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

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

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

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)

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.

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.


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

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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Calmyourself's picture

Shoot, shovel, shut up will go exponential, going long on lime..

New_Meat's picture

didn't during GD I.  Got focused in the "beer halls" during Weimar.  Who knows in the Zimb. - Ned

Calmyourself's picture

Your right it did not and a moments reflections will make clear this will be nothing like GD1.  Culturally, economically, energy consumption as well as agricultural patterns will all change; more like RESET 1.

Misean's picture

It will go parabellum.

cossack55's picture

You did not mention guns.

pitz's picture

Precisely motherfucker, houses (and those other items) are actually deflation, not an inflation hedges, because they are primarily financed with debt.

Bottom of the housing market will be when all the debt is removed from it and the fucking douchebags who bought more than one house, on the theory that such houses will undergo capital appreciation, are wiped out. 

toto's picture

Some assets might fall relevant to something else but eventually all goes up.

Spitzer's picture

Not might, they will fall.

You might be able to trade your car for a house if somebody is trying to get out of town and move in with some other family members that live far away.


toto's picture

you mean value im talking about price.

Spitzer's picture


I mean value. In the middle of a hyperiflation, before a new currency is adopted in the area, before people actually figure out what is happening, house prices will fall hard.

The house to gas price ratio will not stay the same like you are asserting. If it did, then you would be able to sell your house and buy years worth of gas. Thats not how it plays out.

toto's picture

probably the one who junked me doesn't realise the difference between value ant price.

Calmyourself's picture

Most of us understand you perfectly.  The man with surplus tractors, diesel fuel, welded plate wood stoves and other hard, tough to replace assets will be king..  Those of you that think modest gold holdings alone will get you through the first brutal months of the reset may wish to rethink the gold cost of a wood stove the first December..  I am sure few here are this foolish.

Real Estate Geek's picture

If that December is one of those brutal months, then you may want to think twice before using a wood stove.  Desperate people will probably do desperate things to get warm and fed.  Why attract their attention?

A more prudent course might be to get ALMOST as cold and thin as everyone else.  Warm blankets instead of a stove; 1,200 calories a day instead of 2,400; etc.

Calmyourself's picture

Your right of course kerosun heaters, blackout curtains, roadblocks, barbwire and other toys are your real friends the first winter.

Guy Fawkes Mulder's picture

While you don't even know the difference between exponential graphs and parabolic graphs.

OldTrooper's picture

...eventually all goes up.

Unless it is consumed, stolen, lost, burned to the ground, made obsolete or a central bank loses it's ability to create inflation.  But don't worry - I'm sure it's going up!

disabledvet's picture

exactly.  "what's the price of something that no longer exists."  let alone the "price" of something that doesn't exist in the first place but may?  this is "the penalty box" for the lunacy at not only the Fed but the entire Federal Government.  Talk about a "foreclosure crisis."  Only this time "it is the future that is being foreclosed on."  And who believes in tomorrow anymore?  So "90's" i guess.  Anywho...this article should be summed up in a single sentence:  "this is the plan."  banality of evil...move along.

silvertrain's picture

 Yes sir...And thus the stories of past hyper inflated economies such as the man that bought the Hotel with 1 gold coin etc.etc.etc...

naughtius maximus's picture

Can you elaborate or give more information? This I gotta hear!

DeadFred's picture

Had a co-worker tell me he bought his house in Yugoslavia then a few years later after inflation hit (now Croatia) he decided to to skip lunch one day so he could pay off his mortgage.  Once stayed with a friend, recently retired from being head of the biology department at the Central University, in his nice middle-class house in Quito, Ecuador.  He told me his mortgage payment was 500 sucres/mo, about the cost of a burger.  Down side was his retirement pay was 1500 sucres/mo.  Inflation does crazy things.

Ray1968's picture

At least you'll be able to pay off  your old mortgage with a postage stamp.

razorthin's picture

Not with an income of $0.  But I'll gladly jam a silver eagle down their throat and grab the keys.

fragrantdingleberry's picture

How much for a jet ski? I always wanted one of those.

flattrader's picture

For me it's a jetpack.

Oh, wait.  We don't have those yet.  (The kind that don't blow-up.)

...they promised there'd be jetpacts...

Captain Planet's picture


What would happen if you threw these on with some water skiis?


cxl9's picture

House prices will fall from 3 or 400,000 to 50 or 60,000

I assume you're talking real (not nominal) prices, then. If you believe the hyperinflation thesis, then the thing to do is load up on debt, purchasing assets that will retain their real value in a crash (gold? silver? vacant farmland? small working farms? modest, single-family rental homes? small-businesses providing necessary products/services?) and then wait for the debt to be inflated away. Essentially, borrow money at negative real interest rates and purchase things now that are likely to still have value when we cross over to the Other Side.


IQ 145's picture

 The thesis has merit; but careful investigation reveals that the only thing you should buy with your borrowed funds is Silver Bullion. For many reasons. In that case, the concept is very good. It will be easy to pay off the loan, and you can retain real value; ie. "excess" silver.

Spitzer's picture

No Im talking about nominal house prices falling. They will fall to a marketable level. Think about it, there is a huge glut of houses on the market, more then people need.

The whole dynamic of the market changes.

cxl9's picture

How does the nominal price of anything fall in a hyperinflationary environment? Do you know what hyperinflation is? It's not a just a whole bunch o' inflation; it's a loss of faith in the currency which brings about a total collapse in its value (purchasing power). I am not saying this is or is not going to occur in America; but I believe I do understand its implications.

Some common sense and basic math does not support your assertion that nominal prices of real estate will fall in a hyperinflation. Right now I own a small 3BR rental home in Oregon which is supposedly worth around $220K [Zillow]. Let's call it 150 ounces of gold. The market price of that home has been drifting slowly down for several years, as it loses value in both nominal and real terms. At some point the future (according to the thesis) we will have hyperinflation. At various points along the hyperinflationary curve, the dollar will have lost 90%, 95%, 99%, 99.9% of its value. Even if my house loses 50% of its real value, its nominal price will still be far above what it is now. At an 80% real loss and 99% currency depreciation, my house is nominally priced at $4.4M. Gold in this environment presumably would be around $150K/ounce and my house would be worth 31 ounces, reflecting its loss of real value.

Of course, if this were to occur, and I had had the foresight to borrow heavily and purchase gold prior to the hyperinflation, I would then be able to pay off the debts rather easily in debased dollars. This was really the point I was orginally making: if you really believe that hyperinflation is imminent, the rational thing to do is borrow as much as you possibly can in fixed-interest debt and purchase assets which will hold their value through the event, and let depreciation effectively cancel out the debt. It's essentially an opportunity to purchase at near-infinite leverage.

Spitzer's picture

First of all, your idea about borrowing heavy and buying gold is allot easier said then done. If the Comex price of gold crashes, your bank could margin call on you even if the dark pool price is much higher.

Your house will not have a listed nominal price in the middle of a hyperinflation. Bartering against your house will discover the nominal price. The things your house has a market against will determine the nominal value of your house. It is not simply a calculation that you could make. Nobody really knows.

cxl9's picture

If my house "will not have a listed nominal price in the middle of a hyperinflation" then how can you claim that nominal prices of real-estate are going to fall? It's got to be one or the other. Which is it?

Second, borrowing cash to buy gold is as easy as taking out a HELOC or other secured loan. Even I, with my modest assets, could do that. And I wasn't speaking about gold exclusively. I mentioned other possibilities such as purchasing real-estate on leverage.

You're silly. I've had enough of this discussion.

bob_dabolina's picture

No you're wrong. The value of those things wont change. The value of our currency will fall vs. those things.

Commodities will rise faster in % terms then that of say, a house.

The value of my home will be the same in 10 years as the intrinisic value of my home is the shelter it provides to my family and I. The intrinsic value of the dollars in my pocket are worth about how much fire I can produce with them, they are just perceived valuable and operate as a medium of exchange.

Spitzer's picture


The intrinsic value of your house will fall very much compared to essentials.

So you are saying that  the diffrence in real values of gas and food compared to houses and cars will stay the same ? So, no matter what, you will be able to sell your house and buy years and years worth of gas and food ?

Thats bullshit.

bob_dabolina's picture

I didn't say anything about real value.

There are differences between real value, nominal value, and intrinsic value.

Spitzer's picture

Yes and what I am saying is that your house will buy allot less gas and food during a hyperinflation, so even the nominal price will go down.

A $500,000 house will fall nominally to $50,000 while gas only went up half as much as your house went down.

1984's picture

You don't need to OWN a house to live.  Do you need to EAT to live?

Edit:  You don't even need to RENT a house to live; can always move back to your parents' basement. 

Edit:  There's no such thing as intrinsic value, you foolish child.  The value of a thing only depends on how much other people want it.

akak's picture

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

I tend to consider clothes to be 'essential'.  But then, I live in Alaska.

1984's picture

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


Absolutely!  Survival stories from Argentina only proved your point.

When SHTF, people will discover what the value of a thing really means.  For all those who bought only gold to prepare for hyperinflation, you're fools.  Owning gold is preparing for the after.  You must be ready for the actual hyperinflation phase first, or you will very soon part with your precious metal only to get the "common" essentials.

While it's fun to talk about hyperinflation, I don't think it'll come any time soon, simply because "people" are still full of hope that the US will do the right thing eventually.


falak pema's picture

corporates operate out of tax havens for 50% of their revenues. Not the individuals. Period. No self respecting major corporate pays more than 10-15% "optimised" corporate tax rate.

dick cheneys ghost's picture

Earths Limits..........why growth wont return. we are doomed.

Guy Fawkes Mulder's picture

I like you and I like your blog.

Isn't sad that we have to grow or we self-destruct?

I think it's a definitely a product of our monetary paradigm that the economy must grow or else it collapses (i.e. it's the bank balance sheet that must either boom or bust and that contributes boom-and-bust in business).

I fear that Man himself is characteristically suicidal and will either evolve or devolve but not stay as he is. But that's just a "fear" in that I'm not positive of it; it merely seems to be that way to me.

Open letter to Americans:

Stop swallowing the television (smartphone) culture Kool Aid and think about real life, right now, before you die.

everybody... is a bastard

my world is... like plaster

crumbling apart from pressure from a blaster

waiting for a sign


and the momentary pleasures take their turn

as a wistful boy runs out of things to learn

the episodes of yore are never to return


scare up some hope

you're gonna need it just to cope

you are the decision

numbers don't lie


when you bite the dust

was it for purpose or for trust?

you'll never relive it; think before you die


yeah THINK


–Bad Religion

spinone's picture

Its a factor of a biological species out of balance with its environment.  Most populations are held in check by constraints on population known as 'density dependent factors of population'.  They are brutal population controls, but what happens to control human population.  Disease, famine, wars over scarce resources.  Clever humans have been able, with massive inputs of energy (oil) and debts, finance, etc, to forestall the Four Horsemen. But they are still waiting behind their seals.

Bicycle Repairman's picture

If these markets do not behave properly, then it's total command economy, bitches.

Have you hugged your Commissar today?

Calmyourself's picture

Before I hear that hyperinflation is not possible as the $ being produced are nothing more than computerized entries, remember loss of faith precedes printing.   Printing is the "solution", it is the "cure" for loss of faith not the other way around..  Feeling lucky about your dollars, punk?

MayIMommaDogFace2theBananaPatch's picture

Before I hear that hyperinflation is not possible as the $ being produced are nothing more than computerized entries

Anyone promoting this meme is either an idiot or testing to see if other people are idiots...