Tuesday, March 27, 2012

Peter Schiff's Reality

March 27, 2012
Peter Schiff: Market-Crushing Treasury Collapse To Hit Around 2013

I'll believe that when I see it. In 2014, I plan to revisit this post. Wish me luck. I should warn you that I might not be able to afford the electricity to fire up my computer though, lol.

While households have reduced their leverage, government debt has ballooned on the back of stimulus programs, but, argued Schiff, the government’s debt is the people’s debt, thus overall leverage has actually increased.

Wrong. In the following chart I'm showing real total credit market debt owed per capita (February 2012 dollars).

Click to enlarge.

Does that really look like overall leverage has increased? I'm bearish but this is actually the one glimmer of long-term hope that I can still cling to.

Don't believe the inflation figures? Okay, fine. Here's the total credit market debt owed divided by wage and salary disbursements.

Click to enlarge.

It is a nearly identical story.

This is not the first time that Peter Schiff has made bond predictions, so let's go back in time to see what was said.

December 8, 2006
What's Really Going on With Bonds?

If foreigners are selling their dollars, why are they simultaneously buying dollar denominated bonds?

Who are the foreigners selling their dollars to? Other foreigners. And what do those other foreigners do with those dollars? Stuff them in mattresses? Hardly. They stuff them in our bond market, just like I do. And why is that? Because foreigners realize that it is better to earn some interest than no interest.

Instead of trying to solve the mystery, bond investors would be well advised to sell now (not just their bonds but their dollars too) and ask questions later.

Note that interest rates have fallen a whopping 2-3% since he told us what was really going on with bonds. Like me, he saw the housing bubble coming and yet couldn't figure out why people might buy bonds?

Click to enlarge.

The blue line shows the 10-year treasury yield without inflation protection. The red line shows the 10-year treasury with inflation protection (TIPS).

The stagflationists who bought TIPS, gold, or oil did fine.
The deflationists who bought nominal treasuries did fine.

So what's the common theme? It's what you get when you combine the deflationary Great Depression with the stagflationary 1970s. In my opinion, that's what's really going on with bonds and it has been going on for more than a decade.

It must be driving Peter Schiff crazy. In 2006, he said, "The fuse is lit; we just do not know its length." He now seems to know the length. Well, good for him. I should point out that he is not the first to make such a bold prediction though.

October 28, 2010
Gonzalo Lira: Signs Hyperinflation Is Arriving

By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.

It would seem that we're running a bit behind schedule. Let the poning continue.

And for you CPI conspiracy theorists, note the inflation seen in MIT's Billion Prices Project. (It is very similar to the official numbers. I track every penny I spend and it is very similar to what I am seeing too.)

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
St. Louis Fed: Custom Chart #3


Troy said...

Backing out TBTF's deleveraging from the big picture:


is not quite a rosy decline.

I was looking at CBO's budget projections to 2021 and they are forecasting 3% pa real growth this next decade, even though growth has been 1.6% since 2000.

I think budget projections out to 2050 assume 2% real growth to get our known social security costs ($2T/yr) at only 6% of GDP.

2% GDP growth to 2050 has our real per-capita GDP at $127,000 by then. We'll all be millionaires, LOL.

1% growth gets us to $85,000. Continuing CBO's 2011-2021 3% projection to 2050 gives us $185k GDP/capita.

I like that last one, we should do that.

Meanwhile, here in the real world, wages are only half of incomes now, and even the 1% growth projection only puts GDP at $22T and SSA at 9% of that. That doesn't sound too bad but FICA comes from wages not incomes and the SSTF will hopefully be long gone by 2050. FICA will have to be around 20% to keep SSA pay-go in 2050.

People who are bullish housing now are very myopic IMO. These trillions we need to keep the system going aren't going to be growing on trees, and for some reason the axiom "all taxes come out of rents" is not taught in school any more, if it ever was.

Troy said...

^ 2050 per-worker GDPs, not per-capita

There will be 255M working-age people in 2050. How many of them actually have jobs is the open question.

Jetsons here we come!

Stagflationary Mark said...


Backing out TBTF's deleveraging from the big picture...

That said, it is much needed deleveraging. Imagine how bearish I'd be if they were doing the opposite.

People who are bullish housing now are very myopic IMO.

So many headwinds. Jamie Dimon was on CNBC talking up the economy again today. It was his opinion that Bernanke wouldn't claim victory until we add 400k jobs per month for 6 straight months.

I was thinking about what we would be driving when that happens. I think it might look something like this. ;)

I hope I'm wrong but I would not bet that I'm wrong, lol. Sigh.

Troy said...

2.4 million household burning 1000 gallons of gasoline again. . . 2.4 billion gallons . . . that's a needed 2% bump in demand.

wish I had a Jetson's car. I was thinking instead of some rich a-holes spending $2B to acquire the Dodgers franchise they should spend the money actually creating new wealth.

Think of the desert utopia for 10,000 libertarians you could create with $2B seed money.

There's a game there, dammit.

Then again securing the $3B/20 year TV contract to pay for it all might be more difficult.

or not!

Stagflationary Mark said...


Think of the desert utopia for 10,000 libertarians you could create with $2B seed money.

Psst. Hey, buddy. You know what this country needs? I mean really needs? The one thing that will solve all of our economic problems?

Think epic reality television show.

Vegas Boot Camp

We've cut off the power and water. Now watch as 10,000 gambling contestants make do with what the land gives them.

March 23, 2012
Official: Las Vegas water pipeline to Northern Nevada still years away

The 300,000 acre-foot allocation that Nevada gets from Lake Mead is capped by a water agreement involving seven western U.S. states and Mexico, and managed by the federal Bureau of Reclamation.

It would be reduced if lake levels fall below an elevation of 1,075 feet above sea level. Below 1,000 feet, Las Vegas gets no water.

Jazzbumpa said...

Gotta run, but need to point out that TCMDO at FRED does not include government debt.

Also, private debt dwarfs public debt.



Stagflationary Mark said...


You are mistaken.

Total credit market debt owed includes everything.

You can see it first hand in the Fed's Flow of Funds report.

Look at table "D.3 Credit Market Debt Outstanding by Sector".

Troy said...

Fresno's major advantage is two sizable rivers flowing right out of the Sierras on either side of it.

People don't know it but Fresno is just 45 minutes away from the foothills and 90 minutes from the mountains.

Those two rivers have produced more wealth for California than all the gold mines, that's for sure.

Current ag output for the southern sierra water districts are twice South Africa's gold output.

Better to have 3 rivers and tons of cheap labor than all the gold in Africa, LOL.

Hopefully they'll convert all ag machinery to solar powered this decade or next. No reason not to.

Stagflationary Mark said...


Better to have 3 rivers and tons of cheap labor than all the gold in Africa, LOL.

Two quarters for an ounce of gold please? I'd really appreciate it, lol.