Peter Schiff on Bitcoin

[Seth Otterstad]

How can Schiff who has been right about so many things, be so unable to comprehend bitcoin?

He's wrong a lot more often than he's right.  Everyone would be better served listening to someone else who knows what he's talking about.  This should be very obvious to bitcoiners.

12 Ways Schiff Was Wrong in 2008
Wrong about hyperinflation
Wrong about the dollar
Wrong about commodities except for gold
Wrong about foreign currencies except for the Yen
Wrong about foreign equities
Wrong in timing
Wrong in risk management
Wrong in buy and hold thesis
Wrong on decoupling
Wrong on China
Wrong on US treasuries
Wrong on interest rates, both foreign and domestic

That's a lot of things to be wrong about, especially given all the "Peter Schiff Was Right" videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

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[MoonShadow]

How can Schiff who's been right about so many things, be so unable to comprehend bitcoin?

He is wrong about a lot of things too. For example when the first QE was announced he kept saying that interests will surge.

He was wrong about hyperinflation too. And when inflation didn't come he said that he was right but nobody can see it because CPI number is false.

What the right answer here is really depends upon how one defines inflation.  Most people think of price inflation, particularly at the supermarket.  True inflation is the expansion of the monetary supply relative to the user base.  We have undoubtedly had that, but the CPI does not now, and long has not, considered the costs of food stocks or energy into it's caluculations; however it does (sort of) include a calculated value of housing.  So while the actual pump costs of a gallon of gasoline has risen by more than 50% in the past 6 years, the real estate market is still way below the peak value in 2007.  The real estate market crash "destroyed" a lot of credit availability (i.e. money supply for many consumers) and has overwelmed the inflationary policies of the US Federal Reserve in the meantime.  So, in reality, the CPI number published by the government fails to represent the amount of monetary expansion during that time.  This cannot continue forever, however, and eventually we will get our inflationary period.  I still doubt it would be "hyperinflationary" because hyperinflationary destruction of a currency is a vicious cycle of the loss of public trust in a currency, almost always triggered by a political event (war, invasion, revolt, revolution, etc.) and not a fiscal policy event.

It seems Austrian economists nowadays don't understand money multiplier and don't have ever heard about what happened in Japan this last 20 years.

Austrian economists understand the money multiplyer theories just fine, they are just bullshit.  The government like to claim this stuff to justify it's own entitilement programs, but consider this...

If the "money multiplyer" of food stamp program funds really was $1.73 of economic "benefit" (defined how, exactly? It's never said) for every $1 of aid, and that multiplier is both consitant across time and consistant across a range of largesss (two things left up to the public to assume although this is never actually stated), then it would be easy to permantly avoid recessions by simply dialing up or down the monthly food stamp benefits in order to match the largess to the target level of economic growth.  It would be an immoral action to do anything else.  The fact that this is not happening, and never really has (it has been tried, so we know it doesn't really work) is proof enough that multiplyer theory is false.  All of the multiplyers presented in the media are the calculated results of past events, not current economic conditions.  If past events really provided significant insight to future economic trends, then "ideal" stock prices would be easy enough to caluculate for just about everyone, and any significant diversion from that expectation would be newsworthy, offering a huge profit opprotunity for the quick.

[Seth Otterstad]

No matter how you cut it, inflation is low.  If you want to use the stupid niche definition of inflation as an expansion of the money supply, it is still low.  The Fed has printed 3t into a USD money supply of 30t.  10% inflation OVER FIVE YEARS.  2% per year.  If you want to use the standard inflation definition, it is low too.  You can't make a big deal out of how highly volatile gas prices are going up fast when they are STILL WAY BELOW 2008 PRICES.

Inflation-bugs typically forget the things which go up slow (or fall) and only notice the volatile stuff like gas and food when they are on an upswing.  I just went down to Wal-Mart and bought 10 pairs of high quality crew socks for $8.50.  I haven't seen a price that low EVER IN MY LIFE.  10-15 years ago they were always over $1/pair.  Clothing has been deflationary for decades due to the move to Chinese (and more recently LatAm) manufacturing, but you'll never hear that from Peter Schiff.  When the US becomes the world's #1 oil producer in 2020 and a net exporter in 2030, causing the price of your gas and food to plummet, are you going to estimate inflation being negative?  Here's a blog post that explains why inflation is 2%, and not 7-10% like you'll hear from Peter Schiff:

Lazy Inflation Estimates Will Cost You Money

[MoonShadow]

No matter how you cut it, inflation is low.  If you want to use the stupid niche definition of inflation as an expansion of the money supply, it is still low.  The Fed has printed 3t into a USD money supply of 30t.  10% inflation OVER FIVE YEARS.  2% per year.  If you want to use the standard inflation definition, it is low too.  You can't make a big deal out of how highly volatile gas prices are going up fast when they are STILL WAY BELOW 2008 PRICES.

Inflation-bugs typically forget the things which go up slow (or fall) and only notice the volatile stuff like gas and food when they are on an upswing.  I just went down to Wal-Mart and bought 10 pairs of high quality crew socks for $8.50.  I haven't seen a price that low EVER IN MY LIFE.  10-15 years ago they were always over $1/pair.  Clothing has been deflationary for decades due to the move to Chinese (and more recently LatAm) manufacturing, but you'll never hear that from Peter Schiff.  When the US becomes the world's #1 oil producer in 2020 and a net exporter in 2030, causing the price of your gas and food to plummet, are you going to estimate inflation being negative?  Here's a blog post that explains why inflation is 2%, and not 7-10% like you'll hear from Peter Schiff:

Lazy Inflation Estimates Will Cost You Money

Granted, I was cherry picking, but monetary expansion is not low.  It's closer to 4.5%.  You miss this because you assume that the federal reserve is the only institution in the nation that creates currency, which is not so.  The Fed is the only institution that has a mission statement and supporting legal structure to create new currency at will.  The entire fractional reserve banking system is designed to distribute the creation of new money across the many member banks.  They do so every time they create a new loan, and that loan is repaid.

Yet, you are cherry picking your examples also.  $8.50 for a ten pack of tube socks is high to me, I'm used to getting them for about $6.50.

[Seth Otterstad]

I don't have a huge problem with 4.5% inflation estimates.  It's these guys like Schiff running around saying inflation is "north of 10%" that get me pissed off.

I just cherry-picked to illustrate that it can support either side.  The better way to do an inflation estimate is to make a weighted spreadsheet of your estimates based on this chart.  With 41% of it weighted to housing, which inflates very slowly, it is really hard to get it to show a real high inflation figure.

[MoonShadow]

I don't have a huge problem with 4.5% inflation estimates.  It's these guys like Schiff running around saying inflation is "north of 10%" that get me pissed off.

I just cherry-picked to illustrate that it can support either side.  The better way to do an inflation estimate is to make a weighted spreadsheet of your estimates based on this chart.  With 41% of it weighted to housing, which inflates very slowly, it is really hard to get it to show a real high inflation figure.

You do know that pie chart is a lie, don't you?

[Seth Otterstad]

Come up with your own pie chart then.  It is not going to look that different.  There is no way around the fact that a huge percentage of the average American's income goes to housing, and a tiny percent goes to the stuff that inflates super fast that Schiff likes to constantly talk about, like college tuition.

I am interested to see your pie chart if you make one, as long as it has data to back up the changes.

[joae1975]

Regarding the claims that Peter has been wrong.  Peter's predictions are based upon a long term view.  He looks far into the future.  To say he's wrong is premature.  I believe he is right about the USD etc.  I compare Peter to Galileo.  Galileo was persecuted and highly ridiculed for his idea that the earth revolves around the sun.  Peter's ridiculed for his predictions as well, the difference being, Peter is not being arrested and jailed.  Peter uses "economic physics" to make his predictions.  His ideas are based upon math/physics.  The USD will crash, it's not a matter of if, it's when.

Regarding bitcoin, Peter has a hard time understanding/recognising it.  I'd like to explain it to him like this:

A new "precious metal" has been discovered using new technology.  This "precious metal" has unique properties unlike any other.  It can only be viewed using this new technology and can only be created with this new technology.  The intrinsic value of this new "precious metal" only visible using this new technology.  etc. etc.

Peter argues that gold/silver have stood the test of time and have always been real money.  But what he has a hard time wrapping his head around is how a new technology can create a new form of real money.

[Seth Otterstad]

Investors have to have a time-frame to make any money at investing.  Saying "the US dollar will go to zero" is like saying "the sun is going to burn out".  No one will disagree with you if you give an infinite time-frame for it to happen.  The dollar is SUPPOSED to go to zero eventually.  Continuing to listen to Peter Schiff because "he'll be right eventually" will cause you to lose a lot of money.  How long will Schiff listeners keep listening to his bearish rants while ignoring 134% stock market heaters and 10,000% bitcoin price increases?  Just listen to someone else.  Find someone who knows when to be bearish and bullish on various assets, instead of a permabear who might lose for 100 years before he makes money.  Even better, watch an economics course on Khan Academy for free.

[joae1975]

Investors have to have a time-frame to make any money at investing.  Saying "the US dollar will go to zero" is like saying "the sun is going to burn out".  No one will disagree with you if you give an infinite time-frame for it to happen.  The dollar is SUPPOSED to go to zero eventually.  Continuing to listen to Peter Schiff because "he'll be right eventually" will cause you to lose a lot of money.  How long will Schiff listeners keep listening to his bearish rants while ignoring 134% stock market heaters and 10,000% bitcoin price increases?  Just listen to someone else.  Even better, watch an economics course on Khan Academy for free.

Yeah the sun will burn out in a billion years.  But USD is gonna crash in our life time, very soon.  It's not gonna go to zero. Right now USD index is ~80.  It'll prob drop to ~50 in a matter of days when it happens, or lower.  

[Seth Otterstad]

Well at least now you added a time-frame.  But betting on something happening "in our lifetime" is still lol.  Shorting the dollar because you think it might crash in 60 years is dumb.  Austrians like Schiff don't make useful predictions in reasonable time-frames, because if they say something like "the dollar will crash within 5 years" or put any sort of reasonable time-frame on their estimates like all good analysts do, they look like even bigger idiots.  The fact that people still listen to him when he says "I don't know when it's going to happen, but IT'S GONNA HAPPEN" blows my mind, although it does appear to me that some listeners are starting to think something is wrong with the gloom-and-doom theory now that US companies are crushing the world just 5 years after the crash.

[joae1975]

Well at least now you added a time-frame.  But betting on something happening "in our lifetime" is still lol.  Shorting the dollar because you think it might crash in 60 years is dumb.  Austrians like Schiff don't make useful predictions in reasonable time-frames, because if they say something like "the dollar will crash within 5 years" or put any sort of reasonable time-frame on their estimates like all good analysts do, they look like even bigger idiots.  The fact that people still listen to him when he says "I don't know when it's going to happen, but IT'S GONNA HAPPEN" blows my mind, although it does appear to me that some listeners are starting to think something is wrong with the gloom-and-doom theory now that US companies are crushing the world just 5 years after the crash.

They're crushing it because of the Fed stimulus/QE.  There's no other reason.  There are more Americans on welfare than Americans working a full time job.  There's no way it's sustainable.  It will happen before Obama leaves office.  That I'm sure of.  I think O is counting on it.  I think he'll usher in Martial Law, declare a national emergency, and try to remain president.  But that's just my own crazy theory.

[MoonShadow]

Come up with your own pie chart then.  It is not going to look that different.  There is no way around the fact that a huge percentage of the average American's income goes to housing, and a tiny percent goes to the stuff that inflates super fast that Schiff likes to constantly talk about, like college tuition.

I am interested to see your pie chart if you make one, as long as it has data to back up the changes.

The percentages are not the lie, how they are included into the total calculation is.  Housing prices are not included at all, only "owner's equivalent rent" (i.e. an assumed to be calculatable amount of rent that the owner would be charging himself, if he was renting from himself.  Only a nutter could believe that this BS is based upon any reality, it's only an organized guess).  That's one example, as each catergory is factored in differently.  Food isn't factored in directly either, there is an assumption of a change of buying habits, with the net effect of suppressing the significance of food on the CPI.  For example; as the cost of beef goes up, there is an assumption that those who would have bought steak, are now buying ground beef, those who were buying ground beef, are now buying chicken.  This is bs on it's face.

[Seth Otterstad]

Come up with your own pie chart then.  It is not going to look that different.  There is no way around the fact that a huge percentage of the average American's income goes to housing, and a tiny percent goes to the stuff that inflates super fast that Schiff likes to constantly talk about, like college tuition.

I am interested to see your pie chart if you make one, as long as it has data to back up the changes.

The percentages are not the lie, how they are included into the total calculation is.  Housing prices are not included at all, only "owner's equivalent rent" (i.e. an assumed to be calculatable amount of rent that the owner would be charging himself, if he was renting from himself.  Only a nutter could believe that this BS is based upon any reality, it's only an organized guess).  That's one example, as each catergory is factored in differently.  Food isn't factored in directly either, there is an assumption of a change of buying habits, with the net effect of suppressing the significance of food on the CPI.  For example; as the cost of beef goes up, there is an assumption that those who would have bought steak, are now buying ground beef, those who were buying ground beef, are now buying chicken.  This is bs on it's face.

If you go ahead and make a spreadsheet with your own data, you will see it is low.  I kinda doubt you would want to use housing prices instead of rent, since that would cause your estimate to show massive deflation for the last five years instead of inflation, but go ahead.  You can factor in all the huge food price increases you want over the last decade and it won't change anything.

[Seth Otterstad]

Well at least now you added a time-frame.  But betting on something happening "in our lifetime" is still lol.  Shorting the dollar because you think it might crash in 60 years is dumb.  Austrians like Schiff don't make useful predictions in reasonable time-frames, because if they say something like "the dollar will crash within 5 years" or put any sort of reasonable time-frame on their estimates like all good analysts do, they look like even bigger idiots.  The fact that people still listen to him when he says "I don't know when it's going to happen, but IT'S GONNA HAPPEN" blows my mind, although it does appear to me that some listeners are starting to think something is wrong with the gloom-and-doom theory now that US companies are crushing the world just 5 years after the crash.

They're crushing it because of the Fed stimulus/QE.  There's no other reason.  There are more Americans on welfare than Americans working a full time job.  There's no way it's sustainable.  It will happen before Obama leaves office.  That I'm sure of.  I think O is counting on it.  I think he'll usher in Martial Law, declare a national emergency, and try to remain president.  But that's just my own crazy theory.

There you have it, folks.  Apple, Exxon, Wal-Mart, Google, and Microsoft rule the world SOLELY DUE TO QE.  Might want to leave out the 3-year time frame or you have a really high chance of looking like an idiot as Peter Schiff does in this video:

http://www.youtube.com/watch?v=Nv-Q9NxKWKI
"I think sometime in 2011, if we make it out of 2011 maybe 2012, that we're going to have a crisis.... Interest rates are going to rise sharply in the US."

I can imagine the doomsday crowd ten years from now, when the DOW crashes from 75,000 to 45,000 saying "SEE WE WERE RIGHT ALL ALONG!"  Please get educated and quit listening to idiots to spare the rest of us.

[maurya78]

Out of curiosity, what is gold's intrinsic value?

Naval Ravikant put $200/ounce out there on a tech crunch disrupt video I saw

Does that sound about right?

[Odrec]

Value is in many ways symbolic. Bitcoin just takes that symbolism to the extreme but if bitcoin is not real so aren't dollars or yens or any other currency except if we go back to trade with gold exclusively but that won't happen and even then the value of gold is after all symbolic, it's a tacit consensus basically.

[2_Thumbs_Up]

Well at least now you added a time-frame.  But betting on something happening "in our lifetime" is still lol.  Shorting the dollar because you think it might crash in 60 years is dumb.

Schiff is not shorting the dollar. He is mainly investing in high-yielding stocks in other countries he believe will be coming out of top after a dollar collapse. That doesn't mean he is losing money every year the dollar doesn't collapse.

As far as I know, the only thing Schiff ever shorted was the sub-prime bubble. But I admit I don't follow him as close as I used to do.

[MoonShadow]

Out of curiosity, what is gold's intrinsic value?

Zero.

The only reason that economists use the term 'intrinsic value' with regard to commodity based hard currencies is because there isn't really a better term in English.  It shouldn't be taken as a literal statement that gold or silver have value because of their scientific properties.  Gold and silver are valued by humans because of their particular scientific properties, but to what degree any particular person values those properties depends mostly upon what their own experiences and needs might be.

[Seth Otterstad]

Well at least now you added a time-frame.  But betting on something happening "in our lifetime" is still lol.  Shorting the dollar because you think it might crash in 60 years is dumb.

Schiff is not shorting the dollar. He is mainly investing in high-yielding stocks in other countries he believe will be coming out of top after a dollar collapse. That doesn't mean he is losing money every year the dollar doesn't collapse.

As far as I know, the only thing Schiff ever shorted was the sub-prime bubble. But I admit I don't follow him as close as I used to do.

You're techincally correct.  He's not literally borrowing dollars and selling them short. 

His thesis in 2008 revolved around 4 thing:

US Equity Markets Will Crash.
US Dollar Will Go To Zero (Hyperinflation).
Decoupling (The rest of the world would be immune to a US slowdown.
Buy foreign equities and commodities and hold them with no exit strategy.

He was right about 1, wrong about 3, and lost huge.  His idea that the rest of the world would decouple and be immune to a US slowdown was wrong.  When the US gets in trouble, the rest of the world gets in more trouble.  The US does 20% of the world's manufacturing with only 4% of the world's population.  Find someone else to follow who isn't constantly wrong.
http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html