Mish's Global Economic Trend Analysis |
- Japan Manufacturing Contracts at Sharpest Rate for 19 Months; New Orders and Output Plunge; Watch the Yen
- Important New Legal Principle
- Peter Schiff Backs Down from Debate with Mish 3rd Time After Agreeing to Do So
| Posted: 30 Nov 2012 12:31 PM PST In Japan things have gone from Grim to Grimmer. The Markit/JMMA Japan Manufacturing PMI™ shows Japanese manufacturing sector contracts at sharpest rate in 19 months. Key points:Watch Japan's Current Account and the Yen On November 12, in Japan Plunges Into Deep Recession; GDP Shrinks 3.5% Annualized; Japan Current Account Turns Negative First Time in 30 Years I noted that Japan trade deficit hits record as relations with China poisoned. Japan Current Account Turns NegativeBug in Search of Windshield As my friend John Mauldin suggests, Japan is a bug in search of a windshield. I highly doubt Japan can make it to 2022 or even 2017 before it runs into serious issues. Actually, Japan has extremely serious issues already, it's just that the market is ignoring them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue. Global imbalances are mounting. I suspect within the next couple of years (if not 2013) Japan will resort to the printing press to finance interest on its national debt and the Japanese central bank will start a major currency war with all its trading partners to force down the value of the yen. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Posted: 30 Nov 2012 10:59 AM PST Yesterday the General Court of the European Union ruled ECB right not to disclose Greece-related documents. The European Central Bank was right to refuse access to documents on the economic situation in Greece to a journalist in 2010, because disclosure would have undermined the public interest, the General Court of the European Union ruled.New Legal Principle Eurointelligence offered this interpretation of the ruling: The European Court has thus established an important legal principle. If you claim to act in the public interest, you can break the law. And the definition of the public interest rate, is, of course, a political one. Unfortunately, that is quite an accurate assessment. The ruling can be appealed the the European Court of Justice within the next two months, but I do not have high hopes for a different result. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Peter Schiff Backs Down from Debate with Mish 3rd Time After Agreeing to Do So Posted: 30 Nov 2012 01:53 AM PST Peter Schiff was on Capital Account with Lauren Lyster on Tuesday. For that show, he was asked, and he agreed to debate me on hyperinflation. Thus, I semi-expected to be on the show as well. I even received email confirmation from the Capital Account producer last The headline of the email was "Peter Schiff is Good". The body of the email was "I let Schiff's people know that you were the guy he will be debating and they were cool with it so we are definitely on for next Tuesday at 12:30pm your time." Minus Mish (which I will gladly explain below), here is the Schiff interview with Lauren Lyster. Lauren challenged Schiff with "Whatever happened to hyperinflation?" I heard an amusing response from Schiff as follows "I still say that hyperinflation is a worst case scenario. I never say we are going to have it for sure." Really Peter? Really? Never? Here is a partial transcript of a Schiff Audio On US Hyperinflation The whole idea is to get out of the US Dollar. It is on the verge of collapse. The people who don't get out of the US dollar are going to be completely broke and that is obvious. Look at what Ben Bernanke did. Interest rates are zero. Money is free.Unfortunately that audio display of nonsensical hype has been removed. Conveniently perhaps? Now, in a massive display of revisionist history, Schiff claims that hyperinflation is a "worst case scenario". In a further amusing turn of events, Schiff further backs down from his previous hyperinflation stance telling Lauren Lyster: "At some point the specter of hyperinflation is so enormous, and the dangers so apparent that will change. But before we get to that point w will have very very high inflation. Much, much higher than we had in the 1970s. If inflation is 30% a year or 40% a year, technically is it hyperinflation? Probably not." Really? When? Semi-Expectations Before offering further comments on the prospect of 30-40% annual inflation, let's back up to the opening paragraph where I stated "I semi-expected to be on the show as well." Actually, I fully expected Schiff to wimp out, and I even told the producer in a phone conversation, in advance, that the debate would never happen. "But You see, I have been through this multiple times before. Schiff once told Max Keiser that he would debate anyone. Max asked me if I would debate Schiff. I replied "of course, but Schiff will not debate me." When Max said Shiff agreed, I said "set it up then". As with Capital Account, once Schiff found out who he was debating, he backed out. The reason I told Max that I was certain Schiff would back out is that I went through the exact same setup with a CNN radio affiliate. Charles Goyette Fundraiser When Peter Schiff was running for Senate, best selling author and radio talk show host Charles Goyette (who happens to like both of us), tried to patch things up between Schiff and I. Goyette agreed to moderate a discussion between us, and I told Schiff that I was willing to stress the things I agreed with him about (and there are a few). I even told Schiff we could record the session and if Schiff did not like the results we would not play it. I did not grant myself the same "no play" opportunity. Yet, Schiff would not even agree to that. And a fundraiser Goyette planned for Schiff never happened. By the way, Goyette has two excellent books that I highly endorse. Goyette's latest book is Red and Blue and Broke All Over: Restoring America's Free Economy. Here is my review of his first book, The Dollar Meltdown. Ironically, both Schiff and I endorsed Goyette's first book on the back cover. Question of the day: How many Senate candidates will pass up a fundraiser opportunity from a NY Times best-selling author out of a personal grudge? Bear in mind I even did a post I Endorse Peter Schiff For Senate. That's one hell of a grudge folks. Since then I put up with numerous email challenges such as "Are you afraid to debate Peter Schiff?" I draw the line with this documented wimp-out by Schiff coupled with his blatant revisionist history. Agreements With Schiff I have two major agreements with Schiff.
I was willing to stress those points in a three-way conversation with Goyette and Schiff but that never happened. Right now, with the 10-year treasury yield at 1.62% I see no value in treasuries. Schiff would surely agree with that position (going much further of course, to outright loathing of US treasuries). Like Schiff, I also think the US will indeed have a day of reckoning. However, I think the Yen, the British Pound, and the Euro are all likely to have a day of reckoning first. Being too US dollar focused (to the point of outright hatred of the US dollar), has been a major Schiff downfall. So has been his love of China (which I will also gladly debate Schiff about anytime he wants). Sad State of Affairs This whole saga has been a sad state of affairs. And topping off the list is having to read Paul Krugman blast Schiff in his post on Thursday Varieties of Error Some readers may recall the "Peter Schiff was right" campaign of 2009, a sort of public-relations blitz claiming that Schiff, an Austrian-oriented commentator, had foreseen everything correctly. It wasn't really true even then; still, Schiff became a fixture of right-wing TV shows, constantly warning about how expansionary monetary and fiscal policies were about to produce hyperinflation.I certainly have no problems with Krugman blasting Peter Schiff, because quite frankly Schiff deserves it. Peter Schiff was wrong about massive inflation in 2008 and in my opinion, Schiff still is wrong today. So why does Schiff refuse to debate me? He gave Capital Account an excuse something along the lines of not wanting to give me any credibility by debating me. The ultimate irony is that Schiff needs credibility, not me. I believe the most likely reason he will not debate me is he is afraid of debating anyone sufficiently able to challenge his ideas. It's easy when you can stand up and preach. It's much tougher facing someone who does not bow down at your feet. Pragmatic Capitalism Krugman linked to an article on Pragmatic Capitalism by Cullen Roche. So, let's take a look at Roche's article What About That Hyperinflation? Regular readers know I am a big fan of getting called out on things. Not because I like to be wrong or making other people look silly, but because I sincerely enjoy the constructive criticism. Over the years I've been wrong about plenty of things. That's totally normal in this business. When you write as much stuff as I do about things as hard to understand as the monetary system then you're bound to get tripped up. It's one incredibly long learning curve we're all walking on here and I doubt anyone ever gets to the end of it. The world of money and finance is one big complex puzzle and I enjoy working with readers and other people trying to solve that puzzle. Anyone who tells you they've solved it is probably lying or misleading.In regards to hyperinflation I do not think Krugman, Roche, or I were lucky. Rather, I think hyperinflationists in general made four major errors. Four Major Errors
I could actually go on with numerous other flaws in many hyperinflationist's calls but they are now so obvious that even Peter Schiff has felt a need to resort to revisionist history to duck them. Austrian Point of View The problem I have with Krugman's pounding of Schiff is the lumping by Krugman of Austrians as if there was one Austrian point of view. There's not. I have been harping for years about those four points above, as well as numerous other reasons hyperinflation is highly unlikely. Yet, we have to suffer from another "I told you so" kind of post from Krugman even though some of us Austrians have been in agreement with Krugman all along that "hyperinflation is nonsense". Krugman concludes his article with "But as far as I can tell, very, very few people have been willing to let the evidence speak." I agree, and the final irony is that I can say the same about Krugman. Why can't Krugman look at Japan and see the US is heading down the same path, except that Japan will have its currency crisis first. What happens after that is uncharted territory. After all, Schiff is right that the path the US is on is not remotely sustainable. I think even Krugman would agree. It's just that Schiff's timing, endgame, and sequence of events between now and "eventually" are horrendously off. Side Note on Comment System Many people have been unable to login and leave comments. I believe the problem has been rectified. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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