Inflation or Deflation: Peter Schiff versus Gary Shilling

This is a very good debate between Garry Shilling, a prominent deflationista, and Peter Schiff, a prominent inflationista, because it shows you the core substance of the arguments on the inflation-deflation debate. I am calling this one for Shilling. His arguments regarding deleveraging and its longer-term deflationary impact are more compelling. Schiff’s arguments about central banks prescribing more cowbell as an easy escape from high debt levels do have merit though.

But, I am going to call this (temporary) bi-flation, a term someone turned me onto a few weeks ago. You have some prices like gasoline, health care and university tuition rising by double digits and other prices like worker salaries and house prices stagnating or declining.

I saw this video at Pragmatic Capitalism first. And while the Pragmatic Capitalist’s definition of ‘money’ differs from mine, he is correct to point out Shilling’s differentiation between increased reserves and increased credit. As I first described in my Scylla and Charybdis post last summer, deflation is secular because of high private sector debt while inflation is cyclical because of the Bernanke put and animal spirits. Right now, the Fed is prescribing more cowbell for this economy, where Schiff is focused. But that doesn’t mean it passes through into credit creation as Shilling notes. So far, excess reserves have been piling up and I expect this to continue.

The short video of Shilling and Schiff is below. Enjoy.

Source: TechTicker

  1. fresnodan says

    I like what Mish said about it – inflation in things you need (health care, gas), and deflation in things you don’t need (flat screens, clothes).
    To me, we have had mal and unsustainable investment – whether we die by a dagger or die by a bullet, the worms don’t much mind.

  2. Spc says

    Schiff is out of wack.

  3. Tomlaws says

    Unfortunately Shiff is stuck in a groove. Great traders (and we are ALL traders!), read the tealeaves and remain flexible in their opinions. Shiff is like Prector, Grandville, and Eric Janszen in that they ride the wave of one or two good calls but never acknowlegde the equally costly bad calls.

    I’m by far the best trader I know and in the last 15 years have only had 11 major market calls on various markets in the last 15 years (uncanny 120% accuracy) and one thing is for sure, not a single T.V. guru ever called any of these tops and bottoms in stocks, gold, oil, bonds and realestate. Warren Buffet was bullish and clueless owning KO at a PE of 40 in 1999, Alan Greenspan was clueless calling the DOW 7000 “irrational exuberance” in 1997 while the market rallied another 5000 points in two more years. Jim Cramer, Arthur Laffer and Larry Kudlow were giddily bullish on the market in late 2007 with the DOW north of 14,000.

    Know where the four valuation bands are and what the herd is afraid of and you’ll know within a few percent, how far the multi-year rally will run and how far the selloff will be.

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