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