Peter Schiff Challenge: It’s Inflation, NOT Deflation

Two Camps: Inflation vs Deflation

I did the first live stream a couple of weeks ago; that was on bitcoin. I got a lot of feedback on that one and a lot of people were coming up with potential topics for the next one.  I think the most common request was for inflation or deflation: which one is it going to be? Because there are a lot of people out there who see the world similar to the way I do, as far as the problems that are confronting the U.S. economy in particular but the global economy, but everybody seems to fall into two camps as to how it is all going to go down; whether it is deflation that is coming – we should prepare for that, or whether it is inflation that’s coming and you should prepare for that.  Now I am an inflationist.  I am in that camp. Other people in that camp may be, like Jim Rickards or Jimmy Rogers or Marc Faber – there are a number of people who would be in the inflation camp. Deflation would be guys like Robert Prechter, Harry Dent, there are a number of guys that are looking for deflation.

Defining Terms

Now before I really get into it, I want to talk a little bit about the terms, so we know what we’re talking about.  Let’s define the terms.  What is inflation? What is deflation? The actual definition of inflation, the actual meaning of the word, is an expansion of the money supply.

What does “Inflate” Really Mean?

That’s what inflation is; it’s not about prices.  If you think of the word, “inflate” – what does inflate mean? It means to expand. You inflate a balloon; when you inflate a balloon, it expands. Prices don’t expand – they go up, they go down; they don’t expand. What expands?  Money supply. When the government creates money, the money supply expands, like a balloon.  It blows up. So that’s what inflation is, it is an expansion of the money supply.

What is Deflation?

Deflation is the opposite; it is a contraction of the money supply. Now when you inflate the money supply-you create more money – you have more money bidding up prices. So inflation will result in prices going up. But prices going up is not the inflation they are the consequence of inflation.