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Here’s Why Hyperinflationist Lira Is Wrong
First, let me say that I’ve long enjoyed reading the rants of over-the-top inflationists like Jim Willie, but also the relatively subdued essays of Gonzalo Lira — even if the latter sometimes comes across as the kind of guy who could wear out a mirror. I feel a comradeship with both because, predictions about the financial endgame aside, I agree with much of what they have said — most particularly about the robust defensive role that bullion seems likely to play no matter what happens. But that is not to say that I agree with all of Lira’s and Jim Willie’s arguments. Some background is in order. My instincts concerning deflation were hard-wired in 1976 after reading C.V. Myers’ The Coming Deflation. The title was premature, as we now know, but the book’s core idea was as timeless and immutable as the Law of Gravity. Myers stated, with elegant simplicity, that “Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.” Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and we differ only on the question of who, borrower or lender, will take the hit. As Myers made clear, however, someone will have to pay. If you understand this, then you understand why the dreadnought of real estate deflation, for one, will remain with us even if 30 million terminally afflicted homeowners leave their house keys in the mailbox. To repeat: We do not make debt disappear by walking away from it; someone will have to take the hit.
Expanding on that point alone, I could dismiss Lira’s entire argument with a wave of the hand, invoking the killer question that blogger Charles Hugh Smith has asked of overheated inflationists, to wit: Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen? The obvious answer is that they wouldn’t. And won’t. I’ve made this point myself many times before and in many ways, sometimes asking rhetorically whether we should expect Joe Sixpack and tens of millions of other underwater homeowners to be able to retire their mortgages using the confetti money that a hyperinflation would produce. Mortgage lenders would be big losers, of course, but so would anyone hoping to ever own a home — or to borrow money, for whatever purpose.
Unbearable Cost of ‘Escaping’ Debt
One of the best places to find the inflation vs. deflation argument deconstructed to a fine science, and to confront the horrific – and, as I am about to argue, unbearable — cost of “escaping” debt via hyperinflation, is the 1993 book The Great Reckoning. Co-authors Jim Davidson and Lord William Rees-Mogg went to great lengths to refract every aspect of the debate. It was this book, and a subsequent dialogue that I had with Jim Davidson, that hardened my deflationist ideas, convincing me – as they likely would many of you, though perhaps not Lira — that a deflationary path would at least be less ruinous than a hyperinflationary one. To be sure, vast amounts of real wealth would be destroyed in either case. But deflation would have the virtue of inflicting pain on debtors more or less in accordance with their sins, bankrupting those who most deserved it. That said, one needn’t drag in moral baggage to explain why the powers that be are extremely unlikely to pursue a hyperinflationary course.
And “pursue” is the correct word here, since, as The Great Reckoning made clear, hyperinflations don’t simply happen; they can only occur following the willful and deliberate decision of a sovereign government to hyperinflate. We need only consider the catastrophic consequences of hyperinflation to understand why such a scheme is so very unlikely to be promoted and effected by the Masters of the Universe. For starters, savers and lenders as a class would be wiped out, since their financial assets would become as worthless as the dollar itself. Bond markets and all other institutional conduits of saving and investment would cease to function in the absence of trust – trust that would take many years for capitalists to earn back. From day one, a darkening economy would subsist on cash transactions, which in turn would bring on the hardest of times, little economic growth, and a drop in the standard of living so steep that it might take a generation to rekindle even a glimmer of the American Dream.
Deflation’s ‘Virtues’
Deflation, on the other hand, would leave the bond and stock markets intact, sparing those with little or no debt from its worst ravages. For those who owe, a tidal wave of bankruptcies would mete out punishment commensurate with each borrower’s sins of profligacy and/or greed. Businesses would be starved for credit, but whatever savings were available would go to the most promising of them. Most advantageously for an economy on-the-mend, it would be many years before capital would be hijacked by the paper-shufflers and feather merchants. In both the public and private sphere, Americans would be forced to live within their means.
I won’t belabor Lira’s arguments where he attempts, not entirely without success, to “slice and dice” my logic when it is at its weakest. But his main criticism — that I have not made a case for deflation, only one against hyperinflation – is disingenuous. For in fact, I have stated the case for deflation thus: Someday very soon, following the precipitous failure of the world’s banks and securities markets, we will all be too broke to push the price of anything sky-high. Hyperinflationists assume we will have vast piles of cash at-the-ready, physical or digital, to exchange for real goods in a panic or along the way to hyperinflation. But will we? Read Lira’s smug hit-job a dozen times and you will find no mention of how that cash will get into our hands, much less into our hands if the banking system should go blotto. He avers only that, well before a collapse, via quantitative easing, the government will “ram” money “into the economy.” As if that hasn’t been tried to death already.
No Middle Way
If you believe that one or the other, deflation or hyperinflation, will eventually do us in, then you may find yourself won over by my argument simply on the evidence I muster against hyperinflation. Read on and judge for yourself. For what it’s worth, Lira’s ruinist essays suggest that we do see eye to eye on one thing – that there is no “middle way” that might allow us to avoid the catastrophic liquidation of a global debt bubble whose notional value has been estimated as high as a quadrillion dollars.
Let me dwell for yet another moment on this idea that Americans could go broke overnight. Lira apparently believes this unlikely, if not impossible, and he could be right. But not very, since it is beyond conjecture that the day-to-day economy would grind to a halt quickly if digital money were thrown into chaos and disrepute for more than a few days. And it’s not as though Americans are so very confident in electronic money’s soundness at this point that the banking system could withstand even a minor crisis. Unfortunately, and as we all know, there are no minor crises any more, especially in the financial realm.
We’ll All Be Broke
So, broke is what most of us will be when the dust settles, and it is perhaps only a matter of the rate at which we go broke that divides inflationist from deflationist. How quickly could the financial system come tumbling down? Last May’s “flash crash” on Wall Street demonstrated that it could occur in a trice. Picture the Morning After the next flash crash, but assume that, this time around, the Plunge Protection Team has been unable to arrest its spread into bond markets and other securities markets around the world. Hardly a stretch, right? But it’s a big stretch to imagine a hyperinflation arising from the smoke and rubble of the creditless world that would result.
Will we have gone broke without having had the chance to pay off our mortgages in snide? I say yes; Lira, for his argument to hold, is obliged to say no. I hope he’s right. Then again, maybe hyperinflation will unfold so slowly that we’ll all have time to trade piles of shrinking dollars for real stuff currently owned by…fools?
Whatever happens, I wouldn’t put much store in Lira’s assurance that even small branch-banks keep scads of cash around. Try to withdraw $25,000 from your own branch if you want to find out the truth. He’ll probably say that the banks, with a nod from Uncle Sam, could refill everyone’s account with digital money overnight. I say, think about that for a moment – about the economically fatal traffic jam this would create instantly in the world of real transactions.
Deflationary Gas-Bag
Lira’s arguments, although certainly not his ungentlemanly, preening condescension, are at their weakest when he attempts to explain how quantitative easing will inject a hyperinflationary sum of dollars into the real economy. He says our bankrupt government will simply spend limitless quantities of funny money into the “wider economy.” If it were that easy, why are home prices still falling after trillions of dollars worth of “stimulus”? And why have wages failed to rise? Granted, fuel and grocery prices have been going up. But how long can that trend continue with incomes stagnating and household discretionary cash plummeting? (That was not a problem in 1922 Weimar, by the way, for reason that I shall explain shortly.) And how many seats will the airlines fill this summer if prices stay above $500? With respect to the inflation of stock-market prices, we’ll let Lira shoot himself in the foot if he wants to argue that Wall Street’s cosmic gas-bag is other than a deflationary juggernaut waiting to implode. Meanwhile, a vastly larger gas-bag in the form of a global derivatives bubble is set to implode with irresistible force. Hundreds of trillions of dollars’ worth of collateral are destined to shrink to the vanishing point. That is the true measure of deflation’s force, and when it starts to snowball again as it did in 2008, no puny multitrillion-dollar monetization by the Fed will even begin to counteract it.
Finally, we cannot let Lira evade the question of how, specifically, the government will “ram” (his word) QE3/QE4/QE5 money into the economy, especially when the state and local governments who in earlier times would have been the most eager and efficient conduits for these sums have begun to refuse them, knowing as they do that each new stimulus dollar will only create more debt for future taxpayers. We’d like to believe that the common sense of Republican and Tea Party governors and legislators alone will suffice to smother any inflation that might otherwise seep into the economy via supercharged outlays of cities, counties and states. In fact, the deflationary opposite is happening as local and state governments expand layoffs and pare budgets to the bone. Which leaves only the private economy to receive a wage stimulus sufficient to catalyze hyperinflation. On that score, just as we’ve asked hyperinflationists to wake us when we can sell our home for a quadrillion dollars, we’ll ask them now to send us a job application when GM is paying assembly-line workers $800 an hour.
When Money Dies
Big employers effectively did so in Germany, allowing weekly wage settlements with then-pervasive trade unions to track hyperinflation almost step-for-step. But you’ll need to read Adam Fergusson’s book about the Weimar hyperinflation, When Money Dies, to understand exactly why the U.S. is legally and practically constrained from duplicating Germany’s dubious feat. If you believe otherwise — believe, as Lira evidently does, that the Fed could somehow put a google of dollars into circulation on demand — then you should be buying real estate hand-over-fist right now. When Money Dies is a great read even for those who’d rather not be disabused of the notion that today’s USA, economically and financially, is not 1921’s Weimar. I particularly recommend a chapter that recounts how the most extreme periods of German hyperinflation occurred while the country’s money-printing presses were idled by strikes. Turns out, some of Weimar’s largest employers had been authorized by the government to print scrip in the event that crates of official money didn’t arrive in time to meet payroll. Imagine what such a policy could do for Detroit! For the whole world!
Rather than argue that this couldn’t happen, we’ll say only that if it did, it would be but a momentary blip in a deflationary collapse in real estate that Lira doesn’t even mention. Just wait till the incipient collapse in commercial property values hits full-bore. This is yet another deflationary juggernaut that the arrogant and pompous Lira has conveniently failed to notice. He will soon, though, and the shock of it may yet distract his attention from an inflation that so far has barely overflowed the lettuce bin.
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Exact-a-mundo, Kaiserhoff. I've written this before, but before I can spend $1 billion on an egg I have to earn or be given $1 billion. I can't spend $1 billion on an egg if I'm earning $80K a year. Hyper-inflationists always blabber about money velocity and "loss of confidence in a currency". Hyperinflation cannot happen unless wage increases or government transfer payments go parabolic. That is what happened in Weimar Germany - the government and labor unions were working hand-in-hand. There is no evidence that wages or government benefits are increasing parabolically in the U.S. Until that starts to happen, don't bore me with sky-is-falling-hyperinflation-is-nigh B.S.
We the consumer, are actually getting money via the Budget Deficit (read printed and spent dollars by the US Gov). That is a direct increase in the money supply that "trickles down" into the economy.
But again, that does not need to happen for Hyperinflation. Velocity of money is a key component in the inflation equation. It cannot be "taken out" and considered an artifact.
Consider what would happen if the procurement of goods began to speed up, to the point where they disappear faster than the supply chain is supplying them. What this creates is an ongoing scenario of the same dollars being cycled around (think of the same money suppy, even though yes it is actually increasing) chasing fewer goods, because the goods available for sale are shrinking.
I know this is nit-picking but money is created when it is borrowed/lent, not when it is printed, and that does not affect your point about the increase in money since the government does borrow every dime of every deficit; however the deficit even at 1.whatever trillion is a small drop in the bucket of wealth and income lost in the last few years and ongoing. They could deficit spend for a years at this rate and still not replace the sums taken from the public just in the form of real estate equity alone.
Generally, average real estate is not a good place to be because for the typical investor that would be an average home, in an average location, with persistent average demand and oversupply. Or, they are investors in an average REIT which has been bid up to the point where it's all upside and little margin of security left.
On the other hand, well located land that is trading at a discount to its longer term trend, might make a lot of sense right now. It's not just the asset class, but the simplicity of ownership that can make land an interesting alternative to equities and other physical assets.
Over time, the main problem with real estate is that construction depreciates. One avoids much of that with land.
Finally, real estate will be a beneficiary of retiring boomers who have capital. The question is where will they retire? My sense is they'll leave expensive places like NYC, preferring to rent, and own in less hostile, cheaper places.
Completely agree with what you say, but the topic here is Hyper-inflation.
If you borrow money to buy any durable good, you pay the note off in play money. With hyperinflation, all real estate is good, as are classic cars, guns, gold, whatever.
Forgot to mention above, interest income and dividends, as sources of income. Those also, are not happening.
You also forgot SALE OF ASSETS as a source of money. Not trying to nit pick but it is important, de/hyper or stag all flations have this in common, economic stress that prompts or even forces the sale of assets at prices that are always less than they could otherwise realize if they were not under that stress.
Rick misses the point. Real estate is not a good place to be in times of hyperinflation. Don't think you'll be paying off your house at 3% while inflation is running at 50%, because even if you bought your house with a fixed rate mortgage, governments will allow banks to renege on their contracts and switch to the market rate. So your bank will have been legally granted permission to charge you 55%.
Furthermore, as illustrated by Exter's pyramid, the price of anything bought on credit collapses relative to commodities and metals. So, yes, you'll be better off holding Real Estate than cash... but a lot worse off than if you'd invested in corn, or silver, or oil.
And Rick? if you think the Sheep will not demand the Feds bail out their local communities, you're out of your mind. THAT is how all the newly created money will enter the economy - as unemployment soars, the demand for 'free' money will be overwhelming. The Feds will underwrite more and more 'job creation' boondoggles, because if they don't, there'll be revolution. And if oil hits $200, and the dollar tanks, they'll probably start subsidising the cost of gasoline for the same reason - because if they don't they'll be finished.
Furthermore, your argument that we are ruled by rich men who would be ruined by hyperinflation, ignores the fact that they are bankers who would face ruin by deflation. They can protect themselves from hyperinflation, to a large extent, because they're at the head of the money stream - they can't protect themselves against deflation, which strikes at the very heart of fractional reserve banking.
I think BigJim's last paragraph cuts the Gordion knot. I do not foresee a Weimar "hyper"inflation where the dollar loses a majority of its value in the course of days on an ongoing basis, but an ongoing stagflation with necessities (commodities, low-cost housing, etc.) climbing while growth stagnates.
The interest of the banking superclass lies in the alchemical power of the fractional reserve system backed up by the unlimited power of the Fed to loan and bail out at zero percent if necessary. Major deflation would destroy the banking system, whose bread and butter is leveraging out their capital base many times in the form of loans. It almost happened in 2008/09, but Paulson, Bernanke, and Geithner moved heaven and earth and saved them. Banks aren't lending now, but the Fed has their back with QE and ZIRP so they can make a killing borrowing at zero, buying Treasuries with positive yield, and flipping them back to the Fed for a profit. Ending QE and ZIRP would cut off this lifeline and force banks to loan, which means "inflating," i.e., enlarging the money supply. My expectation is that we continue to see the ongoing secular slow death of the dollar and various ad hoc measures to keep banks profitable without having to take the risk of actually loaning to economically productive people in a depressionary environment -- continued ZIRP, more QE (down the road), price controls, etc.
The endgame is an unknown political solution such as a one-world currency, government measures against "hoarders" like during the wars (including gold hoarders), etc. I think the banking superclass is transferring their wealth into hard assets -- hence the continuing run-up in commodities -- offshore, etc. before the whole thing implodes, which might well look "deflationary" even while the dollar is slaughtered.
when this ship goes down, those with hard currency (wink wink nudge nudge) will buy the produtive capacity of the country. like the carpet baggers did in weimar germany and post 1929 usa.
i'm kind of tired of suckers who know nothing , but write about almost anything..
inflation, defaltion, disinflation .. thats all BULISHIT.. just words
here's simple test
WHAT IS 10YY RATE GONNA BE IN 5 YEARS AKA IN 2015/16?
I guess you think pretty low, fine..
BUY 10YY TREASURY and wait for maturity.. or short gold/ sivler,,
no hyperinflation , no growth in gold
AM I RIGHT? we will see outcome..
alx
Housing was inflation crazy during the boom, not in percentages but in pure raw debt notes.
wages will deflate, and millions of loss jobs are deflated to a complete zero.
Commodities of intrinsic value like oil will go to the moon against the ponzi value of fiat currency. Oil is the biggest trigger for inflation in everyday necessities.
Gold can be 5000 or 1000, and is only tied to the confidence of any particular currency. Thin tight markets easily manipulated will not mean anything. Only good for a hedge and will have little investment gain edge.
Healthcare and college education have had double digit inflation for over a decade. Though not very hyper, but has destroyed true core growth, in labor markets causing the increased wage deflation and outright american dream destruction.
Bla, bla bla. Deflation, inflation, castration, starvation we gonna have it all and the globalist can set their agenda of new currencies and complete control (inflating)over all of our freedom (deflating) and liberties (destruction).
The MAIN reason we will NOT get hyperinflation is our money is DEBT BASED. It has to be BORROWED into EXISTENCE. Check you dollar bill, it says Federal Reserve NOTE. A note is a form of DEBT. So in order to RETIRE debt it has to be PAID OFF or DEFAULTED. Furthermore ALL our physical ASSETS and Services have been INflated over the years based on the abundance of CHEAP credit. The Infltion has already occurred. My $30,000 home in the 70's was worth $400k in 2008. 30cent gas is now $4. Credit and Debt are opposite sides of the same coin. When credit disappears, prices will collapse. Collateral value has collapsed and continues to do so.
The US economy and much of the world's economy is operating on leverage (read credit). When credit disappears (collateral value collapse), deflation takes hold. Credit is based on value of assets and banks are holding assets marked to fantasy. Hence they are unable to lend.
dup
Let me throw some facts at you:
The total value of US residential real estate has declined by $9 trillion since June, 2006
The total value of US CRE was roughly $5.3 trillion at the end of 2007, so I reckon total value has declined by a couple trillion since the peak.
That means the total value of US real estate has declined over $10 trillion since the peak. Virtually any bank with any real estate exposure is insolvent and will never be solvent unless Bernanke keeps the printing press pedal to the metal indefinitely.
Therefore you will continue to see the dollar decline in value relative to commodities and most major foreign currencies. Ben and Timmy will have to unleash a tsunami of FRN funny money to keep the zombie banks in business, and the consumer will need more diluted dollars to buy stuff.
I am not saying this will result in hyperinflation. I'm saying (imo) pretty much everything will be much more expensive because the dollar will be driven into the ground.
Like Rick you're right on the 'flation', just wrong on the currency(ies) in it.
And so buying power (via real hard assets in many forms) will be all that matters. Hence the inflation/deflation debate (like modern economics) is BULLSHIT.
You are dead wrong. Oil will go over $ 200 a barrel, which will kill the dollar. Also note that during the Middle East unrest AND the Japan crisis the dollar did not (I repeat: DID NOT) rally. The safe heaven is dead.
How is $200 oil inflationary if no one can pay for it?
Rick, you have the causality backwards. It's not the printing that causes the rising prices, its the rising pricing that causes the printing. Go back and re-read When Money Dies - it's well documented in the book. Deflation by it's nature would require a re-coronation of the almighty fiat dollar - where will the confidence for that to happen come from?
Oil is currently priced in $US. When will the petro-dollar be replaced? What effect will that have on the $US 's valuation? There is more to the D vs I argument than the "current" system setup. IMO the current system is already being worked around. Note the deals struck between China and Russia for oil. I believe FIAT is in death spiral, and no new mix of existing currency will work going forward. As always the king of money will win. Deflationary pockets are assured as fiat attempts to find security. Think about demographics and the real estate market. Why would the Central Banks be scrambling to buy more Gold if not for the belief that it is the ultimate security? Why are they not buying $US? The world CB's own the majority of the Gold. If the entire world worked in concert, the metals would not be sought for protection, as the majority owners would have effectively killed that metal. What I see now is a struggle to kill the current system and remove control of the UK/US centered banking system. They will not go "softly into the night" !
Inflation is the path of least resistance. Each step forward on that path makes reversing course much more painful, and unlikely.
Absolutely correct Rick, and thanks for your great article. No one can PRINT their way into prosperity. The Fed CANNOT print wealth and the artifical credit based value of assets has collapsed. By borrowing, we consume our future income to enjoy today. Now it is time to pay or default on the incurred debt. There simply is no way out. If CREDIT was not part of the equation and we were just a CASH based economy then it would be easy for the Fed to destroy the value of the dollar.
ill have to agree with you, but your tone against lira is in bad taste. we are all wondering how all this will play out. we are all caught in this together, so lets work together to get out of this. The fed is your enemy not lira.
I reposted something i wrote on my blog with a different slant but very close you can look and see what u think
http://price4freedom.com/2011/04/06/its-a-gross-deflation/
Gee I don't know, because maybe food cannot be grown without oil? Because the manufacturing of everything made on earth depends on oil?
Do you understand that the dollar is not the only currency on earth and we depend on imports of just about everything?
If the euro keeps climbing vs. the dollar, anyone holding euros can afford $200 for oil.
Anyone who was smart enough to transfer their wealth into gold or silver when Bernanke's money printing went wild in 2009 can also afford oil.
"How is $200 oil inflationary if no one can pay for it"
No one in the US, you mean. 250 million or so is not the entire population of the earth Ricky... speaking of people in danger of wearing out mirrors.
How is a 4 trillion dollar loaf of bread in Zimbabwe too expensive and deflationary if no one can pay for it? Inflation has nothing to do with the ability to pay. It has everything to do with the value of money. In this case the price of bread has to do with the cost of wheat. The fact that you cannot pay for it, does not mean that the price does not go up.
Rick, you are nothing but a troll using this forum to get information that you can use to sell to your paying customers in your double secret newsletters. You are casting chum in the waters to bring in more fish. By the way, there is no reason to buy a subscription to tell your paid readers the same thing you are telling in public, unless you are telling them something else.
I agree with the statement above that this is an annoying argument, from my point of view we probably will get neither a deflation like the one that scarred my grandfather for life, nor a hyperinflation like Weimar or Zimbabwe, rather we will get something a lot worse than either, 1970's style stagflation on steroids, that is more stag and more flation than we saw then and that episode was worse than most board participants know (assuming most of you were not around for it).
If we were to get one or the other of de/hyper inflation it will be deflation. And as I have so often held even hyperinflation ends in a deflationary depression after a short time.
There are other factors that can mimic high speed inflation in certain prices of commodities that do not lead to either deflation or hyperinflation that nobody seems to remember because I have yet to see a single mention of them, over concentration of wealth for example allows a very few to speculate thus driving up costs even when their demand is rather small and in the process short circuiting the supply and demand pricing model. These are what we often refer to as bubbles and they always pop. In the case of residential real estate that pop would have and should have resulted in a market clearing price that usually is below the intrinsic value of the actual houses, had the government and Fed not stepped in and prevented this price discovery in order to ostensibly protect the wealth of the investor class which they say is little guys with pension holdings in equity and debt markets, but is really a few thousand super wealthy families with dynastic wealth and security.
The other thing that never gets mentioned but which plays an important role in the hyperinflation/deflation argument is the velocity of money, it is so annoying to have either Weimar or even modern Zimbabwe dragged into the debate when in Germany's case there was no electronic money, a lot of the inflation happened only after it became apparent to the dullest of the population that just feeding oneself was going to require buying bread the moment one was paid. And ditto today's Zimbabwe where most of the population has no access to computers, ATM's, credit cards, were for all intents and purposes they still do not live in the electronic age.
But, in both cases the wealthy investor classes were not wiped out, though to look at Zimbabwe I have to wonder if the hyperinflation was not a deliberate decision made in an effort to dislodge the old white landed class that had formerly run Rhodesia. But, as I have pointed out before, even in Zimbabwe the economy has delivered overall growth in the last 10 years averaging over 8% in real terms even after accounting for hyperinflation and while that might not be well distributed the average person in the street has coped and maintained or even improved living standards, and that might be slight but it is still better than I or my neighbors have managed.
And at the risk of sounding like a CD skipping on a single note, even at $8/USDbu there is still less than 20 cents worth of wheat in a pound and a half loaf of bread, and distribution costs per loaf are not even a single penny of increase, the near doubling in bread prices is real as we see when we go to the market, but it has nothing to do with commodity pricing. It is either gouging and greed by the makers/distributors playing on higher inflation expectations, a self extinguishing phenomenon as consumers substitute, or it is due to another input in the production of bread that has never been the case in the past but is real today, debt. Company/corporate debt service in the absence of credit available for rolling over debt now has to be paid and as an input to bread (I gather we use the word bread as a shorthand for all goods and the economy overall). Commercial credit for smaller entities has dried up dramatically, in this county pop. 225,000 or so, I have watched one after another and another business close shop for good, not because business was slow, it was off but not to the point of having to close the doors, it was because they have no access to credit, time and time again this is what is cited when they close doors. Now even the largest employer in the county (after healthcare) Harry & David is going down, though too much debt inflicted on the company by vulture private equity is what is killing them, still, they could perhaps work they way back to health with prudence and the ability to access credit to roll over the old debt.
I wonder if you all are seeing the epic commercial RE vacancy rates we are seeing here in the Rogue Valley?
@printfaster
your argument is baseless because @4trillion or any absurd number, the product will not move. All that counts is the price at which the seller and buyer are able to do business. So Rick is correct because if the BUYER does not have the ability to pay for the product, it will not move. The Fed does not have the ability to inflate EVERY account in the US. You cannot print prosperity in a CREDIT/DEBT BASED monetary system. And lobbing personal attacks at Rick will only win you brownie points with economic illiterates.
Armstrong - "Hyper-inflations is a collapse in the confidence of Government. It is the absence of future stability".
The question is ...... do you have confidence in the US Government?
Well said, Printfaster. Thread is over now -- you just won the argument.
Well said, funny how the deflationists always ignore Zimbabwe, Weimar, etc. Rick needs to read some history.
Have you taken notice what happened since the Libya crisis? Oil went up and the dollar went down. It is the mechanism that will kill Bernanke. They will have to print more dollars/currency to make oil purchases possible.
The dollar is worth how much more because of the reserve currency status? If the dollar is worth less, what happens to prices? Would it really matter if there is not a significantly higher M1 money supply if suddenly other countries won't take dollars?
No. Rick seems to think the USD operates in a vacuum, which it attempts to fill with it's righteous indefatigable hegemony.
This is a god damned annoying argument. The main thing that matters for the majority of the population is how much essentials are going to cost for people with a fixed income.
This article is just another "Let them eat iPads" argument.
MEEEEEEEOOOOOOOOWWWWWWWWWWWWW!!!
Yes, agreed, it was "catty"...
But in his defense, GL takes a fairly arrogant stance in his opinions. He tends to focus on one issue rather than the bigger picture.
The web bots have called for a combination of inflation (in necessities, esp. energy (esp for cooking) and food), while simultaneously there will be a chilling deflation in all "non-essential" products.
Also called for is the dow being bought for 1/3 oz gold, and parity for gold/silver for at least a short time.
All sounds very odd/exciting/unlikely...
http://www.youtube.com/watch?v=PG476x9Fw10&feature=player_embedded
They have had "ill winds" circling the globe nine times for years in the data sets, and the Fuku situation seems to fill the linguistic sets. Also, that we will see several "dollar days" where the price of silver goes up a dollar a day, followed by five dollar days.
After being adjusted for inflation, silver will then rise to revalue according to it's true worth as a medical ,industrial, essential precious metal...
Lira is "the kind of guy who could wear out a mirror" --cheap shot, even if it's true.
But this: "Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?"
Can Ackerman really be that stupid? He thinks that the Warburgs, Rothschilds, Kuhns, Loebs, etc are all stuck with keeping their wealth in US dollars? No, even Ackerman can't be that stupid.
Listen up, Ricky: You didn't read When Money Dies very carefully. The wealthy corporate moguls of Germany grew vastly richer off the Weimar hyperinflation; all of them defied the foreign currency controls. In the 2001 Argentine crisis, the Argentine plutocrats converted their pesos to dollars and wired them into Miami banks. They escaped the peso collapse and grew wealthier off the misery of the middle class.
The super-wealthy family trusts that are behind the Federal Reserve reside mostly in Europe, and they can move their wealth beyond the reach of any government or currency controls in a moment. They won't lose a penny in a dollar collapse; their funds will be shifted into currencies or commodities that will skyrocket as the dollar goes down.
Then, like the kleptocrats of Argentina, they can step in and pick up the assets of Americans at pennies on the dollar.
Lira 1, Ackerman 0
This disingenuous, pompous, historically ignorant ass Ackerman lost me, and ANY credibility, with this wildly naive and ignorant statement.
Hey Rick, if central bankers are so godlike in their powers, then why was hyperinflation allowed in Zimbabwe, and Russia, and Mexico, and Weimar Germany, and Argentina, and Brazil (FOUR times in the last half century!), and Zaire, and Yugoslavia, and post-WWII France, and Peru, and Ecuador, and Zambia, and Angola, and Mozambique, and Ethiopia, and Turkey, and ..... , all of which countries had central bankers who I note were NOT "wiped out" by their hyperinflations, but merrily continued in power both during and after these monetary collapses.
Rick, in his dogmatic deflationary flat-earthism, neglects to recognize that central bankers already ALLOW "ordinary" inflation to occur, indeed, their Ponzi scheme of a monetary system absolutely demands it! Are they not thereby suffering its effects? And it is not just the central bankers who ultimately determine how and when currencies lose value, but their allies in the political power structure as well --- those who can NOT tolerate a real deflation, lest it instantly implode their reed-thin ability to continue servicing their exponentially-growing debt via artificially-low interest rates.
Rick also fails to acknowledge the fact that there is not ONE single example of a true deflation under a fiat currency regime, ever, throughout history --- yet hundreds of examples of currency collapses and hyperinflations under governments unsustainably burdened by exponentially increasing and unpayable debts, as is ours today.
Wow, what an epic fail! But that is par for the course with the deflationary dream-weavers and unicorn hunters. Rick, you are a total ass --- stop embarrassing yourself already, before you earn the (paper-mache) Bernanke Award for Total Denial of Reality.
Always, always beware of those who smugly and arrogantly insist that something can NOT happen, particularly in the realms of economics and politics --- history is littered with the corpses of their simplistic and blinkered theories.
"This disingenuous, pompous, historically ignorant ass Ackerman"
C'mon akak, you're among friends. You can tell us how you really feel about Ricky.
A couple of statistics for currency expert Ackerman: Of existing fiat currencies, the average life is 39 years. Of prior (failed) fiat currencies, mean time before failure is 15 years.
Will the US dollar fail? It depends. The Fed has successfully chipped away the first 97% of its purchasing power already, but it took nearly a century. The Bernankster seems set to destroy 97% of the last 3% in a few years.
I'm fairly confident that the USD can hold out through 2017, but I'm not betting the farm on it. Silver, beeches.
I can't say that I learned nothing from Lira in this discussion. What he taught me is that when you come to the Hyperinflation vs Deflation argument with absolute certitude, you can sound like a real asshole. Still, the film buff in me wants to believe he's an auteur, since all I've done myself is lose a bundle backing Nicholas Cage's "Vampire's Kiss". Could we see a sample of what you've achieved with that b-i-g camera of yours, Gonzalo?
Actually, the main premise of this whole argument presents a false dichotomy: that we must either suffer deflation OR hyperinflation. While I do not necessarily believe that hyperinflation is guaranteed, I certainly think it is entirely possible (if not likely), whereas Rick's putative deflation with its appreciating fiat currency is about as likely as Elvis returning on the back of a unicorn.
But Gonzalo does make a salient point: that Rick seems to be mainly attempting to make his (feeble) case for deflation merely by attempting to refute the case for hyperinflation. You know, I never took even one university course in logic, but that argument of Rick's certainly seems to demonstrate a basic failure of logic to me.
Great work akak. Hell i even believed in deflation once,, QEII fixed that though. Not sure how anyone can hold onto a deflationist argument any longer - it may be theoretically correct but is wrong in every practical sense.
Jane, you ignorant slut!
LOL