Saturday, February 9, 2013

Remember This?

I am referring to the Austrian economics-inspired Marc Faber and his prediction of hyperinflation in the US (100% certain, no less!). Notice how Faber never gave a time period for his prediction (was it supposed to be within 1 year? 2? 3? 6? 10? 50? 100?), and one need hardly point to how absurd it is for anyone to claim that he is predicting something, but then spectacularly fail to give a time period to limit the prediction and allow it to be tested.

It is now approaching 4 years since this video and it remains as absurd as ever.

Faber was also wrong to assert that all of the 19th century was a period of deflation. In fact, it was the 1873 to 1896 period that was the serious deflationary era of the late 19th century. Nor (despite his assertions) was real per capita GDP growth at that time very impressive. Over about the past 140 years of US history, the 1870s and 1880s stand out as some of the worst decades in terms of real per capita GDP growth:
(1) Average Growth Rate 1921–1930: 1.27%
(2) Average Growth Rate 1931–1940: 1.54%
(3) Average Growth Rate 1871–1880: 1.64%
(4) Average Growth Rate 1881–1890: 1.65%

(5) Average Growth Rate 1951–1960: 1.75%
(6) Average Growth Rate 1991–2000: 1.94%
(7) Average Growth Rate 1891–1900: 2.04%
(8) Average Growth Rate 1901–1910: 2.13%
(9) Average Growth Rate 1971–1980: 2.16%
(10) Average Growth Rate 1981–1990: 2.26%
(11) Average Growth Rate 1961–1970: 2.88%.
The 1870s and 1890s were also eras of economic malaise as I shown here:
“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“Davis on US Recessions in the 19th Century,” August 25, 2012.

“US Unemployment in the 1890s,” January 24, 2012.
Nor was Schiff’s position really that far from Faber’s: for Schiff, if the US did not change policy (i.e., large deficits and QE) it was headed for hyperinflation. Yet there has continued to be large deficits and round after round of QE since 2009, and still no sign of the Austrian inflationary armageddon.


  1. It's a scam. There's no other way to put it. Every single one of these people flogs gold. Coincidence? Nope.

    Do they believe their own BS? Sure. But that doesn't matter. This is a scam plain and simple. And until the Austrian School "economists" come out and clearly and publicly distance themselves from these cranks, this is on them.

  2. Austrians are wrong so often it's laughable. They'd only be around as jokes if not for their cult following online (and here in New Hampshire).

    I remember back a few years ago when Peter Schiff predicted hyperinflation for the US in 2010. Well, it's early 2013 and inflation is at a record low.


      Seriously, this guy is the key representative of the Austrian School in the media. How long before the likes of Murphy and the Von Mises crowd distance themselves from him?

  3. "it was the 1873 to 1896 period that was the serious deflationary era of the late 19th century"

    according to your stats, nine of those years weren't actually deflationary:

    1879 | 0.00%
    1880 | 2.48%
    1881 | 0.00%
    1882 | 0.00%

    1887 | 1.10%
    1888 | 0.00%

    1891 | 0.00%
    1892 | 0.00%

    1896 | 0.00%

    1. How does that really contradict what I have said? 1873-1896 was nearly continuous deflation, even during booms.

      Outside 1873-1896, booms were generally inflationary, busts deflationary.

  4. According to this:

    All of the deflationary years between 1873 - 1896 were recessions, apart from the years 1886 and 1889.

    There was also a financial crash in each of the deflationary periods between 1879 - 1896:

    1883-86 deflationary period: Panic of 1884.

    1889-90 deflationary period: Panic of 1890

    1893-95 deflationary period: Panic of 1893, followed by the Panic of 1896.

    So when did the "deflationary booms" happen?

    1. (1) there were deflationary periods when real output growth expanded.

      Compare data here:

      (2) The Wikipedia is, I assume, using outdated data from the Kuznets-Kendrick or Gallman-Kuznets-Kendrick series.

  5. Schiff is cartoonish at this point. He said in a recent interview that the reason we were heading to hyperinflation was deficit spending and expanding the monetary. Then, when pressed in the same interview as to why we have to seen hyperinflation, he said that deficit spending and expanding the monetary base were delaying the onset. Marvelous logic.

  6. Well, we do know that the monetarybase went from $800b to$2,800b during this downturn ( After a quiet period, it seems that the base is expanding rapidly once again (perhaps the $85b/month MBS buybacks, in order to allow banks to finance the federal deficit).
    What Schiff, Faber et al are finding out is that there is more than just currency debasement needed to spark price inflation. Forgetting for a moment that the Fed continuously tinkers with the formula to calculate inflation (I believe we're down to basing price inflation on the price of iPads): One reason why we don't see the type of price inflation, is because the Fed is paying the banks to sit on the newly created money. Also, the US reserve currency status allows it to export a portion of that inflation.

  7. Anyone who understands that the Quantity Theory of Money is incorrect (or, at best, only correct when certain unusual conditions are met), should have no problem seeing where the error comes from. As well as the converse: why despite large (federal, not state) deficits and monetary accommodation, there has not been a turnaround in employment.