Monday, December 17, 2012

Peter Schiff on the Fed "Roach Motel"


  1. Once again, not much substance to the forecast.

    Mr. Schiff mentions the Fed buying 90% of NEWLY issued Treasuries. This is factually correct if one abstracts from rollover of maturing debt. But this seems to give the impression that only the Fed is buying Treasuries. That without Fed buying the "bond bubble" would collapse. That's just factually incorrect. The DAILY trading volume of US treasuries (all of them) is about $600billion. PER DAY! The Fed buys about $45billion PER MONTH. Thus, the Fed is not even involved in 1% of all transactions in the Treasuries market. (Sources: on daily Treasuries volume, for Fed purchases.) There is tremendous private sector demand for Treasuries, there are PLENTY of buyers, even if the Fed decided today to sell.

    Once more just the same old as far as forecast for a "dollar in freefall" or "prices going to skyrocket". When is this happening? How much "price inflation" as measured by the CPI of PCE index are we going to expect? Nothing but empty phrases which can mean anything and thus mean nothing.

    Mr. Schiff mentioned gold. Somewhat embarrassingly, the clip also showed a chart of gold prices showing a substantial fall in prices over the last month. If the Federal Reserve is "doubling down" on money printing and Mr. Schiff is correct, shouldn't gold prices have taken off last week?

    If people with, you know, actual money to invest in the bond market keep buying Treasuries at record low prices and don't see "price inflation" anywhere on the horizon why not trust the market? I thought the free market would work? Why are all the private sector purchasers of Treasuries so stupid and don't listen to Mr. Schiff?

    1. They didn't listen to him during the housing bubble, or the dot com bubble! Why start listening now, right?

      Austrian economics reveals what our future holds.

    2. I just wanted to respond to one thing you said: "why not trust the market? I thought the free market would work?"

      A _free_ market works. A manipulated market may not and this market is highly manipulated.

    3. A lot of people with a lot of money bought mortgage bonds. Few shorted. So who was correct? Time will tell in this case too. Where is your money is the question.

    4. IS it really a free market when one of the largest players in the market is the central bank? Could the FED's buying activities be putting an artificial demand in the system?

      I have few problems asking for specifics, but no Austrian is going to give them to you. Ron Paul thought going off the gold standard under Nixon was scary enough for him to give up his medical practice and run for congress. Its been 40 years and the US economy hasn't been the most amazing thing to behold, but the dollar hasn't hyper inflated. Are the Austrians wrong? I doubt it, but the final straw to hit this camel's back is not something Austrian's even believe can be tracked or predicted.

      If that makes you think they aren't good economists, fine, but at least the are intellectually honest. I have been saying it for a few years now... Austrians need to address this issue and need to stop making predictions. If they were good at forecasting by their own studies they would be entrepreneurs not economists. Where schiff and wenzel fall in those two categories is a grey area though. I think they are entrepreneurs.

    5. In reply to the comments above, please also see my comment on the separate post on one of the issues raised.

      Fist note that the blog's author did not dispute my facts about the Treasury market. Buyers remain OVERWHELMINGLY outside of the Federal Reserve, thus I am not at all pessimistic that Ben Bernanke could sell bonds in this very much functioning deep market if needed/ Facts show that the Fed (not the FED, please) is relatively insignificant as a buyer overall. (to Anon at 4:24 and Anon at 6:25)

      To John Barker:
      My money is about 80% in S&P 500 index mutual funds and now only 20% in short term US Treasuries. I have fared quite well with this over the last couple of years, thank you. Could I have done better? Possibly, but I'd sell any gold right now. Once the commercials on TV start selling gold bars to seniors the bubble is blown up, just like the housing market was when "Flip that House" started to air and signs for no-money-down loans were everywhere.

      To anon at 4:04. I am listening but I don't know what he is saying! He was right, no doubt, about the bubbles. But now I don't know what "significant price inflation" would entail, 5%, 10%, 100% or even more increases annually of the CPI or PCE? When? Next year? In five years? In twenty years? I am listening, he isn't talking so that I can understand anything beyond vague and ultimately useless predictions. Where's the meat?

    6. Well, I can come up with questions as well.

      Why are Interest Rates at zero. Why does Ben Bernanke keep on telling us that ZIRP is going to be extended? Should I have reason to think that the Bernank is ever going to raise them?

      Is CONgress ever going to bring Fannie Mae and Freddie Mac out of "conservatorship"? Do we really have a debt ceiling?

      What's the best way to save "money" today? Perhaps the better question would be, what is money?

      Why did Gold used only be around $235 an ounce a little over a decade ago, but now it's $1,700. Why has it gone up every year for well over a decade now, and is up by 6.36% in the last 12 months? Should I think that something that weighs only one ounce, but costs $1,700 and has the track record that has had over the last eleven years, could not possibly be a 21st Century Savings Account?

      Why is paper money being counterfeited out of thin air? Where's my printing press or bailout?

      Is debt really wealth? If it is then I guess we're the wealthiest nation on earth. But what if it's not?

      A personal statement that I came up with some time ago: When they took us off the Gold Standard they took away our money, in order to make it theirs.

      Although I believe that Gold is not a standard, it is simply a commodity. A commodity that is an excellent store of value and unit of account(among other things)... because it cannot be conjured up out of thin air. Which, to me, means that it's money.

  2. The volume you are speaking about comes from speculators. These are highly levered traders. They are not real buyers and will not hold until maturity. Without the "real" buying coming from the Fed and other foreign central banks, the treasury bond market would crash.

  3. "Once the commercials on TV start selling gold bars to seniors the bubble is blown up"

    Does this apply to just gold or all asset classes? I have seen many more commercials touting treasuries and index funds to seniors. Your criterion for bubbles seems rather vague and pretty useless.