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The ‘How’ of a Collapse Is Not Our Only Concern
Our recent discussion of whether deflation or hyperinflation will lay waste to the economy elicited hundreds of responses. Two of particular interest are featured below. The first, from blogger Charles Hugh Smith, explains why it may be impossible to know with any certainty which of the two forces will prevail. The second, the thoughts of a Wyoming rancher, suggests that in a crisis, we may discover that our need for protein trumps concerns over gold, silver, Treasury paper and the dollar. Here’s Charles, in an excerpt from an e-mail I received from him several days ago:
I certainly wouldn’t want to debate anyone because my arguments are those of a trader, basically, not an economist. Maybe we will get hyperinflation, I don’t claim to know. What bothers me is the widespread conviction that hyperinflation is “guaranteed.” This smells like a one-sided trade to me, even if it more of a meme than a trade.
As we’ve both said, the other issue is, how do the Elites benefit from hyperinflation? The only answer I’ve ever received is “they’ve already bought gold.” Yeah, right. As I noted, there’s $7T in gold, total, half of which is owned by central banks, and there’s $160T in financial wealth to protect in the world. Even if gold went to $10K/oz there would be no more than $35 T in gold in private hands, and by that time, the gold in Fort Knox (or in the PBoChina vaults, etc.) would be enough to establish a gold-backed currency. Meanwhile, the Financial Elites would have lost all their financial wealth. Have they really transferred all their wealth out of all financial instruments and totally into gold and land? If so, then owns the $160T in financial wealth?
This explanation — that the wealthy have already transferred their financial assets into gold and land and thus they don’t care if all money, bonds, mortgages, derivatives, insurance policies, etc. all go to zero and is wiped off the books as an asset—makes no sense because it doesn’t explain who is the bag holder to all this “fiat-based” wealth. If the wealthy don’t own all these financial assets, who does? Who did they sell it all to? Yet we know that the Financial Elites own all this financial wealth and thus it will not be in their self-interest to see it wiped out. Only debtors, i.e. Central States, want to see hyperinflation to wipe out their debt. But who considers all that sovereign debt an interest-paying asset? The Financial Elites, that’s who, along with politically powerful union pension funds, banks, etc.
Everyone seems to forget that debt is an asset to the guy on the other side of the trade. The debtor would love hyperinflation but the owner of the debt will resist hyperinflation with every fiber of his being — and that includes the Financial Elite who own the debt.
Only Political Choices
This is basically a “politics of experience” analysis, and very few are equipped to understand such an analysis, as it’s outside their econometric comfort zone. They prefer a deterministic financial analysis that there are “laws” of economics which lead to hyperinflation, etc. Meanwhile, for me, there are only political choices, a narrow band of which lead to hyperinflation and a bunch of others which do not. This kind of analysis doesn’t lend itself to refutation or confirmation by financial models of the sort being bandied about — it’s a behavioral analysis and a political one.
I have yet to see how banks and the Financial Elites would benefit from hyperinflation. Without getting too fancy, it’s obvious that holders of debt, those collecting interest on debt assets, would be wiped out by hyperinflation. Thus as a simple matter of self-interest, we can deduce they will not favor policies that lead to hyperinflation. If the owners of debt (Treasuries, mortgages, corporate debt, commercial paper, etc.) were politically powerless, then we could expect them to be steamrolled by those who would benefit from hyperinflation. But they are not politically powerless — it’s the debtors who are powerless, except for the Central State, and it’s beholden to the Financial Elites who have captured the political and regulatory classes that govern the State.
How Many Angels?
Maybe we will experience hyperinflation after all. I am a skeptic, not a true believer, but I am certainly open to it as a possibility. I think all the financial arguments are somewhat akin to biblical debates about how many angels can dance on the head of a pin. They are fundamentally deterministic and apolitical, while the actual process of setting policies that lead to hyperinflation is entirely political.
I have no econometric arguments against hyperinflation, I only have political ones. But since politics sets policy, then hyperinflation is necessarily a political choice. So a political analysis will trump an econometric one in my view.
But I could be wrong. As a basically poor person, I don’t have much of a stake in either outcome.
***
When Gold Wasn’t Valuable
And here, with the final word, is the rancher, who posted under the pseudonym Bed Rock:
The place I looked to see how to be prepared for a dollar collapse was in the journals of the pioneers who settled the frontiers in North America two to three hundred years ago. When moving to an unexplored region inside the frontier, and being months of hard travel away from any civilization where the necessities of life could be purchased, is basically where we all will be when commerce stops because of a dollar collapse.
Bartering works good, but money was not very valuable, even gold. The people needed a place to live that offered protection from the weather, water and food. Everything else was and is a luxury. The people who had the talents of building shelters and producing food prospered and those that came with family money either died or went home broke.
So what I took from this is, be prepared to use your hands. Surround yourself with good, honest people who have talents in the many life-saving areas needed to survive any circumstances that may be thrown at us. Raising chickens, making bread, treating sickness, making a garden, a carpenter, etc. You will know what you need for your area.
I am a rancher and produce enough beef to feed approximately 6,000 people. But having to do that without cheap fuel, fertilizer, and life-saving drugs for the cattle, I will produce much less. But protein is one of the necessities needed to survive and something the pioneers treasured. If you succeed and prosper as our great country makes its comeback, you will have moved up the ladder of social and economic ranking. Survival of the fittest, and we will be rid of all those who live off of government aid. So don’t be caught with just a lot of gold and silver when the collapse comes. Sell some and buy the tools you will need to survive so you can use the metals latter when civilization returns.
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chubbar, you are saying there is a plan to reduce world population by 90%.....hmmmmmm, are you referring to the WHO plan? Well, you could be on to something because what's the real reason for building a doomsday seed bank on a very isolated island?
From Wikipedia The Svalbard Global Seed Vault (Norwegian: Svalbard globale frøhvelv) is a secure seedbank located on the Norwegian island of Spitsbergen near the town of Longyearbyen in the remote Arctic Svalbard archipelago, about 1,300 kilometres (810 mi) from the North Pole. The seed vault will provide insurance against the loss of seeds in genebanks, as well as a refuge for seeds in the case of large scale regional or global crises.
LJ, you make the exact point that I was going to make!
Yes, CHS seems to be implicitly making the same absurd, illogical argument that Rick Ackerman does, that the elite are omnipotent and that EVERY aspect of the economy is under their control. But indeed, if that were the case, why would so many currency crashes, hyperinflations, and entire regime changes have occurred throughout just the last century? Why did those elites "allow" such things to happen to them?
These clueless (if not disingenuous) deflationists can only support their blinkered, sterile, academic theories by appeal to ivory-tower thinking entirely removed from the real world, and with a wholesale ignorance of historical events. The simple fact is that there is not and never has been a single deflation under a fiat currency regime, ever. What there have been were hundreds of examples of nations suffering hyperinflations and/or currency collapses as a result of being burdened by chronically overspending, exponentially debt-ridden governments (such as those of the USA, Japan and Europe today). I am both amused and intellectually insulted by the deflationary flat-earthers who turn a blind eye to ALL of monetary history, and continue to whine that somehow, magically, "this time it's different".
I grow more and more suspicious of anyone who laughably continues to spout the deflationary line, most of whom are clearly just shills for the political and financial status-quo.
His 'elites' aren't the real ones. The real top of this pyramid is just using the rest of the 'elites'. Like they use everyone else.
He hasn't gone high enough up the food chain.
I think you misread what CHS is saying. He is not saying that there won't be hyperinflation but that the political elites will make an attempt to use their political power to avoid hyperinflation. It seems that many of us are making an assumption that if their is a currency collapse, whether inflationary or deflationary, that post collapse there will be some sort of civil order. Bed Rock has a good post collapse strategy only time will tell how good.
"... Money will not survive collapse; not yours, not anyone else's." http://cluborlov.blogspot.com/2011/04/financial-totalitarianism.html
"The simple fact is that there is not and never has been a single deflation under a fiat currency regime, ever"
Ummm, hasn't Japan suffered deflation over the past 20 years? Is that not a rather recent example?
No, Japan has NOT suffered any putative "deflation" either. That is just the propaganda and disinformation constantly pumped out by the politico-financial Establishment and their willing shills.
In fact, money supply and consumer prices have both risen EVERY year since 1989 in Japan --- granted, not by leaps and bounds, but both are noticeably higher today than they were in 1989.
It is only by attempting to erroneously equate the collapse of asset bubbles --- Japanese real estate and equities --- to deflation that the disingenuous propagandists for TPTB can feebly make their case for post-1989 Japanese deflation. But as usual, their barrage of wrongheaded Keynesian financial and monetary disinformation is just more lies.
Akak
i'm not a 'disingenuous deflationist' nor an establishment shill. I'm a realist. And the reality is it's not the money printing that's the Western worlds problem here. It's the credit (debt) mountain. It stands at $14 Trillion for the US Govt ($200 Tn if you include unfunded liabilities). Plus £70 Trillion primarily fabricated by the retail banks 1/30 leverage of real money.
That vast mountain range of credit/debt needs to be weighed, carefully, against the molehill of $650bn in Fed cash notes.
If you think $650bn in cash can create hyper-inflation in an economy when $70-$700 Trillion of debt is imploding in hyper-deflation then you'd back Nemo to beat a Blue Whale in a fight!
"Hyperdeflation"?! Are you serious?
Aside from the fact that there is utterly NO historical precedent for such an occurence, your logic, and that of the other deflationists, fails you when you glibly equate credit to actual money, even debt-based money. The two are NOT synonomous, despite some superficial appearances to the contrary.
This is nothing new --- any number of economies have collapsed as the result of overindebtedness on the part of both individuals and governments in the past. Yet I cannot help but notice that in every such event, the value of the currency collapsed right alongside its economy. There is NO such thing as deflation under a fiat currency regime, and to even talk about hyperdeflation is an insult to the intelligence.
Akak
you've been given Japan as an example of 20 years of deflation. You retorted yes but they've been printing for 20 years. What's your point there?
Surely you can see that despite money printing in Japan it has seen 20 years of deflating stock and property markets. The penny should drop credit/debt mountains imploding are bigger than any central banks ability to print money and 'out-run' the economy.
Benny the Bean is not in the same league as the Big (retail) Bwankers who've been creating credit/debt money out of thin air for decades. Benny can't even reflate (inflate) the mortgages on his own balance sheet he's such a lightweight. If Benny can't reflate/inflate $200bn worth of mortgages he himself owns, what snowball in hells chance do you think he has to induce inflation or reflate prices in the economy?
The other example of Deflation is the 1929-1935 Great Depression. Exactly the same situation as now with countries drowning in debt above 100% of GDP. When the economy starts contracting the debt becomes unserviceable and the house of credit cards (possibly $700 Trillion worth) starts imploding. Bennies $650bn in cash notes (or his tiny $3 Trillion balance sheet) won't amount to a hill of beans next to this mountain range of collapsing debt
Benny can try to monetise all the debt, he could try to reflate, but he'll get crushed (just as the Bank of Japan has failed)
ZG,
You keep going back to post-1989 Japan, but that is NOT an example of deflation at all. As any reputable (i.e., non-Keynesian) economist would tell you, the collapse of an asset bubble does NOT equate to deflation! Deflation is a decreasing money supply, with the usual result of generally falling consumer prices and cost of living --- is THAT what you are claiming that Japan has experienced in the last 20 years? If so, you would be flat-out wrong.
The ONLY example of a deflation occurring during an economic contraction was in the USA during 1929-1933, but that only occurred, and could ONLY occur, because we were still on the gold standard at the time. From the day that the fascist criminal Roosevelt took the USA off the gold standard, prices starting rising and the deflation was summarily killed.
All your other arguments continue to hinge on the erroneous equation of credit with money. I am not going to attempt to teach you elementary monetary theory, but suffice it to say that you are making a gross and grievous error in making such an assumption.
The final nail in the deflationary flat-earther's coffin is that ALL monetary history negates their egghead premise --- history records not ONE deflation under a fiat currency regime, but innumerable examples of the opposite, currency collapse, inflation and hyperinflation as the result of chronic government overspending and unsustainable and unpayable indebtedness. WHY do you keep insisting, contrary to all logic and contrary to all monetary history, that "this time it's different"?
Akak
by all means call Deflationists names like "flat Earthers" but it only shows a misunderstanding that deflationists somehow are thick, blinkered or don't comprehend economics or your inflationist argument.
That'd be hard if you think about it as every media channel pumps inflation hysteria every day and have for decades in fact. Every blogger bar 3 i can find at ZH believe and talk non-stop about inflation and 35,000 economists talk non-stop about inflation trends continuing. Finally 10 out of 12 gurus i listen to and repect are inflationists. I know the inflationists argument inside out and am fully clued up and nothing you'll say is something i've not already heard a hundred times over ok
Regards "elementary economics" i also understand inflation is of the money supply, inflation in the CPI for example is an effect, not inflation itself (deflation is a contracting money supply). But this is an academic (ie. wrong) discription of money to my mind because wmoney should include credit (debt) because they are inter-changeable for each other even if one is cash (hard notes) and credit/debt is an IOU (a differentation well worth noticing).
So Japan has had deflation of property and stock market prices because they were both pumped up on credit bubbles. Their devaluation is as a direct result of imploding credit/debt. That is deflation.
The deflationary depression of 1929 was the same, a deflating credit (debt) bubble. Specifically imploding Govt and private credit/debt.
When money literally 'disappears' (an IOU worth $1m is now worth only $250,000 or worse $0.00 as the servicer is unable to repay) that is deflation. When money (credit) disappears it impacts markets just as burning hard cash notes would do reducing the money in circulation, reducing the turnover, profits and prices of anyhting in that local'
That is the danger we face as a Western society, imploding credit/debt. Debt far out-weighs the hard cash money creation by central banks ($70 Trillion credit/debt mountain versus the Feds $650bn of notes)
You say scumbag President Rosevelt "ended deflation" with his Fiat money. Deflation fin ished when deflation wanted to finish. Namely when the nations debts imploded from 260-280% of GDP and hit the magic number just below 100% of GDP.
No central bank or Govt can stop deflation by printing more Benny Bucks as i've mentioned time after time by pointing toward the deflating mortgages on the Feds own balance sheet. If Benny has no way to inflate their prices in his own posession how does anyone imagine he can reflate any other part of the economy.
Remember prices aren't some Pavlovs Dog where the Fed wishes prices to rise and everyone accepts the price. Retailers set prices, consumers set prices, not the Govt (except price controls). Benny has zero control over setting prices and therefore no control over the CPI or property or food or anything else, especially the economy. If it wants to deflate it will
History, ZG, history!
There is a perfectly sound and rational reason why so relatively many are expecting inflation (i.e., currency debasement) and a potential currency crisis as the inevitable outcome of the Fed's and US government's current fiscal insanity --- because that is EXACTLY the same outcome experienced in hundreds of similar or essentially identical situations in the past! You disciples of deflation continue to ignore that fact, and indeed ALL of monetary history. Why? Why are you so convinced that somehow we are going, this time, to escape the fate of so many other overspending and indebted societies before us?
I will again make the salient point that there is not one example in all of monetary history --- not ONE --- of a true deflation under a fiat currency regime (and vanishingly few under any kind of monetary regime), not Japan and not anyone anywhere. The lesson of history is unequivocal that chronic government overspending and indebtedness always, ALWAYS leads to currency debasement and, usually, a monetary collapse.
Your theory that "money should include credit" is just that, a theory, unsupported by either sound monetary theory of any school, or by actual monetary fact. To glibly and incorrectly link the two,and to believe that the collapse of these bubbles constitutes "deflation", is to also imply that during the run-up to the real estate peaks in Japan and the USA, our economies had to have been experiencing rampant inflation across the board, which was not the case.
In any event, I will go with all monetary historical precedents rather than the egghead theories of ivory-tower Keynesian sociopaths, and prepare for currency debasement, NOT for some magically-appreciating fiat currency that has never been seen before. I would wish you good luck in your premise that "this time it's different", but luck has nothing to do with it --- you WILL be financially burned if you continue to naively believe in historically unsupported and unprecedented crackpot theories.
Can i chime in between you two with some thoughts that the deflationary argument is technically correct (the market can't support its debt burden) but that the central banks will print fiat to support their banking buddies and the system that is. QEI, QEII, bank deposit guarentees, dropping the mark-to-market rules, etc etc etc.
Steve Keen explains ZG position very clearly, that money is primarily endogenous credit and hence the correct scenario when the debt burden is too great is a collapse in the money supply BUT even keen is beginning to question whether government/TPTB will ever let that happen - my thoughts, not while the currency unit will buy a single grain of sand will they let deflation effect the banking sector.
AKAK - just a quick one: i believe we have had RAMPANT inflation leading up to these collapses, asset price inflation, conveniently outside of the CPI of course!
Spot on.
Ackerman forgets that his 'elites' own millions of crappy mortgages, and that the converse of hyperinflation -rising interest rates- is what kills them, not deflating currency.
that or the lynch mobs. Hunting bankers with become a national pass time - think Nazi hunters on a larger scale :P
Protein is necessary but it does not have to come from livestock.
Seeds of the plant cannabis sativa, hemp seed, contain all the essential amino acids and essential fatty acids necessary to maintain healthy human life. No other single plant source has the essential amino acids in such an easily digestible form, nor has the essential fatty acids in as perfect a ratio to meet human nutritional needs.
The future is now be prepared.
Sure, but your hungry again a 1/2 hour later...
Well, cannabis sativa, hemp seed is illegal in Amercia. Move to Canada or elsewhere to grow that. In the meantime there is quinoa (pronounced keen-wa), and is a grain that comes from the Andes, the mountains of South America. Quinoa's origins are truly ancient. It was one of the three staple foods, along with corn and potatoes, of the Inca civilization. Quinoa was known then, and still is known, as the mother grain. Call it the "Supergrain of the Future." Quinoa can be grown in most any soil and requires less nitrogen that other crops. In fact, too much nitrogen in the soil causes the grain to be unpalatable or harmful to the body.
Quinoa contains more protein than any other grain; an average of 16.2 percent, compared with 7.5 percent for rice, 9.9 percent for millet, and 14 percent for wheat. Some varieties of quinoa are more than 20 percent protein.
Quinoa's protein is of an unusually high quality. It is a complete protein, with an essential amino acid balance close to the ideal.
Quinoa's protein is high in lysine, methionine and cystine. This makes it an excellent food to combine with, and boost the protein value of, other grains (which are low in lysine), or soy (which is low in methionine and cystine).
And, it is VERY tasty! Cooks up just like rice.
thanks for this.
If there is hyperinflation think the authorities will have more pressing matters than dealing with folks growing hemp.
Just a thought.....
maybe the authorities will do like in afghanistan and guard your plants for you during the ''transition''! lol
I'm just being a dick here, but technically it's not a grain it's actually a seed with a very grainlike quality.
I cook and eat a lot of Quinoa, I'm sure you already know this but for those that don't rinse it well before cooking or it takes on a bitter taste. It will take on the flavor of what you cook it in.. so itry it different ways...in chicken broth or beef broth or vegatable broth.
I cook mine in a vegatable stock with minced fresh garlic.
Thank you. I will try this now with some of my stockpile. And later I will try this with my soylent green.
Don't forget,soylent green day is wednesday, soylent yellow is thursday.
I'll come visit you in prison. I promise.
I guess if gold was raised in its own feces it would be more palatable.
You can't eat gold it's true but you can't eat food now because it's radioactive.
A good twist on an old joke. haha
We are Living in a Kurt Vonnegut novel.
Complimentary proteins from beans and rice make up a complete protein, capable of sustaining a good quality of healthy living. Beans and rice are cheap now and easily stored in oxygen-less food grade containers. Add some carbon dioxide (dry ice chunks) to the bottom of the barrel and then fill it with the good beans and rice. Some dehydrated onion and nitrogen-packed turkey and a water filtration system and you are on your way to some real back up in the event of the currently unknown future.
There is good info out there on family survival storage, check it out. Better a year too soon than a day too late. Try out some recipes for your stored food so you know your family will eat it, ie, no glucose intolerance problems, etc. Plan ahead with some rehearsal for feedback to improve your planning. Some of the best advice I've heard is from the scenario planning field- get there first and scout out what you're going to need to be successful.
Need corn along with beans and rice to form a complete protein, i.e. all amimo acids.
Humans can live indefinitely on those three foods.
what if we still used the dollar, backed it with a gold ratio similiar to Fofoa or sinclair say. Pay china off with gld. Everyones debt is wiped out and gas goes to 9 dollars in the free market. Does everything collapse or hyperinflate or revolution? It may not.....just sayin......
We might have to pay China off in gold plated tungsten ingots.
Also:
"use the metals latter"? Proof your shit, dude.
"Proof your shit, dude."
Proof YOU'RE shit, dude.
You Moran (sarc)
Funniest thing I ever read on ZH!
funny if on purpose, hilarious if not
Well, there you go. It makes all his points invalid.
Well, there you go. It makes all his points invalid.
Ackerman was presenting quoted material. It would have been unethical for him to have corrected typos. At most he could have just added (sic). A Wyoming cattle farmer is discredited because he doesn't write the king's English perfectly? Maybe you are just frightened that he proposes that owning those gold rounds will not be the panacea you, and many here, believe them to be. It's like the vampires laughing at the crucifixes.
I would argue that diversification and hedging are the best ways to go. Keep some dollars, some gold, lead a healthy lifestyle, try to be as self-sufficient as possible, and so on. With the tower-of-Babel arguments on hyperinflation-stagflation-deflation coming at me from all sides, I have to confess that I have no idea which way things will go. I'm not going to sell everything and raise chickens in the boondocks, just like there is nothing wrong with converting a portion of your assets to gold and silver.
I have actually found raising chickens to be quite rewarding.
+1
The way I read it, the prepared family has tools and shelter and trusted neighbors, not just shiny tokens, when TSHTF. Hard to argue otherwise.
The article ties itself in knots to not commit the sin of being a Denier of inevitable hyperinflation, yet the hyperinflation religionists still attack mercilessly, down to sneering at typos in quoted text. Fail.
Exactly. This nimrod has a dozen grammatical errors in his post and expects people to take him seriously. ...Embarrassing for him.
hes a rancher, bro. go easy. try focusing on his message, not his delivery. this isnt a grammar blog
Exactly.
"I, Hatchet Jack, being of sound mind and broke legs, do hereby leaveth my bear rifle to whatever finds it, Lord hope it be a white man. It is a good rifle, and killt the bear that killt me. Anyway, I am dead. Yours truly, Hatchet Jack."
http://www.youtube.com/watch?v=H4kjLSzp5j4
Someone send Ackerman the "Farming for Dummies" book so he can avoid starvation from expecting folks to buy his investment advice.
Let him finish "Inflation and Currency Debasement For Dummies" first. I suspect he hasn't even cracked the book once yet.
I've never met a rancher in my life that uses the word "meme". I smell a sock puppet. The whole exercise of hyperinflation is all those wealthy people getting out of paper wealth and into physical assets, that is what will cause the prices to rise, as well as a loss of confidence in the dollar.