"We'll see inflation in the double digits again — and the first digit will not be 1." So said maverick economic pundit Peter Schiff in a speech that I recently attended in California. Schiff is President of Euro Pacific Capital and is a familiar face on cable news and financial shows. For more than two years, he has been predicting the financial decline in which we now find ourselves. A montage of his dire projections, contrasted with the sunny optimism of those who were convinced that "the fundamentals of our economy are strong," is now a YouTube sensation, with well over one million views. It can be easily found by search engines using the words "Peter Schiff was right."
I am reluctant to accept many of Schiff's most catastrophic projections, mostly because they seem so extreme: a total collapse of the bond market, even more erosion in equity prices, and a precipitous plunge of the dollar against other currencies. Such unrelentingly gloomy predictions have earned him the moniker "Permabear." Some of his predictions, on the other hand, strike me as intuitively valid, such as his warning that inflation will return with a vengeance that will exceed the "stagflation" of the Carter years, when the prime rate charged by banks to their most credit-worthy customers briefly exceeded twenty percent. The culprit this time around will be the very remedy that the Obama administration is prescribing as the cure for our economic woes, namely the deficit spending in the so-called Stimulus Package. I have dubbed the likely economic result "stimflation."
Schiff suggests that our economy has gone from the world's most prodigious producer of goods to a phony one that replaced goods with services that have little if any intrinsic value, fueled by consumption rather than production, and financed by an unsustainable increase in debt. In such a system, the last thing that is needed is the introduction of even more debt. It's as if the American consumer, who spent like a drunkard with a credit card but no job, is hoping to be bailed out by a government practicing the same type of financial irresponsibility but on a much larger scale.
How can the loose lending policies of our financial institutions be bailed out by the even looser lending policies of our government? In such a scenario, isn't raging inflation, if not hyper-inflation, the likely outcome? If so, then the Obama administration has set us onto a dangerous path indeed, and the sooner we realize it, the better. We need to reduce the size of government, not increase it. We need to promote saving, not discourage it. We need to rebuild our manufacturing sector, not outsource it. We need to focus on red white and blue energy — that is, domestic energy of all sorts — not just green energy. And, as painful as it may be in the short term, we need to trust our markets more than we trust government interventionists.
Now, to make the goal of understanding the inflationary impact of the stimulus package and other related spending more fun, Let Freedom Ring has put together a contest with some fairly lucrative prizes. If you go to www.stimflation.com, you will see the contest rules and an online entry form. The basics are quite simple: if you can successfully predict the inflation rates for 2010, 11, 12 or 13 down to two decimal places — such as 14.78 percent, you will win a $10,000 prize. If there are more than five correct guesses, then a drawing will determine which five will win. With up to five prizes each year, the total contest could involve as much as $200,000 in prizes. The web address is quite simple: Stimflation.com
For American Radio Journal, this has been Colin Hanna of Let Freedom Ring USA. Please visit us on the web at LetFreedomRingUSA.com.