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Peter Schiff On Squawk Box

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By Barry Ritholtz - November 5th, 2008, 2:24PM

Peter Schiff On Squawk Box: Economic Impact Of Obama Victory


11/3/2008

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18 Responses to “Peter Schiff On Squawk Box”

  1. patient renter Says:
    November 5th, 2008 at 2:39 pm

    I’m constantly amazed at the ineptitude of these anchors. They’re like school children in their comprehension of simple ideas.

    Peter showed incredible poise in the face of the ignorant anchors. The woman seemed to have trouble grasping the idea that just because Peter didn’t support Obama that didn’t mean he supported McCain, and both anchors seemed to have trouble grasping the idea that the fiat dollar has less intrinsic value than gold.

    I’m sure they’ll learn some day.

  2. Rick Schaut Says:
    November 5th, 2008 at 2:49 pm

    You know, for years I’ve been asking people exactly what gives gold any kind of “intrinsic” value, and no one has ever been able to give me an answer that doesn’t boil down to “it just does.”

    Gold is fiat money. It’s “value” is entirely a social construct. It’s just not under the control of any central bank, which may or may not make it a better store of value and/or medium of exchange, but it has no intrinsic value.

  3. patient renter Says:
    November 5th, 2008 at 3:23 pm

    Gold is fiat money. It’s “value” is entirely a social construct

    Actually it’s a commodity. Federal Reserve notes are obviously not.

  4. Rick Schaut Says:
    November 5th, 2008 at 3:42 pm

    “Actually [gold is] a commodity. Federal Reserve notes are obviously not.”

    So, people buy and sell gold on a commodities exchange, and they buy and sell dollars on a currency exchange. How does that difference confer any sort of “intrinsic” value on gold?

  5. Barry Ritholtz Says:
    November 5th, 2008 at 4:05 pm

    Forget Social contract:

    Gold’s intrinsic value is in its relative scarcity — there is onl so much of it — and the historic demand for it as a precious metal for jewelry. (There are industrial uses also).

    You can print an infinite amount of paper, but there is a very finite and limited supply of AU.

    That doesn’t mean you pay anything for it — its still a traded commodity, and its price action lately shows you why what you pay matters a great deal.

  6. patient renter Says:
    November 5th, 2008 at 4:19 pm

    So, people buy and sell gold on a commodities exchange, and they buy and sell dollars on a currency exchange

    Dollars, or any money, is just a unit of exchange. Just because you can exchange various units of exchange for each other does not make any of them commodities. Commodities have intrinsic value.

    How does that difference confer any sort of “intrinsic” value on gold?

    If the United States of America were to disappear tomorrow, your Federal Reserve notes would be worth nothing. Your gold, on the other hand (if you have any), will still have value. That is the difference and that is why the anchors in this video look, to me, like fools.

  7. Rick Schaut Says:
    November 5th, 2008 at 6:55 pm

    Barry

    I have to confess, I’m surprised to see you weighing in on the “intrinsic” value side of this debate.

    Yes, the supply of gold is determined by a very different set of factors that determine the supply of money, but supply has next to nothing to do with “value”. “Value” is strictly a demand phenomenon, and, in that sense, there is, quite literally, no difference between gold and fiat money. (I am, here, making a distinction, and I believe it’s a legitimate distinction, between the concept of “value” and price where both supply and demand are factors.)

    Now, the supply factors might well weigh in on a broader discussion of the relative merits of gold and Federal Reserve notes as either a store of value or a medium of exchange. And, indeed, I’d argue that the inflexibility in supply for gold is as much a drawback as is the flexibility of supply for Federal Reserve notes. Both can, and do, have negative effects. We, and most of the rest of the world, dropped the gold standard for very legitimate Economic (e.g. balance of payment) reasons.

    Regardless of that discussion, however, my objection to this notion of “intrinsic” value is that it often becomes a means of forestalling a discussion of the relative merits of each, which, in turn, leads us to extoll the virtues of gold as a form of money while remaining oblivious of the drawbacks.

  8. Rick Schaut Says:
    November 5th, 2008 at 6:56 pm

    Sorry the first sentence of the second paragraph, “different set of factors that determine” should read “different set of factors than those that determine”.

  9. Brendan Says:
    November 5th, 2008 at 7:00 pm

    I still don’t think gold has that much “intrinsic” value, as it is as subject to the wild speculation as dollar bills or oil. Gold is inherently overvalued in modern tough economic times, since it is generally accepted to be a safe thing to buy when other investment vehicles are down. With each cycle, it’s contrarian nature seems to become more pronounced, and so is it’s potential for loss in value. In an increasingly fluid economy (thanks in large part to the internet), gold is just as subject to the whims of public sentiment as dollars (just often in reverse). Sure people like shiny rings, but they also like cars with shiny wheels and gasoline to fill up those cars; all are subject to the whims of pop culture, the economy, speculation and consumer sentiment. Ask yourself, is gold jewelery always going to be a such a popular form of expression, even if it has been for a long long time? Looking at Generation Y, I think this is a valid question. If anything, oil should be a safer bet… at least it has many everyday uses, unlike gold! The days of bringing loot to your king in exchange for food and safety are over, and thus so is the intrinsic value of gold, IMHO.

    I guess if you’re really that worried about risk, you should invest in canned food (and maybe a bomb shelter). At worst your canned food is still worth what you payed for it by eating it. At best, it might be worth more than a gold brick in a food shortage! But, more seriously, I totally agree with Rick that the only thing that gives gold as much value as it has is simple precedent… exactly like dollar bills. There is a lot of potential for that precedent to change any day… exactly like dollar bills. Maybe it won’t be this economic crisis or the next, but the potential definitely exists. If I’m sitting on an oil well, what’s more valuable to me in 2008, your brick of gold or my oil? What if I have a solar panel and you have gold? What about in 2030 if there’s an oil shortage? Or what if the whole world is running on solar in 2030? Basic necessities like food and energy (not necessarily oil or electricity that can substitute each other) have intrinsic value, gold doesn’t. As the world economy experiences crises more in parallel with each other, the currency values appear to all be tanking at the same time, and so goes the value of gold with these economic swings. Sure, investing in gold with your Japanese Yen prior to the Asian market crisis might have been a good idea, because of the isolated nature of the crisis, but can an isolated American or European (or even Asian) crisis even exist in the internet age? Where goes the USA goes Europe, and vice-versa. So it seems to me, investing in gold carries the same risk and reward as investing in anything else, and little intrinsic value (unless you happen to build gold-foil heat shielding or computer parts).

    Perhaps we should be investing in Helium instead of gold: it has ever decreasing supplies (as it goes up into space once released into the atmosphere) and it is always popular at parties!

  10. Rick Schaut Says:
    November 5th, 2008 at 7:30 pm

    Patient,

    “If the United States of America were to disappear tomorrow, your Federal Reserve notes would be worth nothing.”

    If the United States of America were to disappear tomorrow, I rather strongly suspect I’ll have far more grave problems to worry about than the value of my Federal Reserve notes :-) .

  11. VennData Says:
    November 6th, 2008 at 7:17 am

    Peter Schiff’s “I told you so” letter in the WSJ mocking Arthur Laffer was a gem.

    http://online.wsj.com/article/SB122568078727092369.html

    He mocks the uber-bullishness Laffer’s been spewing out in face to face meetings with the leading “Supply Side” spieler, now suddenly it’s at a end. The Reagan debt-fueled economy, tax cuts for the rich, Social Security payments of the workers covers the annual deficit, and Reagan’s gift of Greenspan is over.

    I’d add, don’t be mad at Wall Street.. be mad at the rich financers of the GOP “tax cut” media machine. Debt covered all the lies of the Supply Side tax cuts will pay for themselves, the GOP spent like madmen.
    What did they do with complete power from 2001- 2007 when it cam time to rein in Fannie and Freddie? What did they do about flag burning, gay marriage, abortion? The same thing. Nothing.

  12. njdoc Says:
    November 6th, 2008 at 8:12 am

    The origins of value is a long and complex issue. One could talk about Babylonian agricultural contracts, Chinese silver contracts, middle age European government bonds and many more. The Tally Stick, for instance, was used as a store of value for a much longer time than US dollars, however, I don’t believe you could retrieve any of that value today at Costco. Gold, however, has been used as a store of value for thousands of years. Whereas confederate dollars may have gotten you something in the 1800’s, today they are only a collectible. Au, besides being an excellent conductor of electricity, has no “VALUE” other than it’s historical role as a store of value. And I believe all people are trying to keep something that will allow them to have a claim on future goods and services. So you can all make your bets. Long live the Tally Stick!

  13. Greg0658 Says:
    November 6th, 2008 at 9:01 am

    The world governments are not going to turn over currency to miners (drillers) ever again. imo.

  14. Jim Dandy Says:
    November 6th, 2008 at 10:30 am

    Gold has uses beyond being fiat money. It has inherent value as a catalyst in chemical processes and is also used in semiconductor manufacturing for its material properties. This is in addition to looking pretty in jewelry or being fiat money. As far as fiat money is concerned, one of Rome’s strengths (going way back) was its excellent mining ability to extract large quantities of gold and have a money supply based upon it. Even the idea of money as opposed to bartering has value and enables us to price things more consistently, which gold certainly helped with in the beginning.

  15. Rick Schaut Says:
    November 6th, 2008 at 4:03 pm

    Grego,

    I agree entirely, but it’s worth pointing out precisely why: Milton Friedman’s seminal theoretical work on relationship between money supply and economic growth.

    Which is why I find the libertarian reaction to the current crisis (or any crisis precipitated by an overzealous influx of liquidity on the part of the Federal Reserve) to be rather ironic. Friedman has long been a darling of libertarians, yet their calls for a return to a gold-backed currency require us to ignore the results of Friedman’s most intellectually rigorous work–namely that the supply of money must be able to grow in proportion to growth in income.

    Returning to a gold-backed currency is one of those cases where the cure is worse than the disease. Yes, loose Fed policies can lead to bubbles, which eventually crash and lead to a recession, but a return to a gold-backed currency simply bypasses the bubble and leads us directly to a permanent state of stagnation.

  16. vv111y Says:
    November 6th, 2008 at 4:31 pm

    Rick,
    That would explain why someone like Schiff says that the natural state of a healthy economy is deflation, since the supply of money will be insufficient for a growing economy, then prices across the board will naturally fall. Just passing it on.

    I’ll go with the idea nothing has intrinsic value – valuators are always necessary. Human embodiment projects onto an economy its values.

  17. billy Says:
    November 6th, 2008 at 10:35 pm

    Agreed, most of the time these anchors are too busy pretneding they are investment experts to realise that really, they know very little.

    However, on this occasion, I have some sympathy for the, Schiff begins by saying “Obama will be good for my clients” and then goes on to completely tie himself in knots. He hopes Obama will lose the next one, saying that he’s going to detroy the economy. (How;s that good for your clients?) Then he rambles on with a bizarre combination of unsupported economic cliches and ridiculous political “solutions” that even ron Paul wouldn’t support.

  18. Northern Observer Says:
    November 6th, 2008 at 11:33 pm

    I appreciate what Schiff did to Laffer and Lafferism which is so much at the heart of GWBs failed policies.
    But Schiff’s shows himself to be as hard and ideologue as Laffer ever was with his confident attacks on Obama’s coming economic policies. He is also just plain wrong about Obama’s economic team wanting to reflate the bubble. My understanding is that they are going to go for investments in infrastructure and education, rather then tax cut or rebate check the problem away. So Schiff is pushing his no government Jihad. This will be something to watch for over the next 4 years, there will be some wild right wing populism popping up to save the nation from Washington. Buyer beware, ideas in this may be stupider then they first appear.