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Guest Post: A 5-Year Scenario: 2011-2016

Tyler Durden's picture




 

Written by Charles Hugh Smith from Of Two Minds

A 5-Year Scenario: 2011-2016

In this scenario, the wheels fall off the debt-fueled global "recovery" and assets bottom in 2014.

Here is one possible scenario for the next five years. Why do I consider this somewhat more likely than other possible scenarios? Here some undercurrents which may be generally under-appreciated:

1. There is a difference between speculative and organic demand. The two are of course related, as industrial consumers of resources must hedge against rising prices using the same instruments as speculators--futures contracts, etc.

2. Follow the credit, not just the money. It's not just the U.S. economy which is dependent on cheap, abundant credit--the same can be said of China and the European Union to some degree.

Just because Chinese buyers put 50% down on their fourth flat doesn't mean they don't need credit for the other 50%. Chinese developers are heavily dependent on credit issued or backed by the Central Governments banks and proxies.

Credit is not cash, and creating credit is not the same as printing cash. Shoveling $1 trillion in zero-interest credit into the banking system does not necessarily mean that $1 trillion flows into the real economy--that can only happen if someone or some entity borrows the credit.

This is why some claim that hyperinflation has never occurred in a credit-based system; it can only arise in a monetary system in which cash itself is printed (i.e. Zimbabwe et al.)

I am not making any such broad claim, but to identify the two as identical seems to me to be a profound confusion.

This distinction plays out in a number of ways. If the Fed had actually printed $1 trillion in cash and dropped it from helicopters, then those collecting the cash on the ground might have spent it, creating more organic demand for goods and services.

If the Fed creates credit and loans it to banks at zero-interest rate, the credit only flows into the real economy if somebody borrows it.

Without borrowers, the "money" just sits in reserves, where it does not spark inflationary organic demand for resources, goods or services.

If someone borrows the "money" to refinance existing debt, the only money that flows into the real economy is the difference between their original debt servicing costs and their new debt servicing costs, presuming the new costs are lower than the original. (Not always the case if said borrower had an interest-only "teaser rate" mortgage that he/she is now rolling into a mortgage with principal payments and a market rate interest payment.)

Or a large speculator (trading desk, hedge fund, etc.) could borrow the credit-money to speculate in commodities, driving prices up on the widespread expectation of higher costs in the future. In this case, the credit-money does influence the real world economy by driving commodity prices above levels set by organic demand.

But speculative "hot money" is not organic demand; it flees or is lost if trends suddenly reverse.

Since commodities such as oil are priced on the margins, this matters. A sudden decline in oil from $86/barrel to $76/barrel would trigger an exodus from speculative long positions, reinforcing that decline in a positive feedback loop.

3. Hoarding is a special flavor of organic demand. Like speculative demand, it vanishes once the fear of ever-higher prices evaporates.

4. The global GDP is around $60 trillion; the Federal Reserve has "printed" $2 trillion in the past three years. Placed in the proper context, the Fed's printing and asset purchases are large enough to influence the U.S. stock and bond markets, but they simply aren't significant enough or focused enough to enslave the entire global markets in stocks, bonds, precious metals and commodities.

Other players are busy printing and issuing zero-interest credit, too, of course, but we should be wary of sweeping generalizations about the deterministic nature of these central bank campaigns.

As further context, consider that the Fed's vast interventions have distributed some $2 trillion into the financial sector; meanwhile, U.S. homeowners saw their net equity decline by some $6 trillion.

OK, on to the scenario which will get me in all sorts of trouble:

Here is the sequence of events I consider rather likely:

Q3/Q4 2011-2012: extend and pretend fails. The wheels fall off the global "recovery," the emerging market equity bubbles, oil, China's equities and its property bubble, and most if not all commodities. Gold and silver swoon as per late 2008 as raising cash become paramount. Oil retraces to the $40/barrel level, and then drops further as exporters ramp up their exports to generate desperately needed cash.

Interest rates rise sharply, risk assets tank, borrowing dries up, housing prices "slip" to new lows (the stick-slip phenomenon), and the hated/loathed U.S. dollar confounds almost everyone by breaking out of technical resistance levels.

Civil disorder spreads along with recession and lower energy prices, which devastate oil exporters' primary source of government revenues.

With better grain harvests stemming from improved weather, declining meat consumption in 2012 due to recession and the implosion of the market for corn ethanol, grain prices plummet, wiping out all the speculators who reckoned 2010 had set the trend for the decade.

All of this starts slowly in Q3 2011 but gathers momentum in 2012.

Unfortunately for central banks, all their printing and credit creation is analogous to insulin resistance: without borrowers and solvent banks and consumers, their frantic efforts to "stimulate" their economies with additional liquidity come to naught.

The Central State's other gambit, monumental fiscal "stimulus," runs into the brick wall of rapidly rising interest payments and a political revulsion triggered by the realization that only the financial and political Elites actually benefitted from the trillions squandered in the 2008-2011 orgy of Central State "stimulus" and backstops.

With asset prices collapsing in a phase shift, the equity needed to float new loans vanishes; with risks rising, the market for junk bonds and other risk-laden debt also disappears.

All those who clung on through the "recovery," hoping to made whole, are wiped out. Their bankruptcies trigger a new wave of selling and writedowns.

2013-2014: Re-set and reckoning. Widespread political and financial turmoil leads to a few central choices:

1. Repudiation of the Neoliberal Central State/Financial Oligarchy strategy of 2008-2011 which focused on preserving the insolvent (but politically dominant) banking and Wall Street financial sectors and transferring their private losses to public entities/taxpayers.

2. Replacement of incompetent, venal, exploitative dictatorships with some new flavor or autocracy, oligarchy, theocracy or dictatorship, most of which will prove to be equally incompetent, venal and exploitative--but shorter-lived.

3. Experimentation with new models of governance, "growth" and credit/debt. Some modest recognition of the profound failures in the "extend and pretend" status quo generates a sense that these catastrophically destructive policies have been recognized as such and corrected.

These years will see the near-term bottom in housing, equities, and other assets. Those few who preserved cash during the meltdown are in a position to snap up assets on the cheap. Those who depended on credit/debit find borrowing is now difficult and dear. Those who "bottom-fished" real estate in 2011 are wiped out, along with those who bet that commodities were heading straight to the moon.

2015-2016: false dawn. Things get better; prices stabilize, assets and commodities start rising in price and a sense of hope replaces widespread gloom and distemper.

The real crisis has been pushed forward to 2020-2022. Nonetheless, 2015-2016 will offer those with cash tremendous profit opportunities.

 

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Tue, 02/15/2011 - 11:35 | 963485 hugovanderbubble
hugovanderbubble's picture

Applause +1

Tue, 02/15/2011 - 11:59 | 963582 Lost My Shorts
Lost My Shorts's picture

This sounds like the same deflationist thesis which has been articulated umpteen times before and was supposed to happen yesterday already.  Probably it will be repeated over and over, with an incrementally delayed timeframe, until it finally comes true, sometime between tomorrow and never.

Tue, 02/15/2011 - 12:25 | 963681 Henry Chinaski
Henry Chinaski's picture

I read something somewhere about "on a long enough timeline..."

Tue, 02/15/2011 - 14:41 | 964215 Herd Redirectio...
Herd Redirection Committee's picture

I just don't understand how it would even be possible for the dollar to rally, never mind relative to what.  How is money created out of thin air going to become REALLY valuable again? The only way is if the supply of USD shrinks significantly.  This means the end of all liquidity provided by central banks (not going to happen) and the Fed (and China) would have to sell every Treasury they own, in order to soak up 'excess' dollars.

http://www.capitalresearchinstitute.org

Tue, 02/15/2011 - 15:42 | 964489 Translational Lift
Translational Lift's picture

Can you do a 50-1 reverse-split with greenbacks??

Tue, 02/15/2011 - 16:04 | 964576 sockcutter moto...
sockcutter motorforker's picture

burn it like the joker

Tue, 02/15/2011 - 13:00 | 963824 malikai
malikai's picture

Hyperinflation was also supposed to happen umpteen times already as well. Either or both are still quite possible.

Tue, 02/15/2011 - 13:05 | 963843 MachoMan
MachoMan's picture

Everyone, in the end, is a hyperinflationist...  we just put on different coats based upon our daily forecast of the weather.

Tue, 02/15/2011 - 14:46 | 964236 downrodeo
downrodeo's picture

+1

I've observed the same thing lately. Even some of the more die-hard deflation callers have started to change their tunes. History, it would seem, sides with hyperinflation.

Tue, 02/15/2011 - 13:44 | 963960 jswede
jswede's picture

yea - there's no deflation out there - housing is skyrocketing for example

Tue, 02/15/2011 - 14:44 | 964228 Herd Redirectio...
Herd Redirection Committee's picture

And after housing what is your best example of deflation???? Is there a 2nd example even?  There is credit-related deflation right now, meaning, deflation in everything that is bought with 90%+ credit, and inflation in everything else (groceries, energy, insurance, tuition, health care costs, etc.)

Tue, 02/15/2011 - 15:01 | 964319 ciscokid1
ciscokid1's picture

Anyone bought a car lately...prices are coming down.

Tue, 02/15/2011 - 15:17 | 964391 Herd Redirectio...
Herd Redirection Committee's picture

Bought with 90% credit, right? So yeah, the price will be down vs the price in the middle of the credit boom.  People are saturated with debt, already, lessing the appetite for additional debt, and thus, driving down demand for credit-based purchases.

Tue, 02/15/2011 - 16:49 | 964798 Lord Koos
Lord Koos's picture

Coming down because there is no demand, people can't afford new cars.

Tue, 02/15/2011 - 14:19 | 964095 DosZap
DosZap's picture

Credit is not cash, and creating credit is not the same as printing cash. Shoveling $1 trillion in zero-interest credit into the banking system does not necessarily mean that $1 trillion flows into the real economy--that can only happen if someone or some entity borrows the credit.

I agree with your premise, but the money is ( a shit load) missing, and lent out, and not to banks.

Thats distribution its in the system, therefore it is real dollars running amuck, where, ALL it went we do not know.

But companies have been  handed it hand over fist.

It's LOOSE.

If it were not loose, then why not call it back in from the banks and we have solved the issue of the 3.5 Trillion in debt we have incurred?.

When your loaning FRNs to McFracking Donalds, who the hell else is getting it, besides GE?, Uh Huh, and where is the 800,000.000.00 thats missing?,no one has a clue.

Tue, 02/15/2011 - 12:03 | 963604 Bearster
Bearster's picture

I agree, very well said.

Tue, 02/15/2011 - 11:44 | 963510 hedgeless_horseman
hedgeless_horseman's picture

It sounds like you are just arguing how long and how deep deflation lasts.  If this scenario were to gain any traction, then Ben would drop hard currency from helicopters.  He said as much.

That is why many say deflation/stagflation first, then hype-inflation.

Tue, 02/15/2011 - 11:42 | 963511 Sudden Debt
Sudden Debt's picture

This article actually predicts deflation on a massive scale but says inflation out loud.

I'll give this article:

-1

Tue, 02/15/2011 - 11:48 | 963537 SheepDog-One
SheepDog-One's picture

Yea any 5 year prediction I dont pay much attention to. This article assumes a lot of things, and leaves out a lot of reality such as the dollar being replaced as world currency, its already happening. -1

Tue, 02/15/2011 - 11:56 | 963571 oddjob
oddjob's picture

He assumes dollar hegemony like its some sort of right.

Tue, 02/15/2011 - 12:46 | 963768 DaveyJones
DaveyJones's picture

silly, it's the same right that allows us to target the dictators who need toppling.

Tue, 02/15/2011 - 11:58 | 963575 william the bastard
william the bastard's picture

Fredric Mishkin said this morning on CNBS, "Not a snowball's chance in hell for QE3"

 

Tue, 02/15/2011 - 12:00 | 963583 tmosley
tmosley's picture

He said the same thing about QE1.

Tue, 02/15/2011 - 12:02 | 963594 Bob
Bob's picture

As if they'll have any real choice.

Tue, 02/15/2011 - 12:25 | 963684 jus_lite_reading
jus_lite_reading's picture

What if hell froze over? I mean, everything normal is upside down...

Tue, 02/15/2011 - 12:52 | 963794 snowball777
snowball777's picture

Beware the sixth sigma snowball!!

Tue, 02/15/2011 - 12:54 | 963803 eddiebe
eddiebe's picture

But the bankers need more money and the derivatives monster needs to be fed, so Benny and the inkjets need to give more to keep the bond high to finance the gov.org. . So no, the assessment is all wrong, the theory ass backwards.

 There will be Q.E. III and IV. and the dollar will be managed lower and commodities and stocks will continue to rise, and the poor around the world will starve, and the elite will become richer and more powerful.

Tue, 02/15/2011 - 13:36 | 963935 grunk
grunk's picture

And if QE3 does happen, he can blame his epic fail on the snow.

Tue, 02/15/2011 - 17:13 | 964889 anarchitect
anarchitect's picture

Mishkin is a colossal douche.

Tue, 02/15/2011 - 11:43 | 963512 bunkermeatheadp...
bunkermeatheadprogeny's picture

"...the wheels fall off the debt-fueled global "recovery"..."

New preschool song for all babies born this year:

"The wheels on the press go round and round, round and round, round and round..."

Tue, 02/15/2011 - 11:43 | 963515 InconvenientCou...
InconvenientCounterParty's picture

"the hated/loathed U.S. dollar confounds almost everyone by breaking out of technical resistance levels"

The Bernank is declared man of the year again and goes on to directly monetize another 2-4 trillion of U.S. deficit spending on the back of USD strength. Quoted as saying "how do you like me now?"

Tue, 02/15/2011 - 11:45 | 963524 snowball777
snowball777's picture

The answer comes in a volley of gunfire from angry exporters.

Tue, 02/15/2011 - 12:22 | 963672 InconvenientCou...
InconvenientCounterParty's picture

In the U.S.? I think not. The spigot of tax cuts and what not will be opened far enough to keep USD trending at some down slope determined by the sophists.

I'm no PhD, but in my world model, we are 40 years into WW3 and the U.S. is winning.

First-mover advantage still rules the day.

 

Tue, 02/15/2011 - 13:42 | 963953 snowball777
snowball777's picture

Ah, destroying our manufacturing base, becoming beholden to foreign creditors, and debasing our currency to support pointless wars were just clever feints!

 

Tue, 02/15/2011 - 11:44 | 963516 snowball777
snowball777's picture

As frightening as it is prescient. Bravo.

Tue, 02/15/2011 - 11:45 | 963521 bunkermeatheadp...
bunkermeatheadprogeny's picture

WTF is happenin to Priceline?

Tue, 02/15/2011 - 12:11 | 963554 hedgeless_horseman
hedgeless_horseman's picture

Sunset.  The sky is always prettiest right before nightfall, when the GS alumni rotate out of one "chosen" position, and into another. 

The heard must move on, it is the way of the wild.  The 401k managers will buy it high for one end-of-quarter window dressing, and then stay long for many more quarters as the preferred clients are rotated out.

401k is the freshman water carrier whose parents are happy just to see him out on the field wearing the team colors.

Tue, 02/15/2011 - 11:54 | 963563 bunkermeatheadp...
bunkermeatheadprogeny's picture

Let's see, Disney posted record profits for 2010 citing recovery, attendence to parks, ad revs. (thanks to the Bernanke put).

This morning, around 5am, I learn that Starwood was shed by institutional investors in Q4, Marriott to spin off timeshare unit.

Frontrunning a downturn in the overall economy this summer? Me thinks so.

Tue, 02/15/2011 - 14:24 | 964127 DosZap
DosZap's picture

Home Depot is hiring 80,000 this summer..................$2.00 a day, most likely.

Same money Lil Indoogoo Obama makes in Kenya, as his own half brother King of the Universe won't give the time of day.

Tue, 02/15/2011 - 11:47 | 963530 orangedrinkandchips
orangedrinkandchips's picture

analogous to insulin resistance

EXACTLY!!!
Our fat cells, the Govt fat cells, are so big that it takes so much insulin to "manage" and do it's job. With a smaller fat cell it's easier but as it gets to be the size of JDSU's market cap now (1999 anyone? but it's diff this time! swear!)
but the fat cell gets so large you cant get enough NATURAL insulin to work it so you have to shoot up.

solution? lose weight.

easy. really.

Tue, 02/15/2011 - 11:48 | 963538 waterdog
waterdog's picture

And let us not forget that during this same period, China will execute 400 million citizens, the US will not cause any wars, 90% of the US population will be able to read at last on the fourth grade level, advertisers will stop using television as a source of revenue, and, college football will have the same racial mix as the racial mix of the campus.

 

Tue, 02/15/2011 - 11:52 | 963550 Hearst
Hearst's picture

3/Q4 2011-2012: extend and pretend fails

"Gold and Silver swoon as per late 2008 as raising cash become paramount."

Does the author mean paper Gold and Silver?  I'd love to see the premiums next time around on physical if this does happen.

Tue, 02/15/2011 - 12:18 | 963657 snowball777
snowball777's picture

He meant physical. Swoon as in liquidated...as in dive to the 700s.

Tue, 02/15/2011 - 14:40 | 964210 Hearst
Hearst's picture

Not sure if he meant physical.  I could see the ETF's selling off (even more than now) to raise cash.  But I think most of the bullion currently resides in strong hands or at least much stronger than the 2008 shake out.

Tue, 02/15/2011 - 17:02 | 964844 Lord Koos
Lord Koos's picture

Yes this was my take as well.

Tue, 02/15/2011 - 11:54 | 963551 c-rev with a twist
c-rev with a twist's picture

Not sure about deflationary outcome, who could be?  This article assumes alot and ignores too much.

Tue, 02/15/2011 - 11:54 | 963560 Thunder Dome
Thunder Dome's picture

For this to happen the overlords need to go broke--not gonna happen.

Tue, 02/15/2011 - 11:55 | 963565 lynnybee
lynnybee's picture

......... luv Charles Hugh Smith, read everything he writes, can't get enough of his articles.     

Tue, 02/15/2011 - 11:57 | 963572 jus_lite_reading
jus_lite_reading's picture

One caveat- the contradiction with the inflation/deflation proposal.

In his best efforts to stave off deflation, Dr. Deficit will 'print' endlessly. It is a catch 22 situation however, and according to my calculations, the wheels fall off this year. Social unrest explodes, the EU implodes and China assumes top dog position, with the US putting up a big fight. In short, WWIII is imminent.

Tue, 02/15/2011 - 12:19 | 963658 spinone
spinone's picture

Care to share your calculations?

Tue, 02/15/2011 - 12:37 | 963707 jus_lite_reading
jus_lite_reading's picture

1+1=3... Just joking of course but the variable to keep your eye on is the debt ceiling. They have no choice but to raise it, and with that create a real inflation rate for the middle classes of 30-40% YoY (that's food, fuel, non-discretionary items ex housing)

We're already at 32%+...

Tue, 02/15/2011 - 13:52 | 963990 hamurobby
hamurobby's picture

No mention of spiraling debt and a falling tax base, how could that influence the future? I guess economist/fund managers dont have to worry with such things.

 This kind of reminds me in 2006 when every realtor from Miami to Murphy was telling me that "everyone is moving to our town".

Tue, 02/15/2011 - 14:21 | 964117 jus_lite_reading
jus_lite_reading's picture

The running joke is, "ask a realtor when the best time to buy a house is, and their answer will always be 'NOW!'"

Have you glanced at Obamao's "budget"? It's absurd. It reminds me of the proposed Greek budget that puts Greece back at 4% GDP growth by next year! They never managed 4% even when times were good AND cooked their books! 

I believe, the end is drawing near. There is absolutely no way to hedge this mess.

Tue, 02/15/2011 - 14:21 | 964121 MachoMan
MachoMan's picture

One debt ceiling raise is already baked in...  not sure how many more lives the dollar has though...

Tue, 02/15/2011 - 12:00 | 963580 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

CAN SOMEONE SELL ME SOME GOLD AT THE 1996 FIATCON PRICE?

Tue, 02/15/2011 - 12:19 | 963660 snowball777
snowball777's picture

Sure, just wire me the money and then I'll tell you where you can take delivery.

Tue, 02/15/2011 - 12:00 | 963584 NOTW777
NOTW777's picture

more obama comedy - he says he cut the deficit in half (of course that was before he raised it 1000x)

Tue, 02/15/2011 - 12:14 | 963644 Idiot Savant
Idiot Savant's picture

What does your comment have to do with the post??

It's obvious from your posts, that you're a conservative republican. Everyone is entitled to their own views, but it gets old. ZHers that aren't smart enough to know that there's no difference between Rep/Dem, should be banned.

Tue, 02/15/2011 - 12:48 | 963779 Calmyourself
Calmyourself's picture

Let me guess, from your call to ban all those who do not think exactly like you make you a progressive..  Calling  out no difference between the two is the apogee of ignorance and intellectual sloth..  No difference means you do  what exactly?

Tue, 02/15/2011 - 13:17 | 963887 pasttense
pasttense's picture

There clearly is a difference between Republicans and Democrats: Democrats believe in spending a small proportion of government expenditures for a safety net for the poor and disadvantaged; Republicans believe in throwing them under the bus. But while there is a difference in their feelings about welfare for the poor there is no difference in their feelings about welfare for the rich--both are strong supporters. Likewise both are strong supporters of massive, unaffordable middle class entitlements and a massive military empire.

Tue, 02/15/2011 - 13:54 | 963997 Pegasus Muse
Pegasus Muse's picture

The difference between Repubs & Dems = Not Much, according to Sachs 

http://www.youtube.com/watch?v=bCPz2SzROFQ

 

Tue, 02/15/2011 - 14:21 | 964120 Calmyourself
Calmyourself's picture

Most of that is truth, throwing the poor under the bus lol..  Republicans are as captured by that voting bloc as the Dems.  The differences I point to are aspirational in character. 

Massive Military: check

Governmental capture by the kleptocratic autocracy: check

Aspirationally they could not be more different.  If you want to discuss the chances of those aspirations being reached or even pursued we can find large agreements.

Tue, 02/15/2011 - 14:25 | 964141 MachoMan
MachoMan's picture

The difference is in their talking points.  When it comes time to vote, both relentlessly increase the size and scope of the government...  given neither cares to compromise, the pie has to keep expanding (deficits) to get in all the filling (pork).  Of course, that presumes that they ever had an intention of compromise...  they didn't.  Simply noise for your consumption and confusion.  As always, watch the magician's hands, not his big titted assistant.

Tue, 02/15/2011 - 14:33 | 964176 DosZap
DosZap's picture

I don't have anything against the Dem's, except their obvious moral, and intellectual superiority.

And their innate love for giving a "WEE"portion of the peoples money(not their own of course) to DA peoples.

And, their uncanny ability to have full cofers while business is what used to run this society, and give the "wee" portion to da peeples, as in LBJ,when he opened the SS lock box to the general funds.

And before him we had Mr. FDR, and Woodrow Wilson Progressive heavy.

As for wars, out of the ones started since WWII, and counting it, how many were started by Dems?.

Tue, 02/15/2011 - 14:43 | 964217 Borrowed Merkin
Borrowed Merkin's picture

"Republicans believe in throwing them under the bus."

Yeah, that's what it is!  And grandma should shuffle up and get her ration of dog food too - unmitigated tripe.  I can sympathize with your last sentence, but to say anyone wants the poor thrown under the bus is either ignorance, dogma or crass stupidity.  No one, save perhaps a bankster or other sociopath believes this and surely you know it.  That, or maybe mommy should wash your Che t-shirt for you again while you find a book to read, maybe you can find one with lots of pictures.   Conservatives/libertarians believe in serving the poor via private charity, vastly more efficient and compassionate than a faceless bureaucracy.  You, on the other hand, seem to think it proper to steal from taxpayers through means of force to serve your own egalitarian ego. You are so far into the R&D matrix that I suggest you just take your blue pill and go nighty night.

Tue, 02/15/2011 - 12:00 | 963586 cougar_w
cougar_w's picture

Ah! Don't you just love the rich smell of a deflationary scenario first thing in the morning.

Tue, 02/15/2011 - 12:04 | 963591 Salvatore CFA
Salvatore CFA's picture

<< The real crisis has been pushed forward to 2020-2022. >>

Ah, you leave Salvatore in suspense, sir ! Can we not even view a trailer to this DeMille-ian spectacle ?

Tue, 02/15/2011 - 12:01 | 963592 bunkermeatheadp...
bunkermeatheadprogeny's picture

Obama just used "hard working" and "federal employee" in the same sentence!

Tue, 02/15/2011 - 12:47 | 963776 bunkermeatheadp...
bunkermeatheadprogeny's picture

Guess I just got junked by an SEC worker who's pissed off that his IT Mgr blocked his porn sites.

Tue, 02/15/2011 - 12:56 | 963809 Strom
Strom's picture

Hey! Bernanke works very hard to print all that money.

 

Oh, wait...he's not a federal employee...

Tue, 02/15/2011 - 14:38 | 964186 DosZap
DosZap's picture

Oh, he was correct, working hard figuring out ways to get into your pants pockets yet again.

Tue, 02/15/2011 - 12:01 | 963593 SunSword
SunSword's picture

> With better grain harvests stemming from improved weather,

> declining meat consumption in 2012 due to recession and

> the implosion of the market for corn ethanol, grain prices plummet

I question these assumptions. As the market for corn ethanol is Federally manadated, how exactly will this implode? And as for projected declining meat consumption -- maybe people just eat meat at home rather than going out to restaurants? Meat consumption may stay the same as people switch to steak at home. And projecting the weather through 2012? That would be a good trick.

Tue, 02/15/2011 - 12:12 | 963632 Bob
Bob's picture

People now eating steak in restaurants are not a significant portion of the market and those who do eat steak out are not so sensitive to price.  It's the people eating hamburger and chicken who'll be cutting back.

Tue, 02/15/2011 - 14:44 | 964232 DosZap
DosZap's picture

Bob,

Yep, shite me breeches yesterday,Ground chuck, $4.00#,whole fryers $4.00 ea.(store brand).

Fruit, (good stuff) is now sold by the piece, not bags.

Want a Red Delicious Apple?, get ready to lay down $2.00ea,same for a Rube Red Grapefruit.

But I disagree with you on the restaurant issue, when the prices for the grains get pushed into the mkt place, the restaurants, will be a closing down.

Tue, 02/15/2011 - 17:07 | 964860 Bob
Bob's picture

Yeah, many mid-level chains will take a downsizing. 

Tue, 02/15/2011 - 17:10 | 964882 Lord Koos
Lord Koos's picture

A lot or restaurants around here have already bitten the bullet due to lack of people going out to eat -- and my city is doing better than many economically.  When these higher prices hit, a lot more will be closing down.  

People will be eating less meat for sure -- during the 30s depression people actually got healthier because of less meat in the diet.  It's a little counter-intuitive, but people are less healthy when they are prosperous.

Tue, 02/15/2011 - 12:49 | 963764 Calmyourself
Calmyourself's picture

Ask one of the GW religion folks around here, they have weather out a hundred years or more..

Far too many assumptions in this piece to be helpful.

Tue, 02/15/2011 - 12:59 | 963821 Snidley Whipsnae
Snidley Whipsnae's picture

Yeah, the author is pretending to be a weather man in addition to making economic forecasts based on his weather predictions.

Meanwhile, the local weather man can't get tomorrow's weather right.

I call bs on this one...

Tue, 02/15/2011 - 12:02 | 963598 Watauga
Watauga's picture

Am I missing something here, or is this not just one of 7B possible scenarios (assuming every one of the 7B people in the world can come up with a similar, yet different, vision of the future)?  I don't see, in any of this, an answer to a thousand "why-s."

Tue, 02/15/2011 - 12:04 | 963606 Bagbalm
Bagbalm's picture

Ohhh, I love 5-year plans!

Tue, 02/15/2011 - 12:04 | 963608 Rogerwilco
Rogerwilco's picture

This is the best rationale I've seen regarding the issue of hyperinflation in credit based economies. Bernanke can keep the banks alive, but he cannot force people to borrow. That is the end game -- a confidence crisis spikes interest rates and demand for credit collapses. Then the scramble to raise cash (in USD) begins.

Tue, 02/15/2011 - 12:21 | 963668 nope-1004
nope-1004's picture

Hasn't demand for credit already collapsed?

 

Tue, 02/15/2011 - 12:27 | 963690 Rogerwilco
Rogerwilco's picture

Not on Wall Street.

Tue, 02/15/2011 - 12:05 | 963610 scythian empire
scythian empire's picture

5 Year Scenario?  Why bother... 2012!  The end is nigh!

Tue, 02/15/2011 - 12:05 | 963611 buzzsaw99
buzzsaw99's picture

Oil retraces to the $40/barrel level, and then drops further as exporters ramp up their exports to generate desperately needed cash...

Yeah right. They ramp up exports from the gooey oil filled center of the planet.

Interest rates rise sharply, risk assets tank, borrowing dries up, housing prices "slip" to new lows (the stick-slip phenomenon), and the hated/loathed U.S. dollar confounds almost everyone by breaking out of technical resistance levels...

Ooh, high interest rates and low oil prices, I like it!

 

With better grain harvests stemming from improved weather, declining meat consumption in 2012 due to recession and the implosion of the market for corn ethanol, grain prices plummet...

The man can even predict the weather two years out? Damn, he is good!

Tue, 02/15/2011 - 12:23 | 963674 papaswamp
papaswamp's picture

yea if anything we will see some radical flip flopping of weather. The planet is due for a major reset. this warming period is about done.

Tue, 02/15/2011 - 14:47 | 964242 PY-129-20
PY-129-20's picture

As long as I get my Deutsche Mark back, everything is fine.

Tue, 02/15/2011 - 12:48 | 963781 Coast Watcher
Coast Watcher's picture

... and then drops further as exporters ramp up their exports...

 

Ramp up exports with what? I can see prices falling on reduced demand if the wheels truly fall off, but oil exporters don't have much if any extra capacity anymore. And $40? Wonder if he's putting money on that bet?

 

Tue, 02/15/2011 - 12:59 | 963819 Strom
Strom's picture

OPEC would likely reduce production as demand dropped, but at some point members would defy their quota and produce higher amounts. I think I remember this happening in 2008...

Tue, 02/15/2011 - 13:02 | 963836 Snidley Whipsnae
Snidley Whipsnae's picture

In addition, some of the OPEC countries have very large soverign wealth funds as a fall back position.

Saudia Arabia calls the OPEC tune.

Tue, 02/15/2011 - 15:30 | 964450 flattrader
flattrader's picture

With better grain harvests stemming from improved weather, declining meat consumption in 2012 due to recession and the implosion of the market for corn ethanol, grain prices plummet...


The man can even predict the weather two years out? Damn, he is good!

He must be studying the Farmers' Almanac while sitting on the can...where he obviously wrote this piece of crap.

Tue, 02/15/2011 - 12:06 | 963615 Bastiat
Bastiat's picture

Hyperinflation is a consequence of loss of confidence in currency and has nothing to do with the level of economic activity.  Deflationary collapse can happen in real money terms (prices of things in gold), with hyperinflation (value of currency vs things).

Tue, 02/15/2011 - 12:07 | 963618 spartan117
spartan117's picture

Interest rates rise sharply?  Oh really?  How does the Federal government fund the interest payment on existing debt?  Especially in a deflationary environment where tax receipts plummet?  You're talking a complete default on US debt.  That would mean the dollar going to ZERO, and PMs going to infinity.  Sorry, lots of holes in this scenario.

Tue, 02/15/2011 - 12:15 | 963647 topcallingtroll
topcallingtroll's picture

Doubtful for a treasury debt default under deflationary scenario. We would just bring out qe3. Dollars are still valuable in a deflationary debt default, too valuable to use for debt repayment!

Tue, 02/15/2011 - 12:35 | 963722 spartan117
spartan117's picture

QE3 would result in hyperinflation, not deflation.

Tue, 02/15/2011 - 12:16 | 963650 Rogerwilco
Rogerwilco's picture

The spike in interest rates is the trigger event. Interest rates will fall again as credit demand collapses, but it will be too late. Once the deleveraging starts, the panic will feed on itself. Look back at the Summer of 2008 -- the hedgies were tripping over themselves to unwind and raise cash.

Tue, 02/15/2011 - 12:40 | 963738 spartan117
spartan117's picture

Which would result in asset values plummeting, which results in the economy grinding to a halt, which results in tax receipts going to zero, which results in the government defaulting on its debt, which results in the dollar going to ZERO.  And you want to keep that cash?

Tue, 02/15/2011 - 18:06 | 965066 decon
decon's picture

Exactly, hyperinflation is immediately preceeded by a deflationary collapse.

 

Inflation/deflation are monetary processes, hyperinflation is a psychological event.

Tue, 02/15/2011 - 12:16 | 963648 ak_khanna
ak_khanna's picture

Spot ON


http://www.marketoracle.co.uk/Article24581.html

Deflation is spreading around the world despite the efforts of the central bankers by trying to avoid it by printing currency.

Inflation is caused when the sum of credit outstanding and currency in circulation increases in comparison to the goods and services available and deflation is vice versa.

The credit outstanding worldwide is shrinking at a much faster rate than the rate at which the central bankers are printing money. The money being printed is just being used to roll over previous debts and is not contributing to job or small business creation which can actually cause inflation by giving a large portion of the population an increased purchasing power.

Moreover deflation is a natural process and is a result of increased productivity which ultimately benefits the majority of population by bringing down their cost of living.

Tue, 02/15/2011 - 12:22 | 963670 topcallingtroll
topcallingtroll's picture

Yep...qe2 may be just a drop of piss in a big toilet, hardly noticeable. The psychology around the world is to deleverage. In this battle of the titans it is not clear that benny is winning yet.

Tue, 02/15/2011 - 12:30 | 963704 trav7777
trav7777's picture

the world is deleveraging because aggregate economic activity is in a process of contraction.

Debt based on an expectation of growth must be discounted to reflect the new reality.  Expecting clownbucks to increase in value when they are backed by nothing except a promise of a future of more is foolish.

Tue, 02/15/2011 - 12:32 | 963712 Apply Force
Apply Force's picture

Cost of living will only drop for the majority of the population with a drop in the standards of living, and revolutions, of course...

Tue, 02/15/2011 - 12:16 | 963651 gwar5
gwar5's picture

I don't believe for a second the economic war being waged has not been gamed by the banksters.

We'll have a little crash and the government will use it to take away more liberties.

Then we'll have another bigger crash and the government will use it to take everything.

 

Tue, 02/15/2011 - 12:24 | 963678 Bob
Bob's picture

Could banksters possibly have any better toadies?

Tue, 02/15/2011 - 12:17 | 963654 topcallingtroll
topcallingtroll's picture

Yes soon we will see.how much of the recent price rises were speculative and how much represents real demand...ohh...this is so exciting! I wish it were q3 already!

Tue, 02/15/2011 - 12:19 | 963659 TradingJoe
TradingJoe's picture

All somewhat of a wishful thinking! The Bankcheros won't just let it all go without a fight,

my guess in all this is that it will all happen much faster, much sooner and a lot uglier! As long as this "printing maniac" is at work identifying timeframes is futile waste of TIME! Be prepared as in hold all assets that matter and are useful, opportunities will arise, that is, if we still can catch them, we might as well be long dead! I don't think a "re set" will happen without a Good Revolution, A Good Fight taken to the streets, into rich suckers homes etc!

Corruption is zoo big and omnipresent we simply need to root it all out before any of the above can/will happen!

Tue, 02/15/2011 - 12:30 | 963696 topcallingtroll
topcallingtroll's picture

Dp

Tue, 02/15/2011 - 12:28 | 963697 topcallingtroll
topcallingtroll's picture

If you could limit your fight to the plutocrats then those of us who are merely obama-rich, which is not rich at all, might even lend you a hand. You need a few.hard workers to help out, not just unemployed whiners and people getting their government checks.

Tue, 02/15/2011 - 13:00 | 963826 TradingJoe
TradingJoe's picture

None of (U)s will now what will happen, until IT happens, yet we still engage in assumptions, like we would know what's in a politician's sick mind!

On top of that we also like to insult people, like I have seen and "take some" myself, which is utterly STUPID!

We are here to merely express our opinions, weather right or wrong, spot on or way out, this does not entitle ANY of us to call other here ANY names, would make us all just the

way all the "others" are!! Sorry but I cannot take this shit in stride, and will always give my BEST to the ones thinking they can and I cannot! It's a blog for fuck's sake, not an ultimate fight!

Tue, 02/15/2011 - 15:25 | 964429 flattrader
flattrader's picture

Agreed.

This is the most fantasy driven blog post by him I've read to date.

Sheer nonsense.

There is actual reality based original content out there.

Instead we get CHS and GW.

Tyler, look at dshort.com

Tue, 02/15/2011 - 12:24 | 963679 packman
packman's picture

"Credit is not cash, and creating credit is not the same as printing cash. Shoveling $1 trillion in zero-interest credit into the banking system does not necessarily mean that $1 trillion flows into the real economy--that can only happen if someone or some entity borrows the credit."

 

(packman shakes head)

Why everyone seems to never consider the U.S. Federal Government an "entity" is beyond me.

Last I checked - the U.S. Government was borrowing just north of $1.8 Trillion a year, and putting this out into the economy as real, hard, tangible money.

Why does no one seem to get that?

 

Tue, 02/15/2011 - 12:30 | 963702 Rogerwilco
Rogerwilco's picture

The deficit spending only keeps the tapeworm alive, it doesn't produce a new calf in the Spring.

Tue, 02/15/2011 - 12:45 | 963762 Strike Back
Strike Back's picture

+1, and all of the things that the government buys, like health care, foreign wars, corn, and education, will go up in price.  Just because the McMansions and the ipads are losing value does not mean that there is no inflation.

Tue, 02/15/2011 - 12:50 | 963786 DaveyJones
DaveyJones's picture

excellent point and of course, vital resources like oil and all its offspring (read everything) are getting scarcer. Will this not drive prices up.

Tue, 02/15/2011 - 12:25 | 963680 newworldorder
newworldorder's picture

4. The global GDP is around $60 trillion; the Federal Reserve has "printed" $2 trillion in the past three years.

Strongly Disagree with this assumption.

Failure does not happen when a certain amount of the $60 trillion has been reached. Failure is also not cummelative or linear. Failure will come from any major problem in the Eurozone OR China OR India or Japan OR USA.

Black swans can be energry, food, major pandemic or war.

Tue, 02/15/2011 - 14:36 | 964185 jus_lite_reading
jus_lite_reading's picture

Correct. The Black Swans have reached full maturity and are coming home to roost.

Tue, 02/15/2011 - 12:27 | 963688 trav7777
trav7777's picture

oil exporters cannot simply "ramp up exports."  Does this guy think production is unlimited?

Even if they did, if the price is crashing due to demand-driven factors, wtf good would more exports be?  Oil is purchased to consume, not to look at.  If economies are cliff jumping, less oil will be burnt, and there will simply be no market for additional supply

Tue, 02/15/2011 - 12:55 | 963800 DaveyJones
DaveyJones's picture

that's the vaccuum problem of much economic analysis. It's abstract and assumes no resource limit and fungible substitutes 

Tue, 02/15/2011 - 12:30 | 963703 Dr. Gonzo
Dr. Gonzo's picture

Worth considering but you are just guessing like everyone else. Sprott's predictions seem more logical to me. I understand there is a difference between logical and likely and logic hasn't mattered for a long time. That could change along with people's perceptions. Everyone is afraid of the "08" asset collapse deja vu and are planning for silver to tank on epic proportions. This tells me it won't happen because "everyone" is cautious of it. The opposite is more likely to happen.

Tue, 02/15/2011 - 12:32 | 963711 Cheshire.Cat
Cheshire.Cat's picture

"If the Fed creates credit and loans it to banks at zero-interest rate, the credit only flows into the real economy if somebody borrows it.

Without borrowers, the "money" just sits in reserves, where it does not spark inflationary organic demand for resources, goods or services."

These statements are simplistic and lead to erroneus conclusions. When the FED buys recently issued bonds at a higher price than the Treasury recieved on their sale; two things happen: 1. The banks get an immediate profit of hundreds of millions. 2: The money has to be invested. Apparently a lot of this reinvestment has been into equities and commodities driving the price of these investments much higher.

But this is no different than the fact that bank reserves are also invested. They are not simply ledger entries. They are loaned out or invested; either way they enter the economy to some extent and thus cause some amount of inflation.

Tue, 02/15/2011 - 12:48 | 963774 mark mchugh
mark mchugh's picture

As far as I'm concern. it was newly printed money that bought those bonds in the first place, so POMO purchase amount to a second monetization of the same debt.

Tue, 02/15/2011 - 12:52 | 963795 TeMpTeK
TeMpTeK's picture

+1

Tue, 02/15/2011 - 12:39 | 963740 pazmaker
pazmaker's picture

So tell me? where do you want to be in 5 years?....

Tue, 02/15/2011 - 12:51 | 963789 mark mchugh
mark mchugh's picture

Somday, I'm really gonna flip on somebody for asking that question.

Tue, 02/15/2011 - 14:04 | 964044 pazmaker
pazmaker's picture

Mark.... I agree!!!  I'm sure you knew but I meant it in a sarcastic humorous way.

Tue, 02/15/2011 - 12:43 | 963754 mark mchugh
mark mchugh's picture

I'm really uncomfortable disagreeing with Charles Hugh Smith, but I think his estimates on the amount of newly printed money are way off.

The US government has become the perennial spender of borrowed money, over 5 Billion in the last four years.  I can't figure out who bought that debt.  The Treasury reports make absolutely no sense to me, so as far as I'm concerned, it was all newly printed money using the accounting opacity of the Fed.

In the last two years, the market cap of the Wilshire 5000 has risen by more than 8.5 Trillion.  I don't understand where that money came from either.  If you assume that was also borrowed money (or money borrowed, then leveraged), you're talking about well over $10 Trillion in newly printed and spent money, in the last 3 years, just by the US.

That would mean that somewhere around 20% of US GDP has been fueled by money printing.  At that pace, the rate of US Dollar collapse is about 50% every four years.  Worldwide central banks are engaging in a similiar race to the bottom.

The next round (bailing out the states) will only accelerate the pace of printing.

Tue, 02/15/2011 - 14:43 | 964229 goodrich4bk
goodrich4bk's picture

Mark, 8.5 trillion of market cap doesn't equal 8.5 trillion of cash.  To use an extreme example, if in the last two years only one share of each component in the Wilshire 5000 sold for today's price, the only "money" used to create that rise in market cap would be the amount of money used to purchase those shares.  

Tue, 02/15/2011 - 19:52 | 965301 mark mchugh
mark mchugh's picture

Prices changes are supposed to be a direct reflection of buy/sell activity.  In other words, prices can't move up unless moved up by purchases at that price.

I'm willing to accept that fraudulent price discovery has moved prices artificially, but that's not how it's supposed to work.  Market cap. is supposed to reflect market pricing.

Wed, 02/16/2011 - 00:41 | 965876 StychoKiller
StychoKiller's picture

The black hole of Virtual Reality is slowly sucking up all of Meatspace, and ripping it into its constituent quarks...

Tue, 02/15/2011 - 12:44 | 963760 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Heard it all before.Complete and utter twaddle,hardly worth the effort to read let alone reply,people just haven't got a clue as to the lengths Bernanke will go to,to create inflation,how about tax rebate cheques printed out of thin air?Taxing deposits at bank -i.e negative interest rates on your negative real return!

 

You ain't seen nothin yet,the bigger the contaction in the economy,the bigger the stimulus that will be applied in response.

Tue, 02/15/2011 - 13:05 | 963849 RichardENixon
RichardENixon's picture

I prefer the term "flapdoodle" to "twaddle." Other than that minor quibble, your comments are spot on!

Tue, 02/15/2011 - 13:05 | 963845 the rookie cynic
the rookie cynic's picture

I imagine that the pigmen know how to make money in a deflation as well as an inflation. When the tide went out in 2008, however, they were "caught swimming naked". They we're over-leveraged and blew it. Their only hope was and is a re-inflation.

Yes, CHS has it right when he states that the banks were insolvent yet politically dominant, so they're using all their political clout to get bailout dough and QE. I certainly don't have a crystal ball and I'm no insider, but I don't think the banks can handle another big deflation right now, so they'll do about anything to get inflation going again. If QE doesn't work then they'll role all the big bank debts into SDRs and put us all in lifetime indentured servitude.

The big question for me, in the short term, is if there will be enough "organic demand" (by that I mean a real, productive, global economy) to push the velocity of money high enough that we get a new bubble for the pigmen to exploit. I don't see that kind of organic demand in the U.S. Our economy is on life support. Organic growth and demand could come from the BRICs and Asia, but in this era of peak oil and wacky climate issues, that's certainly not a done deal either. I suspect we'll see a paradoxical economy for the time being: prices for anything customarily bought on credit will continue to deflate (houses, infrastructure, etc.) and day to day items will inflate (food, energy).

Doning the tin foil hat for a second, I'd say the shadow government and globalist elites have enough power to push the market around short term, but in the end markets will have their way: eventually that means deflation, because as my buddy Nassim keeps yelling, "there's too much debt in the system!" World GDP would have to climb exponentially to justify the leverage that's currently in play. With peak oil (and peak everything really) on the horizon, how are we not going to have a ginormous bust in the next 5-10 years? http://therookiecynic.wordpress.com/

My other big question is who is going to win American Idol this year.

 

Tue, 02/15/2011 - 13:16 | 963881 Snidley Whipsnae
Snidley Whipsnae's picture

Anyone's guess is just a guess. Too many variables involved. That said, here is an alternative view of the dollar falling apart in 2011...thats right! This year...

'Tentative Timeline For Death Of The US Dollar'

http://thetaildoesnotwagthedog.blogspot.com/2011/01/tentative-timeline-for-death-of-us.html

Tue, 02/15/2011 - 13:30 | 963917 Implicit simplicit
Implicit simplicit's picture

I like Charlie, but: who nose, eye don't, butt no sweat

Tue, 02/15/2011 - 17:06 | 964862 Snidley Whipsnae
Snidley Whipsnae's picture

Lend an ear...and a hand...Who really gives a foot?

Tue, 02/15/2011 - 13:32 | 963926 onealpha
onealpha's picture

Tyler, Zerohedge has become plagued by Soros's Child Army.  It is a damn shame.  This place used to have comments that rivaled the content.  Now it is littered with noise of ignorant propaganda. Tyler, some of us will not give them the satisfaction, but you must realize by now that you have a serious problem here.  It cheapens the conversation and dilutes the message.  OK children, flame away.

Tue, 02/15/2011 - 22:00 | 965585 Calmyourself
Calmyourself's picture

When I arrived the overall commentary was certainly longer, a one liner seemed proper only in support of another's 3 page post.  However, not all of it was worth reading while I agree there are some real thin thinkers now prevalent.  I still learn from many and quickly learn to ignore others. 

Tue, 02/15/2011 - 13:35 | 963932 PenchantForHoarding
PenchantForHoarding's picture

These types of posts are whimsy at best, and this level of modeling nets out being about as prophetic as Miss Cleo quoting the Farmers Almanac while watching Nostradamus prediction shows on History Channel.

Fail.

Tue, 02/15/2011 - 14:14 | 964088 JoeSexPack
JoeSexPack's picture

Hyperinflation or deflation, what's the diff? Either way, prices will reset to their true market value.

Meaning in deflation, with fewer jobs & a viable currency, prices drop to what earners/savers can afford.

In hyperinflation, with more jobs but cheapened currency, prices rise to what only higher earners & speculators can afford.

Each road is different, but seems to lead to the same place, a much lower standard of living for most people.

Tue, 02/15/2011 - 14:16 | 964101 Sad Sufi
Sad Sufi's picture

Nice to see a good deflation article at ZH once in a while, Tyler.

I'm no expert, but "hyperinflation" as a given, with most of the posters here worshipping at that idol, gets a little one-sided.  If I am going to educate myself, then more information is good.

Tue, 02/15/2011 - 14:33 | 964172 What_Me_Worry
What_Me_Worry's picture

May I suggest a little education from a source called history.  Don't know if you've heard of it or not.  There is plenty of information to draw off from that source.

Tue, 02/15/2011 - 14:43 | 964227 Sad Sufi
Sad Sufi's picture

Yes, Worry, I go get some of that. 

What I mean is that the "contrarian" and pro gold sites I tend to read (because they align with the way I see things) do get lopsided, and that is where I get most of my "history."  I don't think you can have a discussion, even in your own mind without counter arguments.  Do You?

Tue, 02/15/2011 - 14:55 | 964284 What_Me_Worry
What_Me_Worry's picture

As the days go on, it becomes more personal.  I think its that way for a lot of us now.  So much at stake.

I agree with you that there is group-think apparent here.  However, I always have problems with deflationistas.  They tend to think in a static environment with their predictions.   They rarely consider the fact that infinite amounts of money can appear whenever the needs arise.

I would merely like to see contrarian viewpoints where they can show massive deflation into an environment where the Fed still has the power to print.  They need to show how the Fed could be stopped and the budget brought in line.

I would love a truly contrarian view backed by precedent.  Zero fiat currencies throughout history, to my knowledge, have suffered prolonged massive deflation(in currency terms).  It is one of the few ailments they can truly cure.

Tue, 02/15/2011 - 17:30 | 964952 Lord Koos
Lord Koos's picture

Yep I appreciate other points of view here, ZH resembles an echo chamber most of the time. 

Tue, 02/15/2011 - 14:30 | 964160 What_Me_Worry
What_Me_Worry's picture

He is assuming zero additional FRN printing by the Fed?  Seems like a flawed prediction just on that point alone. 

His views seemed to be driven by logic.  Logic has no place in monetary policy.

He says the Fed printed $2T into a $60T world economy.  However, he fails to talk about $2T that becomes leveraged up in the shadow banking system.

 

Tue, 02/15/2011 - 15:03 | 964332 arkady
arkady's picture

Most of the leveraging occurs through our fractional lending system and he is correct in pointing out that this is not happening.  That money appears to be heading straight into commodities/equities and is subject to a nasty wipe out. 

 

Still the article is nothing new, it is a deflationary thesis.  Not sure why people are swooning over this, it has been beaten to death already.  I happen to agree with it, but whatever.

Tue, 02/15/2011 - 14:35 | 964182 dirtbagger
dirtbagger's picture

Gott in Himmel - what tripe

Can I be a guest poster too.  I promise to use my Magic 8 ball to substantiate all predictions

Tue, 02/15/2011 - 14:38 | 964198 mcguire
mcguire's picture

the author forgot to include world war 3 and the fake ufo invasion into his forcast...

Tue, 02/15/2011 - 14:48 | 964248 6 String
6 String's picture

In this scenario, you would have to account for our govt then admitting they are bankrupt, cannot fulfill their obligation and outlays, and defaults....setting off the next Great Depression.

Since our governemtn will fight all these natural forces, I'll take the other side to your entire argument.

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