Are Peter Schiff and the Gold Bugs Wrong Again?

From The Business Insider, March 23, 2009:

We really enjoy the critique of guys like Peter Schiff, who slam our system of banking. But in terms of using his philosophy as investment advice, it's dicey, since he's been saying the same thing for years and the collapse hasn't happened yet.

Then in the last year, the financial system really did start to collapse, but the bet went the wrong way for Schiff.

Still, Schiff and his ilk are confident that vindication is right around the corner. The the dollar will collapse and gold will regain its crown. It's just a matter of being patient -- and in the view of many, at this point we're basically there.

Indeed with the Fed now literally creating money for so-called quantitative easing, serilus currency debasement may be close at hand.

Matt Stiles, who writes at Stockhouse.com, who also happens to identify with the Austrian School of economics, argues why these hyperinflation fears are way overblown, and why we won't see a Zimbabwe scenario here:

It is often said that we live with a "fiat currency" or with "paper money." This is not entirely accurate. A very small portion of our total supply of money and credit is in the form of physical currency. It depends on how you count it, but regardless, it is under 10% of the total. This is what differentiates our monetary system with that of Zimbabwe or Weimar Germany circa 1920's. Their economies were based on nearly 100% physical currency because nobody would accept the promises of government in order to issue credit.

The vast majority of our money supply is in the form of electronic credit. Electronic credit can be destroyed, while physical notes issued by a central bank cannot. This is why deflation is possible in a credit based monetary system, but not in a paper based monetary system.

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