Friday, December 4, 2009


Who Said It?

There is no doubt that the world monetary and banking system is unsound, and would be unbelievably better off if governments returned these vital institutions to the free market. For their part, my...critics have always agreed that tariffs and other government barriers to trade are immoral and inefficient.

Thus we all agree on the theoretical economics and the value judgments. Our real disagreement, then, is empirical. Namely, is the current situation really perched on the edge of a precipice?

I believe the answer is no, and that's why I predicted that (absent a terrorist attack) the dollar would strengthen against the euro in 2007, and that (despite the inverted yield curve) there would be no recession, as officially defined. In making such predictions, I am fully aware that I run the risk of mimicking Irving Fisher's infamous statements immediately before the Crash in 1929.
-- February 15, 2007

Surely, only some brilliant scholar in economics must have delivered these eloquent and passionate words.

I read the original article. While I'm no Murphy scholar, this looks like one of the most serious articles you've ever written, especially the beginning.
I am so disillusioned now

...especially after Gene Callahan annihilated Stephan Kinsella in the comments a while back
Bob Murphy has got balls of steel.
If only you had known someone who could of more persuasively lectured you on the inverted yield curve's efficacy in forecasting...
Here's the context for those who care.

If you will permit me to pull a Paul Krugman-ish move, I think what happened is that (obviously) at that time I was completely oblivious to the situation in the credit markets a la ABCT, and was instead focusing on other indicators that (in isolation) seemed OK. And I still maintain that it was not "Bush free trade and outsourcing" that brought us to ruin.
I just read a couple of your old hit articles on Schiff.

As a "Schiffhead", I have to ask you: have you apologized to Peter yet ;)

Yes I emailed Schiff and also wrote several online articles explaining that he had been right and I was a doofus. Try this.
You show a lot of charater, Bob, in willing to admit mistakes. Thanks! But you were in very good company.

I was reading Hayek's "Pure Theory" in the summer of 2007 and it occurred to me that the sign of a turnaround in the economy is record profits. Profits are high because price inflation is high. In the summer of 2007, record profits was the main financial news. That scared me so I took all of my money out of the stock market and put it into cash.

The economy and the market peaked about six months later. That could have been luck, but I began to wonder why modern Austrians don't take Hayek's business cycle theory more seriously, especially the Ricardo Effect. Has it been refuted or just ignored?

Not sure what you mean. After I became an independent consultant, I did a forecast [.pdf] for a bank (in July 2007) and realized that the ABCT's sirens were blaring.

It wasn't that I had earlier considered the ABCT and rejected it; I just didn't even check to see if it applied. I know that sounds crazy in retrospect, but it's what happened.

Also, even though people might now say, "Peter Schiff used Austrian theory to predict the crash," in the articles I was responding to, he wasn't talking about the Fed pushing interest rates too low. He was talking about the trade deficit and making analogies to shipwrecked Asians.
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