denies them the trade lanes with everyone else, that's fine, they can share food and oil which are certainly important, but they'll still be broke and their economies will still collapse, especially China's which is super export dependent and seemingly approaching collapse right now anyway. China needs huge exports to survive in its current state and Russia doesn't have that much purchasing capacity.
I don't know the exact number but almost all of China's oil is imported, and almost all of that comes through Sea. That is not something Russia can fix on a short timeline. It's one reason why Pacific naval power remains an important advantage of the US and why they're so aggresive in the South Chinese Sea territorial "disputes".
I would argue the perceived haphazardness is an advantage. The more centrally planned the economy, the more likely an incompetent government takes power and mucks it up. Part of America’s genius is the (fairly) restricted powers and decentralized nature of responsibility.
That may be. But whatever those blowups are they tend to be a lot less damaging than at other places.
I lived through two growing up, and both times almost everyone lost almost all money. I will take the risk on my US bank account over those any time. My 2c.
The US is not a petrostate. Petrostates are defined not just by the large amounts of oil and gas they extract but the relative absence of other economic activity and the dependence of the state on that money.
42% of Saudi GDP is petroleum.
35% of Kazakh GDP is petroleum.
8% of US GDP is petroleum.
> It probably also helps that Americans tend to flip out and go full doomsday mode when anything goes wrong inside of their borders
Indeed. American doomerists are just ridiculously parochial. Panicking about the dollar when it's the currency that everyone else runs to as a safe haven. The biggest risk to America is its debt ceiling mechanism; the opportunity to completely destroy America's credit and economy to own the libs is very tempting to some people.
Except canada. The coasts. The transportation system, the tech industry... and canada has a far better-regulated banking sector, one that surfed past 2008 almost without incident. And for every natural resource, from water to uranium, Canada has more than it will ever need. I would far rather ride out the comming climate/economic crisis in calgary/vancouver than LA/SF.
Well tech and banking are clearly eclipsed by the US. And much of Canada has no transportation infrastructure. Are you sure you’re not comparing select Canadian cities to select American cities?
Nope. Canadian populations live closer to their transport infrastructure than American populations. Canadian people actually live closer together than Americans, mostly in relatively tight cities. The big empty parts of the US are in reality inhabited by thousands of small towns. Drive any highway in the US and there is a town every dozen miles. The big empty parts of Canada are actually empty. Highways can go for hundreds of miles in some areas between towns. This is largely a result of historic land laws, crown ownership and mining in Canada v. frontier land grabs and farming in the US.
> A market of 350 million high income people (by global standards) under one regulatory framework
China almost has the same number of millionaires. Per capita it’s not as good, but in terms of volume. And I’d say they’re closer to a single regulatory framework than the US which has all sorts of conflicting state laws which get in the way of interstate commerce (despite the commerce clause). Sure there are a lot of advantages as you say. But they’re not indefinitely insurmountable.
Guess where many, many Chinese millionaires have been moving the last 10 years or so?
Anywhere but China. It is a failing state with a plummeting economy and subject to even more arbitrary control over the money, its citizens own than the USA.
For sure China has a ton of people and a huge economy. Fair point that the regulatory framework there may be more homogenous, but it's also weaker.
And it lacks all the other inbuilt advantages I mentioned.
Remember, the USA can ship goods back and forth between itself and what... 90% of the ex-US global economy? With very little geopolitical interference.
This is largely a function of geography, plop a cargo ship in the water, sail it, boom you arrive in Western Europe, or East Asia, without getting anywhere near some other country's sphere of influence.
China can't say the same. To ship cargo to America they have to sail near multiple political rivals (and they seem to enjoy antagonizing America itself as well). To ship cargo to Europe they need to do the same. So there are all these countries and political forces that could disrupt Chinese trade at any time. In the long run they have inbuilt geographic risk, the US has inbuilt geographic immunity.
I think this is a skewed perspective. In case of a war the Chinese leaders won't care about the fact that they won't be able to sell their plasticky stuff to Europe or the US, they'll only care to have enough food for their population and enough raw materials for their Army (it takes lots of iron and access to cheap energy to make lots of artillery shells). Lack of enough food for their population was what brought the Germans down in WW1, partial lack of raw materials helped bring down the same Germans in WW2.
By itself China won't be able to feed its people in case of a US naval blockade, but that's where the alliance with Russia comes into place. Transporting grains by rail instead of by sea is not as cost effective but will do the trick, and Russia has lots of grains. The same Russia has also lots of raw minerals.
That's why throwing Russia into China's open arms is such a geo-strategic stupid thing to do from the West's point of view, really, really stupid.
The alternative of allowing Russia to conquer another state and openly threaten further states would be far worse. The West has disengaged with Russia (and Russian money and gas) only very reluctantly.
China has been a clear threat since the 1990s. The US utterly failed to recognise it as a strategic danger.
Russia could have been Westernised with a little more effort, and turned into an ally and partner. (Which is not to say it would have been easy, but it would have been possible.)
Instead Russia was neoliberalised, turned into a mafia economy with huge concentrations of wealth on top of raging poverty, and its imperial pretensions were tolerated for two decades.
Ukraine and Russia are both direct US foreign policy failures.
Sadly I think that's why nothing better happened to Russia; everybody was comfortable with having a strongman to deal with and oligarchs to take money from. Even to the extent of overlooking crimes like the Salisbury poisonings and the airliner shootdown. It's a common pattern in US partner states.
Most of the former USSR and Yugoslavian states have sought freedom, although there are questions about Serbia, Hungary and to a lesser extent Poland.
I'm not convinced this analysis holds up to the numbers. China imports around $135B of food per year. Before the war Russia was exporting around $35B. Admittedly a lot of the Chinese imports are luxury foodstuffs but that's still a big big gap. China can't feed itself, even with Russia's help. This is a recurring problem throughout China's history.
I think you underestimate the importance of "plasticky trinkets." Exports are the backbone of the Chinese economy. Without them it can't afford to import food, and millions of Chinese starve. If China declares war and isolates itself so that Russia is its primary remaining trade partner, millions of Chinese starve.
The biggest importers of food to China today are the US, Brazil, Australia, and a handful of Southeast Asian countries - basically that's all gone if China goes to war or isolates itself in some other way.
Now I mean sure anything can happen in a war and the CCP might very well choose to let millions of Chinese starve, they've done it before. My point here was that isolation would inflict terrible and permanent damage to China. A war is unlikely to happen in the first place because not only is this damage so great, but China would probably lose any battle that wasn't very close to their home theatre.
By the way, Chinese food security is a great topic for illustrating how dysfunctional they are as a country. Here's an article on the topic - https://www.cfr.org/article/china-increasingly-relies-import... - basically they don't have food security, achieving it is one of their top priorities, and they are failing to achieve that priority. The cost to grow soybeans in China is 30% higher than in the US, and the yield is 60% lower!
Yeah but there’s all sorts of weird business dynamics w china. For the most part, government exists to enforce business/personal rights in the us versus the reversed in china. Like I’d say the single regulatory framework is actually a bad thing there
Every country has a single regulatory framework. Unfortunately for China 1 person can completely rewrite it.
China has a larger domestic market. The downside is the domestic market is still relatively poor and its state controlled by a uniparty government. When tough decisions need to be made, the CCP will protect the CCP over China.
Very interesting figures. Crazy that the US increased by 10% and China by 20% in a year (and during covid) - but there is still a large gap between the figures. In a decade they may converge, but not yet.
China is not, of course, turning back to proper communism. It is a wildly corrupt dictatorship, and will be for the foreseeable future. It was an oligarchy for many generations (traditionally, their central committee was allowed to preserve opposing opinions among factions, a practice Xi extinguished), but Xi has definitely removed the vast majority of his competent opponents.
Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
He predicted dollar collapse, hyperinflation for 11 years, and a bunch of other stuff the didn't come true. Major broken clock syndrome on his part. Inflation finally spiked, but after being wrong since 2008. Gold still has not done much in a decade. The inflation was from the post-covid recovery, which was so strong that supply chain could not keep up, not as a consequence of 2008.
It's very easy to predict something will eventually happen. Anyone can do that. Way harder to predict when,
It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh.
The fundamental problem is that price controls never work and the interest rate is the price of money. If you understand this, then it's easy to predict the endgame, whether it takes 10 or 20 yrs to fail, you will still be right once you position yourself for the windfall.
>It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh.
Peter Schiff gets to laugh despite being wrong for 9 out of the last 10 years because he's not the one deciding monetary policy. For all we know, if he had his way, the US would be in a perma-recession and made into a vassal state of China by now.
Also, the business cycle is something acknowledged by literally every economist. The fact that we have mild economic turmoil after a global pandemic shouldn't be a prediction that Peter Schiff is proud of.
Let's say Alice will be wrong several times and then right once, and Bob will be right several times and wrong once. Both of them start with $10k.
To give Alice every advantage, let's say her bets pay out 10x or nothing, and Bob's bets pay out 4x or nothing. We'll also say Alice magically knows which time she'll be right, but Bob won't know which time he'll be wrong.
Alice will obviously bet all her money on the time she's right, and come out with $100k.
Bob can invest 2/3 of his money each time, repeating every time he's right. Let's say he happens to be right 8 times, then is wrong. After those 8 right bets, he'll have $6.6M. After he makes his wrong bet, his fortune will drop to $2.2M. Then he'll retire.
Your math is correct, of course, but these aren't the two strategies to choose between and there is a set of behaviors for which your parent is correct.
The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
At the same time, you have the Alice strategy wrong: Alice makes regular, extremely leveraged hedge purchases - perhaps even 500:1 or more - and just ignores the steady outflow of her premia.
Eventually, Bob gets hit by a black swan event and loses 80 or 90 percent of his principal and Alice has a 500:1 return on her hedge.
These are the two strategies that are interesting to compare.
It may interest you to know that Taleb performed this in real life with his own money at risk[1]:
"A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices."
> Alice makes regular, extremely leveraged hedge purchases - perhaps even 100:1 or more - and just ignores the steady outflow of her premia.
If Alice wins after 10 bets, with 200:1 return, and she bets the same percent each time, the absolute best she can get is an 8x return on her initial bankroll.
> The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
For Bob to be "picking up nickels" that means Bob is getting ripped off on the things he's right about. If "right until you're wrong" involves tiny little rights and an enormous wrong, then sure it's not very appealing. But that needs to be stated explicitly. Without a qualifier, I expect "being right" to be at least coin flip odds. Because who cares if you can predict something that's 95% likely to happen?
How is Bob getting a 400% return on every bet he makes? Especially when his strategy is to make the same bet that everyone else is making?
Last I checked, Bob’s investments so closely tracked inflation, its indistinguishable. And it’s about 50-100 times less than you claim.
Oh and Bob did not save 1/3 of his gains. To be fair, he spent it, living high on the irrational market all these years.
Meanwhile, Alice scrimped and saved and warned and was mocked.
She turned out to be right all along, and now she’s the queen of Barter town. Which isn’t a great place to be.
But the little guy who controls the resources and his muscle don’t need Alice, and want her wealth.
> Especially when his strategy is to make the same bet that everyone else is making?
Who said that? I was just responding to "It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh."
I assumed that "right" in the first half is at least somewhat similar to "right" in the second half. And that "wrong" in the first half is at least somewhat similar to "wrong" in the second half.
If they're supposed to have inverse odds, then that wording is very misleading.
> Last I checked, Bob’s investments so closely tracked inflation, its indistinguishable.
???
Please elaborate on who you think Bob is, because whatever you think it was not my intent.
Not too knowledgeable about macro -- is that tantamount to saying that monetary policy doesn't work? And what's the windfall in this case, given that the dollar is the reserve currency; RMB-denominated assets?
>There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
I love how confident people are with their predictions.
Since you're so confident about what's going to happen, why does CPI matter to you? You can invest in the market in such a way you're going to be rich anyway.
Anyway, I'll happily help make you richer: do you want to make a long term bet that there won't be double digit inflation for the next decade (let's say there won't be annualized inflation >= 10% over the period from March 25th, 2023 to March 24th, 2033)?
My understanding this time around is the depositors rightfully got bailed out (both to maintain peoples' trust in banking, and because losing your money to others' failures fucking sucks), but the banks themselves were left out to dry.
By "banks", I mean 90% of the other banks in the country that would've failed, absent the SVB depositor bailout.
If the FED didn't step in, every regional bank in the country would experience a bank run as people would withdraw everything and deposit in the "too big to fail" banks for safety.
Why I think the depositors should've suffered a haircut:
What the FED did, was implicitly guarantee the deposits, this incentivize banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail. This is like a real life cheat code for bankers and unfair to the rest of us regular folks who has to suffer the consequences of our actions.
>banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail
This isn't true, is it? While they do get to keep profits, if the bets don't pay off, the bankers - shareholders, bondholders, employees, executives - all get wiped out (as happened with SI, Signature and SVB). The depositors get bailed out.
They get to keep profits if they win, but lose everything if they don't. No moral hazard, right?
The bankers are closet creatives; they're probably going set up structures where the equity-holders are on paper running something that looks like a charity and there is a class of "depositors" who are making suspiciously high returns. They just need to figure out how to get the money into their sphere of control as a deposit rather than as equity.
Indeed, in the SVB case there is probably an interesting story around why all these startups were banking with this one bank. It suggests complex relationships between entities and it wouldn't be that weird if it turns out the people being bailed out and the equity holders going broke are the same physical people.
So they should be told not to do that and be put in prison if they persist. We (the people) make the rules, but the regulators are rather too cosy with the bankers.
I'd start by stopping any securitization and having the banks keep all their loan assets on their own balance sheets.
If sensible people made the rules the financial industry would be stable and boring, inequality would be far lower than it is, prosperity would be far wider, and life would generally be more pleasant and financially successful - not just for a small cadre of middle class programmers, but for everyone.
I think there's some sort of clipping effect distorting things. If your losses are limited at your assets, then the bet (heads: I gain 2X my assets, tails: I lose 2X my assets) has positive EV.
There's some interesting wheels-within-wheels of moral hazard here. In particular, it sucks to be a sedentary depositor that did not contribute to the bank run, to let those depositors cook is to make it much better to be twitchy and contribute to runs.
Do depositors have some sort of moral superiority to investors, or simply a legal priority?
Citibank equity holders (one of the the more egregious bailouts from the GFC) 15 years later are still down 90%. So it’s not like in the bad old days of 2008 investors were getting off scot free.
> Do depositors have some sort of moral superiority to investors, or simply a legal priority?
Depositors don't stand to benefit from a bank engaging in stupid risky bets with depositor money.
Investors do (on the upside of those bets).
This is why depositors should (and do) have moral priority for their money.
Investors also are able to directly control the degree of stupid risk-taking behaviour taken by the bank, by virtue of their control of the board. Depositors have no such leverage.
If you make depositors (or the public at large) pay for the sins of the bank's management, you get a classic conflict of interest problem. If you make investors pay, it goes a long way towards aligning their interests with keeping the bank running well.
While I largely agree, it could be argued that banks engaging in risky behaviour might attract depositors with higher interest rates than a more responsible bank.
If depositors know that their money is fully covered, you incentivise them to move their money from responsible banks to irresponsible ones. It's easy to imagine a knock-on effect where responsible banks are incentivised to behave less so in order to retain custom, with the whole system becoming more fragile as a result.
You can make that argument, but just like a spherical cow, it has no bearing on reality. SVB and it's ilk offered the same non-existent interest rates as any other non-distressed bank.
Of all the "evil" things one could do with gargantuan wads of cash, having it sit in a bank account is just about the most innocuous thing I can think of to do with it. It seems like a wise, cautious move actually, and it seems like it'd be bad to punish businesses for being cautious with their money
Their money is being used to make investments and they're getting paid interest for it. If their deposit was above the amount insured by the FDIC then they knew it could all be lost if the bank collapsed.
I wouldn't call lending more than 250k to a bank "cautious" (that's what you do when you "deposit" your money in a bank), they could have bought Treasury bonds instead.
But maybe they were smart and had guessed that in this third world financial system, if your bank is too big to fail, depositors get bailed out by the government anyway.
It kinda depends on scale doesn't it? For an individual 250k in cash seems like a lot (although can easily happen just before or just after a large purchase.)
For even a "small" business though it's quite small. We're small (<50 employees) but payroll is around 1.5m per month. We keep about 2m as "working capital". This is cash that is literally flowing all the time.
In this context 250k is tiny, and wouldn't cover our day to day balance.
I guess you'll have to wait for The Narrow Bank to become operational. In the meantime the best you can do is lend your money to an institution that is too big to fail.
"Predicted this in 2008" is a funny sentence. If I now predicted that what the Fed is doing will result in an amazing economy, would it really count if it happened in 15 years?
Peter Schiff is always predicting doom. It's not that he's talking complete nonsense, but objectively he is more wrong than right. His opinions corelate less to being correct and more to the fact that he invests a lot in gold, and his interest is that everyone else gets scared and does too.
If I recall correctly, the general consensus is that while there are people who do very well in predicting future events and developments (google "super forecasters"), nobody can do so reliably beyond a time horizon of five years or so.
Easy to laugh at him, I'd say it's more like the doctor who tells you to quit smoking or it's eventually going to kill you. The fact that you haven't died yet doesn't exactly prove the doctor is an idiot or wrong.
As for the first part - yes, it would count. Timing of things is impossible to predict of course. But being right in the first place, shouldn't be underestimated !
Let's take crypto as an example - one can predict it's going to 0, and one can say it will go to 1M$. Even though you don't know when, being right is the only chance you make something out of it.
If, as you your second sentence seems to suggest, nobody ever managed to get it right twice then we shouldn't listen to people how made a good prediction either.
he made many bad predictions, and continued to double down on them:
dollar collapse, $5k+ gold, emerging markets boom, bitcoin crash, hyperinflation, bear market, recession, etc. every year
He never deviated from his predictions or view even when shown to be wrong. He never stopped to consider maybe he was wrong, not that the economy is wrong.
> And the definition of a recession was rescinded last year by the White House.
It what? Also if you predict a recession every year you'll eventually get one right, but that doesn't make you right about recession predictions in general.
> Is inflation for you better now than it was in 2019?
Did he predict "higher than 2019"? If "higher than 2019" wasn't his prediction then I don't see why it matters that "higher than 2019" happened.
And that's not much of a prediction. 2019's inflation was below target.
Muddied the definition of a recession when the question came up.
> Also if you predict a recession every year you'll eventually get one right, but that doesn't make you right about recession predictions in general.
Yep. That's pretty much the game of predictions.
> 2019's inflation was below target.
Which target? The one the Fed determines? Consumer inflation at the moment (~7%) is rivalling rates witnessed back in the 80s. Add the new money the Fed has printed over time (since 2008) and now expected to continue (covid stimulus, bailouts for banks etc.), anyone can see where the trend for inflation is going. No predictions are even needed for that.
> Yep. That's pretty much the game of predictions.
So you agree the recession prediction is not evidence for Shiff's competence?
> Which target?
2%
> Consumer inflation at the moment (~7%) is rivalling rates witnessed back in the 80s. Add the new money the Fed has printed over time (since 2008) and now expected to continue (covid stimulus, bailouts for banks etc.), anyone can see where the trend for inflation is going. No predictions are even needed for that.
...have you looked at the trend, though? Inflation was climbing higher and higher until last June, and then it dropped by more than half. For the last 3-8 months the inflation rate has been about 4%.
> So you agree the recession prediction is not evidence for Shiff's competence?
Economists make wrong predictions all the time. Am saying Schiff is not exactly entirely wrong on some of the ones he's made in the past.
> ...have you looked at the trend, though? Inflation was climbing higher and higher until last June, and then it dropped by more than half. For the last 3-8 months the inflation rate has been about 4%.
Have you? The last time the inflation rate was even near 4% was in April 2021 [0].
The main inflation number that everyone talks about compares each month to one year previous.
When inflation changes rapidly, it gives you outdated information.
When you look at the underlying data for each month compared to the previous month, you can see that the spike was higher than 9% and we are currently lower than 6%.
It’s not trolling just because you aren’t understanding what’s being said. Recent MoM figures show inflation is way down, the annualized will follow down shortly.
Schiff didn't account for the economic ignorance of the masses in his prediction. He understood that runaway inflation would cause the gold price to spike, he didn't foresee the confidence that traders have in the FED to fight off inflation.
The FED cannot win the inflation fight (confirmed by their recent soft pivot back to QE) and gold will not go up until the traders realize this fact.
> Schiff didn’t account for the economic ignorance of the masses in his prediction.
Literally every economic misprediction can be blamed on not accounting for the way people actually behave in real-world economies, but…that’s not something that adds credibility for the next prediction by the same predictor.
I don’t know if it’s the newspapers or economists I dislike more but I am pretty sick of watching these people incorrectly predict everything for the last 15 years and then turn around and say they are right when ONE thing sort of looks like the thing they kind of predicted.
It’s a convenient symbiosis: Doomsday economists get cited by newspapers, which serves him/her in publicly and the newspaper in clicks.
Simple heuristic: if it’s easily digestible, it probably doesn’t serve true understanding. I think that especially true for newspaper articles related to economics.
We have gotten 1 and 2 but we haven't gotten to 3 because traders believe that the FED can win the inflation fight. The FED abandoned the inflation fight with a soft pivot yet traders are still not buying gold. This is what Peter couldn't foresee...traders' unwillingness to go against the FED.
This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
> This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
Keynes mentioned "animal spirits" and "the market can stay irrational longer than you can stay solvent" almost a hundred years ago. If your prediction doesn't account for reality and well know facts it's a bad prediction.
It would be like guessing that the next election will favor candidate X and when they don't win explaining it away with "well but people are dumb".
> This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
Since it was a prediction of the behavior in the real world, and it doesn’t reflect what actually occurred, it is a misprediction.
The fact that the predictor (or you) believes that a world in which the prediction was accurate would be more sane doesn’t make the wrong prediction better, since it wasn’t offered as a prediction of what would occur in some hypothetical sane world.
So he basically predicted "high inflation". He's been predicting that since at least 2010, probably earlier. Over a long enough period there is bound to be some episode of "high inflation", so sooner or later the prediction of "high inflation" will become true. This doesn't mean that the individual who made the prediction is some kind of visionary.
The simple solution to this equation is that the assumption in number 3 isn’t correct.
Gold is not a store (or measure) of value. Nobody cares about gold. Sure, some people might like to have a gold ring or necklace, but that’s a tiny amount of material for a small number of people and it’s demand (like diamonds) is primarily marketing driven, and easily satisfied by a side effect of copper mining. Until the average Joe demands that his life savings be spent on a gold sarcophagus, it just won’t matter.
People tend to prefer fancy cars and houses and electronics and vacations and food and drink.
And you can see the cost of all those things has more than doubled in recent years, a clear indicator of inflation cause by (practically) zero percent interest rates.
Schiff didn't account for the economic ignorance of the masses in his prediction.
If he is as smart or knowledgeable as he claims or held up to be, then he should have factored that into his forecast and advice. IF the fed is going to do everything in its power to save the economy, why fight it?
>IF the fed is going to do everything in its power to save the economy, why fight it?
This is a popular sentiment among traders...why fight the FED? Because there is nothing they can do to bring inflation back to 2%. They all but admitted this with their return to QE. When the masses realize this...gold will surge.
Certainly those who bought gold as a cash-hedge are hoping it surges...
Alas if, for some inexplicable reason, those unwashed masses don't realize that the gold I bought cheap, isn't the only thing worth buying (at my inflated price) then I will be most disappointed.
I guess it doesn't help that gold-hawking is looking more and more scammy everyday, like when c-level political celebrities with large followings seem happy to flog their "sponsors gold" during political messaging.
> The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
How on Earth is providing short-term liquidity[1] until the long-term low-yield bonds owned by those banks mature translates into double-digit inflation?
And why should we listen to this [2] prediction of double-digit inflation?
[1] At least in the US. Switzerland is doing its own thing with the UBS/CS merger, good luck to those folks, that sounds like a fun garbage dump to dig through.
[2] Similar comments predicted 15 of the past ~1 years of double-digit inflation.
If the inflation does reach (although in EU it already is) double digits, could that be a big of a hit to destabilize the US dollar and pave the way to the next global reserve currency?
I'm asking because I've had these thoughts on my mind ever since Ray Dalio uploaded his video Principles for Dealing with the Changing World Order [0].
The USD is the least worst option. That could change some day. Maybe India becomes a much bigger economy or the US govt gets overtaken by socialists who print like crazy and create hyperinflation. But for now there is no better option.
Years ago The Economist had a front-page story saying that negligible interest rates are going to be around long-term. If an influential and bold assertion like that is not effectively refuted, some people are gonna take it as gospel truth. Caveat lector
I often hear the interest rates yielded this result of massive inflation or massive recession. But I'm not sure I believe that. I'm not convinced that the 0% interest rates lead to the massive inflation. So a non-mainstream economist Richard D. Wolff asked the elephant in the room question which no one seems to be asking which is to point out that we don't know how much of the price increases is simply due to companies just wanting to make more profit. And his point is how do you rule out that companies increased prices just for more profit irregardless of what the interest rates are?
That's a very good point. I don't have any data, but I feel like many industries have been consolidated into the hands of few companies since the crisis of 2008. Now they all can raise prices together using inflation as an excuse.
See the big oil and its record profits last year for an example.
Every time I see the fed adjusting these levers of debasing a money they print I shake my head and wonder why no one questions these levers as leading to a healthy economic society. Now my money is worth this much less tomorrow so now I must work this much extra for a raise to cover the loss. Doesn't this strike anyone as an absurdist parody play starring us its marionettes?
If crypto isn't the answer, what is? I think inflation and deflation are awful levers of monetary policy and should not be wielded by government institutions like the fed. They've proven themselves time and again bad stewards.
It's like asking why nurses think they know more about hospital processes when management is making bad decisions that doesn't solve real problems. I wish you are right though.
Unless all of those programmers work for financial institutions I don't see how that analogy follows
It's more like asking why patients think they know more about hospital processes when management is making (perceived) bad decisions that don't solve real problems
We are users of the service, not people who work within the financial system
Human behavior. When everything is going up, people expect it to keep going up, and their behavior tends to keep pushing it up - until some core limitation gets reached anyway and things get too broken somewhere.
When it keeps going down, same - until it becomes obvious to everyone there is no further down to go.
With lots of head fakes along the way of course.
Humans tend to be kind of terrible at being consistent over long periods of time.
For those wondering like I did, CPI is Consumer Price Index.
My understanding is that it’s a standardized basket of goods that supposedly represent the average household, and it calculates inflation on this basket on a regular basis.
This doesn’t reflect anyone’s reality however and I think a quick and dirty way to calculate your own CPI would be to check the difference year on year for all your rent and living expenses (including fuel if relevant etc) + your groceries (food toiletries etc), and figure out how has this changed year on year.
Yes, i.e. 'inflation', but there are different ways of measuring that. In the UK at least the main ways are CPI & RPI - Consumer & Retail.
Broadly speaking RPI is CPI + mortgages & rent prices, but actually there's a newer one that's exactly that which tracks lower. They're different 'baskets of goods', used in differnt cases, but generally CPI is what's meant. (RPI is used for student loan repayments for example.)
Capitalism is based around bad decisions being punished, which didn't happen in 2008 because of the bailouts. Nobody went to jail, nothing extreme enough was done to actually enforce cultural changes in the finance industry, so of course having the same problems occur was inevitable. Adding to the problem is that the economy is actually going to get less efficient on a fundamental level due to the geopolitical situation with Russia and China, plus the after effects of all the Covid restrictions and stimulus that distorted the economy in many ways.
Living standards are going to drop unless the AI hype is real and AI actually manages to improve productivity dramatically
also laughed at this line from the post
>While there is tremendous uncertainty, given that the banking sector drives credit creation and subsequent economic growth
bankers really think they are the drivers of growth, that's how you end up with all your manufacturing in China. These people are clowns
> Capitalism is based around bad decisions being punished
Where did you get that idea?
Capitalism is based on people who have more money/wealth (aka capital) making more money.
In our system as it exists today, the capital owners have managed to use their vastly disproportionate wealth to influence the government to prioritize their needs over all others. This is a nearly inevitable outcome of unfettered capitalism, combined with legalized bribery of elected officials (lobbying, PACs, etc).
Now, it's certainly true that no system is going to remain in balance long if people can make decisions that hurt the system and suffer no negative consequences themselves—all the moreso if those decisions actually benefit them. But that's not at all the same as saying that capitalism—or any economic system—is based around those kinds of feedback loops.
> Capitalism is based around bad decisions being punished
What constitutes a bad decision in your view?
My perspective is that Capitalism actively encourages and rewards the kind of behaviour most would consider to be morally and ethically bankrupt. The simplest example would be monopolising control of a limited but necessary resource, thereby granting you what is effectively absolute power over those who need it. Think oxygen supply on a moon base or fresh water on deserted island.
Take cigarette companies also. The "good" decision under capitalism was for them to knowingly deceive society on the health risks of their product. All so they could continue to profit.
>There's nothing the fed can do to escape this one, it's either massive inflation or massive recession.
The fed knows this. They should make it explicit to the common, ~100 IQ, joe six pack American. It's infuriating watching them act so carefully as to pretend to try and not spook anyone.
You’re making the weird assumption that the people at the Fed have greater than 99 IQ, or any desire at all to learn about the effects of their monetary decisions other than their own short term personal gains.
And there is no indication of either of these suppositions.
We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...