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Guest Post: Hyperinflation, Part II: What It Will Look Like
Submitted by Gonzalo Lira
Hyperinflation, Part II: What It Will Look Like
I usually don’t do follow-up pieces to any of my posts. But my recent longish piece, describing how hyperinflation might happen in the United States, clearly struck a nerve.
It was a long, boring, snowy piece of macro-economic policy speculation, discussing Treasury yields, Federal Reserve Board monetary reaction, and the difference between inflation and hyperinflation—but considering the traffic it generated, I might as well been discussing relative breast size in the porn industry. With pictures.
Essentially, I argued that Treasury bonds are the New and Improved Toxic Assets. I argued that, if there was a run on Treasuries, the Federal Reserve—in its anti-deflationary zeal, and its efforts to prop up bond market prices—would over-react, and set off a run on commodities. This, I argued, would trigger hyperinflation.
The disproportionate attention my post garnered is indicative of people’s current fears. As I’ve said before, people aren’t blind or stupid, even if they often act that way. People are worried—they’re worried about the current state of affairs: Massive quantitative easing, toxic assets replaced by the full faith and credit of the U.S. government in the shape of Treasuries, fiscal debt which cannot possibly be repaid, a second leg down in the Global Depression that seems endless and only getting worse—people are scared. Many readers gave me quite a bit of useful feedback, critiques, suggestions and comments on the piece—clearly, what I was discussing touched on a deeply felt concern.
However, there were two issues that many readers had a hard time wrapping their minds around, with regards to a hyperinflationary event:
The first was, Where does all the money come from, for hyperinflation to happen? The question wasn’t put as baldly as that—it was wrapped up in sophisticated discussions about M1, M2 and M3 money supply, as well as clever talk about the velocity of money—the acceleration of money—the anti-lock brakes on money. There were even equations thrown around, for good measure.
But stripped of all the high-falutin’ language, the question was, “Where’s all the dough gonna come from?” After all, as we know from our history books, hyperinflation involves people hoisting bundles and bundles of high-denomination bills which aren’t worth a damn, and tossing them into the chimney—’cause the bundles of cash are cheaper than firewood. If the dollar were to crash, where would all these bundles of $100 bills come from?
The second question was, Why will commodities rise, while equities, real estate and other assets fall? In other words, if there is an old fashioned run on a currency—in this case, the dollar, the world’s reserve currency—why would people get out of the dollar into commodities only, rather than into equities and real estate and other assets?
In this post, I’m going to address both of these issues.
Apart from what happened with the Weimar Republic in the 1920’s, advanced Western economies have no experience with hyperinflation. (I actually think that the high inflation that struck the dollar in the 1970’s, and which was successfully choked off by Paul Volcker, was in fact an incipient bout of commodity-driven hyperinflation—but that’s for some other time.) Though there were plenty of hyperinflationary events in the XIX century and before, after the Weimar experience, the advanced economies learned their lesson—and learned it so well, in fact, that it’s been forgotten.
However, my personal history gives me a slight edge in this discussion: During the period 1970–’73, Chile experienced hyperinflation, brought about by the failed and corrupt policies of Salvador Allende and his Popular Unity Government. Though I was too young to experience it first hand, my family and some of my older friends have vivid memories of the Allende period—vivid memories that are actually closer to nightmares.
The causes of Chile’s hyperinflation forty years ago were vastly different from what I believe will cause American hyperinflation now. But a slight detour through this history is useful to our current predicament.
To begin: In 1970, Salvador Allende was elected president by roughly a third of the population. The other two-thirds voted for the centrist Christian Democrat candidate, or for the center-right candidate in roughly equal measure. Allende’s election was a fluke.
He wasn’t a centrist, no matter what the current hagiography might claim: Allende was a hard-core Socialist, who headed a Hard Left coalition called the Unidad Popular—the Popular Unity (UP, pronounced “oo-peh”). This coalition—Socialists, Communists, and assorted Left parties—took over the administration of the country, and quickly implemented several “reforms”, which were designed to “put Chile on the road to Socialism”.
Land was expropriated—often by force—and given to the workers. Companies and mines were also nationalized, and also given to the workers. Of course, the farms, companies and mines which were stripped from their owners weren’t inefficient or ineptly run—on the contrary, Allende and his Unidad Popular thugs stole farms, companies and mines from precisely the “blood-thirsty Capitalists” who best treated their workers, and who were the most fair towards them.
Allende’s government also put UP-loyalists in management positions in those nationalized enterprises—a first step towards implementing a Leninist regime, whereby the UP would have “political control” over the means of production and distribution. From speeches and his actions, it’s clear that Allende wanted to implement a Maoist-Leninist regime, with himself as Supreme Leader.
One of the key policy initiative Allende carried out was wage and price controls. In order to appease and co-opt the workers, Allende’s regime simultaneously froze prices of basic goods and services, and augmented wages by decree.
At first, this measure worked like a charm: Workers had more money, but goods and services still had the same old low prices. So workers were happy with Allende: They went on a shopping spree—and rapidly emptied stores and warehouses of consumer goods and basic products. Allende and the UP Government then claimed it was right-wing, anti-Revolutionary “acaparadores”—hoarders—who were keeping consumer goods from the workers. Right.
Meanwhile, private companies—forced to raise worker wages while maintaining their same price structures—quickly went bankrupt: So then, of course, they were taken over by the Allende government, “in the name of the people”. Key industries were put on the State dole, as it were, and made to continue their operations at a loss, so as to satisfy internal demand. If there was a cash shortfall, the Allende government would simply print more escudos and give them to the now State-controlled companies, which would then pay the workers.
This is how hyperinflation started in Chile. Workers had plenty of cash in hand—but it was useless, because there were no goods to buy.
So Allende’s government quickly instituted the Juntas de Abastecimiento y Control de Precios (“Unions of Supply and Price Controls”, known as JAP). These were locally formed boards, composed of loyal Party members, who decided who in a given neighborhood received consumer products, and who did not. Naturally, other UP-loyalists had preference—these Allende backers received ration cards, with which to buy consumer goods and basic staples.
Of course, those people perceived as “unfriendly” to Allende and the UP Government either received insufficient rations for their families, or no rations at all, if they were vocally opposed to the Allende regime and its policies.
Very quickly, a black market in goods and staples arose. At first, these black markets accepted escudos. But with each passing month, more and more escudos were printed into circulation by the Allende government, until by late ’72, black marketeers were no longer accepting escudos. Their mantra became, “Sólo dólares”: Only dollars.
Hyperinflation had arrived in Chile.
(Most Chileans, myself included, find ourselves both amused and irritated, whenever Americans self-righteously claim that Nixon ruined Chile’s economy, and thereby derailed Allende’s “Socialist dream”. Yes, according to Kissinger’s memoirs, Nixon did in fact tell the CIA that he wanted Chile’s economy to “scream”—but Allende did such a bang-up job of fucking up Chile’s economy all on his own that, by the time Richard Helms got around to implementing his pissant little plots against the Chilean economy, there was not much left to ruin.)
One of the effects of Chile’s hyperinflation was the collapse in asset prices.
This would seem counterintuitive. After all, if the prices of consumer goods and basic staples are rising in a hyperinflationary environment, then asset prices should rise as well—right? Equities should rise in price—since more money is chasing after the same number of stock. Real estate prices should rise also—and for the same reason. Right?
Actually, wrong—and for a simple reason: Once basic necessities are unmet, and remain unmet for a sustained period of time, any asset will be willingly and instantly sacrificed, in order to meet that basic need.
To put it in simple terms: If you were dying of thirst in the middle of the desert, would you give up your family heirloom diamonds, in exchange for a gallon of water? The answer is obvious—yes. You would sacrifice anything and everyting—instantly—in order to meet your basic needs, or those of your family.
So as the situation in Chile deteriorated in ’72 and into ’73, the stock market collapsed, the housing market collapsed—everything collapsed, as people either cashed out of their assets in order to buy basic goods and staples on the black market, or cashed out so as to leave the country altogether. No asset class was safe, from this sell-off—it was across-the-board, and total.
Now let’s return to the possibility of hyperinflation in the United States:
If there were a sudden collapse in the Treasury bond market, I argued that sellers would take their cash and put them into commodities. My reasoning was, they would seek a sure store of value. If Treasury bonds ceased to be that store of value, then people would invest in the next best thing, which would be commodities, especially precious and industrial metals, as well as oil—in other words, non-perishable commodities.
Some people argued this point with me. They argued many different approaches to the problem, but essentially, it all boiled down to the argument that commodities and precious metals have no intrinsic value.
Actually, I think they’re right. In a strict sense, only oxygen, food and water have intrinsic value to human beings—everything else is superfluous. Therefore the value of everything else is arbitrary.
Yet both gold and silver have, historically, been considered valuable. Setting aside a theoretical or mathematical construct that would justify the value of gold and silver, look at it from a practical standpoint: If I went to a farmer with five ounces of silver, would he give me a sack of grain? Probably. If I offered him an ounce of gold for two or three pigs, would he give them to me? Again, probably.
Where there is a human society, there is a need to exchange. Where there is a need to exchange, a medium of exchange will soon appear. Gold and silver (and copper and brass and other metals) have served that purpose for literally millennia, but then they were replaced by paper.
Right now, there are two forms of paper currency: Actual dollars, and Treasury bonds. One is a medium of exchange, the other a store of value.
If Treasuries—the store of value—were to collapse in price, and the Fed—as I predict—tried everything in its power to at least initially prop up their prices, would those sellers who managed to get out of Treasuries in time then turn around and invest in even dodgier bits of paper, like stocks? Or REIT’s? Or even precious metal ETF’s?
No they would not: They would get out of Treasuries—supposedly the “safest” investment there is—and get into something even safer—something even more tangible: Actual commodities. Not ETF’s, not even futures (or anything else that entails counterparty risk)—sellers of Treasuries would get into actual, hard commodities. Because if suddenly even the safest of all investment vehicles is now unsafe, do you really want to get behind the wheel of an even more unsafe vehicle, like stocks or corporate bonds or ETF’s? I mean, c’mon: If Treasuries crash, what else might crash?
That’s why people in a Treasury panic would buy commodities. This ballooning of non-perishable commodities would be as a means to store value. Because that’s what people do in a panic—they batten down the hatches, and go into what’s safest. When the stock markets tanked in the Fall of ’08, where did all that sellers’ cash go? To Treasuries—because it was then considered the safest store of value. Commodities suffered in comparison—gold took a bit of a hit, as did the other precious metals—but Treasuries ballooned as the equities markets tanked.
But if Treasuries—the ultimate store of value—now tanked? If the last sure-thing in paper-based stores of value took a hit, where would people go to both store value, and have ready access to that value?
Commodities. And this rush to commodities, I argued, would trigger hyperinflation.
Now, I said I would answer two questions—one was why commodities would outpace all other asset classes in a Treasury panic and subsequent hyperinflation. The other question was, “Where’s all the dough to feed my fireplace gonna come from, in a hyperinflationary event?”
The first wave of dollars in a hyperinflationary event will come from people’s savings accounts.
If Treasuries tank, and the markets all barrel into commodities, then prices will rise for regular consumers—this should not be a controversial inference. What would consumers do, with suddenly much higher gas prices, and soon much higher food prices? Simple: They’ll bust open their piggy banks, whatsoever those piggy banks might happen to be: 401(k)s, whatever equities they might have, etc.
But if the higher consumer prices continue—or become worse—what will happen to the 320 million American consumers? They’ll start buying more gas now, rather than wait around for tomorrow—and the market will react to this. How? Two way: Prices of commodities will rise even further—and asset prices will fall even lower.
Again, the man in the desert, the diamonds, and the water: If American consumers are getting hit at the gas station and the supermarket, they’ll start selling everything so as to buy gas, heating oil (most especially) and foodstuffs. The Treasury panic will thus be transfered to the average consumer—from Wall Street to Main Street by way of $15 a gallon gas prices, and $10 a gallon heating oil prices.
All other consumer prices would soon follow the leads of gas, heating oil and food.
In the above bit of Chilean history, I described how the Allende government printed up escudos to make up for the shortfall in nationalized businesses that was produced by their policy of hiking wages, while at the same time fixing prices.
This is a completely different way to hyperinflation than the way I envision it for the American economy—but once the American economy gets there, the effects of hyperinflation will be exactly the same: People will try to get out of assets in order to get hold of commodities. To get all eccy about it, money velocity would approach infinity, as money supply remains (at first) fixed, yet in the panic over commodities, aggregate demand as measured by aggregate transactions goes vertical.
Would there be Federal government intervention of some sort? Most definitely—people would be screaming for it. Would food rationing be implemented? Probably, and probably by way of the current Food Stamps program. Troops on the streets, protecting gas stations and supermarkets? Curfews to prevent looting? Palliative dollar printing? Yes, yes, and very likely yes.
That last bit—palliative dollar-printing: That’s the key. When palliative dollar-printing happens, it will be the final stages of hyperinflation—it’s when sensible people ought to realize that the crisis is almost over, and that a new normal will soon appear. But this stage will be fucking awful.
Palliative dollar printing will take place when the Federal government simply runs out of options. Smart economists will get on CNBC and argue that, “The velocity of money is destroying the economy—we must expand the currency base!” It’ll sound logical, but palliative money-printing will be a policy option born out of panic. The final policy option. It won’t be done for evil conspiratorial reasons—always remember Aphorism #6 (“Never ascribe to malice what can be explained by incompetence.”). It’ll be carried out because of fear and panic.
A whole boatload of fools in Washington, on seeing this terrible commodity-driven crisis unfold, with consumer prices shooting the moon, will scream for dollars to be printed—and their rationale will be perfectly reasonable, I can practically hear it now: “We've got to get cash into the hands of the average American citizen, so he or she can buy food and heating oil for their families! We can’t let Americans starve and freeze to death!”
Palliative money-printing will take place—hence the average American family will likely be using bundles of $100 bills to fire up the chimney that hyperinflationary winter.
Hoo-Ah.
Now, this fairly Apocalyptic scenario is simultaneously horrifying, and exciting as all get out. Hell, why do you think disaster movies are so popular? Shit blowing up is way cool! That's why Roland Emmerich gets paid the big bucks, God bless ‘im.
But for sensible people, Apocalypse is a distraction—it’s not the main event. For sensible people who want to be prepared, Apocalypse represents opportunities.
A true story: In ’73, at the height of the Allende-created hyperinflation, an uncle of mine, who was then a college student, was offered an apartment in exchange for his car. That’s right—an apartment. He owned a crappy little Fiat 147—a POS if ever there was such a thing—but cars in Chile in the middle of that hyperinflation were so scarce, and considered so valuable, that he was offered an apartment in exchange. To this day, my uncle still tells the story—with deep regret, because he didn’t follow through on the offer: “That Fiat was in the junkyard by ’78, but that apartment still stands! And today it’s worth nearly a half a million dollars!” Actually, I think it’s worth a bit more than that.
Another true story: A banker friend of mine manages the assets of a fabulously wealthy 70-something gentleman, whom I'll call Alfredo. In 1973, Don Alfredo was a youngish man, just starting out, with a degree in engineering but no money—until he inherited US$3,000 from a deceased aunt. Alfredo realized that the $3,000 were in a sense worthless: He couldn’t buy anything with them, and it wasn’t enough for him to leave the country and start over someplace else. After all, even then, $3,000 was not that much money.
So he took those $3,000, went down to the stock exchange, and spent all of it on Chilean blue-chip companies: Mining companies, chemical companies, paper companies, and so on. The stock were selling for nothing—less than penny stock—because of the disastrous policies of the Allende government. His stock broker at the time told him not to buy stocks, as Allende’s government, it was thought, would soon nationalize these companies as well.
Alfredo ignored his broker, and went ahead with the stock purchases: He spent all of his $3,000 on buckets of near-worthless equities.
On September 11, 1973, the commanders in chief of the four branches of the Chilean military staged a coup d’état. Within a year, Alfredo’s stock had rebounded about ten-fold. Since then, they’ve multiplied several thousand-fold—yes: Several thousand-fold. Don Alfredo has lived off of that $3,000 investment ever since—it’s what made him a multi-millionare today.
He realized, of course, that either those blue-chip companies would be nationalized by Allende—in which case he would lose all his $3,000 inheritance, which really wouldn’t change his fortunes very much—or somehow a new normal would arrive in Chile. Since the $3,000 couldn’t buy him anything, he took a gamble—and won.
What do these two true stories tell us? Simple: Buy when there’s blood on the streets.
That’s Baron de Rothschild’s famous line—but it hides a key insight, one which should be highlighted perhaps even more forcefully than the line itself:
Even in the midst of Apocalypse, things will get better.
That’s something people don’t quite seem to understand. In fact, it’s why teenagers tragically kill themselves over some girl or boy: They don’t realize that, no matter how bad things are now, they will get better later. To repeat:
Even in the midst of Apocalypse, things will get better.
I’m not repeating this insight as an empty comfort to my readers—I’m saying it as a trading strategy. When things are at their crazy worst, when everyone believes the Apocalypse is well nigh here, that’s when thing are about to turn for the better. This applies to every situation—including and most especially in a hyperinflationary situation.
Why? Simple: Because hyperinflation—by definition—cannot last. Because people need a stable medium of exchange. So if the currency goes up in flames in a hyperinflationary fire, of course there will be a period of terrifying instability—but it will pass. Either the currency will be repaired somehow (as Volcker repaired the dollar back in 1980–’82). Or the currency will be completely and irrevocably trashed—and then be replaced by something else. Because—to insist—people need a stable medium of exchange.
If Treasuries tank and commodities shoot up so high that they essentially break the dollar, civilization will not come crashing down into anarchy. At worst, there’ll be a three-four years of hell—economic hell. Financial hell. But then things will settle down into a new normal.
This new normal might well have unsavory characteristics. I tend to be a pessimist, and just glancing through history, I can see that just about every period of hyperinflation has been stabilized by some subsequent form of autocratic or totalitarian government. The United States currently has all the legal decisions and practical devices to quickly transition into an authoritarian or totalitarian regime, should a crisis befall the nation: The so-called PATRIOT Acts, the Department of Homeland Security Agency, the practical suspension of habeas corpus, etc., etc.
But as I said in my previous post, and reiterate here: Speculations about the new normal are pointless at this time. The future will happen soon enough.
What I do know is, One, a hyperinflationary event will happen, following the crash in Treasuries. Two, commodities will be the go-to medium for value storage. Three, all asset classes will collapse in short order. And Four—and most importantly—civil society will not collapse along with the dollar. Civil society will stumble about like a drunken sailor, but eventually right itself and carry on with a new normal.
During that stumble, opportunities will present themselves. I hope I have explained why.
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Methinks MushyMan has lain down the gauntlet? I doth think he has!
I already said what I think will happen, but I have no problem saying it again: A Treasury bust and subsequent run to commodities, sparking hyperinflation, before the end of 2011—but very possibly this coming Fall.
See, I got balls and a big ol' cock-ring wider than a silver dollar, and have no problem showing them off.
Any questions?
GL
Heckuva lot sooner than general consensus I think. Kudos if you're right. Hopefully you get rich amid the apocalypse.
Rock on, my brother. May Karma smile on you too.
GL
Gonzalo, I am in agreement with what you have to say, I would simply like to clarify something for people because many don't understand. Inflation and deflation as terms should really only exist in free markets as the flow of capital is not controlled or centralized. Debating this issue and pointing to "leading indicators" is detracting from the fact that common indicators, or effects are not the same when capital is directed by one entity.
Thats all I got to say. Thanks for the posts, you helped me think about what to do with my real money once the collapse has occurred.
It's good to admit that you're wrong.
"Gonzalo, I am in agreement with what you have to say"
jimmy rogers it's: commodities, bitches.
GL, I also disagree with you.
Inflation can occur even in the face of high and/or rising unemployment.
Case in point: Zimbabwe with 80% unemployement rate...
See also:
http://www.itulip.com/forums/showthread.php/16630-New-Jobless-s-..-yikes.-Inflation?p=172161#post172161
Gonzalo may be younger than I am. Because I can remember the 1970s here in the U.S. very clearly. The official unemployment rate and the official inflation rate both exceeded 10%--at the same time.
"Inflation is impossible in the face of excess capapcity" is Bernanke's argument. He's the same age I am, so he knows better.
Yeah but in the 70's he was in college and completely numb to reality - comfortably numb!
GL,
If Bernanke and the board of governors double down and implement a massive QE2 (after the November elections, of course), it would seem your prediction (below) would be delayed by a year to two. I agree, if the world stops buying our treasuries and/or it sells off, the game is over.
But why would it do that, since, like it or not, we're all in this together? And more to the point, how would China benefit from this move, since it cannot, at this time, produce all that it needs, nor can it sell to itself enough of the products it makes, in order to sustain economic growth?
so , ok i may be a dummy, but i shop and notice prices have gone up at the market. I grow my own veggies and am damn glad i do . It feels really successful ! And i am certain there are no chemicals in any of it.
GL So prices going up arent called inflation?
I see price inflation too. Not in everything but in more than enough things. Seems to have slowed since two or so years ago when it was starting to cook pretty good. But I do see it. Not just rising prices but shrinking net weight or volume as well.
Lots of "ifs", which is why your first piece lost credibility with me.
Not trying to diss your work and I appreciate your contribution, but is there any point to publishing if scenarios? This economy is so blatantly manipulated that the amount of ifs out there are probably too large to even count and too unknown to even comprehend. That's why I believe buying gold makes so much sense that it will backfire.
There are two types of people in the world; those who believe there are two types of people, and those who do not. Those who do not, nullify their premise by their existence.
There is also the law, and the spirit of the law, as well as a rule, and the exception to the rule.
The Markowitz Model as a rule, only serves to define the exception to that rule. Call it manipulation if you want, but in the end, all we are witnessing is the extreme INEFFICIENCY of the markets.
Treasury bills or tulip bulbs, you make the call.
Hmmm, just because that's the what happened during that hyper inflationary period doesn't mean that's how it will unfold again. I think it's best to purchase things that we use daily that are non perishable and store that stash in the basement. If you have money left over, buy gold and silver. Buy farm land, buy razors, buy soap, buy cigarettes. You get the idea.
who's shavin when this shit goes down? not me , actually good excuse 2 go au natural, maybe some pariffin wax in a jar, could become the next group activity. invest in lavendar deordorant, made in Germany of course , home of fine engineered products. see you all on the other side of the moon. mr. cockring mrextraordinaire.
Baking soda makes a great deodorant KC. Kinda like my women a little stinky though...
+1
Wow have been a consistent ASSHOLE the last few days. You losing a lot of money in the market?
The part about buyng stocks is interesting. In Weimar, stocks flew with the hyper-inflation. Then dived when the currency was repaired. But I see you are talking about a slightly different version of hyper-inflation that is not caused by out right, singe minded money printing. I susepect what happens here will also be slightly different, with all the money being printed and given only to banks. It will probably look more like Detroit with $10 loaves of bread sometimes available in one of the remaining stores.
interesting points on hyperinflation and how the collapse n worhless treasury's will b the harbinger...
but the Allende take - i dont know....
i posted your last post but this one is really misinformed. it is that dumb kind of anti-socialist propaganda which you obviously learned from your grandparents who also bought into it. don't tell me, they supported pinochet?
allende was doing a great job for chile until the nixon administration got in there and tried to sabotage everything he was doing. your lack of knowledge disgusts me, but it does fit into the bias alot of people on this website have of bashing democratic socialism. socialism has done a lot of good in many countries, europe for example. the alternative to "liberal" policies is often nothing more then bending over to the multinational corporations for a good spanking. something many misguided right wingers support.
learn the truth or be surpassed.
From: http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB8/nsaebb8i.htm
"Revelations that President Richard Nixon had ordered the CIA to "make the economy scream" in Chile to "prevent Allende from coming to power or to unseat him," prompted a major scandal in the mid-1970s, and a major investigation by the U.S. Senate. "
"National Security Council strategy papers which record efforts to "destabilize" Chile economically, and isolate Allende's government diplomatically, between 1970 and 1973."
Aphorism #3.
http://gonzalolira.blogspot.com/2010/06/aphorisms.html
GL
Good one. Perhaps applicable to Mr. Bravo as well?
3. Never get down in the mud to wrestle with a pig. You'll only get dirty, and the pig will enjoy it.
And I'll take this opportunity to thank you for your article. We should have an arsenal of information to use just like any other tool. We may need it but perhaps not.
Rubbish. And Allende was also drawing up lists of people to be eliminated, which may have precipitated the coup, since Pinochet et al were probably on the list.
Wish for a socialist paradise in one hand, and shit in the other.
Then eat both, and die.
WRONG, barkingbill.
EVERY Chilean, here and in Peru, that I have talked to who went through the Allende years said that he was destroying the country!
I call BS on your lefty nonsense!
it is that dumb kind of anti-socialist propaganda which you obviously learned from your grandparents
The chutzpah that made Nixon's gang believe that they could and should mess with the Chileans is the same chutzpa that makes you try to teach history to someone whose parents made that history. A bit US-centric, ya know? Unless I misunderstand and you were there.
And since when does one need propaganda to refute socialist nonsense? I find the truth to be quite serviceable in that regard.
hi!
Mr. Lira,
This is a well written article.
I have a question. Just how would the treasury market "collapse"? Would it take a series of failed auctions? And is that even possible with the control the Federal Reserve and Treasury Department have in these matters?
Also I have a bone to pick:
|"Right now, there are two forms of paper currency: Actual dollars, and Treasury bonds. One is a medium of exchange, the other a store of value|"
My contention is that neither is a store of value. Only gold fulfills that role.
And, I fail to see how a tsunami of currency could quickly go into the commodities markets. Can you imagine even 10 percent of the United States population trying to purchase gold coins or silver coins? And other than buying into partnerships and the actual oil/natural gas wells themselves, just how will people purchase oil or natural gas, let alone tons of copper or other commodities? And in a hyperinflationary event, which most normal businesses would recognize quickly, why would they sell their gold, or other valuable commodities for rapidly depreciating cash?
Thank you.
I can clearly imagine 10% of folks trying to buy gold and silver - which would spike the price. Imagine everyone just trying to keep thier gas tank always above 1/2 full. Imagine everyone buying 1 month of non-perishable groceries (or trying to). Imagine everyone signing-on to pre-payment of thier power bill for a few months to avoid price rises.
Each one of these is very small, but if 100M households do these things it will spike most commodities.
I have consulted my new law firm:
Glock, Smith & Wesson LLC
specializing in cases of acute lead poisoning
they tell me to buy Ag, from the periodic table
you can make bullets out of it, it stores value well, best natural conductor of heat and electricity, and heck, its shiny!
and they keep you safe from werewolves as well.
If people really need a walk-through in terms of "where does the money comes from" - today on NPR's 'Planet Money' segment they interviewed the peppy 30-somethings who were actually charged with the job of buying a $trillion+ worth of MBS necessary to pretty up the TBTF banks' balance sheets. Just three or four people in small room of cubicles with Nerf basketball hoops and yoga balls. They actually had like an F2 key that would "create" the money, on the fly necessary to buy a particular security in real time. I assume, like all such pieces, this story will be available as a podcast on itunes etc.
Of course being NPR reporting on the Obama Admin. - questions about "could this printing money shit come back and bite us?" was fluffed over with the "theoretically, yes but this is what central banks do..." kind of thing but still... it was eye opening to listen to and effective in a doing-what-NPR-does-best kind of way.
Here's the link:
http://www.npr.org/blogs/money/2010/08/26/129451895/how-to-spend-1-25-trillion
By the way, everyone should listen to this.
Goddamn, I wish there was an Illuminati, because these guys are fucking retards. They go right from the dorm rooms to raping the currency.
While playing table tennis.
OK.
Not to mention that the interviewer from NPR apparently just learned how the Fed works.
Damn, bitchez.
This is just unbelievable. These people are the poster children of middle management and we have them playing keyboard-jockeys on the Fed money-printing computer.
That this interview has the NPResque lightheartedness of a fluffy story on baking cookies makes me literally ill and disoriented.
the argument is so perfect, it has to fail.
the assumption that things will continue like before, after the collapse, is something that i do not accept.
the core of the problem around greed, and view of life is assumed to remain the same.
While there is a probability that thing will happen as described, but i hope it does not.
This all sounds well and good, but who the fuck do you believe these days? I'm just a shit kicker peon. Do I need to get a 10,000 gallon oil tank buried in my back yard? I sure as shit can't store much iron ore at my place.
They say 'buy when there's blood in the streets' - the opposite is also true - if everyone is telling you it's time to buy something, it's probably not the best time to buy it. Maybe I just hang out in all the wrong places, but all I hear these days is "buy gold!".
Then there's the ammo crowd. Ammo is going to be the next currency? I mean seriously, what the fuck. Are you going to start shooting up your neighbours if they don't give you what you want? People talk about ammo being so they can 'defend themselves'. Well if that's the case, what sort of trade is there going to be in self defence?
I read articles like this and they just make me more concerned for the future, but even more uncertain about what the hell I should be doing about it. I've already got myself a nice place in the country, debt free, and I've already been doing a pretty good job of growing food. Worst case scenario I can turn a few of my acres into a potato farm, but that all sounds a bit chicken little doesn't it?
Ned,
What's happening is, everyone has realized that the people in positions of leadership in this country are fucking imbeciles. The current generation of leaders do not have a handle on the current crisis—so everyone is freaking out.
The smart thing to do is realize, there will not be some kind of Mad-Max, Apocalypse urban wasteland scenario—that's just survivalist dayrdreams. What I think likely will happen is the hyperinflationary scenario I've discussed in these last two posts.
But don't let all this talk panic you—assume that things will continue as they are today—only everyone will be broke. Therefore, plan under that scenario. Buy gold now? Sure—but I'd especially recommend silver, as I think it will appreciate more. Save your money, reuse your stuff, sell off what you can—in other words, batten down the hatches. But don't go digging a bomb shelter in your backyard either.
Just assume that there are gonna be a lot of broke people—and assume too that, if you've saved some cash in silver and gold, you'll likely stumble into the opportunity of a lifetime, like the two cases I outlined above (my uncles car, Don Alfredo's "worthless" stock). When the time comes, pounce.
But don't let this crowd here—or me either—freak you out into thinking the world is ending tomorrow. It's not. It's just gonna get messy and dirty, but nothing really irreversible.
Fair enough? Take it easy.
GL
Dude, you already have a major breakdown in civil society in the inner parts of most of the US's major cities. As they get hungrier, they will wander to the burbs ... Hell, they already do. The next US civil war started years ago during the era of prosperity, and it isn't going to be all neat and nicely divided with armies marching around on battle fields.
Alarmist, you're living up to your name—not helping.
GL
Order is brought to society when productive people have the means to protect the fruits of their labor.
Uh, no you do NOT. Crime rates are near 20-year lows.
NYC is safer than most medium sized cities.
Only Detroit and Baltimore and St. Louis and other medium cities with large percent black populations have significant violent crime rates. There is no war zone out there, just urban blight confined to relatively small areas. There is no breakdown whatsoever.
You watch WAY too much Death Wish. Even Washington DC has gentrified most of the city proper now. Sure, certain cities will be no-go's...Newark, Baltimore, Detroilet, parts of New Orleans, areas in Chicago. But on the flipside, there's NYC, Washington, most of the cities on the west coast, the midwest, Salt Lake, Boise, etc. etc. There are more cities and states WITHOUT these types of problems than there are with them. Basically just look at racial demographics if you need a quick estimate of risk profile.
There will likely be threats afoot other than one's neighbors. Good neighbors are one of the things worth protecting.
Damn right, Crock!
Neighbors are each others' lifeline to the future. This is a good time for each of us to figure out which ones are going to help us carry the load, and which ones will only lift a spoon and fork.
The inner circle should never fill all of the available space.
Problem is... I don't think they have. I realized this a long time ago, but what % of the country is still bickering about republicans Vs democrats? There's no point speculating as to the percentage, but it's unbelievably high. Most people honestly still think this is about their party Vs the other party. There's is right, the others is wrong. If what you said was true (that everyone has realized) then I'd be far more optimistic about things.
I agree with you here, despite my love for post apocalyptic stories. Even the fall of rome took 300 years.I think the shit will hit the fan, but if there's blood on the streets it wont be on my street (it's not a street, it's a road) - who's going to bother coming all the way out to my place? Not to be blase about it but no matter how bad anything may get, I wont be ground zero.
I like to think of myself as prudent, not panicked. I'm trying to be informed and trying to figure out which of the infinite futures are more likely than the others and to act accordingly. I save, I have no debt. I don't have a bomb shelter, but I do have a veggie garden. There's no ammo stash under my bed.
I'm just trying to put myself in position to pounce on the opportunity of a lifetime when it comes, not hope that I might accidentally stumble on it.
You wrote:
Fuckin'-A, my brother! Nobody's gonna bother going down anybody's road to fuck with their shit—everybody's gonna have problems of their own. So all this survivalist stuff is playing on people's fears. When TSHTF, everyone's going to be too busy worried about their own shit to bother with about their neighbor's.
What you should do—what I recommend in my posts—is to take advantage of opportunities that will come your way. That's why I referred so heavily to the Allende period, and what wide-awake people did in Chile in that situation.
Buy when there's blood on the streets—I certainly don't want bad things to happen to anyone. But I've got a working brain, and eyes that see—if things are going to go south, I'd like to be prepared. And if I could get some advantage out of the situation, an edge that will help my family, well then hell, I'll grab that edge and never let go.
Hope you feel the same.
GL
"Even in the midst of Apocalypse, things will get better."
That would have comforted all those in Nazi concentration camps in 1943.
Some swans are blacker than other swans.
"Igitur qui desiderat pacem, praeparet bellum."
+++ Oracle!
Diversify and be prepared. And that's an order!
I tried to make that point above. Folks are trashing this article who should be welcoming a view that may be new or different -- or divergent from their own. Take the info, assimilate it, act on it if necessary. Just like all the suggested moves to make in case of adversity. Take several different courses of action rather than 100% of one survival technique.
So, kinda like the opposite of "the situation is hopeless, but not serious"?
Exactly.
GL
LOL. Just another two-bit gold salesman in a plaid suit.
Damn. And this is the MAIN story on the site?
Now you see why I don't come around for days at a time...
Well you are on solid ground when discussing how we will get to Hyperinflation...but you are on much less solid ground when you try to predict what the country looks like when it collapses. There are going to be some very upset folks when the government handouts cease...a bunch more folks will be upset when food gets scarce and the balance of folks will just be pissed off that we let it get this far gone.
I suspect that Argentina might be a better indication of where we are heading in regards to chaos. Perhaps you might want to peruse one man's survival there...http://ferfal.blogspot.com/
Contrarianism is valid when dealing with markets and their participants.
Not so much when dealing with governments. When people say "buy gold because Bernanke is going to give everyone a hundred trillion dollar bill", examine their premise, and decide for yourself if you think he might do that. He has said he would, and he has to some extent, with the first stimulus. Nothing to stop him from doing it again, and on a much larger scale, or through some back door.
"Contrarianism is valid when dealing with markets and their participants."
And everybody is bullish on gold.
You wonder why I'm bearish?
LOL. Because people like YOU are bullish. That's reason enough right there.
Now go on, continue with your "ifs" and "buts" about what might happen in a 1 in one billion event.
lol, I'm just going to keep laughing as my investments continue to pay off.
Why are you here again, you masochistic copraphiliac?
Then, I guess that's why you love dollar denominated investments so much. You love to cover yourself in other people's offal. Enjoy your Hepititis.
yes because ZHer's really represent the average common American's opinion dont they?
duh. go survey the majority and rethink who's the contrarian view you numpty
let him be...
not realizing the real value of -(-1)... he'll be right in the middle of the pack he claims to be superior to. ironic, but perversly satisfying.
"can't teach some people with a two-by-four"
track my comments, and you'll know that i'm fairly contrarian, and, while i love the adage "never underestimate the power of large numbers of stupid people", i also think at some point even the majority of a billion people standing in the rain will agree that it is raining.
but a few will always assert that since everyone says it is raining, it must not be.
to me, the coming carnage is as obvious as the rain-drops on my cheeks.
Frankly, I do not see an explanation why commodities will outperform basic goods in this article. Author contradict himself: "To put it in simple terms: If you were dying of thirst in the middle of the desert, would you give up your family heirloom diamonds, in exchange for a gallon of water? The answer is obvious—yes."
Which means that having a gallon of water will be more profitable than having a gold coin
Water is a commodity, but gold is money. If you were travelling through a desert fleeing barbarian hoards, you would take as much water as you could carry AND gold. In the event that you run out of water, you could certainly trade your gold for water, but if you take an extra ounce of water, it won't do you much good.
Gold is everything you can buy with it, only easier to carry.
get a C A M E L , bitch
Gold is the paperweight of the ill-informed.
Sophistries are the profundity of the shallow.
JohnnyBravo is the turd in the ZeroHedge punchbowl.
Well done. I'd say "bravo", but... never mind.
One BIG issue for me is how all the prescription drug users will act when they are cut off. When I combine that with the 90% urban population, I think people will lose it and it will be very bad. Never in history has such a large population been altered by drugs.
They will die, feel pain, or stop having sex. Worse still, TV programmers will need to fill a couple extra minutes each hour that were until recently filled with disclaimers about medication side-effects. So much for death panels.
Drugs may very well become more available one government is finally recognized for being unsustainable, and collapses.
Drugs may very well become more available
http://www.examiner.com/everyday-people-in-national/will-california-lega...
Just substitute sugar pills. The placebo effect is efficacious in over 30% in most double blind studies. You get better because you believe the pill is useful and trust authority. So, the effect on health would actually be minor and might actually improve those currently on antidepressants as they would have to walk around (no gas) and eat less eliminating their depression. Depression seems to be quite a modern phenomena due to lack of physical exercise, much like attention deficit disorder.
Uncle Sam has tons of the needed drugs stockpiled and ready to go -- the masses must be placated. Most of the high-powered stuff is fortified as well. If you're gonna do a job of anesthetizing the common folks, do it right. This is, of course, just supposition on my part. Ahem.
I'd like to thank the author for making it much more clear to me why hyperinflation won't happen, and what to expect (and how to profit) when the commodities bubble he rightly predicts (and that we've already seen the start of) pops like a balloon.
In a nutshell, what the author misses are three things:
1) Regular people in Chile had very little (or no) debt. For them it was money-in, money-out.
2) Rich people in Chile had easy access to alternative currencies.
3) The relationship between the commodities market and the productive/consuming economy was far less speculator-driven and far more real, tangible and immediate.
So where does SEX fit in the new currency ?
It would be a commodity, same as now.
YES.
How many of these stupid hyperinflation vs deflation threads have I said, jfc people stockpile WHATEVER floats your boat.
Land, coal, oil, silver, gold, platinum, diamonds, wheat, wood, cigarettes, yes, even PUSSIES. If you can stockpile pussies for trading, SURE. Pussies have value now and in the future and can be traded for other things that you want.
Gold has no special inherent value beyond any other thing that people want. If a pack of smokes costs $5 and gold $1200, the market is saying that the ratio of smokes to gold is 240:1. A pussy can be rented for $50 these days, and a higher quality pussy for $100 or even more. So the market is saying that low-grade pussies are at 24:1 to gold and higher grade pussies 12:1 or even a lower ratio. These are all just real assets, no more, no less. Market says gold is 2:1 to rhodium right now...market says Californium-252 is 1:1,000,000 to gold. To own a pussy instead of rent it, hell, that may be 1:1 to gold, I'm not that up to speed on this market, could even be more depending upon the quality of the pussy's life support system.
If you want real assets, amass and save whatever floats your boat.
hmm. less regulated, same or more disease risk - price... could go either way.
(?)
I think Ben will get his re-invigorated 'animal spirits' should he continue reading from the Keynesian handbook but I don't think he is going to enjoy them.
Didn't end well for Mr. Allende either as I recall.
" Hyperinflation, Part II: What It Will Look Like"But "Peak Hour" will come 'round again. Always does.
Just a few notes to add to the discussion:
Damn. this looks familiar. How many times did you post it?
Apocolypse - I was with you until you got to the Japan comparison. I disagree. For one thing, they have large personal savings. Americans mostly have none. They have social/ racial/ religious cohesion. We had cohesion when we had the rule of law. Now we have none.
We are more broke than they are.
The Japanese savings rate used to be higher, I believe they are at roughly 1-2% now and the US is at roughly 6%.
Following is an excellent analysis from Mish that addresses your question:
http://globaleconomicanalysis.blogspot.com/2010/08/contained-depression....
Gold is USELESS in a Mad Max scenario.
Food. Potable water. Fuel. Shelter to keep away the cold and the heat. Clothes. Guns and ammo. Medicine.
You dump a wheelbarrow full of useless gold coins for my stash of ammo??? lol. Pure comedy.
"Food. Potable water. Fuel. Shelter to keep away the cold and the heat. Clothes. Guns and ammo. Medicine."
Agreed. Include some N-95 respirators & a few silver coins. My 2-cents.
Me and the rest of the zombie horde have guns and ammo too...we'll just shoot you and take all of it.
Or if shooting him would put us in harm's way, then burning his fucking house down out of spite... salvage what's left. There will be a few idiots trapped in walmart this way after locking the doors...
trav7777
"Me and the rest of the zombie horde have guns and ammo too...we'll just shoot you and take all of it."
Without N-95's and Vit-D (4,000 IU daily), you'll be pushing up daisies.
ROTFL.
We have this big nuclear fireball in the sky that provides all the Vitamin D one could need. It's called the sun. Check it out sometime.
As for the particulate masks, LOL. So, um, when the bomb goes off that pollutes your ENTIRE FUCKING COMPOUND, what do you do with all that ammo? Shoot all the chickens and goats with it?
MOBILITY is what matters and flexibility. This is one of the advantages of gold for example versus other real assets. Opium is certainly an alternative, as are diamonds or lots of other things people want like medicines such as antibiotics. But last i heard the MORE primitive people were the more they seem to desire gold, all the way down to nomads roaming the fucking Sahara desert and eating camel shit.
Better practice up trav....not everyone is a novice. Not everyone is a "mad max" theorist either. Some of us, however, do have a clear view of the potential value in certain methods of preparedness.
I enjoy reading how everyone "knows" what will happen if this sucker goes down. None of us know. This is one changing world.
Worst case, I would sooner melt my gold and silver down to make my own slugs. Then I would bust a gold cap in your butt and take the rest of your ammo.
Don't forget to dig out the slug after you bust that cap...just sayin'
NO, MORON...you melt it into the shape of a fucking CALF and then rally a vast jew army
If you think gold is useless, don't buy any. Problem solved. You're not going to convince a single true believer otherwise, though.
+ 100
You've noticed that I don't argue with them either? There is a reason.
Yes, that is why it can function as something else. It is its uselessness, that gives gold its functionality as a representation of wealth. It is a symbol; its store of value lies in what it represents, not its industrial application.
I become more convinced by the day that GOLD is the best preserver of wealth that exists.
fofoa.blogspot.com
I have trouble understanding the importance of fuel. If the system collapses and industrial production/consumerism plummet, the crude price should collapse.
We are currently using a lot more fuel than we really need to survive. If survival become name of the game, I can imagine the developed country per capita fuel use to drop to a level not much higher than current developing country per capita.
Of course, with distribution chain damaged, *local* spot price might not reflect the lowered crude price.
It's starting to look pretty obvious. So what next?
Now people must choose, change the situation before the crash, or let it happen. You can stop it this way. Change our fate, otherwise, much of what Lira said is right in terms of the EFFECTS of hyperinflation.
The problem is though, it's going to hit everywhere, and while there was places to hide before, for the world, there is very few places to hide when we go POP. There are far too many differences that indicate a world experience of Chile's experience would not rebound the same. (especially in order for the person to profit off the 3k investment, in it's place came THIS system, which will not replace THIS system.
Lots of countr(IES) involved, nukes, and a imperialist monetary system that must be put to death worldwide. Thus the ending would be far worse, and far longer lasting, than history has shown for alot longer than Weimar.
One must think back to the middle ages for the last comparable idea. This is the ENTIRE SYSTEM, not just one or two countries in a system, or participating with others in different systems. This is THE system.
China won't be spared either, although I would say they would fare better, I'm sure hundreds of millions of chinese won't feel much better when the music stops and they lose jobs. I'm sure their system won't really like that very much either. So how well China fares, and all nations INSIDE the system fare, will be roughly proportional to how any country within that system fares, when we're talking about big shift, huge share (the entire thing) goes down. This will be a worldwide banking collapse. When the world breaks down, all bets are off. As we wouldn't be in Chile any more toto.
This will be more like the 14th century collapse, except here in the 21st, it's EVERY country, and not primarily Europe. The derivatives and leverage are correlated, so they will all go down. What's left will be the part of the world that needs the other ones to survive and have an economy. This isn't a U.S. thing. This IS a U.S., Europe, China, insert numerous other countries in here. The ones that ARE left, import what allows their current lifestyle (whatever it is) from these countries. So with that not there, they're screwed too. Not to mention any financial holdings invested in the more industrialized countries will be gone as well.
So you have to look around and how not to game the system to pretend it's fixed, but actually fix the system. The most lucrative things in history will be gone, those banksters, who hold the wealth, won't like it, and fight tooth and nail to keep it. It's to their benefit, as small minded as it is. Destroying the world for what amounts to be a buck ninety-nine is just asinine. The key to stop is Glass/Steagall. Obama is in charge. The buck starts and stops with him. He either get's it, and does. (fat chance, he won't). So you must impeach or have him quietly resign.
Again. Simple list of things to stop the freefall. Not miraculous, it's scientific, and based on PHYSCIAL ECONOMY, rather than MONETARY PRINTING.
1. Impeach/Reisgn Obama
2. Reinstate Glass/Steagall in full FDR form
3. NAWAPA and other infrastructure/energy projects
A global effort, of soveriegn nation states. Sounds quaint, but entirely possible. We don't need to let it all go BOOM, but it will if we don't, that's a certainty. Good luck everyone.
http://www.larouchepac.com/node/15599
Your comment reminds me of Kevin Bacon at the Faber homecoming parade running around yelling "everybody remain calm." Nice thought, but it ain't gonna happen, Chief.
I agree. Good counter-point to the Chile comparison, noting that this time, it's world-wide, but as to the "solutions" - Ain't gonna happen.
People of America. Rise up! The grave troubles facing your nation will not end until each and every breathing patriot rises up against its government. Blood must spill!
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
--Thomas Jefferson
ok, here's what's wrong with the bugout ammo crowd.
Maybe you have a group of friends, but you're in one place. I am with the zombie hordes...we are many more. We, too have guns and ammo. But you were smart, you holed up in a nice strong house in arable land with abundant timber.
So, we just burn it ALL TO THE FUCKING GROUND.
Trust me, you'll come out. Medieval people figured out how to lay sieges...apparently modern madmax idiots have forgotten. Eventually, when the hordes start lobbing dead cows and corpses over your walls, you might wake up. You ever heard of fire? It TRUMPS guns and ammo.
Or maybe the zombie party will get political power and send an A10 your way to deliver some 30mm gift packages.
lolol
Why do you talk to us like we're stupid enough to live/move/bug out where the zombies are gonna go? If it does get that bad, do you really think your gangs of zombies are just going to be driving around burning up precious gas to find out if somebody lives 3,4,6,26 miles down a gravel road, just to see if they have something worth stealing or somebody worth fucking? Doubt it. And if they do? Then I'm fucked. No illusions.
Does your land have a deed registered with the government?
Then, yeah, um...we will know where you are.
And we are COMING FOR YOU, Colonel Cooper...not your guns and ammo, just you. We want to force you to join the vast roaming zombie hordes.
You ever see Dr. Zhivago? I recommend ALL the bug out mountaintop compound madmaxers to watch this movie. When the "Party" pastes a placard to your farmhouse saying "property of the Party, no entrance, penalty death," it might wake ya up.
You're mischaracterizing the "zombie horde." There may be lots of zombies but they are weak and ineffectual compared to real people.
Rampaging mobs do not have the organization or discipline to mount long term campaigns. Rampaging mobs are the one's who starve in a siege because they have no supply lines. Rampaging mobs rampage because they have neither the skills to efficiently produce or efficiently destroy. Anyone with skills attached to the rampaging mob will be easily co-opted by three squares and a warm bed and will join the besieged and therefore the siege won't last long.
I, for one, welcome our new zombie overlords, and would like a pamphlet on how to join and get promoted from within!
trav7777, I like your style . . . and your avatar.
GL
Revelation 6:6 And I heard a voice in the middle of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see you hurt not the oil and the wine.
A measure of wheat was about a quart, and the penny about sixteen cents, which would make the wheat worth about USD5 per bushel; or, if it be borne in mind that one dollar in that age would usually purchase as USD5 now, the wheat would be about USD25 per bushel in the modern currency. Bread by weight always implies scarcity. See Le 26:26 Eze 4:16,17. The prices named also signify the same.
Hurt not the oil and the wine. Oil and wine, though common foods, are entirely prohibited. An age of war, mourning, calamity and famine is certainly symbolized.
@ I am...
What a great reply, thank you.
Be prepared by being diversified! Gold, guns, prescription meds, whatever it takes.
And if the worst does NOT happen, well cheap insurance.
"We have nothing to fear, but fear itself"-FDR
Yeah, Gonzo..your overblown previous post DID go viral, and this one will as well. Nothing like a lovely combination of panic and dread to complement a generous serving of greed and ignorance. With the rentier class on ZH worried that their gravy train has derailed (true), and the unemployed who over-extended themselves when times were phat...well, yes. Plenty of fear to go around.
Could you imagine an American President uttering FDR's quote today? Without a smirk, that is? We are a completely different Nation today. Morally, spiritually, and now financially bankrupt. Soft. Stupid. Souless. Weak.
How's the "Information based Economy" working for you, bitches? Jump into your Toyota and drive to Wal*Mart. Oh wait! Maybe that j-o-b isnt as secure as you think!
And how in the hell did we get our asses kicked in Iraq? And FOR WHAT?
Because Bush Sr. didnt eradicate Saddamm during Desert Storm, and we elected his draft dodging, cocaine addled spawn to sow the seeds of our eventual destruction as a Nation. WMD. Yellow cake. Homeland Security. GS.TBTF. AIG. CIA. War on terror. HFT. GLD.
No one can predict what will occur in the future. As ye so, you shall also reap.
The funny thing is that folks should have feared FDR. His death grip throttles the American people to this day.
"There is nothing to fear but me, myself." -- FDR, revised.
..oh, and did I mention FAF? (Fat as fuck). LOL
Another easy to read, clearly explained and totally believable article. Bravo!
Yo Saul!
Came back for more of my punishment, I see! ;)
Thank you, as always, for your kind words.
GL
Gonzalo,
Your revisionistic account of the Chilean problems suffers from so many errant neoliberal beliefs that it is shocking that anyone takes you seriously... Allende was not the cause of hyperinflation Pinochet was... countless histories & books have been written about this (Shock Doctrine) but YOU somehow have seem to think that you have an insider knowledge of events when in actuality you are selling Friedman... Sell crazy bubbles elsewhere slimebag
I'd listen to this guy, Gonzalo. He's at Michigan State, so he knows all about socialists. ;)
All will be ok people !!!!!!!!!! President Palin knows all !!! just ask her !!!! what could go wrong ? drill baby drill = spill baby spill !!!!!!!! lol
Another Hail Mary pass from Team Blue and...it's incomplete!
All will be ok ! President Palin knows all ! just ask her ! what could go wrong ? drill baby drill = spill baby spill !!!!! lol
Aphorism #3.
http://gonzalolira.blogspot.com/2010/06/aphorisms.html
Bingo...
Deflationary forces will drive money into goods of "real value".
Once sufficient loss of trust in the value of assets such as homes, cars etc (mainly the expensive assets we purchase with credit) is reached by the general population, it is game over.
Losing the publics trust in the value of assets is more important to initiating the hyperinflationary mechanism than a loss of trust in the value of currency . Once enough people realise that paying the mortgage is akin to burning money (or directly lining the pockets of wall street fat cats) it is game over.
I can hear the propaganda machine starting up now.
"Strategic defaults are un-American, un-patriotic and socialist behaviour. Our troops are paying the ultimate sacrifice so that you may enjoy the freedom of home ownership. God bless our brave men and women (sob sob) and god bless America".
So why didn't the United States hyperinflate in the 30s?
By your logic it should have. Default rates were much higher than what we've seen... yet.
Firstly, I will state that I have always been in the deflationary camp and it is for that reason that I believe a hyperinflationary scenario cannot be ruled out as an increasingly likely endgame. It is the very fact that money becomes increasingly tight that the seeds for hyperinflation are being sown. There is more than enough money within the real economy to trigger such an event which becomes self fulfilling as the ball gets rolling. You also must take into account todays instant communication technology (bad news travels fast), increased populations with reliance on complex delivery systems, the shift from the land to the citys, todays disposable wealth (which even today, far exceeds that of the roaring 20's) and the large populations in the early 20th century that lived month to month on personal store credit (people on the land)These factors (to name a few) have important ramifications. This is not the 1930s and the US is not Japan in the 1990s. Eg. A trigger event could be as simple as a regional news report of supermarkets finding it increasingly difficult to maintain stocks of bottled water, canned goods, cooking oil or whatever? Yes, sounds crazy right but that is all that is needed. (i know what I would be doing). As conditions in the real economy begin to deteriorate along with the social mood, the majority who are still employed will hold cash, quit paying the mortgage, credit cards, rent, utilities etc. People will redeem savings, equitys, bonds and purchase essential goods or perceived stores of value. There is plenty of money to drive prices and shortage. Now the ball is gathering pace all bets are off in US and global markets. Everyone from single moms with $1000 to hedge funds with 100 million will throw down the last monetary hand. Everyone knows the dollar is toast longer term but the music is still playing but hyperinflation is about trust and confidence. Once the public has lost it, the big swinging dicks will soon lose it to and the rush to the exits (whatever they may be?) will be on.
There were a number of locations in the US where physical money, i.e. Fed Notes, were scarce, and the locals simply created their own scrip or bartered to deal with the issue.
OTOH, a scarcity of goods will easily render the value of your money questionable, to wit the runup in prices for plywood, bottled water, and batteries just before a hurricane makes landfall. It is one way that the market deals with the scarcity of physical goods, the classic demand-pull inflation that tends to correct itself.
Hyperinflation is when you realise that it is time to move on to another paradigm/country/world where the wealth you have amassed in this one is not readily translatable into the next and is marked down into the most portable form you can take with you into the next.
If you can sit in your house, grow your own tomatoes, and simply get by until things boil over, you don't care what happens to the value of your house in fiat terms, as long as you have some confidence that it will not be expropriated. If you need to leave town, you take any value you can get in a readily transportable form ... gold, for example ... and you bug out.
Someone noted before that USD and UST's are not stores of value .... truth be told, they are for the vast majority of the holders. They've held much of this value because both are backed by the full faith and credit of the US, but people reach a point where they realise that doesn't put as much bread on the table as it did before, and they start to itch to find some other store of value. That is when Hyperinflation kicks in, and it doesn't necessarily take a single trigger or even shortages as a trigger, rather people realise over a matter of weeks or months that they can no longer afford a baloney sandwich with the fiat units currently on their demand accounts, and so they start to look for ways to better lock in purchasing power while they still have it.
The difference between the 70's and today is that 1 in 4 mortgage holders in the 70's were not under water, and so there was still some hope that things would get better through conventional means and there was still some shame in the prospect of walking away from obligations. People today simply say WTF, stop paying the mortgage, buy that Big Mac and IPAD, and jabber on about the injustice of the inequal distribution of wealth in society rather than actually doing someting to create it for themselves and others.
To an earlier point, I've driven through various US cities in the 70's and recently ... yeah, they might appear to be safer in the gentrified ghettos that are a perverse inversion of South African homelands, but on the whole they are much more heavily armed and patrolled by roving bands like the Crips, Bloods, and M13 that are best likened to the Franks, Goths and Vandals that evenutally rolled across the Roman frontiers looking for lucre and food.
One of the symptoms GL alludes to is increased crime ... crime is indeed a first symptom of a civil breakdown. To say that crime isn't increasing, as some have suggested above, is sheer idiocy, given that millions have simply walked away from their financial obligations, which is nothing more than an extra-legal expropriation of someone else's property. If that isn't crime, then what is? It isn't so far from that to making someone else look over their shoulder every time they try to use an ATM to get a few fiat-units to buy evermore expensive bread.
Gold. Standard.
Not to mention that the US had the greatest hoard of gold the world had ever seen. We spent most or all of it. Not gold to save us this time. Quite the opposite, we have an anchor called "the national debt" around our necks, and a hoard of starving sharks called foreign owned treasures that are likely to do us in.
FDR lopped 40% off the dollar overnight...that inflationary enough for ya?
Can Obama take us farther than FDR? Si si puede!
bullets! gold! silver! land! cigs! BULLSHIT!!! I say! Popcorn will rule the day!!!!!!
Sorry, I had to get in on the hyper thread..
Popcorn will rule the day!!!!!! or president palin ?? lol
Fuck popcorn! It's cotton-candy, motherfucker!! Bright pink!!! And extra-fluffy, too!!!!!
(muttering darkly as he stumbles away): Fuckin' pop-corn . . . who does he think he is? he thinks he's better than us or somethin'? . . . fuckin' show HIM . . . fuck pop-corn . . . it's cotton-candy . . . lo-o-o-ove that cotton-candy . . . just wanna . . . roll in it, and . . . and get all . . . all di-i-i-i-irty-y-y-y-y . . . with . . . with-with-with pink . . . cotton-ca-a-a-annnndddy-y-y-y- . . . God! I get hard just thinking about it!
GL
Gum, I've simply got to have gum! Chewing's the next best thing to eating!
Gum it is. Add nicotine gum to your list of supplies for trading. Besides, the smoke and the cherry give away your position in the bunker. Sam's Wholesale has a house brand that is much cheaper (get the 4mg dose). I've got a couple of extra boxes for trading, next to the rolls of junk silver in each of the bug out bags.
"Get busy living or get busy dying."
Stephen King
And where did the sellers of those treasuries put the cash they received? It wasn't the treasury meeting demand with new issues, and at that time the Fed wasn't buying. So it nets out. You can't put cash into treasuries unless it's the gov buying.
And you did not answer where the cash comes from, palliative printing? So how does it get into the peoples hands?
And without a continuious new supply of cash, people cannot continue to bid up commodities or consumer goods. Velocity alone wont do it.
That's why the Lord created ATMs.
Amen...
More amateur blabber. This is just a rehash of the first article, plus a pretense of responding to criticism, which only shows how poorly he understood it.
Again, it is not easy to drive up major commodity prices sharply in a short time period. If, for example, big financial investors bought the hell out of oil futures to the point they doubled within a week, which is less radical than your scenario, they would have commited to hoarding enough physical oil to sustain that price. They wouldn't be able to build or acquire that much storage in time. They would be dead ducks. Deader than dead.
Even if, theoretically, one could drive up major commodity prices up so quickly, without expansion of the money supply, the result would be a downward shock to growth, not hyperinflation.
Money supply growth is an absolutely crucial prerequisite for hyperinflation. Absolutely crucial. Enough time wasted on this fool.
Hey Tom... I do not believe the money supply would have to increase to get commodity prices to rise. The part of the first article that caught my attention was the idea of bonds getting sold off, and that capital heading to 'both' the futures markets and the phisical markets. If the bubble in bonds were to pop, I could see equities getting hammered as well just from knee-jerk fear. In a situation where bonds and stocks decline at the same time, where else is money going to go for 'safe heaven?'
Not saying I have a freaking clue where the future will lead us, but the overall thesis seems more than believable...
If dollar collapses, who cares about money supply, you can do whatever you wish with money supply and it won't help a bit. He's talking about run on the dollar. And if it happens forget about your futures for oil, nobody will deliver on contracts you may hold. And you are right it would be major downward shock to economy, bigger than you can imagine, first it would go to stand still and then to liquidation.
I lived through something like that in Poland in late 70's and 80's. I know you can say it was communist country then and not US, but the crisis was debt induced and it does not matter how you call political system consequences are the same.
Everything he wrote about in his post happened in Poland, and many other countries all over the world, I don't want to go to details here but don't count on dollar as reserve currency to preserve your system for much longer.
I don't think he meant that you should pile up on oil, metals or grain futures or other paper commodities, just if you have means to get real stuff, do it now. Real stuff may be, in extreme, even toilette paper or cigarettes, whatever it is, when crisis hits you'll be able to exchange it for whatever you will need. Talking from experience.
"Money supply growth is an absolutely crucial prerequisite for hyperinflation. Absolutely crucial. Enough time wasted on this fool."
Actually Tom, you place your ignorance of the topic on public display when you make such a statement. I suggest you crack a few books. As Mr. Lira makes clear in his previous essay on the topic, inflation and hyperinflation are two distinctly different beast. Hyperinflation is the complete collapse in confidence of a currency caused by a collapse in confidence in the issuer of said currency. This rapidly falling confidence leads to the currency holders shedding their money as quickly as possible so as to aquire some value out of the currency they hold. It does not require a sudden and rapid expansion of the monetary base. Though, this sudden and rapid and expansion of currency printing by the central authorities soon follows this monetary and social phenomena in an attempt to fix the problem(s); of course an great than normal expansion of the money supply can be a contributing factor in the lost in confidence.
Go do some reading about what happens in the real world and real human experience, not in the theoretical world of nonsensical economic ideas taught at nearly every major university in the west.
Thank you, Groucho—you are far more civilized than I am. I just dismissed Tom with Aphorism #3. You, sir, engaged. Kudos.
GL
It's you guys who need to not only crack books but read them. Sorry to sound like Archie Bunker, but getting jobs and some experience might help, too, meatheads.
No hyperinflation has occurred anywhere except where money supply was rapidly expanding. Nowhere, never. Read up.
If the oil price suddenly doubled, by say the Saudis suddenly shuttering half their production, that would cause a one-time large upward move in prices and large downward move in GDP, not hyperinflation, which is a sustained rapid escalation of prices.
You guys seem to be imagining hyperinflation as a sort of mass hysteria, in which people lose confidence in the currency because everybody else is losing confidence, not necessarily for any intelligent reason. It just doesn't happen that way. People lose confidence for the intelligent reason that the money supply is expanding too rapidly.
Financial investors can't sustain elevated commodity prices without an increase in consumer demand or government stockpiling. The run-up to $140 oil took years and was sustained by rising consumption globally, and some stockpiling by China.
I'm not dismissing the possibility of hyperinflation, which is not short-term but is very real, and stems from the possibility that the Fed could attempt to monetize deficits and debt repayments.
Keep it real, kids.
It's you guys who need to not only crack books but read them. Sorry to sound like Archie Bunker, but getting jobs and some experience might help, too, meatheads.
No hyperinflation has occurred anywhere except where money supply was rapidly expanding. Nowhere, never. Read up.
If the oil price suddenly doubled, by say the Saudis suddenly shuttering half their production, that would cause a one-time large upward move in prices and large downward move in GDP, not hyperinflation, which is a sustained rapid escalation of prices.
You guys seem to be imagining hyperinflation as a sort of mass hysteria, in which people lose confidence in the currency because everybody else is losing confidence, not necessarily for any intelligent reason. It just doesn't happen that way. People lose confidence for the intelligent reason that the money supply is expanding too rapidly.
Financial investors can't sustain elevated commodity prices without an increase in consumer demand or government stockpiling. The run-up to $140 oil took years and was sustained by rising consumption globally, and some stockpiling by China.
I'm not dismissing the possibility of hyperinflation, which is not short-term but is very real, and stems from the possibility that the Fed could attempt to monetize deficits and debt repayments.
Keep it real, kids.