Friday, January 13, 2012

For the Peter Schiff Haters.

Recently, I've seen quite a few posts on blogs and forums bashing Peter Schiff. Most of them say, in one form or another, that his doomsday predictions were completely wrong. Specifically, many of them focus on this quote:
"I think pretty soon, maybe a year or two down the line, [inflation] is going to be at least twenty or thirty percent a year. The government won't admit it, but it will be." - Peter Schiff on The Glenn Beck Show. October 13, 2008. (Starts at 1:59.)
Let's quantify that statement. There is no perfect measure of inflation, but for this exercise we'll focus on three indicators: petrol, milk, and gold. Modern life wouldn't exist without petrol or milk, so their price movements are very important. The price of gold is the least useful measure of inflation for consumers, because the vast majority of consumers do not own any gold. (Unless they are Peter Schiff's clients.) It has been the currency of choice for thousands of years though, so we'll look at it to measure the exchange rate value of the dollar. The sources I use will be the EIA for petrol, the University of Wisconsin for milk, and Kitco for gold.

At the end of 2008, the (weekly U.S. regular conventional retail) price of petrol was $1.59 per gallon. That was also the lowest point it reached after the crisis. It reached a high point of $3.91 per gallon in 2011, but ended the year at $3.21 per gallon.

Milk cost $1.34 per gallon at the end of 2008. It dropped further to $.97 per gallon in 2009. In 2011, it reached a high of $1.89 per gallon, but then ended the year at $1.71 per gallon.

Gold ended 2008 at $869.75 per ounce before dropping down to $810.00 per ounce in 2009. It reached a high point in 2011 of $1,895.00 before ending the year at $1,531 per ounce.

In percentage terms, on an end-to-end basis, petrol has increased 102.08%, milk has increased 27.74%, and gold has increased 76.03%. The low-to-high increase for petrol was 145.72%, milk was 93.81%, and gold was 133.95%. Interestingly, the International Accounting Standards Board defined hyperinflation exists when "[T]he cumulative inflation rate over three years approaches, or exceeds, 100%." (Source: IAS 29 Financial Reporting in Hyperinflationary Economies.) The end-to-end and low-to-high increase in the price of petrol has already surpassed 100% over the last three years. That means the price of the most vital energy source for the United States is already in a state of hyperinflation.

On an end-to-end basis, the annualized price increase over the last three years for petrol was 26.43%, milk was 8.50%, and gold was 20.74%. If we consider the low-to-high basis, the annualized increase for petrol was 34.94%, milk was 24.68%, and gold was 32.75%.

Peter Schiff was right. The low-to-high rate of dollar price inflation for petrol, milk, and gold have all surpassed 20% per year, just like he predicted in 2008. Not only was he correct about that, he was also correct in that the government would not admit it. The Bureau of Labor Statistics says the CPI has only increased about 6.00% over that same time.