Peter Schiff was a recent panelist at Freedom Fest, where he was chosen to advocate for a coming Bear Market. Mr. Schiff is an analyst with extensive knowledge of the Austrian Business Cycle (ABC) and his predictions are almost always spot on, though as he admits, difficult to time. On this panel there was one other Bear Market advocate and two other Bull Market analysts. The other Bear Market analyst was a technical analyst who, as they mostly follow trends, was far less persuasive in his arguments than the other three. Of the two Bull Market guys, one seemed to dominate the time allotted to his side of the quasi debate. I think what he had to say was probably very persuasive to many of those in attendance. I was not impressed. I don’t believe Peter Schiff was either.
The Bull Market case centered almost exclusively on the stock market reaching a new high that day, and the government’s self proclaimed recovery. The case was tempered with acknowledgements that not all sectors were safe bets to improve, and as such his recommendations were mostly to seek very profitable companies with good track records, excellent management and little debt. I thought I had somehow slipped into some kind of time vortex and was listening to a guy lecture about the stock market in the mid 80s. There were a lot of things I felt were wrong with this man’s presentation. All of them centered around the same root cause, and the unintended consequences that have occurred due to that root cause. Some call this a cluster of errors.
Mr. Schiff almost got to the root cause several times, but was interrupted by the Freedom Fest host, Mark Skousen. To be fair, it is Mr. Skousen’s event, and he was trying to bring as many ideas to the front as he could. I got that. However, it would have been far more interesting to me to hear an intellectual discussion of why or why not a Bull or Bear market. For instance, I have a real problem with statements saying we are in a recovery, or the celebration of a new high in the stock market. All of this exuberance is due to a bubble that has been formed by the Federal Reserve, and propped up by meaningless governmental statistics.
Lets examine the “no inflation” claim first. The Bull Market proponent points to the CPI as absolute proof of an expansion of the money supply without accompanying inflation. However, as any economist worth his salt would tell you, though rising prices often accompany inflation, they do not define inflation as inflation is possible without rising consumer prices. During the roaring twenties our money supply was inflated quite a bit by the Federal Reserve, and yet there was no increase in prices that was significant. This is very much like what we are witnessing in our present economy. Inflation is defined as a devaluation of the currency due to increasing the supply of currency available. In our present case, the increase in prices has almost entirely fallen within the stock market, which explains why the current “new high” is something to fear rather than something to celebrate. So there have been rising prices, and they have been almost entirely within the stock market instead in the consumer market place. I would also point out that anybody who regularly shops for groceries is also seeing substantial increases in a basket of groceries. Unfortunately, the price of food is not used by the government to measure the CPI. How convenient.
Next lets examine the low unemployment statistics, which would lead us to believe that everybody is working. Here again the devil is in the details. If we were to change how unemployment is recorded to the way it was reported way back in 1990, as it is at ShadowStats.com, we would find that unemployment has not dropped below 20% since late 2007. This measure seems a bit more realistic as it would explain the record number of Americans that are not employed (highest in our country’s history). It would also help explain the record number of Americans on food stamps. So the claims that we are near or at full employment are a lie supported by government statistics, which show success where failure should be observed. Repeating these lies to get clients to purchase stocks through your brokerage is ethically repugnant.
Finally there is one more issue that no one seemed to understand, or think was relevant. We use currency to measure value. We measure the cost of something by the amount of our time it will take to pay for it with our currency. Corporations determine where they will allocate their resources based upon the value of the currency they have available and how fast that investment will be repaid. When our currency is debased through the creation of “new currency” out of thin air, the value of said currency becomes rather dubious to say the least. This is the most ominous consequence of the Federal Reserve’s QE programs.
In the history of the world that has taken place in my lifetime, the former Soviet Union collapsed. The real reason wasn’t the cold war, although it sped the process along. It wasn’t the “free rider” problem that all collectivist economies have to deal with, though the free rider problem did make things worse. The single issue that brought the Soviet Union to the ash heap of human history was the lack of economic calculation due to a central bank that made the value of their currency meaningless. A friend of mine in Poland once described to me what life behind the iron curtain was like, “Everybody had lots of money. The problem was there wasn’t anything to buy with it.” The debasement of the currency had made it all but impossible to determine where any resource should be allocated. There was no way to ascertain which use was the best use.
This is what the Federal Reserve has done to our currency. When you invest your wealth in the stock market, there is no way for you to judge if this is the best return on your investment you can get. You can’t use the currency you use to make this calculation because the value of that currency is somewhat dubious. Peter Schiff was very close to making this point when he was interrupted. Relative to gold, the Stock Market has been declining for years. Gold isn’t losing it’s value. Gold can’t be materialized out of thin air. Gold is something you can use to measure the real worth of your Stock Market portfolios, the real return on investment. To rely on monopoly money (pun intended) for this task and take the advice of a professional who doesn’t see this obvious problem, is a real life example of, “A fool and his money (wealth) are soon parted”.
The emerging cryptocurrencies (including Steemit), have the potential to offer a stable and consistent measure of value, once they are established, just as gold does. They also have an additional utility as they are easily stored and transferred to where ever you wish. The Central banking system is collapsing, albeit in slow motion, but certainly collapsing. Cryptocurrencies are the future. Don't live in the past where lies and counterfeit currency maintain a slave society that requires you either work till you die or die when you run out of money. In the future anything we conceive we will achieve.