New York University economist Nouriel Roubini and Peter Schiff, CEO of Euro Pacific Capital, engaged in a heated battle over the economy at the SkyBridge Capital's SALT 2014 conference.
Basically Schiff thinks the economy is in a lot worse shape than Roubini does. "Usually they call me 'Dr. Doom,' but next to Peter I am not Dr. Doom," Roubini said, according to
CNBC.
Schiff maintains that the Federal Reserve's massive easing program will spark hyperinflation. The Fed needn't worry about deflation, because it would help consumers, he says.
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"Falling prices do not threaten consumers," Schiff said at the conference, according to CNBC. "Consumers benefit from falling prices."
Roubini would have none of it. "What you're saying about deflation is nonsense," he replied.
"We had deflation with the Great Depression. . . . We had 20 years of deflation in Japan where there was no economic growth."
The two heavyweights continued their battle on CNBC after the panel.
"He [Schiff] has been predicting a collapse of the dollar, gold going through the roof and inflation rising sharply," Roubini argued. "I just see the opposite. I see the U.S. economy — which, in spite of QE1, QE2, QE3 — there's going to be an economic recovery, there's not going to be much inflation. . . . We're printing a lot of money, but not creating credit and inflation, so inflation is going to stay low."
To which Schiff responded, "The real point of the argument and the panel was over inflation, over whether it was good or bad. Nouriel's point is that he believes that economies need a certain amount of inflation to grow, and that somehow consumers are better off if the prices of the things that they need and want go up every year."
But that's not what Schiff believes. "It's my opinion that economies are served by falling prices, by increased production, increased efficiencies, that lower consumer prices, that that's what makes people better off. And I think the idea that central banks need to deliberately create inflation because it's somehow a necessary ingredient to economic growth is wrong. Inflation is actually worsening the problems in the economy."
"I'm in favor of low inflation, a target of 2 percent," Roubini insisted. "You were arguing that deflation was good. . . . Deflation is a symptom of lack of growth and aggregate demand. Why do you think deflation is good? That's nonsense."
Schiff explained that inflation is good for debtors, particularly indebted governments, because it allows them to default on their debts. It's these indebted governments that need inflation. "The consumer doesn't need inflation. What we need is more production and falling prices because that's what grows an economy, that's what leads to higher living standards — when workers can buy more with the money they earn."
Consumer prices rose 1.5 percent in the year through March, and producer prices jumped 0.6 percent in April, the biggest gain since September 2012.
But many economists weren't panicked by the increase in producer prices. The "trend is not threatening as long as it’s gradual and remains below central bank targets," Markus Schomer, chief economist at Pinebridge Investments, told
Bloomberg.
"The path from higher producer prices to higher consumer prices usually takes a little while."
The Fed's inflation target is 2 percent.
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