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Guest Post: A “Hyper-Depressionary” State. Is It Really Coming?

Tyler Durden's picture


The topic of hyperinflation vs deflation has gotten much prominent attention in the fringe media in recent weeks (and judging by the surge in gold, this attention is shifting to the broader population). Below we provide another perspective on what the phenomenon of "hyperinflation" signifies. The conclusion is not all that surprising to the Zero Hedge community: "As long as our politicians and the federal reserve continue on their quest to debase our currency, the threat of a hyper-depression remains. I personally do not believe this will happen, as there would eventually be enough opposition to quantitative easing to cease it, due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent (the people who are actually important towards having a healthy and sustainable economy). However, we may very well be in a situation where Fed officials don’t realize what they’re doing until it’s too late."

A “Hyper-Depressionary” State. Is It Really Coming?

Submitted by RCS Investments

You see millions of websites devoted to the topic. These would mostly be
the self-proclaimed “Gold bugs” who warn us that an impending
hyperinflationary event, which would significantly boost prices of all
precious metals and necessities such as food, would lead to chaos as the
countries savings would vanish literally over the course of one week. 
Riots would occur. Commodities would gain in value as Fiat currencies
see their end game.  Overall it portrays a very ugly picture indeed (let
me pull out that Mayan Calendar).  My definition of hyperinflation
revolves around a deep and sharp loss of confidence in a currency. This
is different than inflation where it is simply a function of too many
dollars in the economic system; however, the line between high levels of
inflation and hyperinflation is quite gray primarily dominated (in my view) by “future inflation expectations”. Quick upward movements in this metric would signal to me that the public is less
confident in the purchasing power of their currency, a prerequisite to
hyperinflation. Another reason that I’ve thought of though not heard
much about would be a supply-side shock in important material
resources.   Regardless, I’ll come out and say upfront that there are so
many headwinds, crosswinds, you name it, that predicting whether
hyperinflation would occur would be akin to throwing darts. However,
this will not stop me from researching the reasons why such an event may

First my stance: Overall I believe that the probability of a
hyperinflationary event occurring due to a loss of confidence in the US
dollar remains very remote.

The other reason for hyperinflation is more unique and deserves more
attention. The Fed, for all intents and purposes, is becoming a growing
national security threat in my view. My main reason for such a diatribe
is rooted in its quantitative easing strategy in an attempt to avoid
deflation. This strategy seems shortsighted in my view from a
longer-term perspective. Given the last round of quantitative easing and
the low rates that it produced it is now obvious that consumers are not
keen on increasing demand for loans. Despite the Fed’s best attempts to
restart lending and keep the credit machine growing, the consumer has
made its intentions known. They are in the process of de-leveraging and
saving. Decades of profligate spending are coming home to roost; the
bill now needs repaying.  Retirees must save as their largest asset
(home) has taken a beating and doesn’t seem to be bouncing back anytime
soon. The consumer is looking to fix its balance sheet, translating to
an overall period of secular weakness in the economy.  The
fundamental question that I have is whether the Fed, and perhaps more
importantly, policymakers see continued debasement of the dollar via
quantitative easing as a viable strategy to combat our problems
If they do, quantitative easing will continue and if it continues, I
see an increasing probability of the following long-term scenario

We continue to experience a deflationary
environment over the short and medium term. At first, as it does now, it
will seem that pursing a quantitative easing strategy is a more viable
strategy as we have strong deflationary forces in the form of
deleveraging. However, this is where I see it getting interesting. China
is taking the steps necessary to boost its domestic consumption and
rebalance its economy. Social safety nets are in the process of being
enacted. As a Chinese official, it obviously makes sense to boost the
domestic sector given that growth in export demand is not likely to
continue as developed economies repair their balance sheets. We also
know that presently China accounts for a large portion of demand in
commodities. Its population remains mostly rural with poor incomes. What
this means is that there is large pent-up demand and the prospects for
accelerated and prolonged growth phase are very favorable. The
day/month/year that the Chinese consumer begins to loosen its wallet and
see credit as a viable tool, leading towards increased demand will
bring about the moment of reckoning. For starters, commodities such as
oil, copper, gold, silver, platinum and palladium would see a large
acceleration in demand.  Agricultural commodities would also increase as
Chinese citizens upgrade their diets. Investors would see renewed
opportunities in the US manufacturing sector as exports would grow to
quench the demand of the massive Chinese consumer. Job growth would
stage a comeback as well as wages. Capacity utilization would increase
rapidly after years of trimming down excess fat, which would have
resulted in a very lean manufacturing base. We would have a major supply
side-shock from higher commodity prices, coupled with low industrial
capacity as the major contributors to a major increase in inflation. In
the end, China’s economic restructuring would be the key that unlocks
the hyper inflationary box. While an increase in jobs and higher wages
are good things, the effects that they would bring (sharp moves higher
in inflationary expectations) would negatively affect the retiring baby
boomers and the unemployed. Furthermore, any hint of higher inflation
would be met with sharply rising yields as a massive supply of bonds,
which were issued  as the US built up massive deficits, would begin to
be sold. Overall, we would be in an environment where persistently high
yields, coupled with higher commodity and food prices would continuously
sap the purchasing power of the US consumer and suppress investment in
the domestic economy.  We would be in a depression, but with very high
inflation as Chinese demand would ensure that important commodities
retain a very high premium, while only decreasing marginally in value
should there be a sell-off.  Whether our population begins to panic over
the purchasing power of their dollars will determine whether we have a
very bad stagflationary or hyper-depressionary event.  That would be the
major wildcard.

The top risk to delaying this sequence of events would be a bout of
protectionism/trade war with the US, which I do see happening. However,
this would only set back this process, not prevent it. As long as our
politicians and the federal reserve continue on their quest to debase
our currency, the threat of a hyper-depression remains. I personally do
not believe this will happen, as there would eventually be enough
opposition to quantitative easing to cease it, due to fear that it may
result in destroying the savings or our baby boomer population and the
financially prudent (the people who are actually important towards
having a healthy and sustainable economy). However, we may very well
be in a situation where Fed officials don’t realize what they’re doing
until it’s too late.


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Wed, 09/22/2010 - 12:19 | 597514 cougar_w
cougar_w's picture

The hell -- I'm hyper-depressed just thinking about it.

Wed, 09/22/2010 - 13:10 | 597665 Jason T
Jason T's picture

ok that was funny!

Wed, 09/22/2010 - 13:28 | 597711 RockyRacoon
RockyRacoon's picture

I have been in Starbucks 2 times in my entire life.  Once in Vancouver but it was tough picking which of the 3 stores on the 4 corners of the intersection to go into.  The other one was local where I met a guy who bought the "coffee" and bought 4 ounces of gold from me as well. 

Wed, 09/22/2010 - 15:05 | 598021 rosiescenario
rosiescenario's picture

....Starbucks where a small coffee is a "grande"...where the totally unsophisticated can believe they have attained a new level of sophistication....sophistry at its finest....

Wed, 09/22/2010 - 19:20 | 598764 NoVolumeMeltup
NoVolumeMeltup's picture

True. But if you want to mess with the barista (or sandinista or whatever) then order a "short cappuccino". It seems to freak out everyone in the store.

Wed, 09/22/2010 - 12:33 | 597557 RobD
RobD's picture

"I personally do not believe this will happen, as there would eventually be enough opposition to quantitative easing to cease it, due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent (the people who are actually important towards having a healthy and sustainable economy). "

Most of the baby boomers don't even know what quantitative easing is so why would the try to stop it?

Wed, 09/22/2010 - 12:56 | 597595 hedgeless_horseman
hedgeless_horseman's picture there would eventually be enough opposition to quantitative easing to cease it, due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent (the people who are actually important towards having a healthy and sustainable economy).

May?  It is already too late.  Politicians are busy preparing their excuses as we read this. 

Wed, 09/22/2010 - 12:45 | 597601 Xedus129
Xedus129's picture

And like they would say no to a "free" stimulus check sent in the mail.  Courtesy of Helicopter Ben.

Wed, 09/22/2010 - 13:04 | 597651 Citxmech
Citxmech's picture

Something like 90% or more of the country was completely and vocally oppossed to the first bailout - IMHO, the f*kers in charge will just continue to do whatever they want in spite of public opinion.

I'm siding with Williams and Faber that we will see some form of hyper-inflationary scenerio...  Just not sure when.

Wed, 09/22/2010 - 13:21 | 597696 RobD
RobD's picture

You are right, they were opposed to the bailout but the bailout(tarp and stimulas) were seperate from what the FED did and called "easing". Most have no clue what you are talking about when you mention the "easing".

Wed, 09/22/2010 - 15:25 | 598098 FEDstidius
FEDstidius's picture

The Fabians are at it again! Of course they don't care what the public thinks, this is all part of the plan. When I re-read The Creature from Jekyl Island I was shocked at how close this fits thier playbook. This won;t end until we are on our kness beggin for FEDeral salvation.

Wed, 09/22/2010 - 14:03 | 597802 dussasr
dussasr's picture

"I personally do not believe this will happen, as there would eventually be enough opposition to quantitative easing to cease it, due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent (the people who are actually important towards having a healthy and sustainable economy). "


If this were true, wouldn't that have prevented almost all of history's hyperinflationary events?  Yet, they still happened and people's savings were destroyed.  To me, this is an example of "It couldn't happen here" thinking with little basis to back that assumption up.

Wed, 09/22/2010 - 12:36 | 597567 Bluntly Put
Bluntly Put's picture

It seems to me that the Fed is stepping up to become the buyer of last resort for all formerly based capital structures. If the Fed owns say all treasury bonds (mass sell off Fed buys all Treasuries) interest paid by the treasury (taxes) is recyled by the Fed back to the treasury at the end of the year. Essentially, this eliminates capital formation in the private economy forcing the creation of a credit based eCONomy on the back of the Federal Reserve system. In this system debt as it was formerly known or evolved will be meaningless, debt has no meaning if it is not paid off by capital formation with interest. I suppose the end game becomes a purely credit driven eCONomy perhaps based in energy credits extended by the central planning authority, oh wait that is Agenda 21 global currency communitarian claptrap. Conspiracy theorists are all nut balls right?

Wed, 09/22/2010 - 12:43 | 597593 cougar_w
cougar_w's picture

You might be onto something. In which case the only way out would be complete default. The only way to cover for a default would be a very large war.

So either you are right and we get eCONomics (heh) and 500 years of a kind of debt-based Feudalism, or you are wrong and we get a very destructive modern, mechanized global war.

I do not sense that there is a middle road here. Though BB would disagree with this entire assessment and most strenuously, of course.

Wed, 09/22/2010 - 13:51 | 597772 Millennial
Millennial's picture

you are wrong and we get a very destructive modern, mechanized global war.


I'm sorry but this is stupid. A global war would result in the usage of nuclear weapons. No one is that stupid anymore. WW3 will not come because of default. If it ever comes it's because someone crazy decided to make it happen for whatever silly reason. 

The glory days of the US with it's tanks and infantry fighting in trenches with distinguishable lines of battle and territory are well behind us. Predator Drones, Advanced stealth aircraft, submarines, laser missile defense systems, railguns, anti-riot microwave emitters, and the like have largely removed the idea of a WW2 mechanized war scenario.

Anyone invading another country with tanks would be put in their place very quickly by a predator drone. Look at what happened in Kuwait. Saddam at one point sent in 32 tanks and was quickly defeated by 6 Ahbrams and no US deaths. 

Besides all of this, war is no longer large scale. The wars are lasting longer, but deaths are significantly less due to technological advancement. I mean it's not long before we don't have pilots in planes anymore and all we have is predators and derivatives of such.  

Wed, 09/22/2010 - 14:13 | 597834 dussasr
dussasr's picture

"A global war would result in the usage of nuclear weapons. "


I always question that assumption.  Before we used nukes to end WWII no one knew we had them.  That was 65 years ago.  Look at all the tech advancements we've had over the last 65 years.  It seems almost silly to me to assume that we don't have a much "better" weapon today that none of the civilians know about. 


This is backed up by how insignificant it is when the US and the Russians reduce their nuke stockpiles.  Why isn't that a big deal?  It's because the "new" weapon makes the nukes almost irrelevant.  I admit this is pure speculation on my part (I don't work for the CIA), but it is almost impossible for me to believe that nukes are the "big" threat anymore.

Wed, 09/22/2010 - 16:38 | 598372 downrodeo
downrodeo's picture

Good point. Of course, we can only speculate in the realm of black budget projects, but I wouldn't at all be surprised if they have something based on scalar wave technology. Tesla once said he could split the earth in two. I'm not convinced he was speaking in hyperbole.

Wed, 09/22/2010 - 17:18 | 598490 hedgeless_horseman
hedgeless_horseman's picture

Someone else posted this a while ago.  Nukes don't mean Armageddon.  The UK has nuked US soil many times, and The Road Warrior is still just a cool movie.

Thu, 09/23/2010 - 03:11 | 599305 Millennial
Millennial's picture

I can't believe this.


Alright let's hypothetically say that China wanted to invade us. Supposing they surpass our Navy, they come ashore and take over Los Angles. Further assuming the Army or Marines and Air Force cannot defeat the invaders, our best bet would be to either bomb it very heavily and risk losing aircraft and man power, or just one tactical nuke. 

If your smart you know when to cut your loses.

Nukes are the big threat. That's why the intelligent and advanced countries never talk about them nor test them nor dispose of them to "low levels". At the end of the day we have our nukes pointed at our frenemies and they have them pointed at us.

To dismiss our stockpiles and those of our frenemies is nothing short of optimistic arrogance. The US and Russia still have enough bombs to cause a nuclear winter many times over. 

As far as a better weapon is concerned, name a weapon that can wipe millions in an instant that isn't nuclear. You forget the fact that the TSAR Bomb developed by the Soviets would burn you alive from 65 miles away from zero point detention and shook the earth enough to register a 5.6 on the Richter scale. Oh wait Fusion Power (you know the stuff that powers the sun) is outdated and silly. Nevermind that this weapon achieved 1.4% of the total sun's power. I mean I guess we're gonna have to develop medium-star bombs before your satisfied. The technology may be old, so are guns, yet there isn't anything much effective than a gun at a personal level.

I guess your hoping for lasers that can cut the earth in half? ha.


When you find this new weapon that has been hidden for 65 years (unlike our nukes that were hidden for maybe 3 years) you come tell me and I'll retract my statements.


Wed, 09/22/2010 - 15:20 | 598076 cougar_w
cougar_w's picture

The US was in a global war with the former USSR and communist China for 30 years. No nukes. The US is currently nearly in a global war with Islam. Really hard to say who is winning. But no nukes ... as yet.

'Nuf said.

Thu, 09/23/2010 - 02:53 | 599292 Millennial
Millennial's picture

The US was in a global war with the former USSR and communist China for 30 years. No nukes. The US is currently nearly in a global war with Islam. Really hard to say who is winning. But no nukes ... as yet.

'Nuf said.


Are you joking? Global War? Oh so when and where did we invade the Chinese? Oh wait the Russian's invaded the US? Wait no. There has been no full scale total war since WW2. Sorry. You're argument of global war is based on silly idea that tiny little conflicts that spread out across the globe is a global war. 

I'd love to hear a Holocaust survivor or a Army veteran of WW2 tell me the Cold War was a "global war" before I consider your idea as nonsensical. 


Wed, 09/22/2010 - 13:12 | 597678 Raymond K Hessel
Raymond K Hessel's picture

This post might need its own article.

Wed, 09/22/2010 - 12:38 | 597576 goldmiddelfinger
goldmiddelfinger's picture

The day/month/year that the Chinese consumer begins to loosen its wallet and see credit as a viable tool, leading towards increased demand will bring about the moment of reckoning.

Just don't see this as part of a doomsday scenairo. Sorry.

Wed, 09/22/2010 - 14:23 | 597865 dussasr
dussasr's picture

goldfinger, the question I can't answer is "what event WILL upset the applecart?"  It is agreed that something that can't go on forever won't.  It is also agreed that the deficit spending of the Western countries can't go on forever.  So when will it end?  What will the "trigger" event be?


My opinion is that the reason (almost) no one is panicing is because no one else is panicing.  The herd is very nervous, though.  Anything could conceiveably become the trigger event.  One loud fart could cause the whole herd to stampede.

Wed, 09/22/2010 - 12:41 | 597578 tom
tom's picture

Yesterday's FOMC statement was very clear in favor of QE "if needed". Only thing still not completely clear is exactly where that "needed" threshold lies.

Home prices down 3.3% y-o-y in July, 0.5% m-o-m. Here it comes your 19th nervous breakdown.

Wed, 09/22/2010 - 12:41 | 597587 CheapKUNGFU
CheapKUNGFU's picture

yes its gonna be a dis-recovery, hyper-stagflationary, jobless-deflationary, hyper-recovery, def-stagflationary, hyper-deflationary, uber-jobless deflationary inflationary stag-soup... mix em up which every way you want to make the soup...




Wed, 09/22/2010 - 12:41 | 597589 Horatio Beanblower
Wed, 09/22/2010 - 13:24 | 597702 DosZap
DosZap's picture

US Gv't spends a $1.60 for every $1.00 that comes in.(If my math is correct, that's a 62.5% hole).

Wed, 09/22/2010 - 12:58 | 597590 SDRII
SDRII's picture

if you do not expect the fed to continue down the quantitative ease path, and a Volker "tightening" is unmanagable in any way, what is the other alternative? muddle through? Austerity and deflation (default, and ultimately FX evisceration). Either way the reserve currency genie is out of the bottle. Therefore, it isnt really even a monetary question anymore rather a political (geo) one? Why would the US not play out to max advantage in an accelerating fashion as the rest of world increasingly tires of funding the US with its promises of just one more drink? The US economy doesn't and has never had the "earnings" power that the GDP numbers purport. Does the Fed really have a choice - overt notwithstanding - when the world recedes from the US punch bowl? The endgame isn't really in question is it just how we get there.  The ultimate dollar event isn't path dependent but from a timeline perspective. The geopolitical manuevering plays out daily with the US desperately manuevering in Asia/Southeast/Indian Ocean/ME. yen notwithstanding, the fight in Japan internally over US basing and its continuing presence has been now doubly thwarted first by the NK sinking and then by the Ozawa smear job (and appoint of a hawkish foreign minsiter). There must be some reward for in the Fx markets coming for that?

Wed, 09/22/2010 - 12:53 | 597596 ATG
ATG's picture

However, we may very well be in a situation where Fed officials don’t realize what they’re doing until it’s too late.

Rahm Emanuel, Stan McChrystal, Larry Summers, Christine Romer, Peter Orszag and more than a dozen other key appointments know full well what they are doing jumping off a ship of state helmed by a CIA designed Othello who may well resign before his term is finished...

Meanwhile, food far more important than securities, gold, silver or ammo, as banks and debts default and dollars become scarce in the world's largest economy.

Do not know if $1298 gold will be the ultimate top, but it may be the top for some time as the scramble for cash accelerates...


Wed, 09/22/2010 - 13:26 | 597706 DosZap
DosZap's picture

It is in Detroit.

Thu, 09/23/2010 - 10:51 | 599785 phat tails
phat tails's picture

Great link!  It is sad how our language is devolving. I remember as a teenager, I attended my first dinner at a gourmet restaurant. It was a family dinner and I was so excited to wear my snazzy cocktail dress.  When the waiter brought a bottle of wine to our table my uncle yelled out, "That's a Big-Ass bottle of wine!" I was absolutely mortified and the waiter did not look too impressed either:(  The horrible thing was that other relatives (older) at the table started to copy-cat this "joke" referring to everything on the table as "Big-Ass"...not quite the unforgettable dinner I was expecting! 

Wed, 09/22/2010 - 15:10 | 598040 rosiescenario
rosiescenario's picture

"...CIA designed Othello..."


Wed, 09/22/2010 - 12:51 | 597610 Diogenes
Diogenes's picture

"I personally do not believe this will happen, as there would eventually be enough opposition to quantitative easing to cease it, due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent"

This is where I stopped reading. This guy obviously has no clue.The Ponzi started to collapse in 2005.

Not only did no one prevent the disastrous policies from being implemented, 5 years after they failed public officials still won't admit they were wrong. It seems obvious by now the country will NEVER come to its senses.

We gave trillions in taxpayer money to the big banks yet the taxpayers remain poor. So let's do the same thing again, harder.



Wed, 09/22/2010 - 13:06 | 597659 zaknick
zaknick's picture

I agree. The fascists who run this country have gold and the decisions which determine our present and future were taken decades ago.


Black Eagle Trust and Yamashita's gold.

Wed, 09/22/2010 - 12:51 | 597616 MightyZum
MightyZum's picture

Best line in this article: The Fed, for all intents and purposes, is becoming a growing national security threat in my view.

Wed, 09/22/2010 - 13:28 | 597709 bugs_
bugs_'s picture

Yes! and toss in "no matter what they chose to do".

Wed, 09/22/2010 - 13:28 | 597710 DosZap
DosZap's picture

I agree, except for the BECOMING,it IS.

Wed, 09/22/2010 - 12:51 | 597618 Rotwang
Rotwang's picture

Hyper-inflation does not occur as an action of government. It occurs when the remaining sane population runs for safety. The mental construct of the parking of wealth is what is at stake. Failing the movement into an ever larger bubble (demanded by compunding), and the ability or vision to delineate this to the larger population, it is increasingly becoming jittery.

A flight to safety (what-ever-that-may-be) is not a top-down design.

QE is, and supposedly with calculated macro-economic outcomes.


We are currently (imo) at hair trigger levels of flight to safety. We are beyond the point of having large 'asset' holders volunteer for slaughter. A flight of the mental (virtual/paper) wealth storage into the physical will by necessity reprice everything at a new equilibrium should it occur. Currently the mental/virtual far exceeds the the availability of physical parking spaces.


Wed, 09/22/2010 - 12:54 | 597622 Silverhog
Silverhog's picture

I have seen no real constructive effort toward correcting US debt issues or anything else for that matter. The Feds are batting zero as far as I'm concerned. Forcing banks to loan money to people who never could pay it back. A Health-care bill making us the Titanic of welfare states. How can you inject common sense into a bureaucracy that has no moral values anymore. They stand guard of any possible collapse in our economy. Timmy can try, but we know how well goverment does things.   

Wed, 09/22/2010 - 13:16 | 597687 Cheater5
Cheater5's picture

People are waking up to this.  What do you think the Tea Party movement is all about?  (as a side note I find it very funny that many of the politicians and leaders that facilitated us getting here in a big way consider the Tea Party as "extremist")


The real question in my mind is whether or not it is too late.   Most of the developed world is in a shit-load of trouble with their debt/GDP ratios and its not getting any better as our ass-hat leaders refuse to acknowledge the situation we are in and use additional debt to prevent the markets from correcting.  At the end of the day governments and anyone else who is carrying an unsustainable amount of debt WILL default with the only question being how that default will occur.  The rise of the tea party tells me that at a minimum there is a significant and vocal constituency (15-40%) for sound money and fiscally conservative policies even if that means cutting "popular" programs.  Bernanke has got to know (at least in the back of his mind) that there are a lot of "pitchforks" out there who will react "unfavorably" to any hint of hyperinflation.  My guess is that after the mid-terms, you are going to see some of these new politicians (and existing ones who get scared by the result) come out and start showing the good Chairman a few of those pitchforks.  He will either get the message fast or will be out.   If none of those things work and we do go into hyperinflation in an attempt to extend and pretend, I would hate to be on his security detail....


Wed, 09/22/2010 - 13:39 | 597743 sharonsj
sharonsj's picture

I like to know if the fiscally concervative policies includes cutting the wastefull defense budget, two disastrously expensive wars, war profiteering, no-bid contracts, etc., rather than "popular" programs such as food stamps and Medicare?  If not, then the Tea Party can go to hell.

Wed, 09/22/2010 - 13:51 | 597769 Cheater5
Cheater5's picture

If you think that simply cutting defence spending will get us to where we need to be from a budget perspective then you are a delusional idiot, and frankly if there are enough of you and you actually vote, then we, as a country, will be in hell.


Wed, 09/22/2010 - 14:23 | 597863 aerojet
aerojet's picture

I wish that the Tea Party folks would do something constructive.  However, the reality is that no matter who gets elected, they become pawns of the banksters.  You can't protect your family from "accidents" after all.

Wed, 09/22/2010 - 15:15 | 598060 Ben Fleeced
Ben Fleeced's picture

i)Audit the Fed and Dump the Fed signs are comming. We'll join with the libs whipped up by the President to hate banksters after Nov.

ii)Baby steps.

iii) Bring on the "accidents"!

Wed, 09/22/2010 - 12:55 | 597626 Dismal Scientist
Dismal Scientist's picture

OT: the pump and dump chumps at CNBC are spending far too much time this week discussing gold and other PMs. Short term contra indicator.

Wed, 09/22/2010 - 12:55 | 597628 israhole
israhole's picture

Debasement. You got that right.

Wed, 09/22/2010 - 12:55 | 597629 cbaba
cbaba's picture

Regardless, I’ll come out and say upfront that there are so many headwinds, crosswinds, you name it, that predicting whether hyperinflation would occur would be akin to throwing darts...

Well there were many winds since 1970's but everybody seem to ignore it..its already too late.. nobody can change the course right now....

Wed, 09/22/2010 - 12:56 | 597633 Battleaxe
Battleaxe's picture

That NBER statement calling the end of the recession this week really was puzzling. It used the word "trough" 26 times.

I keep looking at it wondering if there's some kind of coded call for help imbedded in it:

...---... trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...trough...---...

Wed, 09/22/2010 - 15:14 | 598055 rosiescenario
rosiescenario's picture

...looping algo....surprised that the font did not keep getting larger at each iteration, as it was programmed to do the IT folks..

Wed, 09/22/2010 - 13:20 | 597680 ATG
ATG's picture

What some seem to be missing is foolish Bailouts, endless warfare welfare, ObamaCare etc self-destructing and an increasing number of states nullifying Federal mandates...


Wed, 09/22/2010 - 13:15 | 597684 What_Me_Worry
What_Me_Worry's picture

This post belongs on the CNBC guest blog, not ZH.  This fool is basically walking the Fed-mandated script of the perils of QE.  This scenario is basically the best possible case.

The good-ole "we'll be able to stop QE in its tracks the second people start to turn on us" argument.  Nice job dodging the systemic effect of rapidly rising interest rates and what rising inflation would do to US obligations.  Let alone short term t-bills.

Wed, 09/22/2010 - 13:16 | 597686 Double down
Double down's picture

Crazy thoughts:

The recovery is the problem.  It must be avoided at all costs.  The Fed will eventually have to  to buy gold and raise interest rates in order to stop the abandonment of the USD in favour of hard assets.



Wed, 09/22/2010 - 13:20 | 597694 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

The author is clearly delusional, presumably as a result of his own self interest.The thought that the Fed would step back and consider the boomers savings and responsible borrowers over the continuation of the Banking system that has ruined the US for the last hundred years is frankly laughable.

Bernanke is a money printer and that is why he got the job.He has repeatedly told the markets of his intentions,so when he does it why would anyone be surprised?

Wed, 09/22/2010 - 13:22 | 597698 jmac2013
jmac2013's picture

I'm of the opinion that as long as the US military is numero uno, there will be no hyperinflation of the US dollar. 


Wed, 09/22/2010 - 13:37 | 597740 Rotwang
Rotwang's picture

Numero Uno???

You just have to consider 50 to 70k of the finest and the best being tied down by scantily clad tenner-shod fighters, publishing their casualty figures as those who expire 'on soil', while those that get medi-whacked out end up somewhere else.

Brew yourself some strong coffee!

Don't know how you calculate. What is the military significance of an Afghan womb?


Wed, 09/22/2010 - 13:44 | 597755 jmac2013
jmac2013's picture

That's not really my point.  It's the dollar's role as it relates to geopolitical military strength. 

Who knows why US leaders want their fighting men and women bogged down as an occupational force in Afghanistan.  I can think of dozens of reasons off the top of my head, and none of them are nice.  Yet, still not relevant to the dollar as a function of geopolitical world stature.


Wed, 09/22/2010 - 14:08 | 597816 Rotwang
Rotwang's picture

My inclination. The dollar's geopolitical world stature is waning. The effects of fractional reserve compounding at high leverage has come home to roost.

Wed, 09/22/2010 - 14:28 | 597884 aerojet
aerojet's picture

I always figured the Afghanistan thing was multi-faceted in purpose.  It's mainly a Keynesian playbook move--when times are bad, start a war, but it also has something to do with oil, the Chinese, the Iranians, and making sure soldiers get medals and have actual fighting experience, overseas adventures, etc.  I guess it is helping the unemployment picture a little bit, too. 

Wed, 09/22/2010 - 15:37 | 598147 merehuman
merehuman's picture

military as a price control . ROLF funny  as hell. thanks i needed to lighten up

Wed, 09/22/2010 - 13:31 | 597719 Fearless Rick
Fearless Rick's picture

I prefer depression to hyper-anything. Let banks fail, let prices fall. Wages are already low, so how about some "security" for the middle class in the form of lower prices and tax relief?

When a couple of state-owned pension funds like NJ and IL already say they're underfunded, it's not time to ramp up credit, it's time to temper expectations. Everyone knows that many in the public sector - primarily administrative types, like school principals, police chiefs and municipal higher-ups are massively overpaid, so how about telling these people they're going to get less when they retire and if they want more, they can begin funding it themselves. Time to get the real leeches off the backs of the middle class, what little of it is left. We need to rebuild the middle class, which means affordable food, homes, utilities, cars, etc. A little deflation (actually a lot would be preferred) could go a long way toward rebuilding the whole nation. 

And, what's that? Your debt burden? Well, pay, negotiate or stiff 'em. Choice is the American way.

Wed, 09/22/2010 - 13:46 | 597760 Rotwang
Rotwang's picture

Deflation becomes the bugaboo. Can't have it. It is anathema to the fiat money construct. Besides, most local political jurisdictions are tied in to the valuation of real property, and the taxes they levy. Just can't tolerate a cascade of falling values.

So they desperately attempt to pump.

However, pumping is not easy. They can't just do it, like pumping up a tire. They require a willing vacuum to receive the mantra of their newly invented parking place for wealth and prosperity. It is this vacuum that is lacking, and that they fail to invent.


Wed, 09/22/2010 - 14:18 | 597852 weinerdog43
weinerdog43's picture

Sorry, but you don't get to pick.  I think we are going to get both.  We will have deflation in things we want, like big screen TVs, iPods, landscaping services, etc...  On the other hand, we're going to hyperinflation in things we need, like food and gasoline. 

One other thing, I begrudge a teacher making $50,000 a year a lot less than billionaire Charlie Munger telling me I've got to tighten my belt. 

Wed, 09/22/2010 - 14:37 | 597922 aerojet
aerojet's picture

The dilemna is that all those public employees have contracts and their entitled to the money now.  They are all going to sue and fight as hard as they can to keep those benefits no matter what.  So while I agree that they should get screwed because those stupid pension deals where a cop gets 100% of last two years salary and then goes and works as much overtime as possible in those last two years in order to draw a $250K pension and becomes "retired" only to be hired back as a "consultant" or some other double-dipping nonsense, should all end NOW.  But good luck getting it there.  Only at the point of a gun, methinks.

Wed, 09/22/2010 - 13:42 | 597745 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

China is taking the steps necessary to boost its domestic consumption and rebalance its economy.

This will happen when hell freezes over. Get real, the top communist leaders do nothing but rape the populace.

Wed, 09/22/2010 - 13:45 | 597758 Cammy Le Flage
Cammy Le Flage's picture

Can we all just admit like at AA or something....

1.  Our currency is already debased.  Done.  Just because no one admits it is does not mean it is not so.

2.  The whole system - economic/social/everything is a cluster fuck rats nest of bullshit.

3.  Fraudulent Housing Market - yes - Fraud. 

4.  Fraudulent Markets.

5.  Newspapers in Mexico writing editorials to the drug cartels:  We know you are the de facto power.  Stop killing us.  Give us directions.

6.  Military occupations called "wars" - occupations are not wars (The Shane Botwin character is smarter than anyone in government right now)

7.  Central Bank Cartels acting like they "care" (cough - bullshit)

8.  Corruption on steroids?  No.  Really, really good cocaine from Bolivia and Peru - pure. 

9.  Kid fucking by the Catholic Church entity people on a massive scale ...... in the name of God - whatever that is to them.

What to do?  Burn the fucker down to the ground and start the fuck over.  Literally and Figuratively.   Stop screaming at the govt., Wall Street, Banking Cabal, Military fuckers, - ignore them and tell them to fuck off.  Shun. 

I feel like our whole world is inside the movie The Money Pit.  Literally and figuratively.

Humans created money out of thin air.  We can create something else if we really, really want to.....

Obviously we don't want to do anything or we would have done it already.   And to you fucks who say you are "responsible and don't deserve this" fucking cry babies - go get your little whiny bottle of bullshit and get real - somewhere somehow this is ALL OF OUR FAULT as a fucking collective.  Life ain't fucking fair.   Ask a duck who just met an alligator.

I note:  Despite all this bullshit - them NFL games look pretty packed.   Hmmmmmmmmmmmmmmmm.......

Let me be clear:

1.  There is no such thing as justice - never was and never shall be.

2.  Life ain't fair - it operates by cause and effect - that is it.

3.  Nothing is so complicated that it cannot be simplified - and if you think it is - you are an idiot.

4.  Ya got a roof over ya head, you ate today, you have clean water coming out of a faucet in your abode - then you are doing better than most and should be damn grateful every single day for those simple things.   If you can't be - move your ass to Haiti and sit there for a while.   Some of them are happy sitting in shit - literally.

You can't take it with you so you are really renting this experience while you are in it.

Pamela Anderson is still Hot.   A lot of people still know all the words to Journey songs.   How is that I can find weed in less than an hour but it is allegedly illegal?  I bet a lot of you all could do - price subject to market.   Paris Hilton just got kicked out of Japan (that is funny).  Avatar was a good movie.   Pearl Jam is still putting out good music (who knew it would be them way back when). 

This stress comes from the Baby Boomer generation that needs to retire and shut the fuck up and turn it over to Gen X and Y and Z.  That happens - a lot will change.  But them bitchez ain't quitting.  Fuckers.

P.S. MTV was better in the late 80's early 90's - and all the new music today is basic shit on a whole.  Real drugs are more fun than pill drugs.  Obviously.


Wed, 09/22/2010 - 14:40 | 597926 aerojet
aerojet's picture

I think you might have jumped the shark with the comment about the Catholic upper echelons, not that I can refute the fact that they are a bunch of pederasts who should all be shot dead.  I'd leave it up to the parents of the abused.

Wed, 09/22/2010 - 15:07 | 598034 Cammy Le Flage
Cammy Le Flage's picture

Read the cases and the docs.  Sorry.  All true.

Wed, 09/22/2010 - 15:29 | 598113 Ben Fleeced
Ben Fleeced's picture

Avatar was a remake of Dances with Wolves. Indians being replaced by Blue cartoon people. Smoke much?

Wed, 09/22/2010 - 15:36 | 598146 Cammy Le Flage
Cammy Le Flage's picture

Duh.  and Braveheart and Shaka Zulu and Gone with the Wind and all stories about the alleged "discovery of America" - and frankly, it all goes back to Shakespeare and before that Egyptian fables.... and before that:  Pythagoras of Samos and the shit that did not get written down.   All the worlds a stage.  Assume much?  I am smoking Marlboro Reds.  I will admit it.  Just because it was a copycat re-do does not mean that it was not a good one.  I saw it on cable because I even did not believe it would be good.  I was wrong.   

Wed, 09/22/2010 - 18:33 | 598666 wake the roach
wake the roach's picture

Bahaha, the roaches are awakening... I love it, lets burn this fucker to the ground already, I'm with ya cammy ;-)...

Wed, 09/22/2010 - 13:51 | 597763 ATG
ATG's picture

Time for a fact check.

How exactly is it in Banker self interest to deliberately devalue derivative and loan assets dwarfing dollar deposit liabilities further, knowing they cannot put another Dream, 0Care, TARP or endless War over on the American Taxpayer, let alone C(r)ap Trade?

Are they really eager to give up their bonuses and stock options, let alone jobs, for fraud prosecutions and prison terms by enraged populace and an anti-incumbent electoral revolution on 2 November 2010?

Already a few Courts and Legislators picked up the scent of fear in high places.

After $24 Trillion of Federal Reserve Prop Operations for big corporate government, are BSB and Geithner likely to bite their noses off to spite their faces and be defenestrated or piked with pitchforks creating deliberate hyperinflation?

Is it more likely the biggest latest Ponzi scheme will collapse as all did in the past?

Here are the inconvenient facts for the HI crowd, including GL and fans:

Adjusted monetary base growth down -90% from a year ago:[1][id]=BASE&s[1][transformation]=pc1

Money multiplier still less than unity, after falling off the cliff in 2009:

Monetary velocity still well below where it was in 1995, despite ZIRP, QE and continuing hints of QE II tools:

Just the facts m'am.

$1298 Gold may be highwater mark in hyperinflation fantasy for some time...

Wed, 09/22/2010 - 15:00 | 597996 Cammy Le Flage
Cammy Le Flage's picture


Wed, 09/22/2010 - 15:01 | 598001 Cammy Le Flage
Cammy Le Flage's picture

And your post is not "Junk" someone talking about the velocity of money.  Nice.

Wed, 09/22/2010 - 13:55 | 597780 Hondo
Hondo's picture

I don't agree with much of this post.  Manufacturing employment in the US is not coming back to support demand from chinese with average per capita income of $8,000.  I hate it when people talk of "pent up deman".  There is always and everwhere pent up demand......the problem is the means to fulfill that demand.  This is the problem of individuals that want to extrapolate an idea based on wishful thinking without really thinking through their positon.

Wed, 09/22/2010 - 14:00 | 597790 Panafrican Funk...
Panafrican Funktron Robot's picture

"The top risk to delaying this sequence of events would be a bout of protectionism/trade war with the US, which I do see happening."

I see this as being pretty likely actually.  This trend is already happening/accelerating in global markets, especially in developed countries.

Wed, 09/22/2010 - 14:00 | 597793 ArrestBobRubin
ArrestBobRubin's picture

$2,500 Gold Could Easily Result in $178.50 Silver – Here’s Why! by Lorimer Wilson

"Let’s now look at the various price levels for gold and the various silver:gold ratios mentioned above one by one and see what conclusions we can draw.

First let’s use the Sept. 17, 2010 price of $1276.50 for gold and apply the various gold:silver ratios mentioned above and see what they do for the potential % increase in, and price of, silver.

Gold @ $1276.50 using the current 61.3:1 gold:silver ratio puts silver at $20.82 (Sept. 17/10)
Gold @ $1276.50 using the above 45.69:1 gold:silver ratio puts silver at $27.94 (i.e. +34.2%)
Gold @ $1276.50 using the above 13.99:1 gold:silver ratio puts silver at $91.24 (i.e. +338.2%)

Now let’s apply the projected potential parabolic peaks of $2,500, $5,000 and $10,000 to the various gold:silver ratios and see what they suggest is the parabolic top for silver.

@ $2,500 Gold
Gold @ $2,500 using the gold:silver ratio of 61:1 puts silver at $41
Gold @ $2,500 using the gold:silver ratio of 45:1 puts silver at $55.50
Gold @ $2,500 using the gold:silver ratio of 14:1 puts silver at $178.50

Before we go any further the above analyses bears closer scrutiny. In paragraph four above it was noted that “During the last parabolic phase for silver in 1979/80 it went from a low of $5.94 on January 2nd, 1979 to a close of $49.45 in early January, 1980 which represented an increase of 732.5% in just over one year.” Such a percentage increase from the current price of almost $21 would represent a future parabolic top price of $175.

It is interesting to note that the above $175 is almost identical to the $178.50 that would result from a reversion to the mean in the gold:silver ratio with gold at $2,500. For the gold bugs who believe that gold is going to go even higher it can only mean a very much higher price for silver as the analyses below suggest.

@ $5,000 Gold
Gold @ $5,000 using the gold:silver ratio of 61.1 puts silver at $82
Gold @ $5,000 using the gold:silver ratio of 45:1 puts silver at $111
Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357"

Wed, 09/22/2010 - 14:09 | 597819 minus dog
minus dog's picture

"there would eventually be enough opposition to quantitative easing to cease it"

When the purchasing power of the food stamp cards drops sharply, the music stops.  If the angry mob isn't given what they think they are entitled to, they'll take it.

Wed, 09/22/2010 - 14:09 | 597820 Oso
Oso's picture

Having been firmly on the deflationist side uptil now (was long 10 yr at 3.8 and higher) and arguing with many on these boards whom I respect, I have now moved away from the deflationary trade and am prepping myself for the bout of hyper-inflation we are soon to see.  Here is why:

- steel prices, rising despite weak demand

- food prices, rising for a number of reasons

- cotton prices, rising (spiking really)

- sugar prices, same as cotton

- chinese labor costs rising dramatically (direct feed through to apparel prices: Ref Women's Wear Daily articles from Aug 23rd) and not much respite in Vietnam or Bangladesh labor cost-wise.

- oil prices still unbelievably with a 70 handle

- Fed squarely focused on fighting deflation at all costs (though housing will be in the dumps for years) with QE 2.0 most certainly to be launched in November.

- Precious Metal's not confirming deflation, but signaling high inflation.


I am praying it doesnt happen til after year end so i can take more steps to protect against this.


Wed, 09/22/2010 - 14:24 | 597870 curbyourrisk
curbyourrisk's picture

These are all good fears...but nothing more than that.  Let's see how long these price actions stay.....  Remember inflation is "a sustainable rise in pricingbrought upon by rising wages, which leads to the consumers ability and willinginess to pay higher prices.  Without that fact......pricing will re-adjust.....  It is called supply and demand.  INFLATION is a SUSTAINED rise in pricing....  it is a new norm, not just an event. 


Get that right....

Wed, 09/22/2010 - 15:27 | 598104 cougar_w
cougar_w's picture

Be prepared to adjust your definition -- and as a result your expectations -- "for the games they are a change'n."

Just say'n.

Wed, 09/22/2010 - 17:40 | 598544 Oso
Oso's picture

right, but my fear is from hyper-inflation, which is purely a monetary event, fed by severe cost-push pressures.  The inflation you are talking about is only the "demand-pull" variety.  By next spring, the price of everything we need to live will be higher than now (not including ever rising taxes).  really, think Weimar - hyperinflation during a depression. 

Wed, 09/22/2010 - 15:41 | 598162 merehuman
merehuman's picture

you left out how many dollars are coming home from countries no longer wanting to posess them.

Wed, 09/22/2010 - 14:20 | 597855 curbyourrisk
curbyourrisk's picture

Gold is a HEDGE AGAINST DEFLATION....not inflation.  Once the GOLD bugs get this.....I wonder how their thesis will stand up.  GOLD IS A STORE OF VALUE DURING INFLATIONARY PERIODS. 


How many times do I really need to say this??????????????????

Wed, 09/22/2010 - 14:30 | 597896 ArrestBobRubin
ArrestBobRubin's picture

I dunno, how many times does Geithner really need to welcome us to the recovery?

Wed, 09/22/2010 - 15:57 | 598213 wswarrior
wswarrior's picture

Although gold is a great long term hold, you would have to be crazy to think that it hasn't benefited from the leverage currently in the system.  I think gold is dangerous now if there is forced liquidation similar to what took place in late 2008 and 2009.    

Wed, 09/22/2010 - 16:53 | 598427 Bam_Man
Bam_Man's picture

Spoken like one who doesn't own any but wishes he did.

Wed, 09/22/2010 - 16:54 | 598428 Bam_Man
Bam_Man's picture

Spoken like one who doesn't own any but wishes he did.

Wed, 09/22/2010 - 16:17 | 598287 Inspector Bird
Inspector Bird's picture

I'm curious.

If we're in a deflationary environment, but prices are flat or rising, how is the environment deflationary?  The answer is obvious, we are in one, but prices ARE flat or


doesn't this mean we have a REAL inflationary environment?  Just because the inflation can't be quantified in a manner that the average person can "see it" - that is, in day to day changes of consumable goods, doesn't mean it's not there.


Right now, 2 factors are keeping inflation tamped down.  First, productivity gains which are led by increased and increasing unemployment and technological advance.  These gains are getting smaller and smaller.  Second, the rush to shovel available cash into assets and commodities is keeping the money out of the real cycle of day to day use.

As the first factor winds down, the second will pick up speed, but so will the impact of dollars filtering into everyday usage.


We are living in a DE FACTO inflation.  It's just somewhat invisible to the common man.  If our cappucino still costs $3, our house value is down 15%, and we're working a 10 hour day for the same salary, we assume we're in a deflation (or at least stable) price market.   We don't concern ourselves with the price of goods that are outside our day to day usage.  But this is where the problem is taking root, and from which it will grow.

Prices SHOULD be falling, but they aren't.  This means we're in a stealth inflationary environment.  Assuming the Fed actually pulls off a magic trick to end all magic tricks and in 3 years everything is "back to normal" (gut laugh)...the ONLY people who will have gained in this market would be the very, very wealthy.  The rest of us will have seen our wealth eroded or (at best) stagnant.  But that will be some magic trick.

Wed, 09/22/2010 - 18:21 | 598644 snowball777
snowball777's picture

"due to fear that it may result in destroying the savings or our baby boomer population and the financially prudent"

Please remember that these are two mutex groups of people.

Wed, 09/22/2010 - 20:26 | 598878 nevket240
nevket240's picture

StarBucks in Asia is tasteless rubbish. They have hyperInflated the reputation and Hyperdeflated the taste. the cost is another matter.


Wed, 09/22/2010 - 20:35 | 598891 gwar5
gwar5's picture

There are a lot of crises looming in sectors and bubbles waiting to pop. Any one of them could set off a nasty chain reaction. Soveriegn debts in Europe & US, states, banks, bonds, pensions, et. al.

Question is, what is the next event likely to be? Good or bad? Will it move the liklihood of a hyper-depression closer or farther away? 

Moreover, the economic team just disbanded, FrankenFed is unusually uncertain, and there is political uncertainty. We're 2+ years into this thing and we're starting all over from scratch?

I just don't see how the next event is going to be a positive one. 




Wed, 09/22/2010 - 23:36 | 599143 thermroc
thermroc's picture

The dollar is both a transactional currency and a wealth reserve.

It is backed by debt, which is deflating.

The Fed has two choices.

1. They allow the debt to deflate. Banks fail. End of dollar as a transactional currency. End of dollar as wealth reserve.

2. They buy the debt. Currency debauched. Trust in future value of dollar falls. End of dollar as wealth reserve.

They must follow choice 2. They may save the dollar as a transactional currency if they are lucky and trust doesn't fall too much. If unlucky, hyperinflation. Either way, don't save in dollars.

Thu, 09/23/2010 - 08:23 | 599451 Grand Supercycle
Grand Supercycle's picture

Short signals detected yesterday have now increased.

Thu, 09/23/2010 - 10:21 | 599712 phat tails
phat tails's picture

This is not the first time that fiat currency has caused a serious crisis (Continentals). Unfortunately, Congress has not learned from history and has allowed the Federal Reserve to destroy the wealth of many by transferring the fruits of our labor to an elitist group of corrupt bankers.  Furthermore,  there are still many Americans who are not deleveraging as they prefer to forsake mortgage payments, in order to consume other goods.  All the while, the banks are lying about how "clean" credit histories are and misrepresenting the days outstanding on delinquencies to avoid massive losses. The system is a complete mess, where to begin?

Sat, 09/25/2010 - 23:06 | 605026 CL1
CL1's picture

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