Egon von Greyerz: "A Hyperinflationary Deluge Is Imminent", And Why, Therefore, Bernanke's Motto Is "Après Nous Le Déluge"

Tyler Durden's picture

From Egon von Greyerz of Matterhorn Asset Management

Apres Nous, Le Deluge

Happy days are here again! Stock markets
are strong, company profits are up, bankers are making record profits
and bonuses, unemployment is declining, and inflation is non-existent.
Obama and Bernanke are the dream team making the US into the Superpower
it once was.

Yes, it is amazing
the castles in the air that can be built with paper money and deceitful
manipulation of all economic data.  And Madame Bernanke de Pompadour
will do anything to keep King Louis XV Obama happy, including flooding
markets with unlimited amounts of printed money. They both know that, in
their holy alliance, they are committing a cardinal sin. But clinging
to power is more important than the good of the country.  An economic
and social disaster is imminent for the US and a major part of the world
and Bernanke de Pompadour and Louis XV Obama are praying that it won’t
happen during their reign: “Après nous le déluge”. (Warm thanks to my
good friend the artist Leo Lein).

Moral and financial decadence

A deluge of an unprecedented magnitude
is both inevitable and imminent. The consequences of the economic and
political mismanagement will have a devastating impact on the world for a
very long time. And the consequences will touch most corners of the
world in so many different areas; economic, financial, social, political
and geopolitical. The adjustment that the world will undergo in the
next decade or longer, will be of such colossal magnitude that life will
be very different for coming generations compared to the current
social, financial and moral decadence. But history always gives us
lessons and the one that is coming will be necessary and eventually good
for the world. But the transition and adjustment will be extremely
traumatic for most of us.

We have reached a degree of decadence
that in many aspects equals what happened in the Roman Empire before its
fall.  The family is no longer the kernel of society. More than 50% of
children in the Western world grow up in a one parent home, either being
born by a single mother or with divorced parents. Children are neither
taught ethical or moral values nor discipline. Many children consider
attending school as optional and education standards are declining
precipitously.  Most families do not have a meal around the dinner table
even once a week. Sex and violence are common place on television and
in real life. Both press and television create totally false values and
ideals. Everyone must be young and beautiful often enhanced by surgical
or digital means. Old people have little value and their wisdom is not
benefitting the younger generations.

The Golden Calf or materialism is the
ultimate value that is worshipped and no means are eschewed to attain
material goals. Since most of the prosperity that has been achieved in
the last 40 years is based on printed money and debt, it is totally
false and unsustainable. A major part of the Western world has improved
their living standard, by exchanging services and swapping houses at
ever rising prices financed by printed paper and credit. The perceived
wealth that is created out of this is illusory and ephemeral. We have created a world economy which is based on debt and thin air.


The Gini coefficient of income and wealth
is now reaching extremes in many countries. This measures the
inequality between the rich and the poor. In the US the Gini coefficient
is now at the same level as in the 1920s before the depression. In
countries like the US, the rich are getting richer whilst 45 million
people live below the poverty line, 43 million receive food stamps and
over 700,000 are homeless. With a real unemployment rate of 22% and
urban youth unemployment much higher, the US will soon experience social
unrest.

But it is not only the US that will
experience financial misery, famine and social unrest. This will also
hit most European countries and in particular the UK, southern Europe,
Eastern Europe and the Baltic States as well as African countries, the
Middle East, Asia, yes in fact the whole world.

Are boom and busts inevitable?

Well if you listened to the former
British Labour Prime Minster Gordon Brown, he proudly declared that he
had abolished booms and busts and thus economic cycles. But he was
expeditiously thrown out at the next bust which of course had nothing to
do with him since he blamed the US sub-prime market for his ill-fated
destiny.

Cycles or ebbs and flows are a natural
part of both economic life and nature. And right at the point when
something could be done to limit the damage, most nations seem to have
the uncanny knack of selecting the political individuals who will put
fuel on the fire and make the situation catastrophically worse.

Greenspan was one such individual.
During his 19 years as Chairman of the Fed, he could have limited the
economic and social damage that the US would suffer. Instead he took
every single measure possible to ensure that there would be a
catastrophe with uncontrollable consequences. But we shouldn’t just
blame the incompetence of Greenspan. It was sickening to watch every
sycophantic congressman and senator licking Greenspan’s boots and
praising his wisdom. Because Greenspan’s money printing and incompetent
interest rate management created one of the biggest financial bubbles in
world economic history. But the politicians loved this. It made the
stock market boom, and house prices surge. Thus the politicians were all
loved by their voters who did not understand the dire consequences that
were looming. And Bernanke de Pompadour is continuing the same
disastrous policies of creating money out of thin air. When will they
ever learn that creating money out of thin air and running astronomical
deficits that never will be repaid with normal money leads to the road
of total ruin? When will they ever learn? The very sad
answer is that they won’t and therefore they are leading the world into a
hyperinflationary depression that will have uncontrollable and
cataclysmic consequences for current and future generations.

Empty stomachs are rioting

We have for years warned about
hyperinflation leading to famine, misery and social unrest. Well, this
is exactly what is happening in many parts of the world. The protests
and overthrowing of regimes in Tunisia, Egypt and Libya are primarily
due to a major part of the peoples of these nations having no job, no
money and little food. It is their empty stomachs that are rioting. In
addition they are protesting against the leaders of these countries
stealing from the people.

It is virtually certain that these riots
will spread to many countries in the Middle East, Africa and the
developing world. This will lead to new regimes and new political orders
that could either be far left or far right politically or religious
extremists. But the new regimes will not be in a position to change the
root of the problem which is famine and poverty.  In Egypt for example
there has been a quiet military coup. It is unlikely that a democratic
regime will take over from the military. So the people will protest
again and again. And this will be the same in most countries. Eventually
the people will take the law into their own hands since no regime will
be able to give them the food that they need.

 

The hyperinflationary deluge is imminent

Although food and fuel inflation is
rampant worldwide already, we are only seeing the very beginning.
Massive oil price rises are likely to continue as a result of the
geopolitical situation as well as peak-oil. The Middle East is a time
bomb waiting to go off. Israel is in an extremely precarious position
and the involvement or non-involvement of the US in this conflict would
both have dire consequences for Israel and peace in the world. Food
prices will continue to rise dramatically. Major parts of the world are
living below the poverty line today and this will increase
exponentially.

The lethal concoction of rising food and
fuel prices is already affecting the Western world. The Continuous
Commodity Index – CCI, (60% food, 17% energy and 23% metals) has almost
doubled since the low in early 2009 and has gone up 42% in the last 12
months. The almost vertical rise of the CCI is one of the best
indicators of hyperinflation being imminent. A catastrophe of
astronomical proportions is looming. This will hit the world at a time
when there is no capacity whatsoever to take any real measures that
could alleviate the problems.

(Click image to enlarge)

Most
countries are already running major deficits which will increase
dramatically in the next few years. The banking system is bankrupt and
is only holding together due to false valuations of toxic debt and
derivatives. This is done with the blessing of governments since
virtually no major bank could face an honest valuation of its assets.
Unemployment and especially youth unemployment is currently a problem
worldwide and it will get much worse. In 2010, the US government spent
60% more than its revenues. In order to balance the budget individual
and corporate income taxes would have to double.

Never before in history has the world run out of real money as well as (affordable) food and fuel simultaneously. But his is exactly what is happening now and it will get substantially worse in the next few months and years.

Financial misery, famine and high
unemployment combined with governments that will not be in a position to
give real help are a recipe for disaster that will lead to social
unrest and revolutions not only in developing countries but also in the
West. Hungry people are desperate people and desperate people do
desperate deeds. We could see already in 2011 food shortages, and riots
both in Europe and in the US.

Hyperinflation Watch

The following are INDISPUTALBLE FACTS:

  • The US dollar is down 82% against gold since 1999
  • The US dollar is down 49% against the Swiss Francs since 2001
  • The Dow Jones is down 81% against gold since 1999
  • The Continuous Commodity Index is up 100% since 2009

The above facts are clear evidence of an
economy that has been totally mismanaged. But more importantly most of
these trends are now starting to accelerate – a clear sign that
hyperinflation is just around the corner.

With
years of negative net worth and negative cash flow, the US is bankrupt
today. The Federal deficit is forecast to increase by at least another $
5 trillion in the next 5-7 years.  Add to this the State deficits, the
Municipal and City deficits that are rising at a galloping rate and we
have a country that is going to haemorrhage to death in the next few
years. One wonders when the totally ineffective and clueless rating
agencies are going to fathom this. Not that it will matter if they once
do.  One also wonders what Mme Bernanke de Pompadour and his court are
thinking. “She” and her courtiers should have above average intelligence
and could not possibly avoid seeing the facts that we all see today (of
course, some of us have seen it coming for over a decade). But “she”
has to please her master King Louis XV Obama and her devotion to the
king goes above all reasonable common sense, or rationale. So the two of
them will continue to crank up the printing press and drown their
people and the world in worthless paper.

Stock Market

To believe that the current money
printing liquidity boom is real and sustainable would be a very serious
and expensive mistake. The temporary and illusionary pickup that we are
now seeing in the economy and stock market is the normal initial phase
of a hyperinflationary economy. It must not be mistaken for a real
improvement in the economy.

The normal pattern at the beginning of a
hyperinflationary period is that stock markets surge. This is the
result of the increased liquidity and a flight to more inflation proof
assets. This was the case in for example the Weimar Republic and
Zimbabwe.  Just look at the chart below of the Zimbabwe stock exchange
that went from 1,420 in January 2005 to 5.4 trillion in June 2008, a 3
billion per cent increase.  That was of course in Zimbabwe dollars. In
US dollars the stock exchange went sideways with major volatility.  So
in hyperinflationary terms stock markets could continue to rise
initially thus making them a better investment than cash. However,
measured against real money, the Dow has gone down 82% against gold
since 1999 and 86% against silver since 2001 (see chart above). We are
currently seeing a dead cat bounce but we expect the Dow to decline a
further 90%, at least, against gold in the next few years. So even if
stock market investments will initially give the illusion of protecting
investors, it will be a very poor hedge against the ravages of
hyperinflation in real terms.

ZIMBABWE STOCK INDEX 2007-2008

Bond market

In January 2009, we warned investors
that long term interest rates were bottoming. Since then the 30 year
bond yield is up from 2.6% to 4.6% an 80% rise. But more importantly the
30 year is currently in the process of breaking a 17 year downtrend
line which dates back to 1994. This confirms that rates will now start a
major and rapid rise which is likely to reach the mid-teens or higher.
Governments will attempt to keep short rates low due to weak economies
but eventually the rising long rates will put strong upward pressure on
the short rates.  So the flight to government bonds that we have seen in
the last few years will soon reverse into a massive rush for the exit.
This will coincide with rapidly increasing financing requirements by the
US, UK, EU and many other governments. The poisonous concoction of
rising rates and rising financing needs will create a vicious circle of
collapsing bond markets and unsustainably high financing cost. This will
continue to drive interest rates even higher which will further
increase deficits and necessitate even faster running printing presses.
Add to that a collapsing currency and the hyperinflationary picture is
complete. It is our very strong view that investors should exit bond
markets entirely if they want to avoid a total destruction of their
assets.

Currency Market

As we have explained for many years, hyperinflation is created by the
government destroying the currency as a result of money printing to
finance deficits. This leads to the cost push inflation that we are now
experiencing. Add to that, shortages in commodities worldwide, thus
creating the perfect hyperinflationary scenario. The Dollar, the Pound,
the Euro and many other currencies will continue to decline. They can’t
all decline against each other at the same time so the market will take
turns in attacking one currency at a time. But all currencies will
continue to decline against gold. We believe that the dollar will soon
start a very rapid fall against gold and against many currencies.
Investors should exit the Dollar and also the Pound and the Euro. There
is no currency better than gold or silver but for any small amounts of
cash we prefer the Swiss Franc, the Norwegian Krone, the Singapore
dollar and the Canadian dollar.

Wealth Protection

A hyperinflationary depression will
destroy the value of money as well as most assets that were financed by
the credit bubble (property, stock market).  Wealth protection is now
critical and urgent. We see no better way of protecting assets against
total destruction than physical gold and silver stored outside the
banking system. Thereafter, precious metals, energy and food stocks are
our preference.  But it must be remembered that any asset including
stocks that is held through a bank is dependent on a sound and surviving
banking system.

The real move in precious metals is
still to come as we have outlined in many articles. Less than 1% of
investors own gold. Before this economic cycle is over we are likely to
see a mania in physical precious metals that will drive prices
exponentially higher. And luckily for investors, this is a mania which
is unlikely to end in a collapse since gold most probably will be part
of a future reserve currency.

Finally we are again quoting von Mises who clearly understood that “le déluge” is inevitable:

“There is no means of avoiding a
final collapse of a boom brought about by credit expansion. The
alternative is only whether the crisis should come sooner as a result of
a voluntary abandonment of further credit expansion or later as a final
and total catastrophe of the currency system involved.”
– Ludwig von Mises

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Yen Cross's picture

The only thing I read, Is a man trapped in a body that needs a good SHAVE. Grow up JUDITH.

Judge Judy Scheinlok's picture

What is it with you? How long have you been working with the English language?

Yen Cross's picture

About 45 years. What is your excuse?

EvlTheCat's picture

From your argument people should be going long Soylent Green not chili sauce..

Yen Cross's picture

Miss respectful. You kick intellectual ass. (MsCreant) You are a smokin hottie! Keep the posts coming.

IQ 145's picture

 good reminder eh? it's an internet blog.

bob_dabolina's picture

Put this in every classroom.

This should be mandatory reading to every student in America.

Cognitive Dissonance's picture

You and I don't control America's classrooms. Thus this type of financial information will never see the inside of a public school classroom, at least not in this format and with this editorial comment.

The new control system is strangely similar to the old control system.

cossack55's picture

Which thru the miracle of extrapolation is strangely similar to the older control system which is identical to the oldest control system.  The Devine Comedy #2.  Which begs the question: which level are we currently on.  I'm sure I see the Styx in the rearview mirror. 

New_Meat's picture

"The Devine Comedy #2."

Is that the SNL skit/takeoff on Iron Chef where they take that cloaca-thingie out of Jumbo Shrimp?

bob_dabolina's picture

I guess at this point it doesn't even matter.

Protecting yourself through preparedness is paramount.

I'd rather be over prepared then under prepared.

cossack55's picture

Ya gotta love that ole sayin', I'd rather be two years early than one day late.   LMFAOWROTF.

IQ 145's picture

 Actually, I was two years early; I bought by base of silver bullion at  $6.53; and had to wait while it made incredible lows at 4.35; the pain is all gone now, tho.

cossack55's picture

Close. I was 40 years early when paying 10 cents for Mercury dimes in 1963.  Glad I saved them.  Who would ever have thunk that a hobby (other than gun collecting) may become life-preserving.

minus dog's picture

And yet people wonder why some people are so bent on destroying the grip of the teacher's unions on the school systems.

Cognitive Dissonance's picture

I don't understand. Are you saying the teacher's union determines the curriculum in the classroom? Or are you saying some people are trying to remove any outside influences on the classroom? Or something else?

Things that go bump's picture

Apparently, the State of Texas, because of its size, determines the curriculum in the classroom, or at least what books are used, not only for Texas, but for the entire country.  

velobabe's picture

i noticed that, as well. what if up^ with this governing body. damn the woman are always, BUTCH†

Bay of Pigs's picture

I'm sure Steve LIESman and the CNBS crew are all aware of this and ready to debate its content...

LMAO.

 

akak's picture

Steve LIESman is much too busy constantly kissing Bernanke's ass to be bothered to notice much of anything.

naughtius maximus's picture

It might find its way into a classroom under "history".

IQ 145's picture

 No. Field Marshall Goering on being told he would be judged by history, "History! History is written by the winners!" Only a glorious and seamless progression to the "present" wonderfulness will be allowed.

naughtius maximus's picture

The winner in this case will the limits of mathmatics. Infinate growth with finate resources will always lose.

ebworthen's picture

 

My 11th grader was telling me last night that they have not read one single book by Orwell...

...not Animal Farm...

...not 1984...

...not even mentioned in his public school education.  He has friends who are Seniors in regular and AP English and...

...ZERO Orwell.

I wonder if they burned the books by him they might have had in the library?

 

New_Meat's picture

and yet, late '60s, early '70s, Animal Farm was all the rage.  Then 1984 and Huxley.

I mutter "four legs good, two legs bad," and get strange looks from my son.

- Ned

Cognitive Dissonance's picture

You just like that saying because you're a four legged porker. Talk about bias. :>)

Guy Fawkes Mulder's picture

An uproar of voices was coming from the farmhouse. They rushed back and looked through the window again. Yes, a violent quarrel was in progress. There were shoutings, bangings on the table, sharp suspicious glances, furious denials.

 

The source of the trouble appeared to be that Napoleon and Mr. Pilkington had each played an ace of spades simultaneously.

 

Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.

I am a product of South California public education, having graduated it in 2001. They had every English class but the honors read Brave New World in the tenth grade. Honors got to read Animal Farm in ninth grade, at least. Not sure how it is going these days.

Hollywood is about to make Brave New World for theater-going audiences in the near future.

Probably with all their 3D bullshit gimmicks too.

They are also going to re-do They Live.

Not sure how much more in-our-faces with this they can get.

Cognitive Dissonance's picture

It's long past the point where people can simply be shown what's really going on and they will understand it and embody it. The programing and conditioning has been so thoroughly assimilated that the average person will rationalize away anything contrary to the world as they have been told it is constructed.

One piece of contrary information in a sea of propaganda and disinformation repeated endlessly day after day just won't penetrate. Sure people understand that's something is wrong. But given the choice between looking into the abyss or allowing yourself to float back into another few hours of mindless bliss, few will choose the path of emotional pain.

Either we begin our own process of deprogramming starting with those around us and our loved ones or we prepare for great dislocation and upheaval. The idea that I see around ZH of buying PMs and filling the storm cellar with the basics and hunkering down is just another form of self delusion. One man cannot withstand an assault from his own community let alone the county, state or nation. Either we begin to educate our communities now or we will be over run by those very same communities.

RockyRacoon's picture

Do we have teachers able to explain allegory in the classics?

Cognitive Dissonance's picture

We are the only teachers left RR. The buck must stop here with us or it ain't stopping until the elevator crashes at the B4 level.

Going down?

Yen Cross's picture

Rockie I like you, and your input! Mispell all day long my friend! Lets get wetarded!

RockyRacoon's picture

Like my old departed daddy said, if I'm so smart why ain't I rich?

saulysw's picture

My first reaction : Probably because he wasn't an asshole.

ebworthen's picture

 

A complete lack of morality and ethics can facilitate the appropriation of wealth from others that posesse them, unfortunately.

Hell on Earth is the reward for the malfeasant; though it does take a little time to present itself.

ebworthen's picture

Allegory?

Is that the gory teen movie where everyone dies sooner or later in an alley with a bright fire that casts shadows?

;-)

IQ 145's picture

 11th. graders who can read ? Wow, that's impressive.

LibertyIn2010's picture

Buy Orwell and Huxley paperbacks with cash only...no sense making it easier for Big Brother to know who's educating themselves.

Real Estate Geek's picture

But it was so much easier to have 1984 downloaded to my Kindle.

That's strange . . . now I can't find it. 

;-)

LukeWorm's picture

... for those who can read.

 

bob_dabolina's picture

I thought about that after I commented.

The few who can read won't understand, and the few who understand will know there is nothing that can be done to prevent what we are going to see in the coming years.

In this regard I guess I can understand Bernanke. If he raises rates we are dead, if he prints money we are dead (it will just take longer) All he can really do is have good bed side manner by lying and saying everything is A ok. There is nothing else I can think of to justify his behavior.

IQ 145's picture

 He was appointed Captain of the Titanic.

Yen Cross's picture

I understand. All is forgiven. Cheers.

Alcoholic Native American's picture

They should make em watch Inside Job too.

 

I remember back in econ 101 we learned how to calculate the GDP by filling in a pre algebra equation with made up numbers.

College is such a fucken racket these days.

gwar5's picture

Bernanke XVI has a cake index that is off the charts.

Spitzer's picture

One thing that allot of inflationists even get wrong is that SOME ASSET PRICES FALL DURING HYPERIFLATION.

House prices will fall from 3 or 400,000 to 50 or 60,000 because people will sell anything to get money to buy essentials like food and energy. Its not like everyone is a neighbourhood short on essentials can just sell their 400,000 dollar house and buy all the gas and food they want, it doesn't work that way.

Cars, motorcycles, boats, motorhomes, houses, TVs, cloths, pretty much every non esenctial thing will fall in value during a hyperinflation.

 

uno's picture

also crime will go exponential