Is Gold, Oil and S&P PE's not part of "the market"??
Peter Schiff was Right.
- Thread starter achilles28
- Start date
Is Gold, Oil and S&P PE's not part of "the market"??
Japan and the US are very different in fundamental ways. The comparison is not apt. Japan is a nation of savers, and personal savings exceed personal debt. The relationship in the US is just the opposite. There is no incentive to inflate in Japan. There is a huge incentive to inflate in the US. These two countries will accordingly address their debt crises in dissimilar ways. Japan will attempt to hold inflation in check; the US will welcome it with open arms -- up to a point of course. The Fed Chairman and the Treasury Secretary, as the Chairmen and Secretaries before them, will continue the lie -- "We favor a strong dollar". But actions speak louder than words.
Deflation in Japan is often used as an argument for why deflation will occur in the US. This is a false argument. Achilles is right.
P.S. -- As I have stated many times before on these forums, there is a way out for the US, and that is to bring its military and medical spending into line with that of other developed countries. This, alone, would make it possible for the US to pull out of the debt death spiral it now finds itself in. The answer lies on the fiscal side of the equation. But it won't happen until there is a crisis of monumental proportion forcing Washington's politicians to make the US government functional. (That probably means a rule change in the US Senate rolling back to 51 votes the number needed for cloture, as in the old days.
)You're right, delfation in America will be worse than it was in Japan. But this is not a good reason to think that it won't happen.
Yes, Japan had trade surpluses with foreign nations. Yes, they had and still have a high savings rate. But these are, as you state, condition that softened their recessions. You have yet to state a valid reason why I didn't capture the essence of deflation in Japan.
The arguments from both of you for why we'll have inflation and not deflation seem to be based on the faith you have in your politicians. Yes, faith. If you believe that Bernanke, Geithner and the rest will be able to create inflation it means that you have placed alot of faith in their capabilities. I don't think that they will be able to. For as I stated earlier, inflation pushes up the costs to service and refinance debt. This in turn leads to higher defaults and cuts in capital spending and consumer spending and other types of demand that needs to be there in order to maintain inflation.
A recession will ordinarily hold inflation in check, for awhile at least. But, in the long run I have zero confidence in our politicians to act responsibly on the fiscal side. This means more deficits. And it won't be painless for the US to service its debt. On that, i'm sure we agree. But it will be far. far easier for the US to attempt to inflate its debt away than to repay it via increased productivity. And to repay it with dollars worth more than the dollars borrowed would cause unbearable pain.
The real question in my mind is will foreign creditors let the US get away with monetizing its debt? One factor weighs heavily in the United States' favor. The world is awash in dollars because of the status of the dollar as a reserve currency. Our creditors will not be anxious to see their dollar holdings inflated, nor to be repaid in inflated dollars. They will demand higher interest as inflation heats up. But we have them over a barrel so to speak. The politically easy thing to do is to inflate and see if we can get away with it. I don't agree that inflation makes the debt harder to service -- I think it is just the opposite. And I certainly don't agree that we won't be able to inflate. Any country with a fiat currency can do that. Will it lead to ruination and disaster? I have no idea.