Deflation Would Be a "Good Thing": Peter Schiff's Plan to Help Struggling Americans

yahoo ^ | Jul 23, 2010 07:30am EDT | Aaron Task

[BenLurkin]

"I don't know where anyone thinks prices are falling," Schiff says, citing rising prices for food, healthcare and energy. "I don't know where most people do their shopping but I don't see falling prices. To me, prices are rising."

Despite the worst recession since the Great Depression, deflation is non-existent "because the government created so much inflation they prevented prices from falling," he says. "It would have been a relief for a lot of Americans...if things cost less [and] the cost of living was falling in line with a weaker economy."

The idea deflation would be a "good thing" certainly puts Schiff at odds with most mainstream economists. Then again, that's where he's most comfortable.

"The real evidence of inflation is that the Fed is creating too much money," he says. "Interest rates are at zero, the Fed's balance sheet ballooned and now they're talking about cranking up the purchases [of mortgage-backed securities and agency debt] again. That's more monetization -- more money printing. That is the very definition of inflation."

As a result, Schiff believes Americans are soon going to be paying more - much more - for food, clothing, energy, healthcare and even consumer electronics. But prices of financial assets and real estate? They're not going anywhere but down in real (i.e. inflation-adjusted) terms, according to Schiff.

[RexBeach]

Too many people on The Street are saying that inflation is tame, and will be for years. This is a terrific contrarian indicator that inflation is on the way, and will arrive sooner rather than later.

Bonds are already priced for a depression; the next big move in bonds will be down with rates going up.

If you are going to buy bonds, buy short-term ones. They won’t get hurt too much.

[GonzoGOP]

Deflation is a good thing, when compared to hyper inflation in the same way that an amputation is a good thing in comparison to dying of gangrene. It is an argument I have seen before. Let the economy fail and quickly hit bottom. Then because prices fall anybody who still has savings can get a lot for their money. So they start spending and the economy quickly bounces back.

If you try to slow down the drop with inflationary government spending you still eventually end up in the same place, but in the process the inflation has wiped out all the savings. So there in no surge of investment at the bottom to start the upward cycle.

[Silentgypsy]

Are real estate and financial trends included with “the basket” CPI to calculate COLA’s? In the big picture, is taking care of their supporters causing even more collateral damage?

[Psalm 73]

Hey Peter, deflation would be crippling for those of us who are dutifully paying our mortgages (even though they may be under water) - our saving grace is continued low inflation into the near future.
(My mortage payment stays the same relative to other expenses and earnings rising - thus it takes a smaller and smaller bite out of my take home).

[NeoCaveman]

Are real estate and financial trends included with “the basket” CPI to calculate COLA’s?

A short answer is No.

So CPI hid inflation on the way up (in property) and hides it on the way down.

[east1234]

Yep, I’ve been waiting for it to tick up. My parents paid off their house with Carter dollars.

[ConservativeMind]

Well said and that’s basically how I have thought.

[campaignPete R-CT]

in a deflation, employees would then be correctly seen as overpaid. Because of the change in the demand for labor.

therefore, their pay must be cut. The easier alternative for most employers is to do layoffs.

Also, look at companies income statements. Revenues are way down for most. That is certainly not inflationary.

[servantboy777]

Tell me what’cha think.

Every summer, usually around the end of April / 1st of May, gasoline prices begin rising for the summer driving season.

Then the reports begin trickling in to support hikes...for example;
>30% of refinery shutdown for routine preventative maint.
>Hurricane or tropical storm activity likely on the rise.
>Pipeline rupture interrupting flow.
>Tensions in the middle east threaten supplies.

Then, pump prices begin that yearly rise.

But....something is different this year. Here we are with pump prices low and in many areas dropping despite the fact we have a huge oil spill cleanup effort going on, an executive order halting offshore drilling and tensions overseas.

What gives? Why are prices at the pump dropping?

Could it be.....an election year?

[TopQuark]

"Too many people on The Street are saying that inflation is tame, and will be for years"

By Wall Street, do you mean the one in NY? I am asking because that's not what I heard. What I heard people on NY Wall Street say was that they expect the Fed to be keeping rates low for quite some time --- other things being the same (ceteris paribus).

They, you and I also know that other things are NOT the same. We know that the government that runs up huge deficits has three alternatives: (i) to grow out of the debt, which nobody foresees us to do this time, (ii) default, which would be way to embarrassing for the U.S. and cause the flight of foreign investment, and (iii) inflate to devalue the debt.

Most people I heard believe that (iii) above will materialize.

[Leisler]

There is no reason that used, worn, dated houses should, as a useful tool, increase in price with age. If a free economy, they would, like cars, decrease in price as they get worn out, fashion dated, etc.

[RexBeach]

You just made my point.

[Psalm 73]

"There is no reason that used, worn, dated houses should, as a useful tool, increase in price with age."

Correct, what makes them (appear) to rise in value is inflation.
I paid $XXX for my house, and in 20 years' time $XXX will not have same the buying power it did when I 1st used the money.
Deflation would erase that, along with my wage increases.