This page has been archived and commenting is disabled.
Guest Post: The Mechanics Of Hyperinflation: Bankers vs. Politicos
By Charles Hugh Smith from Of Two Minds
The Mechanics of Hyperinflation: Bankers vs. Politicos
Hyper-inflation erupts when politicos control the money supply; bankers focus on their own interests, and hyper-inflation doesn't serve them.
Without a systemic understanding, history and the present both devolve to Toynbee's "one damned thing after another." If we are to make sense of history--and with the aid of history, to make sense of the present--we need what I call an integrated understanding.
Schools of thought develop around key insights, and then they attempt to project these core insights onto the entire world. This over-extends the original context of the insights, and so the school becomes discredited.
I am a pragmatist rather than an ideologist, and so I have no patience for ideological purity. As a result, I don't claim any "school of thought" or economic camp as my own; I try to incorporate the core insights from all schools of thought into my own understanding.
We can look to the Keynesian and Marxist schools for examples. Marx systemized some core insights into the dynamics of Capitalism, the key ones being 1) eliminating competition via monopoly or cartel was the road to spectacularly reliable profits, hence the power of monopoly capital, and 2) there is a critical difference between industrial and financial capital.
To lift Marxism to a quasi-religious system discredits the whole. But to reject Marx's work in its entirety is to miss the fundamental drivers which still operate (look no farther than banks, Sickcare and the military-industrial complex for examples of cartels which control vast industries, income streams and capital).
Keynes' key insight was the role central banks and governments could assume to ameliorate specific kinds of financial depressions via borrowing and fiscal stimulus. But politicians found that keeping the spigot open all the time increased their power and longevity in office, and so what was to be used sparingly and infrequently became the default policy.
We are now witnessing the exhaustion of permanent Keynesian stimulus. We shall soon see its repudiation as a systemic "solution."
Which brings us to everyone's favorite campfire debate, inflation vs. deflation. What this really boils down to is whether the financial world will expire from fire (hyper-inflation) or ice (deflationary death spiral).
My own position is that hyper-inflation is first and foremost a political phenomenon--it is necessarily the result of specific political policies and choices.
In my view, there are two keys to understanding deflation and hyper-inflation: one is cui bono, to whose benefit? Who benefits from a hyper-inflation that wipes out all cash and cash-equivalent financial assets?
If we take it as axiomatic that hyper-inflation is a political process, then we have to conclude that hyper-inflation serves some powerful interests who would support the policies that would bring it to fruition.
My problem with the "hyper-inflation is inevitable" school of thought is that I cannot identify what powerful interests would gain from the destruction of the currency and all financial wealth. A hyper-inflationary wipeout certainly wouldn't benefit the Financial Power Elites who hold the vast majority of the financial wealth. Yet it is this very Elite which wields the preponderance of political power.
Thus you end up with this untenable conclusion: the politically powerful Financial Elite will consciously choose to self-destruct. I don't buy that as a likely scenario. If inflation started destroying their wealth, then they would instantly influence political policy to reverse course to preserve their wealth.
I suspect this may explain Great Britain's abrupt and profound policy reversal from extreme Keynesian stimulus via sovereign borrowing to severe austerity.
The second key understanding is that debt is an expense to the borrower (and thus to the government) and an asset to the bank/lender/owner of the debt. Those who see hyper-inflation as inevitable tend to focus on the benefits of wiping out debt, but they forget that wiping out all debt via hyper-inflation also wipes out the assets and wealth of all who hold that debt.
This leads to a simple yet profound question: who is more politically powerful-- those who owe the debt or those who own it? And that brings us to a very interesting essay from the Austrian School of economics.
I am a student of history and economic thought, not a scholar, and so I read this paper forwarded to me by frequent contributor U. Doran with keen interest: Deflation vs. Inflation (An Austrian Analysis).
Boiled down to its essence, this insightful analysis concludes that hyper-inflation only arises when politicos (politicians) control the money supply. We can best grasp this by returning to cui bono--to whose benefit?
Central banks exist to protect and enrich the banks. Understanding that will go a long way to explaining why hyper-inflation simply isn't in the cards unless the central bank (or banking cartel) loses control of the money supply to the politicos, who never met a deficit spending budget they didn't love with all their heart and all their mind.
That too is understandable in terms of cui bono: politicians succeed in holding onto power by passing out largesse to their constituency. In democracies, that includes contributors and voters. In dictatorships, that is often the Army and a small Elite of landowners.
The authors of this paper contend that the infamous hyper-inflation of the Weimar Republic in Germany only arose because the political class was in control of the money supply. The central bank was a tool rather than a potent force of its own.
Why would bankers allow hyper-inflation to destroy their assets? If they had any say at all in the matter, you can bet that their strong preference would be for just the sort of policy the Federal Reserve is pursuing: a modest inflation that enables their debtors to make their payments.
The chief debtor now is the Federal government. The banking cartel won't benefit from sovereign default, at least they won't if they own any sovereign bonds.
Politicians, on the other hand, are chafing under the constraints of debt and interest payments. High inflation is acceptable if that is the only pathway to keeping the money spigots wide open and the largesse flowing to constituents. For politicians, there is no future beyond four years. Bankers have a longer view; they must preserve their assets, and hyper-inflation destroys financial assets.
Some claim the super-wealthy will simply move their wealth into gold or hard assets and wait out the hyper-inflation. We should note that all the gold ever mined is worth at best $7 trillion, and global assets are roughly 20 times this sum.
There is simply no credible reason politically powerful holders of debt assets (bonds, mortgages, etc.) would allow their wealth to be destroyed: what possible benefit would that offer them? It makes no sense.
This paper makes a well-reasoned case for keeping the money supply out of the hands of politicos. Central banks and the banking cartel can be trusted to look out for their own interests, and even if we find their political power and self-serving policies despicable, they are at least reliable and overt.
We should also note that mild deflation benefits the owners of debt assets. If prices are deflating by 2% a year, even those holding bonds which yield a meager 1% are effectively earning 3% on their wealth.
Mild deflation makes debts more onerous to the borrowers, but if these borrowers are politically impotent, then they will simply have to "buck up" or default. As long as the majority of debtors continue to service their debts, the owners of the debt prosper.
Lastly, consider the profound difference between printing money and borrowing money. Governments which create hyper-inflation actually print the cash; governments which borrow it via selling bonds have "governors" on the amount of debt they can sell and service.
Deflation vs Inflation is a bit dense in sections, but it is very readable and closely reasoned. I recommend it to anyone seeking an Austrian School understanding of the monetary and political roots of deflation/inflation.
»
- 10067 reads
- Printer-friendly version
- Send to friend
- advertisements -
100% ... gas over $4/gal this summer all across U.S.
Consequences:
1. The media attempts to blame Bristol Palin for her position on abstinence.
2. The sheep pay no attention as American Idol w/Steven Tyler (TM) is bigger than before because he actually bitch slaps J-LO during the finals.
3. Gold goes to $2500/oz.
The author of this article is a fucking idiot. His entire premise - hyperinflation is first and foremost a political event - is wrong.
Perhaps that is why, before his analysis even begins to gain momentum, he is immediately confused:
- In my view, there are two keys to understanding deflation and hyper-inflation: one is cui bono, to whose benefit? Who benefits from a hyper-inflation that wipes out all cash and cash-equivalent financial assets?
- If we take it as axiomatic that hyper-inflation is a political process, then we have to conclude that hyper-inflation serves some powerful interests who would support the policies that would bring it to fruition.
- My problem with the "hyper-inflation is inevitable" school of thought is that I cannot identify what powerful interests would gain from the destruction of the currency and all financial wealth.
Who benefits? Currency speculators who are shorting it into the ditch, you moron! First and foremost, hyperinflation is a 4X phenomenon. Hyperinflation occurs to a country's currency when that country has massive amounts of debt denominated in foreign currencies and is reliant on foreign exchange markets to service its debt. Conversely, US debt is denominated in US dollars and we have the ability to sell it to ourselves if we want. That is a fundamental difference between the US and Weimar or Zimbabwe.RNR:
The author makes a lot of sense when he states that debt deflation benefits creditors. This is not rocket science. While currency speculators do exert influence on exchange rate, they do not cause the loss of confidence in the currency. You are correct stating hyperinflation being a Forex phenomenon, but the relentless debasing of the currency is what drives the speculators to short the currency, not the other way around.
Also,you are deluding yourself when stating that the US can simply sell its debt to itself without inflationary consequences. How do you logically see this working in the medium to long term?
I believe you owe the author an apology for your childish name calling.
All the best...
he author makes a lot of sense when he states that debt deflation benefits creditors...
No one disputes that. For the author to get that right is meaningless.
The relentless debasing of the currency [your words] causes inflation, as we've seen with our currency over time. The phenomenon of hyperinflation is an entirely different and unrelated event. Inflation and hyperinflation might have similar etymological DNA, but unrelated nonetheless.
One final thought: the overhang of debt that still remains from the largest blown credit bubble in the history of the universe will lead to a deflationary buzzsaw that cuts across all assets before any hyperinflationary event occurs. For every dollar that Bernanke prints, less and less of it will contribute to GDP growth. It merely goes to satisfy that debt overhang that the IMF calculated recently to be upward of $40T - go to page 19 of the following IMF link and add total debt securities with bank assets.
http://www.imf.org/external/pubs/ft/gfsr/2010/02/pdf/statappx.pdf
Now, go to this link....
http://www.shadowstats.com/alternate_data/money-supply-charts
....and you will see that money supply growth has collapsed, despite all the "printing" by Bernanke. While it turned upward in the recent past, the trajectory is clearly down and will remain down as more and more money goes to service the phantom wealth of debt/credit that was blown up our ass by, most notably, Greenspan. If you're still interested, just look at this chart of the M1 multiplier:
http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=MULT
Think about all the debt outstanding. Ask yourself, why is money supply growth shrinking in the face of all Bernanke's printing? And then see the evidence of the declining effect of each dollar printed by the multiplier chart. That is, unequivocally, an argument for a country on the verge of a deflationary collapse. Bernanke may be successful in the short run with various inflationary injections, but ultimately the debt will crush him, and us.
All the best to you, too....
I don't see how the phenomenon of hyperinflation is "entirely" different. When increasing money aggregate,two things happen: More money chasing goods, and more money compared to other currency. Both "phenomenon" have the same root, and both influence prices higher. I understand the differences between self-liquidating loans and increased productivity which can modify the outcome of prices. I also understand that a currency can decrease in value compared to others if a country's DGP falls and threaten it's ability to service debt. But in all of history's cases, as the author points out, a disproportionate increase in monetary aggregate drove the currency lower compared to others and caused prices to skyrocket. The guilty were politicians, and the cause was monetary. Why did the world loose confidence and dump the currency? Too much money printing. Same cause, same root, same thing.
Also, I do understand that this is not currently the case in the US, and that monetary aggregates are declining so deflations is what needs to be battled. But that is the author's conclusion as well, and you didn't seem to agree with him in your first post.
The one thing I don't understand, and maybe you can help here, is about the IMF report you linked to (page 19 and 20). Adding the world's debt securities & bank assets yields about 180T, while on Page 20 Total Single Curency Interest RAte Swaps Contracts add up to 450T. Does that mean that all world debt is involved in an IR contract multiple times over? The size of the numbers involved in those derivatives just don't make sense (in my mind), when compared with world's total debt and world GDP. Although I 'm not an expert in the subject, the lack of transparency in all this raises suspicion.
More fundamental even than all that, this author's rather sterile and/or disingenuous speculations ignore the fact that there is only ONE modern example of an actual deflation in all of monetary history (the USA, 1929-1933), and more to the point, no "deflation" has EVER occurred under a fiat currency regime! There are, however, innumerable cases of governments running themselves into unpayable debt, as we are today, and the results have always, without exception, been the same: currency debasement and high price inflation, if not actual hyperinflation.
To even talk about a "deflationary collapse", much less hyperdeflation, is to display a laughably complete ignorance of financial and monetary history, as neither such unicorn has ever been seen in real life, nor is there any sound reason to suspect their existence.
While one might argue that "this time it's different", I believe that the difference will only lie in the severity and scale of the inevitable currency debasement and collapse.
You need to recognize that one word - deflation - can have different applications.
You're talking about the value of money under a fiat system. I'm talking about the value of assets on the balance sheets of banks, corporations and individuals. One word, different applications.
The deflationary collapse of assets that I was speaking to will initially jam everyone into the dollar. Whether or not everyone stays in the dollar is unknown, and that is an argument that I take seriously.
That is true, although I would argue that the one honest definition of "deflation" --- a decrease in the supply of money ---- or even the more sloppy definition of a general price decline, has little or nothing to do with balance sheets and asset values; bank balance sheets are NOT part of the money supply.
Nevertheless, the fact that there is only one true example of deflation in monetary history, and not ONE under a fiat currency regime, while there are hundreds of examples of extreme inflation and hyperinflation due to chronic government overspending, is rather telling, is it not?
I still aver that anyone fearmongering today about the "threat of deflation" in the face of exponentially rising government debt is either a disinformation agent for the power elite, or else is an ignorant and naive "useful fool" for the same.
Thanks Akak. Three tight paragraphs that tell me to keep buying gold, ammo, and food. Water purifiers I got.
This post by Charles Hugh Smith was the final straw that convinced me to take his blog off my Yahoo feed. There's 10 mins a week I won't be wasting.
@akak
Sorry to inform you, but your post is entirely off the mark.
the one honest definition of "deflation".... has little or nothing to do with balance sheets and asset values..
*LOL*
Tell that to all the banks on Wall Street sitting on multi-trillions in unrealized write-offs. Tell that to those staring at a chart of money supply growth. Do you actually think this entire crisis had little to do with the total devastation of bank balance sheets? When you preoccupy yourself with trying to see everything through the "deflation only means currency debasement" lens, you truly miss the most significant pieces of the puzzle.
While your arguments about fiat money deflation are accurate, I would encourage you to broaden you understanding of our crisis, and look at the deflationary catastrophe lurking on balance sheets everywhere. Suddenly, you'll change your narrow-minded views on what the definition of deflation is, and where our focus should be.
Sorry --- history and common sense tell me otherwise.
And here I was just last week trying to defend myself in this forum from another deflationary flat-earther who insisted that I was wrong in claiming that the deflationists are clueless for essentially equating money with general debt, as you have just implicitly done.
All arguments warning of the "threat of deflation" are merely pro-establishment, pro-fiat disinformation or pure obfuscation.
holy shit.
Quick question: When you hear Bernanke and/or bankers talking about the "threat of deflation," what do you think they are referring to? I have a sneaky feeling that you have no clue what they're talking about.
<crickets>
as usual.
1) Just more of their lies and disinformation
2) Sure as Hell it is not generally falling prices!
PS: Forgive me for not breathlessly awaiting your every post around the clock.
Yes but the central banks might just monetize all such unrealized losses ... inflationary. No?
AKAK:
Most debt is created by commercial banks, not the central banks of the world. When talking about inflation/deflation you must refer to monetary aggregates, not base money, and since bank assets are mostly debt (loans), their balance sheets are very relevant. When this is understood, and you realize that banks have 600 Trillions of derivatives on their books, lots of it under water, the whole pyramid of debt collateralized by other debt might come tumbling down in an avalanche of deflation. But Central Banks probably won't let this happen and paper the whole thing over, somehow. So in the end, it might not need to be catastrophic at all. Who knows, we're all just speculating.
This was a great post by CHS. Sorry to say I missed this debate until now as I was on a "vacation". But I'm catching up on my reading now.
In brief:
Cui bono
Banks benefit from printing via these sales of defaulted debt for $ via the fed.
Politicians benefit from printing via handouts to the plebes.
Inflation backlash is the only hindrance; ONLY because its harder to print more!
"The author of this article is a fucking idiot. His entire premise - hyperinflation is first and foremost a political event - is wrong."
The authors make way more sense than your one dimensional tripe. No one, including your vaunted 4X traders, benefits when an economy the size of the US goes Zimbabwe.
The fact of the matter is, most of the world's wealth is paper, based on promises of future future growth and earnings. If anything disturbs the perceived worth of the paper, the weath will evaporate in an instant. I'm sure even your feable mind could grasp the catastrophic effect the destruction of a major currency would have on the world economy.
The authors are right that asset (hard, tangible, paper, or otherwise) holders or anybody else don't want hyper-anything. Taxes on the nominal gains alone guarantee humongous losses. Rather, they want the status quo. And that's the reason the Bernank the assiduous ass is working so hard, not to blow up the dollar, but to maintain the status quo.
Edit: This is not to say he will succeed. I wouldn't be surprised to see alternate periods of high inflation and deflation.
If "... all the gold ever mined is worth at best $7 trillion, and global assets are roughly 20 times this sum", should we expect gold to go to $25,000 ???
If ".... all the gold ever mined is worth at best $7 trillion, and global assets are roughly 20 times this sum", should we expect gold to go to $25,000 ???
Yes, but only if every central banks start total convertibility of their currency to gold, and that will never happen, so in the end, no.
If you amortise the costs of the war in Iraq and the subsidies, bribes, and policing costs for the rest of the middle east, gas is already (and has been for some time) well over $4 per gallon (try something on the order of $7).
Consequences thus far have been nil because the only price people see is what is on the pump, and thus far they have largely grinned and borne it.
The political class wants inflation to spread wealth and get re - elected. True. But the Pauls smell blood as the disenfrancised voters become more numerous.
Sure if things go back to normal the Pauls will lose their base. But now, people see the crooked banks "CDO's" and know intuitively that they were playing with monopoly money made by the FED at their expense. And the state and federal pensions. So the base will last a decade.
Deflation for the Banks. Deflation for public debt. Inflation for the private debt. That chapter will be written and added to Galbraith & Marx
Japbabwe bitchez!
it will be neither and both
for the masses impoverishment
for wall street & the elite enrichment
Things I need to live - prices up
Things that are nice to have - prices down
Except for real estate, which is still looking for the bottom.
Brilliant
Keynes himself, Fabian Socialist pederast Mathematics Don, Bursar at Kings College and successful investment adviser before government adviser
believed in balanced budgets, book value and decried the casino mentality, proposing transaction taxes to encourage real investment
an idea Nobel Laureates James Tobin et al supported
Replace the antiquated 1913 Fed with Friedman's computer and the superseded 1913 IRS with 28 basis point transaction tax to liberate this economy
http://www.apttax.com/
I agree with this wholeheartedly and am a proponent.
Similarly, I see parallels to the the abomination that has become the Darwinian Theory of Evolution. Both Keynes and Darwin had astute observations that on their own that were extremely valuable to Mankind. However, only those with both the intellect to think and reason with any originality, and the self-discipline to achor themselves to proper scientific method and fiscal conservatism, could apply the knowledge from these two men and avoid the inevitable "overdose". Unfortunaltely, precious few men have both of these virtues, and so most simply seize on the raw effect of a newfound "lever" of profit and control bequeathed to them by history. Thus, Neo-Keynesianism and Neo-Darwinism are born. Those who know more about the real story behind the origins and content of these theories and theorists, also know that their present "state" would be reviled by their originators. Original intent, and it's debasement are so often Mankind's undoing...
"Central banks exist to protect and enrich the banks. Understanding that will go a long way to explaining why hyper-inflation simply isn't in the cards unless the central bank (or banking cartel) loses control of the money supply to the politicos, who never met a deficit spending budget they didn't love with all their heart and all their mind.
"
I would argue that a politically controlled central bank (which we have!) is no better than money directly controlled by the politicos. Unfortunately the sheeple have effectively no knowledge of the concepts or the reality of this. People keep arguing against a gold or PM backed currency claiming the price of gold would have to be $5,000 to as much as $50,000 an ounce. If the Fed has destroyed 98% of our purchasing power in the last 97 years, why shouldn't gold be useful money even at these prices? It worked for the first 5,000 years of human civilization. PM's haven't changed in value - fiat currencies have.
(Divide 14.025 T US debt by 286,900,770 official US gold reserves and that's what we got)
Consider unbacked derivatives plus unfunded government liabilities and multiply the number by ten or more, at least until Uncle Sam defaults
Incidentally, the Euros have
2,659.1 more tonnes of gold than Uncle Sam claimshttp://www.usdebtclock.org/
http://en.wikipedia.org/wiki/Official_gold_reserves
Both Friedman and Greenspan wrote in pre-1999 private correspondence returning to the Constitutional gold(silver) standard was not practical
Time will tell all, since computers calculate quickly, markets change slowly, and minds regain senses one by one
Bot silver today, first time since $4ish in 2001
http://www.sharelynx.com/chartsfixed/SI1998.gif
http://www.sharelynx.com/chartsfixed/600yearsilvera.gif
"Bot silver today, first time since $4ish in 2001"
Ironic. I bought silver yesterday.....
ATG;
Unless you are really losing it; it might be unwise to accept the gummints' claims of Gold "held" unless and until it is all audited...
So your arithmetic may be out by a very large factor!
I don't think it makes sense to say that the Fed is politically controlled... it's a collusion between banks and politicians, they are presently two parts of the same system.
Pslater;
The author states that all the Gold ever mined amounts to but 7 trillion; but the total "assets' in the world total 20 times that...
If his IQ was out of the single digits he would be able to see that Gold is presently undervalued by a factor of 20.
Neither the banksters nor the politicians will never accept a gold backed currency because then they would have to balance their budgets come what may. ... Just can't see this outcome as ever happening.
So they prefer the present lunatic path: Armageddon...
Confuchius
I have the helicopters. So I vote for hyperinflation.
Hyperinflation will happen in a manner of minutes. Hyper being the key word.
Everyone will realize that government bonds and paper are worthless almost at once and sell, sell, sell. Kind of like a flash crash.
Then all that money will go into real things coal, oil, gold, potash, etc shooting up their prices.
We have modeled this at the FED.
Has been outcompeted by spend, spend, spend so far and for some time more....
"Everyone will realize that government bonds and paper are worthless almost at once and sell, sell, sell. Kind of like a flash crash."
Who is this "everyone" you speak of? The Fed? Why would they sell? Ditto for the SWF's. What is their incentive in selling? Sure, they're pissed about debasement, but why would they choose the alternative (mass selling), which would be an unmitigated disaster to the accounting value of their SWF?
Keep in mind, nobody relevant to the game gives a shit what a few or even millions of individuals do as far as the purchase or sale of bonds. They are a drop in the bucket.
not seeing both inflation and deflation at the same time shows this paper was not well thought out. the implication that we should let the bankers serve their best interest cuz its better than the politicos interest, therefore its is in the best interest of the people. Not even gonna justify with an answer just what does your gut tell you. And last, austrians are against a debt based money, By supposing the austrian ideas in a backdrop of a keynsian world, would mean they are for any sort of debt makes no sense, its becomes a choice between bullshit and cowshit
The concept of inflation and deflation at the same exact point in time is fundamentally against the basic premise of the austrian school... please check your definition of the two terms.
go too your grocery store apples up one day and at same time limes down, simple right?
I am well aware of that issue as I go grocery shopping. The concept of inflation and deflation at the same exact point in time is fundamentally against the basic premise of the austrian school... please check your definition of the two terms.
Not quite ... there is inflation, and there is a simple adjustment of prices to reflect a new supply demand picture ... the apples-limes paradigm you posit does not give enough information to determine which scenario is in play, though one could imagine that since prices are going in two different directions that it is supply-demand and not inflation-deflation.
Interesting insights, but it presumes that moneyed interests have the power to control the markets. The past three years would have to dissuade even the most passionate defender of the potency of the central banks. Debtors will only pay debt service for so long until they eventually balk. Q.E.D. Massive debt deflation
Rolling defaults like brownouts
Who can predict the final deflationary debt blackout?
Meanwhile, interest rates rose since Fed began QE II
http://www.nytimes.com/2011/01/11/business/economy/11fed.html?pagewanted...
when the 'currency' crash comes and the 'cui bono' emerges you will see that the dtc via its subsidiary cede&co (yes that does mean 'surrender ownership of') are the legal owner of every REAL asset in the system, resource-backed equities included! This is all plain as day on any stock certificate you care to inspect. What's the betting the Fed cartel own the DTC and/or cede&co?
Bingo
Real money too important to let the little people have any
I don't think anyone purposefully chooses to "self-destruct", but look at Lehman and vaunted TBTF banks. They got pretty damned close. If not for TARP, QE etc., they'd be gone. The politicians only act "after the crisis." They are not thinking more than a year or two ahead.
I admire Charles Hugh Smith's analysis and I read all his posts, but I don't think the politicos or the banks really have control of this whole thing: namely the destructive potential of un-payable debt, un-collateralized derivatives, globalization and it's attendant volatility, peak oil, environmental degradation, wacky weather etc. The next decade may be ruled by neither the bankers, nor the politicos. It's the decade of the black swan.
http://therookiecynic.wordpress.com/
Politicians thinking about fundraising to get rich and reelected
Everything natural will hyperinflate
Everything artificial will deflate
Yes I tend to agree, everything limited will hyperinflate.
Everything that can be artificially generated will deflate.
Including land/real estate, which is currently deflating?
So what happens when the dollar losses world reserve currency status and is replaced with a bancor or SDR. Wont there be a rush away from the dollar suddenly inflating the dollar by 300% or more? This essentially causing hyper inflation. Perhaps not the Trillions to buy a peice of bread type inflation. But $50-$100 loaf of bread type?
TPTB don't really care about their Trillions only the power it buys? The only way to destroy the system is through a flash hyperinflation crash. Deflation over decades doesnt help TPTB, it only delays their power grab and gives the people more time to figure out whats going on and strike back against the banks.
Hyperinflation is instant destruction and will force the sheep to run to TPTB to save them. no?
Maybe they burn out the dollar and then we see the rise of the Amero?
At an exchange rate favorable to them, of course...
Nonesense. The sheep is already in the fold of TPTB. Hyperinflation will only spook them to stampede elsewhere.
Bancor won't happen without a fixed rate of exchange.
One of the most astute contributions I've read on ZH. Bravo.
Would have been better if it touched on monetarism, a tool much maligned but used with effect during the Thatcher years in Britain, and pertinent perhaps to the next politico move, that of raising interest rates in an economy that is already bursting at the seams on borrowing. Yep, who has the power indeed in this scenario? The borrower or the lender?
The author makes a strong argument that should be nothing new to anyone who's been meditating on these issues for any real amount of time, so nothing new there.
However, I think the author fails to present honest arguments that oppose his thesis. Namely, that a deflationary debt spiral/collapse ALSO massively destroys wealth as waves of businesses and persons default and/or go bk. And given how much debt is in and distributed in our global economy, I would argue such a spiral would be as much of a shock (if not more) than a high-inflation scenario. We talk about massive eurozone bank failure being ignited by just some Irish bond haircuts, but imagine what would happen if the scale of that went up by 1-2 orders of magnitude.
I think the outcome will be determined by the path of least resistance in a game theory context. Politicians will always reach for largesse and banks and wealth holders will always kick the can so that their coupons are paid on time. Repeat, repeat, and you have no choice but currency devaluation or spark a massive systemic implosion from debt.
Oh, and let's not forget, that the longer the can is kicked via new debt issuance, the larger the gun that'll be held to the head of politicians to devalue, increasing the likelihood they'll choose to print over reversing course (and igniting a 1929-style crash). So in other words, the more they kick the can, the less we'll ever be able to reverse course to sound policy making.
Never confuse fiat with species
No argument there - predicting a systematic implosion from debt is a recurring theme on ZH. But the author has presented two intriguing ideas 1)Who has the most power in a world sloshing in debt? The debtor or the debt holder? 2)Who should be in control of the money supply? The self-serving bankers who will instinctively act to protect their wealth and assets -v- The self-serving politicos who will instinctively act to protect social stability for as long as they are in government? A combination of these could result in a by-product for averting disaster - which is surely what every sane person wants?
I agree that as night follows day, the current economy is unsustainable and the astronomical figures of doom point to one kind of fireworks or another, but I appreciate the author's questions far more than his answers. (Just food for thought: Path of least resistance is also analogous to the principle of least effort, but we both know that exceptions exist to this rule and there are always individuals who are willing to put in the effort and sacrifice themselves to do the right thing even if it only puts off the inevitable for a short while).
Or one could consider that the standard unit of account, currently the dollar, is defined by the corporate/government partnership. That unit is variable but the science of accounting still relies on projecting future value on the current value of the monetary unit. This is a dichotomy who's value relies purely on faith.
http://www.financialsense.com/contributors/antal-fekete/sound-navigation...
So again we are back to trust of all those who use the monetary unit of account. Trust is a tenous thing and it's value can be affected by abuse.
I just notice the market actually going down - in the wake of Charles Schwab being ordered to pay $118m for, well, fraud.
So, that's what it takes. "You take us down, we'll take the market down".
$18 M
Bank owners may not want inflation, but the higher level bank workers want a piece of the action, and thus were guided by their short term interests to collect fees and bonuses. Business stock owners have the same problem with their higher level workers.
And who is to say that current bank owners or stock holders are "smart" enough to realize the long term consequences of handing their business functions over to other workers?
It's an issue of short term vs long term gains, and bankers have no monopoly on smarts.
As far as the large banks are concerned, political power can be bought. And that includes military power. What we really have to fear is whether the military has the moral courage to exercise humanitarian restraint against the financial incentives they may be offered to join the dark side.
BAC to $20 Bitchez! Fabulous Fed Book! Moooohh!
Would you believe 22?
http://stockcharts.com/freecharts/gallery.html?s=bac
pop quiz:
1) Rudolph von Havenstein was
a) a politician
b) a central bank president
2) Central bank independence is
a) reality
b) a canard
Make the case that the U.S. government can survive a persistent and self-reinforcing deflation. Address in your argument:
Describe the majority political constituency for balancing the budget in the United States.
Extra Credit: List the sovereign nations or other potential creditors who are willing, and who have sufficient capital, to lend to the U.S. to keep it afloat.
Great post. I've had issues with some of the posts you've made in the past, but you've crystallized the complexity very well here. I particularly like your use of "self-reinforcing" to describe what we'd see as well as point #4.
they won't, either way. the question then becomes, how to milk the most of their wealth and the republic's power from the citizenry. the money master criminals aren't trying to keep what they have, they are trying to steal what you have as well - and everyone in your community. while you focus on the 2nd tier (dimon, bernanke, etc...), the top tier calls the shots. the 2nd tier knows their role and it is to take the heat so the public never has to know about the real tyrants.
unlike americans, the money masters know their history and the french revolution taught them to stay hidden behind corporations, governments and think tanks (rand, bilderberg, trilateral, etc...).
the more broke americans are, the more real wealth is transferred to the oligarchs who have all their cash safe an sound protected by their captured government.
they will repudiate the debt eventually. probably foreigners first. china is likely scrooged. that's probably why they are shooting off missiles by our coast and unveiling their new fighters. they know they were criminally ripped off. they know this is a form of war. do you?
all the people who owe the debt will need dollars to pay that debt or lose their assets - house, home, car, etc... when banks are closed and the economy craps out completely, people will go bust. the banks reposses and then the feudal lords rent it back to the serfs - middle england all over again.
deflationary depression is very different from hyperinflation.
now, you probably think things will get violent and that this is seen as a negative.
study up a bit more. look what these criminals have done to every other society they've ravaged.
here's a video of argentina - were the elites scared of rioting there?
http://video.google.com/videoplay?docid=4353655982817317115
ever heard of the term IMF riot? the IMF **expects** riots!
do you think that they will treat americans different than anyone else they are robbing? why? they just ripped your face off to the tune of $10s of trillions and what did americans do beyond the occasional thumb sucker?
they grope you children at the airport.
like they respect americans on iota. how could they? americans don't even respect themselves!
i do think riots will occur, but i think that most are mistaken that this is seen as bad.
1. over population is the money masters' #1 issue. millions of dead would warm the cackles of their heart.
2. the money masters don't really care for their 2nd tier puppets - these people are inbred psychopaths. the 2nd tier knows their job and the risks.
3. the american people don't even know who the money masters really are that are pulling the strings from behind the scenes - so why be afraid when your victim doesn't even know you?
debt based money was a weapon of mass destruction that was destined to blow the minute it was created. the money masters knew this and they have had hundreds of years to plan out their end game. even if they had reason to fear, i'm not sure they know how. psychopaths have that tendancy to not fear when normal people do.
my recommendations are...
1. be as self sufficient as possible.
2. be able to protect yourself.
3. keep whatever you value close (PMs are fine, but if you have PMs and little food and water then you are foolish, IMHO).
4. get out of debt. if you think the money masters are going to shower you with money, you got another thing coming. they want your assets - the more broke society is, the more assets they get. sure, they take losses, too, but the government backs their losses since they are captured. the nation is never said to be TBTF, just banks.
even if the banks fail, the money masters that stand behind them will start fresh with new corporations and assets bought for pennies on the dollar - and americans won't have a clue to even be mad at these new companies because the media will trump them up as "savign america in its time of need."
the typical ignorant american will soak it up.
btw, my recommendations work well for both hyperinflation and deflation.
hedging bets with an open mind is a good thing.
oh, and it is all a big game. perhaps american politicians won't shut down the spiggot (good cop), but the IMF or WB will step in and "bail us out" with certain "conditions."
you know the routine. you've seen it everywhere around you. you're seeing it everywhere around you.
they will repudiate the debt eventually. probably foreigners first. china is likely scrooged. that's probably why they are shooting off missiles by our coast and unveiling their new fighters. they know they were criminally ripped off. they know this is a form of war. do you?
all the people who owe the debt will need dollars to pay that debt or lose their assets - house, home, car, etc... when banks are closed and the economy craps out completely, people will go bust. the banks reposses and then the feudal lords rent it back to the serfs - middle england all over again.
Do you believe the U.S. will repudiate debt and the USD will survive without losing much of its value? You don't address this directly; is that what you're saying?
they won't, either way. the question then becomes, how to milk the most of their wealth and the republic's power from the citizenry. the money master criminals aren't trying to keep what they have, they are trying to steal what you have as well - and everyone in your community. while you focus on the 2nd tier (dimon, bernanke, etc...), the top tier calls the shots. the 2nd tier knows their role and it is to take the heat so the public never has to know about the real tyrants.
They don't have any wealth to steal; they are the dependency class. How will they survive once the economy that makes their lives possible recognizes it can no longer afford to make their lives possible? I know you believe they will just die off, and that that is the "plan", but do you expect it to really happen that way? Or did you miss my point, which is, the dot gov will print enough to keep on feeding them and keeping the banks "priofitable" until the USD implodes. Do you believe there will be some kind of successful balancing act of deflation-induced demand for USD that will keep USD alive? Is the Fed that good?
Do you believe the U.S. will repudiate debt and the USD will survive without losing much of its value? You don't address this directly; is that what you're saying?
I don't consider an FRN to be a USD. I consider it to be a privately controlled debt based societal asset stripping currency controlled by a financial oligarch cartel - a criminal cartel.
Before going forward, I understand 100% that all fiat currencies trend towards $0. The FRN will eventually be worth $0. However, I think there is a deflationary hole with charp spikes at the bottom before that eventual trend to $0 really takes hold.
The reason is that the Money Masters will want to literally bust society and take ownership of as much of their assets as possible BEFORE busting the bond market and letting inflation run rampant.
My current view is that TPTB will continue to issue debt, keep much of the proceeds themselves and leave the debt for society, with some money going to society in order to keep some semblence of normality to allow their current theft to continue.
This likely means that the dollar doesn't do anything much for some time and may even test $1.50 uro/dollar (although recent action indicates this likely won't happen).
However, at some point, rates will rise and the bond market will enforce some discipline onto the cash advance schemes (they don't print money - debt is associated with it all, although the actual accounting may be delayed, it will eventually come).
At this point, the dollars will become scarce.
Think of it this way - the system operates only so long as people don't pay down their debts. Rising interest rates will eventually FORCE people to pay down their debts.
Money in the system evaporates as debts are extinguished.
The banks don't have the money to pay depositors and there is no way they will ever get it. Even if they could, they'd pay it to themselves in $140 billion annual bonuses first.
They will have to default. FDIC is only as reliable as SS and MC - and no more. When the system gets sucked dry, the FDIC will fail to provide cash to people, IMHO.
I tend to agree that the politicians won't do this, but I can see the financial elites sending in the IMF and WB and give us their typical austerity treatment and the politicians can pretend they don't have control anymore.
In any case, I think the politicians know who their boss is and it is the BIG CAPITAL that used their money and media control to put them in power. It is understood that the establishment politicians will do what is best for the people who put them in power. This explains PERFECTLY every action taken to date. So when the Money Masters say jump and getting voted out is the result, they will jump and get voted out.
The concept is to create inflation to entrap people in debt (even criminally so, they risked jail time by control fraud, securities fraud, ratings fraud, tax fraud, inisurance fraud, perjury, forgery and I've surely missed many - but we are talking 10 million or more felonies to indebt people during this bubble) and then to bust them by restricting credit so that the corporate fronts of the BIG MONEY CROWD get to seize assets from society.
This time around, the bubble was so big that there is an interim operation where the MONEY MASTERS loot society and financially bust the government (both of which increase BIG MONEY power and decreases the power of society and the government that is supposed to represent it).
Eventually, it will make sense to these criminals to allow the bust to continue. This way, they seize almost everyone's assets. They own the media so the media will spin it. Some group will be blamed to divert attention from the man behind the curtain.
Once these criminals have turned all their freely minted debt proceeds into tangible assets and society is completely bust, they will step up to the plate and offer to "save us."
This is a horrible outcome for society and I think most people realize this and simply can't accept it. The financial cartel ends up with all the power and the people end up starving servants and the neofeudal system is complete. Citizens become tenants working the land of the feudal lords. The criminal internation feudal lords.
They don't have any wealth to steal; they are the dependency class. How will they survive once the economy that makes their lives possible recognizes it can no longer afford to make their lives possible?
There is a LOT to steal in America. They want it *all*, but they won't get it all. Just the vast majority of it.
As for the poor, who do you think keeps the third world down and starving and dying? It is the same people and they do it by DESIGN. Kissinger even admitted that this is US government policy (and the US government works for them, not us - this should be obvious by now) in State Memorandum 200 - download it and read it.
All they are doing is extending current policy. If Americans die, well, that's a SOLUTION as they seem to be obsessed with reducing population...
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article63503...
I know you believe they will just die off, and that that is the "plan", but do you expect it to really happen that way?
I think it will be h*ll and that's why I despise these criminals. But the people are apathetic and these people are smart and deceitful. Criminal geniuses, if you will. Apathy and greed are being used to enslave the population and the criminals knwo that not one in 10k even knows who they are and those that do are branded "conspiracy theorists" by the controlled media and the dog trained public.
Or did you miss my point, which is, the dot gov will print enough to keep on feeding them and keeping the banks "priofitable" until the USD implodes.
I think the super rich help the poor out for a single reason - and it isn't compassion. They know that bread and circus prevents revolutions, their only true fear. Once the system collapses and it is everyone for themselves, they won't try and save the poor - they will toast to depopulation! They psychopaths are sick.
And no, I don't think the government will fend off the Fed Trojan Horse. In fact, I think the upper echelon of the bureaucracy is beholden to BIG Capital, not the puppets designed to fool the people they have a choice over their "government." Pelosi and Boehner making laws? NOT! BIG CAPITAL makes the laws and their puppets sell them to the people.
Do you believe there will be some kind of successful balancing act of deflation-induced demand for USD that will keep USD alive? Is the Fed that good?
The Fed is as hard core criminal as they can be. Debt based money was created to collapse - it is a Ponzi scheme and has been from 1913. They've known it for 100 years.
Henry Ford knew it when he said...
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.” Henry Ford
They've been planning this end game for almost 100 years!
My best guess is that the insiders are getting their assets out of the stock market while using public money to pump it up so they get better prices. Once they are out, though, there will be no reason to prop it up any more.
i have an anology I will share in a follow up post.
Picture our nation as a casino that lends chips into existence and you are forced to play in the casino. Say, 5% per hour interest.
What is the OBVIOUS end result? The Casino asset strips the players over time - in this case, not much time at all.
Can there be big Casino winners? Of course! But as a whole, the players are being stripped of their assets - 5% every hour, on the hour.
Believe it or not, our monetary system is IDENTICAL to the Casino chips system except the terms of the debt are different - a longer period and a different interest rate.
Does this change the asset stripping outcome of the system? Not one iota, it merely extends the time frame at which the assets are completely transferred to the Casino or the controllers of the monetary system.
Now, would you expect the Casino to set up their debt based chip system and then bailout the players at their own expense? Of course not - THE WHOLE POINT WAS TO TAKE THE PLAYERS' MONEY AND MAKE IT THE CASINO'S WEALTH!
Why would you expect the monetary system money powers to do the same?
Think about this analogy for a bit.
The Fed is a provably criminal organization - a Trojan Horse of epic proportions.
Their mandate is to keep credit aggregates in line with future GDP growth. Instead of executing their mandate, they took credit PARABOLIC TO GDP GROWTH!
These two facts are the most important facts in order to understand the bubble and the but - YET NOT 1 AMERICAN IN 10K KNOW THIS INFORMATION!
Why? Everyone misrepresents the Fed mandate and they've done so for 25 years!
NOW THAT'S POWER AND CONTROL!
Read the actual Fed mandate - I tell the truth in a world of deceit.
Denninger charted the Fed data...
http://market-ticker.denninger.net/uploads/2010/Jun/debt-to-gdp1.png
These people are hard core criminals and evil geniuses.
I value the following links and you may find value there, too (or not, that's OK)...
http://theautomaticearth.blogspot.com/
http://csper.org/renaissance-20.html
http://economicedge.blogspot.com/
http://csper.wordpress.com/
http://www.swarmusa.com/vb4/
http://solari.com/blog/
http://market-ticker.org/
http://www.youtube.com/watch?v=lz62kOMtqUI
http://www.youtube.com/user/bstill3?blend=2&ob=1#p/u/15/U71-KsDArFM
I don't agree with everything any of the above say, but I find significant portions of what they say to be of value. I obviously enjoy ZH and I listen to the hyperinflation argument / government first argument all day long, I just don't agree with it.
I think the evidence indicates that the politicians are the shadows in Plato's allegori of the Cave. The reality is the MONEY POWER that have gamed the Republic.
http://www.historyguide.org/intellect/allegory.html
The truth is that the future direction of the necessary collapse will be directed by future decisions. It is CRITICAL to understand WHO WILL MAKE THOSE DECISIONS!
1) b. 2).b.
3) how long do you think it would last? i mean once it retracks so far, and wages and benefits fall enough, the dollar devalues enough, then domestic production would be more competitive, and the deflation would stop. Hard to predict the outcomes.
3.1) unemployment for the near term, lower paying jobs with less benefits in the longer term. Bread and Circuses.
3.2) roll over some, haircuts for some. in the longer run, if the economy and workers become more competitive with China, GDP will grow and paying the debts will be possible, but only if the deficit spending stops
3.3) loss of reserve currency status. inevitable at this point anyways, already happening. lower credit rating and less buyers of debt. also inevitable at this point. many unexpected side-effects.
3.4) in hyperinflation, you would need to pay your workers everyday so they can buy food that same day, before the prices double. in deflation, it would depend more on unemployment levels than prices, and on food stamp / unemployment / other benefits. you can provide more food per tax dollar in a deflationary spiral, so at least there is an upside. either way, more lawns will get torn up and more gardens planted.
4) the constituency doesn't exist yet. once things get really bad, the majority may suddenly change to supporting balancing the budget.
5) possibly China, but probably no one. why would you lend money to someone who is just going to continue to spend more than they make? if surplus budgets were made mandatory, IMF and whoever else has all the gold.
Perhaps definitions are important. I consider FDR's overnight devaluation of USD by 70% to be a hyperinflationary event. I consider the oft-cited sag-then-boom that occurred in Argentina to be in our near future. The area under the curve from 2002 to 2004 is damned near fatal, and then it goes on and on...
http://www.indexmundi.com/g/g.aspx?c=ar&v=71
One of the few articles, that I somewhat disagree with charles hugh smith on.
I think the game theory prisoner's dilemma offers the best explanation of where things are at, listen to this interview.
http://www.financialsense.com/financial-sense-newshour/big-picture/2011/...
While I may agree that we will not see a full blown hyperinflation, inflation is still coming.
I have great respect for anyone willing to ask the most powerful question of our time, cui bono?
I ask people not believe as I believe, but only to ask the questions, and have the strength to follow them to their answers no matter how great the cognitive dissonance.
Apply the question of cui bono to any and all of the important events of our time, and I think many will find a much different picture will appear than the one that is propagandized day after day by the mainstream, a picture much closer to the truth.
The author commits the cardinal sin of distinguishing between bankers and politicos.
SWR, I tend to agree. Fekete has swayed my thinking more than ever, as the "value" of this standard unit of account and commerce, the dollar, is manipulated by the corporate/government partnership (or chimera) of central bank/fiat currency.
How can the science of accounting assuming any future value be reliable when that unit of account, currency, has no real absolute value? The value of the dollar is constantly variable. But the entire system of commerce and accounting was developed (evolved) from gold which historically served a more realistic value in that it was limited in form and thus more reliable in terms of present value.
Ah yes, Bill Daley comes to mind. Banker or politico? Ah jez, why don't we just call a spade a spade: he's a fascist.
had same thought, also not sure if anyone is in control of this train wreck. Think much economic theory avoids our unique and fundamental resource collapse and the systemic fraud which must be factored in.
EXACTLY...
Hyperinflation isn't something you can turn off and everything is back to normal. It takes time. Meanwhile, the institutions/people which/who protect the banking paradigm must be funded/paid to keep the citizens subdued. Otherwise they quit, or worse, join the citizens in rebellion.
I don’t think anyone knows how this is going to end but there is little doubt it’s going to hurt like hell.
Ezekiel cried "DEMS DRY BONES"
JANUARY 11, 2011
AMMAN, Jordan — Jordan's king has ordered his government to take immediate steps to ease the country's economic burden as global food prices rise.
It's believed that concern over deadly riots caused by joblessness and poor prospects for youths in Algeria and Tunisia might have helped spur the call.
http://online.wsj.com/article/SB10001424052748703791904576075881971986432.html?mod=WSJ_hps_sections_world
A most insightful piece indeed.
Especially because it hints at the looming, to-be-epic confrontation between the Fed and the US Congress. Only one will be left standing. This fight-to-the-death will reveal where the real power lies and determine whether we get a hyper-inflationary or hyper-deflationary outcome.
IMHO, if it is NOT the Fed, then a hyper-inflationary outcome is all but assured.
Anyone who believes GOP will finally stand up for Constitutional economic principles was asleep from 1994 to 2006
Beside, Harry Reid still runs the Senate and 0 is still President
Re the Fed fighting hyper-inflation
Hint: The annual rate of change charts below are unanimous in showing the Fed's foot is on the gas pedal
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M1&s[1][transformation]=pc1
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M2&s[1][transformation]=pc1
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MZM&s[1][transformation]=pc1
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M1V&s[1][transformation]=pc1
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M2V&s[1][transformation]=pc1
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MZMV&s[1][transformation]=pc1
Exqueeze me? Confrontation? More like a well rehearsed tango.
This analysis ignores that the banks are first ones in with the money. Sure they could buy bonds, or they could buy companies or hard assets. It does point out the extinguishing of debt and assets, but that will happen anyway. Show me an argument that the system can survive deflation with the layer cake of fraud. The banks will either need total guarantees and then be able to impose a totalitarian regime to fulfil their austerity. Most people will not sign over most of their paycheck to make banks whole and get no services, it's a political non starter, particularly when they individually are going bankrupt left and right. These guarantees will further bankrupt already bankrupt nation states, who will need to borrow more to pay off bad bank debt. Debts that cannot be paid won't be paid.
So look at it from the banks side. These debts will be defaulted on. So how ride it out. If it's via deflation they get wiped out because they still have their own counter parties, and unless they can force all risk onto a nation state and enforce brutal taxation it's a no go. Or they print, they print and they print. They pay off their own creditors and buy assets to ride out the storm. The blame will be on the politicians and the central banks while the individual banks slide through the media mostly unscathed. Can even put a spin about it damaging their business model and having to be creative to survive.
Deflation and (hyper)inflation put us in the same place. Debts are defaulted on and the system burns down. Now which system least negatively impacts the banks? The one where they still have obligations to others or when their balance sheets are cleaned and they get first spend of that hot new money?
The banks cannot survive in a hyper-inflation.
The vast majority of bank assets become virtually worthless in a hyper-inflation. In addition, it becomes impossible for banks to fund themselves.
In a "managed deflation", the banks' assets retain most of their value.
The banks (and the Fed) will ALWAYS choose a "managed deflation" over a hyper-inflation if faced with such a choice.
Why?
What are those assets worth now? Does anyone know what JPM's derivative book is worth? The ponzi has built up to nearly infinity, so with "managed deflation" this unwind could take conservatively a few hundred years. No gonna happen.
As to how to get funding look at Havenstein and him passing out money like a drunken sailor to banks during the Wiemar experience. There is nothing to stop Zimbabwe Ben from keeping rates at 0 while massive inflation rages in the system. So they could take the free money buy ANYHTING, turn around sell it and pay their debt to Zimbabwe Ben and send the rest of the earned money back into the hunt for hard assets.
Tell me how a "managed deflation will occur in system. Will the world stomach the US deficit spending more then a trillion a year for the next decade in this deflationary environment? How will EU and Japanese debt look? Tell me how the US will fund it's obligations without inflation or default, and how will the people respond to an outright repeal of SS services but still SS tax?
The only way to pull it off is brutal austerity with retarded taxes indefinitely. Odds are the people will not accept a permanent lowering of standard of living essentially forever to make the banks whole. Besides I argue the banks can be made whole up front by front running the collapse anyway, and evading negative public opinion. Think they are unpopular now? Wait till most of our tax money goes out to pay interest on former debts. And that will happen in a deflation, and when that happen history tells us there is a default or hyper inflation. Unless it really is different this time.
But by all means bet on deflation. The more people bet on it, the slower this thing will slip into hyper inflation and the longer I have to prepare.
I'm not saying that I know how this is going to play out, only that there are now two diametrically opposed outcomes.
Which one it will be hinges on whether the Fed (deflation) or the Congress (hyperinflation) gets their way. There is an epic confrontation looming between the Fed and Congress.
Correct me if I'm wrong, but didn't the Fed massively expand money supply since 08? Haven't they gone directly into the market to buy bonds and their balance sheet is getting destroyed? Seems like they are pushing for inflation to, and because of their balance sheet they cannot stop on a dime. Inflation has a way of getting away from you, history shows this quite well.
And you can try to counter that the money is in reserves. But as has been reported on this website those reserves are slowly leaking out. Also it's almost impossible to get those reserves back because of the bad balance sheet. After all if the fed sells assets they end the game right here and now, and expose their weakness.
Because we know the game ends in default we simply need to look at what type of default it will be. The main factor in that reasoning is which will hurt the ruling oligarchy less. I still firmly believe the inflationary scenario because it will give the oligarchy a chance to move their assets over as much as possible and survive the default storm. Remember in Wiemar many fortunes were made by those who were still able to borrow cheaply and knew what was going on. The problem with straight deflation/default is the nature of the dollar. Should the US default officially, what would the full faith and credit of the US be worth?
The fraud makes a normal analysis a little challenging. So does fundamental energy resource collapse. Controlled inflation is their goal, but as you note, history has another story to tell. Pride goeth before the fall - Herodotus
The banks only have a "managed deflation" in their fantasies.
If the world could be planned on a spread-sheet, it could be pulled off.
Take a look at how austerity works in Europe. Reality in the form of striking public workers, rioting mobs, and increased political radicalism render it a non-starter.
The banks are just machines for domination. Who cares if those machines break down if they still function, at least for a time, for their masters? The individuals within those banks can retain dominance, and it in fact places them in an ideal position to weather high inflation or hyperinflation.
Managed deflation makes the banks into a focal point of political scrutiny. The system can't survive that sort of sunlight.
My view is that we get the "managed deflation" first, until it becomes politically unacceptable.
Then all bets are off. That will be the point where the Fed and Congress have their inevitable showdown.
That has been my view also. That date approaches quickly; with the current municipal cash flow problems.
The only showdown between Congress and the Fed will be desperate and terrified Congressmen licking the leather bottoms of Bernanke's shoes as they demand a bailout.
These Congressmen may fear being murdered by their own staffers, or by public union workers that are, at best, half a generation removed from the organized criminals of yesteryear. Of course they will beg him for more money.
What could anyone suggest that those parasites say to their comrades? "Accept the new normal?" Ha! Not likely.
All the while, you have a vast military with "over the horizon" capability, that also needs money to fund its pensions.
And how could he turn them down? Does he want blood on his hands...? He has no stomach for that sort of thing. Hyperinflation is a "get out of the guillotine" card for all the guilty parties.
An argument against hyperinflation is not an argument for deflation.
Who benefits from deflation? It doesn't seem to me that there is somebody in Japan making profit from the deflation. Well, of course, apart from the short-term advantages that just make the problem worse.
The only advantage is that in Japan nobody sells the bonds due to the pension system, otherwise interest on their bonds would be in the two-digits. In other words, there is virtually an exclusive demand-supply relation, that is, just one market participant that buys the crappy jappy bonds - the pension system.
If they decide to sell at one time, then the government will have to print faster or declare bankrupt, leading to hyperinflation or social unrest that in turn leads to hyperinflation.
In the US this is impossible, you would need to transfer the bonds to the "loyal" bond holders, i.e. the Fed. But this is impossible without major market turmoil.
Imho we'll have deflation until we have hyperinflation. It will be a long and slow death, god bless America
Who benefits from deflation? All of the retired pensioners do. Their fixed payment enjoy more purchasing power.
The retired pensioners can't send $100K to a Congressman to pass a bill they want.
Banksters can. And they know deflation would cause rioting in the streets, whereas a controlled inflation allows them to move into real assets while the zombie class continues watching Dancing With the Stars.
Plus, if history is any guide, hyperinflation for fiat currency is as predictable as sunset after sunrise. See Akak's comments above.
1. Banks could care less about inflation of any flavor, only their poor depositors are hurt by inflation
2. The wealthy elite aren't concerned about silly notional valuations used to keep score. As long as they end up controlling more of the valuable 'stuff', what happens to fiat values is meaningless.
3. It is impossible to know ex ante, how much monetary stimulus and debt monetization is 'safe'. One morning the Bernank will get up and say "oops!, may have done too much"
conclusion (for me): buy physical PM's for wealth preservation, buy miners for investment.
WRONG
Austrian school of non-thought does not give insights.
Keynes way leads to hyperinflation
Austrian way leads to good ol hyperdeflation
Get rid of the monetarism and you get neither.
Because both are monetarist.
So the austrians have a key insight, into half the equation. Good luck finding the wonders of e=
You sort of need to know the mc^2, to mean anything.
If you want to know the FASICST anti-american viewpoints of the austrian school, go to larouchepac.com and type in rand paul or ron paul, or austrian.
Austrian school is for dullards. No solution is presented to us from the austrian school (and no...ending the federal reserve isn't owned by the austrians)
But the austrians seem to think that is the start of their ideology. ROFL. It's just a coincidence your ideology allows you to break from the fed, but then only to let everything collapse.
The fascist hapsburg austrian fascist school of monetary non-thought. Learning austrian school's thoughts now is like learning the art of Keynes in 2006....it's wrong, and about to be proved so in a major way.
You'll be cursing Austrians like you curse Keynes soon enough.
So your solution is to allow treasury to issue non-interest bearing currency?
A very well-reasoned argument, and I agree that asking “who benefits?” is a good way of trying to understand what will happen.
However, I would challenge the reader to also consider that, in fact, the assets of the banks have already been destroyed. Their assets were destroyed the moment the bankers lent out vast sums of money to people who would never pay it back. Further, there is nothing that the banks can do to repair these bad assets, though they would if they could.
But they can use their political influence to transfer those bad assets to taxpayers and to all dollar holders via the Fed asset purchases, and they have been doing so. The risk is that this transfer of bad debt in the face of falling tax revenues may create a crisis of confidence in government debt or in the dollar. Even though the bankers will not want this crisis of confidence, there is certainly no guarantee they can stop one if it gets started.
+1 Cui bono
Banks benefit from printing via these sales of defaulted debt for $ via the fed.
Politicians benefit from printing via handouts to the plebes.
Inflation backlash is the only hindrance; ONLY because its harder to print more!
Neither bankers nor politicos are rational most of the time.
They're driven by strange, unconscious impulses. George W. Bush went to war with Iraq because he believed that God spoke to him and commanded him to do it. He believed that Saddam Hussein had tried to kill his father, and that he needed to go to war with Iraq to achieve revenge.
There were many high-level economists in the Federal Reserve and within the Treasury Department that the wars, the housing bubble, and the unfunded entitlements would lead to the destruction of the US government.
So, even the intellectually muddled monkies in the government and at the Fed understood well that the ship of state was headed for the iceberg of insolvency.
Hyperinflation is rarely a calculated political decision to make. I do think that paper is worth reading, but the author makes the mistake of assuming that the actors are rational. This assumption runs contrary to Austrian insights regarding human nature.
Congressmen and Senators receive regular death threats now. If the government has cash flow problems, there will be more chaos as the social order unravels. The recent assassination will only make congressmen less apt to be brave.
No single person within the elite wants to take the fall for the destruction of society. By allowing it to collapse, they can spread the guilt around. No one faction has the capability to remain in a dominant position.
Different financial elites want different things depending on what they own, but none of them can coordinate properly. It's becoming less possible to form an effective conspiracy, even, thanks to outlets like Wikileaks and ZH.
From the paper:
I doubt that the political system can survive such a prolonged period of 20%+ real unemployment. The cash flow problems in the municipalities will create more of an impetus to generate new lending programs or to monetize more debts.
People aren't just entries on an Excel spreadsheet. Cutting benefits to students leads to broken windows. Firing police officers encourages them to form a mafia and to increase the rate of shakedowns. Cutting the garbage-men encourages them to go on strike and to sabotage municipal services.
The description of the structure of the banking system and the current state of affairs is masterful. However, it rests on weak political analysis.
It's not self-interest but terror that leads to hyper-inflation. The bureaucrats are terrified of one another and the population. The bankers are terrified of each other, the population, and the government. Each faction knows that if they make a move for dominance, they might de-stabalize the entire system and provoke agression.
So, out of fear, the society careens towards total destruction. At least this way, it will be "everyone's fault," and therefore, no one's.
Apostate,
You wrote--
Your brief analysis was far more insightful than the drivel out of CHS.
I'm convinced that if the didn't have readers feeding him articles as the basis of his opinion missives, he'd have just about nothing to say.
Thank you.
He's an entertaining essayist, sometimes, but his framework is muddled. He will say the right things sometimes, but he doesn't reason from first principles. So, he'll often make significant errors.
CHS is well worth ignoring.
"My problem with the "hyper-inflation is inevitable" school of thought is that I cannot identify what powerful interests would gain from the destruction of the currency and all financial wealth. A hyper-inflationary wipeout certainly wouldn't benefit the Financial Power Elites who hold the vast majority of the financial wealth. Yet it is this very Elite which wields the preponderance of political power."
Wiped out? Disagree. The Power Elites have had years, if not decades or centuries (in some the case of some families), to diversify into tangible assets. Natural resources, land (farm, timber, etc), precious metals, miners, oil & gas royalty producing property, etc. These assets would preserve their wealth in case of hyperinflation. I would think PEs have had the time and resources to prepare for almost every contingency along the economic continuum from deflation to hyperinflation.
It's still possible to play paper markets in the hyperinflation. Was done quite well by some in the Wiemar experience. those who could borrow at less then the rate of inflation made incredible gains. If the Fed will pass out free money and the rate of inflation is 10% that's one hell of a spread to invest on, now imagine that at 0% and 100% inflation rate.
Very true. Marc Faber's "Mirror Mirror on the Wall" talk at Mises Institute addressed this:
http://www.youtube.com/watch?v=H0sS6a9RW2E&feature=player_embedded
indeed, the oligarchs arent hoarding cash and overvalued stocks.
They know what really holds value, they will be out of cash by the time hyperinflation comes
Only the new rich and wannabe elite will scream, but they are worthless to the elite. if they are lucky, they get the word right before it happens. goldman employees? meh they are usefull idiots same as the fed chairman. They are merely the fall guys.
Deflation is like a theif s
I agree. I would only add:
For Hughes to assume the elite are looking out for the longevity of this system is short sighted. First, as you say, the ones at the top have enough of their wealth protected in tangible assets within our borders as well as offshore. Further, individuals on Wall Street have clearly made decisions so they can individually get as much as humanly possible from the looted booty before the ship sinks... merely kicking the can down the road in order to continue the blood-sucking until the very last breathe of the host has been taken. Lastly, Hughes would have to assume that there is no backup plan for a new system (and new currency) that would give certain financial elites even more power and control of wealth than they have right now. Soros, Kissinger, and a whole host of others are foaming at the mouth for their "new world order" wet dream. Hyperinflation would usher in the finest opportunity for them imaginable.
Its possible that they are able to engineer an outcome that is neither deflation nor hyper-inflation. The total monetary aggregates stay relatively flat - but the private sector is starved as the fed govt becomes larger and larger. Will result in extremely low productivity and extremely low growth. It will be very hard to reverse as the population gets even more addicted to govt handouts, govt jobs etc etc.
"The authors of this paper contend that the infamous hyper-inflation of the Weimar Republic in Germany only arose because the political class was in control of the money supply."
Zimbabwe has a central bank, and is experiencing hyper inflation.
Post hoc ergo propter hoc ... it may have a central bank, but that does not mean the central bank controls the currency.
Printing money is the only thing keeping the government & financial sector going now. Stop printing money and the government & financial sector collapses.
It's kick the can along the edge of a cliff hoping it doesn't go over the cliff. The cliff is sudden loss of confidence in the inflating currency.
TPTB believe they can inflate the currency quickly enough to keep the government & financial sector afloat and slowly enough to stave off a sudden collapse of confidence.
There. My explanation is much shorter and covers the subject thoroughly.
An an anarcho-capitalist and student of the Austrian School, I have to disagree with the assessment of the Fed as an entity unto itself.
The Fed is a political organization that is ultimately beholden to the politicos - and its inflationary policy to-date has been driven entirely by political interest (self-preservation).
The Fed can not engage in austerity measures on its own, because if it did, the Congress would move quickly to quash the Fed's power to do so.
Make no mistake, our Congress is a gang of thieves and they will not stop looting the public until there is nothing left to loot.
The Fed is to 21st century American Government what the Church was to 5th Century Rome.
I don't think you can make the distinction between who starts inflation and who benefits from inflation. Clearly Weimar happened to solve a political problem, war debt. Clearly today we are solving a banking problem, stupid banking RE investments and a credit bubble.
Carpenters use hammers. It doesn't mean all hammers are wielded by carpenters. A child or a mentally ill person can also use a hammer. Hyper inflation can be wielded by many for different reasons as well.
Here in the USA, I think the bankers get the biggest benefit this time. If they don't keep creating money, they won't exist. And they get the money first, so what do they care?
"Biflation" bitchez!
Inflation /deflation
Partly dependent on monetary supply, but also on other factors of production and power, cheap labor, monopoly, even supply/demand of commodities and labor, - not always subject to control by co-dependent bankster and politico sociopaths.
The economic picture is global. Perversely, the more fiat dollars produced, the greater inflationary pressure outside the US, the greater demand by them for dollars to counteract inflation. The extortion may continue as long as the US can compel resources be purchased with petrodollars.
Food price inflation will be caused by dependency on global agribusiness oligopoly, petrodollar inflation, commodity speculators, poor weather, and government policies.
"Hyper-inflation" comes when the currency becomes regarded as worthless for financial transactions,
as might for example happen were the US dollar no longer backed by oil protectorates.
I have been thinking lately that maybe just maybe this time is different . How? Well, if the Fed wants to short the shit out of commodities while pumping in liquidity or new fiat. How does hyperinflation occur if there is an unlimited supply of money to prevent it in the price of commodities ? Seriously the Fed put 14 trillion up for banks overnight to provide liquidity . If they get the go ahead as a matter of national security can't they just make this farce go into perpetuity ? Can't they just,theoretically speaking , counterfeit money out of thin air being they are never audited ? They can lie about anything and have license to do so . With just the right amount of tweaking it could go unnoticed for years and years .Now think of the consequences right now for them not to do this . It makes my point even clearer. I have a gut feeling this is in play and will be for a long long time everything else is just a sideshow to make it seem real and I will never know if I am right .
The reason behind my thinking is Sprott's article on how paper silver and physical are in two totally different dimensions . Can the same be said for oil or wheat then ? Is the price of literally everything under the control of a central bank with just enough randomness in markets to appear otherwise ?
This is just wrong. Hyper-inflation is not the result of action by a powerful few. It is mass loss of credibility in a fiat currency. It only happens on fiat currency, and it has happened 23 times, 22 of which were in the last hundred years (using Bernholz's definition from Monetary Regimes and Inflation). The government is forced to print money because they lack the will to keep the fiscal house in order. The hyper-inflation is the default on all debt denominated in the currency. It is completely possible and historically accurate to note that some asset prices go down in a hyper-inflation, while commodity prices, things people need to eat today, go up.
My problem with the "hyper-inflation is inevitable" school of thought is that I cannot identify what powerful interests would gain from the destruction of the currency and all financial wealth. A hyper-inflationary wipeout certainly wouldn't benefit the Financial Power Elites who hold the vast majority of the financial wealth. Yet it is this very Elite which wields the preponderance of political power.
This may be an incredibly naive view - I contend that the "Financial Power Elites" most certainly know (or ought to know) that their policies are bankrupt & will bankrupt the nation. But I for one, don't for a minute think they are that naive to not protect their own personal financial position as "Financial Power Elites" and not secretly have their own cach e of precious metals & commodities stored away to maintain their relative "Elite" status, while the rest of the country goes to Hell in a handbasket.
Don't kid yourself into thinking you are somehow smarter than these guys - they know & understand the end game & in fact control it....Bernanke even spoke openly about "printing press", yet we still have people who somehow doubt the US will not inflate away their unpayable debt...
The Fed can create deflation or inflation, and can create deflation now by doing a 180
Default postition of the Fed is inflation right now.
Politicos seem to be less in control than most think, they seem to do what they're told
Wealthy can protect their assets from inflation in equities, commodities and other currencies unavailable to the average little people
The Fed could be on a one way trip this time, with the IMF Bancor as the goal, and conversion rates will depend on who is holding what
Pretty sure it's being war-gamed all the time. Fed and Wall Street are pretty tight right now
The author only needs to read backwards to what he already wrote to answer his own question of who benefits from hyperinflation.
Author's Question: "My problem with the "hyper-inflation is inevitable" school of thought is that I cannot identify what powerful interests would gain from the destruction of the currency and all financial wealth. A hyper-inflationary wipeout certainly wouldn't benefit the Financial Power Elites who hold the vast majority of the financial wealth. Yet it is this very Elite which wields the preponderance of political power".
Authors' Answer: "It is axiomatic that hyperinflation is a political process. But politicians found that keeping the spigot open all the time increased their power and longevity in office, and so what was to be used sparingly and infrequently became the default policy".
Well said Strannick!
The flat-earthism of the deflationists never ceases to amaze me.
And thus, Charles Hugh Smith is forbidden to waste people's time by posting on Zero Hedge, in perpetuity.
Someone please elevate Strannick to Deputy, Logic-Destruction Division, Zero Hedge Enterprises.
"managed deflation" = monetary methadone maintenance
if u are the drug manufacturer/pusher, would you rather have the patient be a permanent user or die of an overdose? the idea is to keep the patient on debt drip feed. of course this is a dangerous game, and confidence is essential to an orderly distribution of debased debt, but it's really in no one's interests except the arms manufacturers to foment USD hyperinflation. again, this doesn't mean food prices won't rise if demand outstrips supply.
credit-money supply is only one part of the equation. the other is demand, aka velocity of money. hyperinflation or default only occurs when the debt servicing burden becomes too great relative the economy's productive capacity. i think a debt for equity swap is far more likely than hyperinflation just because it's in the G7's interests to go that route. one would have to believe that the G7/IMF has no willingness to make 11th hour compromises, or that they won't act until it is too late.
Let's look at this from an angle of what the final physical outcome of our situation must be, and how the trends of ownership, productivity and property attribution may be able to follow.
We are in post-peak-oil world, with other resources hitting similar limits. Real value of total world economy must fall. Efficiencies cannot keep up with the loss of essential substrates.
Exponentially growing debt-based money cannot be sustained in this setting. The many bubbles which decouple monetary representation from physical wealth (production + property) must collapse.
The realization of this fact will eliminate faith in all debt-based money. that loss of faith will make debt-based fiat worthless. That is hyperinflation.
As this realization dawns, there will be more and more instances where fiat money is cut out of the transaction chain, to gain local efficiency. Russia and China have cut the $US out of bilateral trade. Indian refineries are looking at buying Iranian crude with gold bullion, due to currency sanctions.
Concurrent with the gradual drift away from fiat currency, will be the unavoidable inflation of fiat currency supply, the creation of more and more promises of future payment. These unkeepable promises invalidate all prior promises to the same effect, which could previously be supported. This progressively devaluates the fiat currency.
This should be an exponential curve, but the beginning of any exponential curve is gradual, and warlike events, with winners and losers will cause volatility between fiat currencies, as we now see.
This progression must be apparent to power elites in finance, government and industry. They will all profit from the preservation of wealth, and they will profit from gaining title to that wealth, before the currency is replaced.
We can expect policies which will support the continued existence of big industries, big banks and big government.
We can expect title to real property and the means of production to be in the hands of big banks, big business and big government, when currencies collapse.
The division of this wealth, while trying to avoid it's destruction, is where the fighting should arise. The pie is getting much smaller. The individual elites are bad at sharing. There will be a cannibalistic process among the elites, like all the people disappearing from the group photo with Joe Stalin. Those elites who get cut out will often exact a price in the destruction of assets, for their elimination. They will all have "insurance policies".
As a non-economist, I humbly propse that it is time to think in real terms. There is a progressive disconnect between ownership of decreasing wealth, and representations of such ownership. And there will be vast destruction of wealth.
All I can see is that there will be volatility everywhere, shifting around unpredictably, as this battle over shrinking wealth is fought over at least the next 2 decades.
Survival is the point of retrenchment which I'm seeking to establish, and getting out of the fray, with claims which can be completely supported, to holdings which will provide for me and my family, in a community which will not be prone to cannibalism, is my goal.
"May all beings benefit."
Um, "Bankers have a longer view; they must preserve their assets"...
Someone should tell this to Chuck Prince, Fred Goodwin, Árni M. Mathiesen, Alan Fishman ad nauseum.
Smith's entire piece rests on the assumption that “politically powerful holders of debt assets” are able to control things. Again, ask Jimmy Cayne, Dick Fuld (heck, ask Ken Lay or John Meriwether) and a few hundred other rich people about that one.
While the paper is somewhat unfocused in places, the author's argument is solid. I keep telling friends and blogosphere commenters that money is not credit. The outcome of credit busts is always deflationary. The Austrians were very clear about this. Only if there is a conscious political act does the cancellation of old debts proceed by inflation, risking the destruction of the currency. Imagine a lending spree, followed by bust, in a barter economy, and the point is obvious.
What can happen for a while is one or more asset bubbles fueled by cheap credit. That confuses observers into thinking that they're in an inflationary environment.
The larger point about politicians is also correct. They are the actors with a strong interest in printing money. Bankers and other creditors have no such interest. That's why, no matter what Ron Paul might be up to, Congress can't be allowed control over monetary policy. It is legitimate for Congress to change the Fed's powers, and it should do so, to narrow the Fed's mandate and reduce its absurd powers of money and credit creation. What needs to happen, in fact, is that the Fed needs to be pushed back into its mission of monetary policy and nothing else: not bank regulation, not stealth fiscal policy, not credit rationing. A lot of the financial industry has a major interest in keeping the Fed as a "Wall Street Friendly Society," eager to provide "liquidity" to reckless banks with a death wish.
Inflation Vs Deflation was the best read on this subject that I have had. Very much worth the time. Well reasoned and insightful.
Was intrigued by the "February 4th, 1965, de Gaulle press conference and ..President Nixon’s executive order of August 15,1971 which “closed the gold window”, finally and completely abrogating the convertibility of dollars for gold." I'll be doing a little reading about that!!!!
Thankyou Tyler
I think it's pretty obvious that politicos can and will make things happen that they don't like. All that is required is that they enjoy the ride. I don't build a bon(d)fire because I want a pile of dirty ashes in the morning, I do it for the heat and light right now. They don't print in order to cause hyperinflation they print to spend, hyperinflation is just a consequence that doesn't bother them all too much. You know, since they'll already have bought a bunch of shit.
Great stuff Charles Hugh puts out.
Agree with it or not (in this case I don't) ... his blog is one of the top 5 I go to daily for insight. Not facts & charts mind you, but macro level ...call it 'macro life' views.
And here Charles alignes himself with the deflationists camp; apparently for lack of a theory of why the 'power elite' as he calls them, would wish to implode the system with hyper-inflation.
Allow me to supply such a reason Charles.
I'll call it the ...hmmmmm, I'll call it the 'Jeckyll Island 2.0' theory.
The elements of this are composed of continued dismal, even deteriorating economic conditions envisioned by the deflationists (e.g. AutoEarth, Mish, etc) and the building dollar implosion seen by the likes of a ShadowStats John Williams or a Peter Schiff.
The bottom line in both of these is ramping Fed buying of US Treasuries
and increasingly unsettled economic times worldwide, with the threat of the eventual meltdown in world finanical/monetary systems.
"Cui Bono" is a central theme in Charles analysis. Let's explore that.
Granted, the owners of the US and western Europe big banks would not welcome a disintegration of the monetary system ...... unless they had a successor lined up. We can see that in gestation even now with the IMF being central in bailing out the wayward
EU sheep and IMFs mutterings about SDRs.
And who 'owns'/controls the IMF?
Anyone here read the 'DailyBell' (dailybell.com)?
This swiss group is about as lucid & sensible as they come.
When they talk about an "Anglo/American" banking elite ... it certainly causes me to pause, reflect and investigate.
So my Jeckyll Island 2.0 theory is that the Anglo/American banking elite (significant owners in GS, JPM, HSBC, Deutsche, Societe Generale, RBS banks) wish to expand their contoll such that it unifies both the US/UK/Euro banking/economic/financial systems ...with further aspirations of hegemony over Muslim/Asian spheres.
Bringing down the world financial/econonmic system would suit them if they had plans to expand and consolidate their control.
There's an old mariners saying... 'never get into a lifeboat unless you step UP into it'.
The pithy part here being that it would be necessary to bring major economies to their knees before trotting out the 'Solution'.
IMF SDR, a world currency to surplant the dollar.
Of course, as the problematic Euro had shown, a fiscal union is necessary to ensure the viability of a unified currency. Hence this bevy of (unelected) bureaucrats that would appear to implement this new world order.
Also ( to ensure control obedience, it would be necessary to beef up
the security control structures of the respective (facade) governments.
While they're at it, implement a Digital Currency as much as possible such that tracking of every sheeps every financial movement is possible. And if there is resistance... why they are declared "terriorists". If the resistance gets physical, then these US/UK/EU citizens are declared 'enemy combatants' and there's a place for them in Guantanamo Bay.
Now that I've floated a theory, there needs to be a method to corrabate it.
I would say look to the EU, for they seem to be heading for a 'sink or swim' moment before the US. If, despite all those calling for the Euro's demise.... it in fact survives by Germany being subduded into paying for the PIIGS, via acquiescing their
sovereignty to unelected minion bureaucrats in Brussels .....then watch out USA.
If this 1st part of a banksters 'divide & conquer' stragety comes to past then look for the US being next in line with 6 months.
---
Bet you don't hear this often.... but I certainly hope I am being paranoid.
I truly hope I'm wrong. But to invoke another ol saying... hope for the best, but prepare for the worst.
Still, I'll close with one last contribution. Recent words from wise Jesse (of cafe fame).
"Never one to waste a crisis which they created, the oligarchs will put another emergency offer on the table, as they did with the American TARP bailout. Adopt our solution, one world currency, or suffer the consequences. The econo-parrots will quickly fall into line behind this latest twist in financial engineering, and there will be an hysterical antagonism towards all other competing solutions, anything that runs counter to a larger monetary authority.
With one monetary policy comes the necessity of one fiscal policy, as has been most recently shown in the European union. And with one fiscal and monetary policy, sovereign government becomes increasingly irrelevant. Ponzi schemes by their nature must continue to grow and consume all, or collapse and be exposed for the fraud which they are."
Seems like a quite lucid compilation of what has been rumbling around in the shadows. The Euro was difficult to implement initially because of cultural differences between nations, people and governments. Bankers care very little about cultural differences. They seemingly only care about money and power.
Could it be that after thousands of years of abject failure, in this generation the biblical shepherds will be able to control all of the world's sheep, as they believe is their right and responsibility?
Personally, I am not for it. My objection is cultural and I think that one group believing that they have a manifest destiny to enslave the world's population through debt or any other means is bound to fail ... eventually.
... unless, maybe they decrease the size of the population first to a manageable level.
Tend to disagree with the post. It looks at the banking/financial elite cartel as a homogenous body, all parts of which are aimed at a clear single goal. It hink that never was the case, and it still isn't in today's banksta-eat-banksta world, where resources are getting scarcer by the HFT millisecond and general populace buying power is dwindling even with the insane ninja credits. Most likely there are cartels within the cartel and they are vying for power between themselves (remember that resources are scarce and there is not enough for everyone, even in the Club).
Therefore hyperinflation is not out of the question for some of those dark pool cartels, since hyperinflation creates great opportunities for those that are positioned correctly - when blood starts flowing in the streets they will come out to buy at black-friday-on-steroids prices. They just have to get out of goverment/muni debt and invest in assets like gold and equity of down-to-earth producing companies (oil, energy, grain, sugar, cotton) and they are free to short any goverment they please. And with the current overleverage of most of them it shouldn't be that hard since hyperinflation is a psychological event that after a certain critical point starts to feed on itself. You just have to make smart moves at the beginning.
So, to sum it up. The post takes certain flawed assumptions as an axiom and builds on that. The result is predictably incorrect.
+1
I liked this contribution but your post was very interesting too. It's just sometimes nice to read some views that aren't so one-dimensional and polarizing. You know, "Bankers are all evil ugh! ugh! ugh!". A power struggle between the financial elites culminating in a deliberate crash sounds just as frightening, but one can easily forget with all this stereotyping, that the so-called financial elites also live on this planet, breathe the same air, walk the same streets, and eat the same foods we do. I probably passed a couple of them in the streets today. It would be self-defeating to deliberately create a world on the brink of chaos where their labour pool will be decimated, their own lives in danger, with no luxuries and services that they depend on. It's easier for me to take them on a case by case basis on the assumption that they want the same things I do: Wealth and Stability. Is that so flawed? Let's face it, much of the problems we face in the world today are a result of unfettered greed, the consequences of which on the surface look very much like acts of evil.
I am as angry as anyone else about casino markets, conmen, megalomaniacs, and giant Ponzi schemes, but I am always willing to consider all points of an argument, including the dubious yet strangely logical idea that most bankers and politicos will act instinctively to preserve their own lives and livelihoods, even in a stupid roundabout way.