Peter Schiff's Take on QE - Should We Let Failed Establishments Collapse?

[Pythagorean]

What do you think is worse for the nation? Do you think we're dragging out the suffering by not letting failed establishments collapse? Peter Schiff seems to think so.

LGqSs7piyP0#![/youtube] I am tem...ls" causing problems [i]seems[/i] reasonable.

 

[Pythagorean]

More pessimism from Peter. Is it well-founded?

https://www.youtube.com/watch?v=LS879r7xeLc

 

[John Creighto]

More pessimism from Peter. Is it well-founded?

Pessimism and optimistic are always well founded because I'm sure there will be plenty of good and bad things in the future. Peter says a lot of things so which points do you have questions about? I feel as quantitative easing is necessary unless nations are either willing to cut spending or raise tax revenue. However, much of the motivation for quantitative easing seems to be more directed at propping up market prices (aka a false economy).

One point of Peter's to pay attention to is where he says this "Misallocates the price of Labour Relative to Capital". This point is important because there is evidence to suggest that it is wealth effects that are driving demand rather than wages. To see this we should observe that in most countries the average tax rate is between 15 to 20 percent while the top income tax rate is usually higher. Also in most countries the tax rate on capital gains is low (say around 15%). The majority of earnings are being taxed at a lower rate then labour. One could make a moral point here but the point I am trying to make is this is indirect evidence of a wealth driven economy.

 

[Pythagorean]

Peter says a lot of things so which points do you have questions about? I feel as quantitative easing is necessary unless nations are either willing to cut spending or raise tax revenue. However, much of the motivation for quantitative easing seems to be more directed at propping up market prices (aka a false economy).

I was mostly wondering about his assertion that things are going to keep getting worse and that QE's are mostly just prolonging the suffering.

What do you mean by wealth vs. income, what are the mechanics of a wealth-driven economy?

 

[haael]

Hello. I'm anti-FED and anti-QE.

There is already no way to prevent disaster. It will hit soon, the only question is - who will it hit. In the no-QE (deflationary) scenario bankers will certainly loose and average people will have moderate trouble. In yes-QE (inflationary) scenario bankers will win and average peoble will loose like hell.

Inflation is good for debtors. Deflation is good for creditors. Contrary to what you may think, bankers are debtors. That's why they want QE.

Inflation on dollar will also be bad for the rest of the world, since almost all governments have their reserves in dollars.

There's no way to prevent it, politicans only try to make the music play a bit longer. What we have to do now is to exchange worthless paper money for real assets like gold, farmland, food and ammunition :).

 

[John Creighto]

I was mostly wondering about his assertion that things are going to keep getting worse and that QE's are mostly just prolonging the suffering.

I don’t really know the answer to either of these questions but I don’t think Peter Schiff has any solid analysis to back up his predictions. His ideas are founded on certain principles (not all of which I agree) and these principles are certainly a starting point from which one can better try and understand the issues at hand.

I do think that a correction to the valuation of wealth could help the working people but I think there are too many entrenched interests to do this in a way which doesn’t cause a lot of pain in the lives of the common person. I also think that monetary issues are to a degree secondary and the primary issue is to address the federal deficit either by raising taxes or cutting spending. QE just helps large entities in debt (such as the government) buy time which is also known as, “Kicking the can down the road”.

What do you mean by wealth vs. income, what are the mechanics of a wealth-driven economy?

I’ll have to better answer this on later date. However, ask yourself this question, "If you had a million dollars would you spend more than you do now?". I would venture to say yes. Would you spend it all at once? I would venture to say, no, because -- it would take you a long time to earn that amount of money. Consequently, you are unlikely to quickly dispose of that which takes you a lot of effort to obtain.The more money you have the more that you will spend. When you have a lot of money but earn little income then the amount of money you will spend will be more determined by your wealth then by your income however, if you had little money and earned a lot it would be your wages which would drive your spending.

 

[Pythagorean]

That makes sense. Most people do increase their spending to match their income. Lotto winners usually go broke rather quickly.

I'm just not sure of the semantics. What then, is an income-based economy (what are the differences between the two). I mean, you need income to have wealth, right?

 

[John Creighto]

That makes sense. Most people do increase their spending to match their income. Lotto winners usually go broke rather quickly.

I'm just not sure of the semantics. What then, is an income-based economy (what are the differences between the two). I mean, you need income to have wealth, right?

There are two ways to earn more wealth. The first is to get a return on that wealth, such as rent, dividends, capital gains and interest. The other way is to get paid for ones toil (in other words work for it). The first is often called the unearned remuneration (I need to check to see if I used the right last word).

Now, when the primary method of earning (weighted by wealth) is by putting ones money to work (so to speak) then wealth is expensive and it is difficult to obtain it through ones labour.

Even when wealth doesn’t pay well though if it is still priced high relative to wages then people who have a lot of it can spend a lot of it without depleting all their fortunes. Quantitative easing drives up the price of wealth relative to labour by letting people obtain it through credit. This leverage which some entities in the economy are able to get on their equity allows them to earn multiples on their equity and obtain much higher rates of return then the average investor.

People with little wealth are constrained to a high degree by their income while people with a lot of wealth will spend based on how rich they feel (which for instance would be related to how the markets do).

 

[Pythagorean]

Ok, that makes sense. Thanks for the explanation.

 

[DrClapeyron]

I don't think we will see too-much inflation from the QE but the Federal Reserve's best medicine right now is higher interest rates. They will wait 2-years to administer this medicine; I wish they would do so now because everyone is gearing up for this well anticipated event.

 

[ImaLooser]

This pretty much sums it up.

https://www.youtube.com/watch?v=nmKWJMENMxE

Japan got in the situation and the US said they should write off the bad loans. Then it happened to us but that was different.