Professor John Cochrane and Money Manager Peter Schiff Agree: Zero Percent Hyperinflation Ahead

A Benjamin Cole post

“Of course, the idea that governments can hold inflation to just 2% per annum is preposterous. Once it breaches that level, governments will be powerless to contain it. The endgame will be hyperinflation…. Since the central banks are now destined to forever remain behind the inflation curve, it will continue to accelerate until the real threat of hyperinflation looms much larger than did the contrived threat of deflation.”

You might think above diatribe was delivered, well, 2008-9 or so.


Try Oct. 16, 2014, by Peter Schiff, CEO of EuroPacific Capital, in blogland RealClearMarkets. That is when he thundered against monetary laxness and the dire pending results.

The oddity is the Schiff blog was highly recommended by John Cochrane, the University of Chicago professor who has been pushing a neo-Fisherian view that huge QE and lower interest rates are the road to the desired nirvana of exactly dead prices.

Cochrane has blogged to the effect the market will think the Fed has “expectations” of lower inflation if it stays with QE and low interest rates, and so the market will tag along to a non-inflationary path, tricked by the Fed.

While we mull the odds of that, there is another tangle in the Schiff piece: Schiff says only governments want inflation, as it makes government debt easier to pay off. (Homebuyers? Leveraged enterprises? Employers? Oh, shut my mouth).

But then Schiff says that galloping inflation will lead to skyrocketing interest rates, and that will make it impossible for governments to pay off their ballooning debts. Huge amounts outstanding of 10+% government bonds will break governments and taxpayers.

I guess Schiff is saying governments want lots of inflation to make debt cheaper, but they do not foresee the higher interest costs that will break government. You know those central bankers and treasury officials are rather shortsighted, given what Schiff says.

Schiff has some views that might be controversial, which is to put it mildly. “But given the strict monetary restrictions that were needed to grease the skids toward [European] union,” Schiff says, “the European Central Bank has not been able to create inflation as freely as the U.S. or Japan.”

Most people note that the Japanese economy actually shrank over the past two decades in nominal terms, caught as it was in a long, persistent deflationary perma-recession. In the U.S., the inflation rate has been below target almost continuously since 2008, and is sinking again.

And nowhere in modern economies has deflation bedded down with prosperity.

QE Has Driven the Right-Wing Nuts

For whatever reason, the right-wing (except for maybe John Cochrane) detests QE and they detest low interest rates.

But low interest rates and QE we have had since 2008 in the U.S., and rather than hyperinflation, we see microscopic inflation rates. The Fed has consistently undershot even its anemic 2 percent inflation target. In terms of containing inflation, Fed Chief Janet Yellen makes heroic Fed Chief Paul Volcker look like a liberal pansy.

The left-wing is clueless, militating for more and more federal deficits.

But if we believe the right-wing duo of Schiff and Cochrane, we are headed straight into the gut of zero-percent hyperinflation.



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