SOS Debate on Deflationary vs Inflationary Depression

If you notice, there is no argument about whether there is a depression. The debate is more of a deflationary or inflationary depression.

Google Youtube and key in debate Peter Schiff vs Robert Prechter

Peter Schiff arguments:

• government will continue to print money when bank fails


• government will continue to stimulate the economy as long as they can


• in the long run, interest rate will shoot up the roof and gold price will explode


• economy will goes into inflationary depression (high unemployment) and US currency will become worthless in the long run

Robert Prechter arguments

• there is about USD55 trillion toxic assets (CDO, CLO, MBS, ABS, CDS) or bad IOUs in the banks


• bank credit grows since 1930s to 2008, and will contracts over many years down the road


• it will come to a stage due to debt implosion, the government is unable to bailout so many banks that it will let the banks fail and depositors money will end up in smoke


• government is unable to stop the huge credit implosion


• bad IOU holders money will go up in smoke, and interest will remain low


• economy will go into a deflationary depression, and due to the implosion of huge amount of debt, not only USA but the world, there will be shortage of US dollars in circulation couple with less new credit issued, hence US dollar will eventually appreciate (although majority is of the view that US will continue to do what they are doing (QE), and debase the currency)

MyView

• Is important to understand the mechanics of the world biggest economy, because, our wealth is determined by the policy maker of the world, principally the central banks.


• Do not forget, it is not only USA is printing the money, the entire world is also printing money for the past few decades, take a look at their own currency against GOLD, or against CRB index.


• Also remember, the economy does not function like physics, it does not goes in a linear way, i.e. we cannot predict the effects base on the cause, it is more "art" or influence by "social behavior" that is not normally measured by conventional key performance indicators.


• It may goes one way for a while, and another way for a while, but in the long run, everyones agree, ultimately, the holder of toxic debts will lose their pants (ie many banks will fail) but temporarily prolong from the reflation actions (QEs).


• There is no straight forward answers for these financial crisis, but the well known fact is many will suffer for it, be it the Main Street or the Wall Street.


• The few that got away is the legalized "Madoff" bankers with multi millions of bonuses at the expense of the mass taxpayers i.e. the incompetent is rewarded, the corrupt elites got away


• So, what is the long run view, say if you can predict JAPAN in the 1989? If that is the case, one should avoid PROPERTY, STOCKS, CRB, when the entire world is CONTRACTING.


• Can gold become the next currency? At the moment, there is about USD5 trillion worth of gold vs the world output of USD60 trillion. Can gold replace the current USD currency? It will need to be USD13,000 per oz.


• Say what we like, over the long run, the two biggest economies, i.e. USA and Europe will contract.