Can I have a bond bubble with a side of inflationPosted: September 28, 2013
There is a bubble in bubble predictions. These predictions are made by a variety of individuals from different political ideologies. These predictions aren’t articulated in a way to argue certain changes in GDP or changes in employment but predictions on cataclysmic changes in the economy. Whether they think George Soros is master minding international inflation or that the Bond market has a bubble, the futures market has a bubble, the derivatives market has a bubble, or the apple market has a bubble, to them it seems everything is bubbling except their book sales from their predictions. Money printing or not enough regulation causes all of this to them. The answer is vote for Bernie Sanders or buy gold from a questionable source, and the catch is that it’s a certificate not the real stuff.
The issue with predicting bubbles is that really no such thing exists. There is a misallocation but no bubble. One can’t say something is overvalued based on price alone. It’s a rash decision based on feelings and growth rates. When the housing crises occurred prices rose but that wasn’t the reason for that meltdown. Instead it is caused by years of poor policy by the Fed and the federal governments involvement in mortgage market. You can’t wave a magic wand and say that “well interest rates are low and it’s the governments fault” or that “a former CEO of Morgan Stanley is the Secretary of the Treasury therefore he is vouching for more derivatives trading” thus a bubble is created. Each effect has a cause but the causes are far more complicated than what Glenn Beck or some people over at Thinkprogress.org have you thinking (or unthinking in their case).
Some of the “predictionsists” that are famous for being right once and then being wrong every other time is Peter Schiff. Yes, he predicted the housing crisis but the housing crisis isn’t the entire piece of the puzzle when it comes to the recession. After his prediction he gained some airtime and with this airtime he started his media machine with books detailing a bad economy and a possible depression. Have any of his predictions since the 2007 come true? No. Inflation is not up; in fact deflation is a better prediction. Prices are stable, GDP growth is lousy but could be worse and thanks to a federal government stalemate the government has been relatively out of it so that at least no more intrusion can occur. Mr. Schiff would probably agree with me on the value of a free-market economy and possibly agree with me on fiscal policy (more likely supply-side) but I disagree on monetary policy. I am not a monetary genius, if anything I am a beginner. However I will note that not just his empirical evidence that is off but his methodology in arguing is also a little confusing. He claims to be an Austrian economist but from almost all the readings of Hayek and Mises I have read, they both were extremely careful making predictions. Their entire methodology was based on knowledge. Individuals lack the knowledge to know the future of an economy thus central planning is inefficient. This isn’t their whole argument but for F.A. Hayek this was extremely important. Yet Schiff seems to know everything about bond markets and how every single dollar is going to effect inflation, he knows the velocity and demand for money. He also knows when you are naughty or nice.
Predictions aren’t always bad but one has to be careful not to make them hastily. I am an economics student and I have a hard time getting over the math in economics, please don’t confuse me with your crazy predictions.
Here is an article on Peter Schiff’s predictions showing some his wrongs and right predictions at least his most public ones: http://www.economicpredictions.org/peter-schiff-predictions/
Also Nouriel Roubini is Peter Schiff’s distant cousin, right about the housing crisis, wrong ever since: http://www.economicpredictions.org/nouriel-roubini-predictions/index.htm
Both lists just go up to 2010, this site has really updated but I think this still speaks volumes.