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John Williams Sees The Onset Of Hyperinflation In As Little As 6 To 9 Months As Fed "Tap Dances On A Land Mine"

Tyler Durden's picture





 

John Williams, arguably one of the best trackers of real, unmanipulated government data via his Shadow Stats blog, has just released a note to clients in which he warns that hyperinflation may hit as soon as 6 to 9 months from today. With so many established economists and pundits seeing nothing but deflation as far as the eye can see, and the Fed doing all in its power to halt the deleveraging cycle, both in the open and shadow economies, what is Williams' argument? Read on. Incidentally, even if some fellow bloggers disagree with Mr. Williams' assesment, we believe it is in our readers' best interest to have them make up their own mind on this most critical economic development.

SUMMARY OUTLOOK

Systemic Turmoil is Unthinkable, Unacceptable but Unavoidable.  Pardon the use of the Aerosmith lyrics in the opening headers, but the image of tap-dancing on a land mine pretty much describes what the Federal Reserve and the U.S. Government have been doing in order to prevent a systemic collapse in the last couple of years.  Now, as business activity sinks anew, much expanded supportive measures will be needed to maintain short-term systemic stability.  Such official actions, however, in combination with global perceptions of limited U.S. fiscal flexibility, likely will trigger massive flight from the U.S. dollar and force the Federal Reserve into heavy monetization of otherwise unwanted U.S. Treasury debt.  When that land mine explodes — probably within the next six-to-nine months, the onset of a U.S. hyperinflation will be in place, with severe economic, social and political consequences that will follow.  The Hyperinflation Special Report is referenced for broad background.  The general outlook is not changed. 

What does this mean for US financial markets? (take a wild guess)

In these circumstances, the financial markets likely will be highly unstable and volatile.  Looking at the longer term, strategies aimed at preserving wealth and assets continue to make sense.  For those who have their assets denominated in U.S. dollars, physical gold and silver remain primary hedges, as do stronger currencies such as the Canadian and Australian dollars and the Swiss franc.  Holding assets outside the U.S. also may have some benefits.

Source: Shadow Stats, where the full piece can be located

h/t Justin

 


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Tue, 09/14/2010 - 09:23 | Link to Comment NOTW777
NOTW777's picture

so, when does he get attacked by mish

Tue, 09/14/2010 - 09:36 | Link to Comment Pladizow
Pladizow's picture

Right, he already dismissed the ideas of Gonzalo Lira, Peter Schiff and Dr. Marc Faber.

He even called Dr. Faber, too US-centric - WTF!

Wed, 09/15/2010 - 08:54 | Link to Comment steve3828
steve3828's picture

Get rid of the porn picture!  We're accessing ZH from work

Tue, 09/14/2010 - 10:57 | Link to Comment SWRichmond
SWRichmond's picture

Just like in the anti-Lira interview, Mish will assert that he is far too wise to stoop even to answering, for to do so would be to give credibility to his opposition.

Tue, 09/14/2010 - 13:03 | Link to Comment B9K9
B9K9's picture

Mish is a spent force. Just as he made his bones properly emphasizing the correct definition of inflation as a net increase in the supply of money-credit aggregates, he is going to ride his personal ship down by misunderstanding the true definition of hyper-inflation.

Perhaps it's the 'inflation' part that throws him off. In actuality, the spark of hyper-inflation has hardly anything to do with supply, but rather a rapid withdrawal of goods/services from the market. (Note the velocity component - not on the monetary side but the rapidity of abandonment of open exchange.) Given increasing fears of default risk in the underlying hard asset(s) backing the $USD (in this case, Ts & MBS), who would willingly exchange real assets (oil, food) for officially approved legal tender?

Ben monetizing a few $trillion or so of Treasuries doesn't really put sufficient new reserves/dollars into the system to create a push effect (ie money chasing goods). Rather, the market wakes up (Mish's 'shazam' moment) to the reality of what's driving Ben's actions and realizes the USA ain't gonna make it. It is this loss of confidence and expectations of heightened default risk that results in a pull effect as goods/services flee open exchanges.

As Gonza, FOFOA and others patiently explain, it is the government's response to its critical need to acquire these goods/services at any cost that then results in hard-core money printing.

Tue, 09/14/2010 - 13:17 | Link to Comment George Orwell
George Orwell's picture

If hyperinflation is a confidence game, why would other countries lose confidence in a country with more than 5000+ nuclear weapons and a record of using those weapons?  The US dollar is backed by plutonium and uranium, not gold.  We are not a fiat currency!

I don't think we will ever see hyperinflation because if things get sufficiently bad, we will launch those nukes to wipe out the foreign countries holding out debt and those countries with oil.  Tactical nukes can be used on those with oil so as to not damage the oil wells.

Nothing inspires more confidence in the US than a display of nuclear prowess.

To quote Dick Cheney one more time.  "The American Way of Life is NOT NEGOTIABLE."

George Orwell

Tue, 09/14/2010 - 13:35 | Link to Comment B9K9
B9K9's picture
  • Nuclear weapons are useless. If they had any value at all, we would have crystalized Tehran, Kabul & Baghdad on 9/12.
  • The Cold War was always about making sure we kept the post-WWII war time economy running.
  • When China finally makes its (land) move, do you think there will be a nuclear exchange?
  • The USSR failed with an equal/greater number of nuclear warheads.

The USA is like some macabre portrait of Dorian Gray. Anyone who has spent anytime in LA, NYC (outside of Manhattan), Chicago, etc can see that it's no different than Sarajevo.

We had a sweet run due to some unusually lucky circumstances. These included plentiful natural resources, an empty continent (re)populated by young, hard scrabble immigrants, a vast productive economy, and no meaningful (public or private) debt and/or future obligations/promises.

Scratch the surface and you can see it's already dead - it just doesn't know it yet. The power-elite who milked it for everything it had know it though. They used their influence to get (their paid for) Congress/Fed to help them get out of worthless private debt instruments (MBS, etc) and convert them into publicly guaranteed debt (Ts).

The hyper-inflation event begins when the power-elite begin to convert out of Ts and into other available mechanisms for wealth storage. Once the sheeple get wind of the looming danger, off go the goods/services from stores & shelves as hard-core hording begins in earnest.

Tue, 09/14/2010 - 14:38 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

Russia was not the reserve currency at the time of their fall, most trading is done in dollars, other countries need to keep dollars on hand to buy oil & pay off debt's. Boatloads of dollars floating around, tons of them, also lots of debt that needs to be serviced using dollars also.Everyone is in the same boat, all tied to the dollar.

The Cold War was always about making sure we kept the post-WWII war time economy running.

Really ?

 

Many Americans feared that the end of World War II and the subsequent drop in military spending might bring back the hard times of the Great Depression. But instead, pent-up consumer demand fueled exceptionally strong economic growth in the postwar period. The automobile industry successfully converted back to producing cars, and new industries such as aviation and electronics grew by leaps and bounds. A housing boom, stimulated in part by easily affordable mortgages for returning members of the military, added to the expansion. The nation's gross national product rose from about $200,000 million in 1940 to $300,000 million in 1950 and to more than $500,000 million in 1960. At the same time, the jump in postwar births, known as the "baby boom," increased the number of consumers. More and more Americans joined the middle class.

 

When China finally makes its (land) move, do you think there will be a nuclear exchange?

Yes.


The USSR failed with an equal/greater number of nuclear warheads.

 

They failed because they were communist money grabing pig's... Capitalism drives innovation.

Tue, 09/14/2010 - 14:48 | Link to Comment Mad Max
Mad Max's picture

Capitalism drives innovation.

Then it's a shame that the US isn't capitalist any more.

Tue, 09/14/2010 - 18:25 | Link to Comment l1xx3r
l1xx3r's picture

So true. +1

Tue, 09/14/2010 - 14:49 | Link to Comment fiddler_on_the_roof
fiddler_on_the_roof's picture

what happens if Oil Producers don't want to park money in dollars and refuse dollar payments ? Now what will dollar reserve(T-Bonds) holders do ? US can furhter run a knife through that by taxing the coupon payments. Then buy it back cheaper, but by then US Dollar is no longer the reserve currency and there is short term pain until a new currency arrives.

Tue, 09/14/2010 - 15:10 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

The house of Saud' needs us to keep the family * Safe- Oil=Dollars 360'-24/7

Tuesday, September 14, 2010

The Obama administration is seeking to sell Saudi Arabia advanced aircraft worth up to $60 billion in what Pentagon officials say would be the largest-ever single foreign arms deal.

Tue, 09/14/2010 - 17:39 | Link to Comment Sabibaby
Sabibaby's picture

The Oil Fields in Saudi Arabia are in decline and Russia is now the number one producer of oil...

Looks like we need to make new friends!

Tue, 09/14/2010 - 17:43 | Link to Comment Rusty Shorts
Rusty Shorts's picture

 - Cenk makes some interesting points.

http://www.youtube.com/watch?v=001F4tq6Cng

Tue, 09/14/2010 - 22:18 | Link to Comment traderjoe
traderjoe's picture

They give us back some of their worthless fiats, and we give them advanced weaponry. They are better in the bargain. 

Tue, 09/14/2010 - 18:29 | Link to Comment UncleFurker
UncleFurker's picture

 

"Capitalism drives innovation."

The last 10 years of "innovation" haven't been a good example of capitalism.

Cronyovation. Put fuckers in jail. That'll restore my faith in capitalism.


Tue, 09/14/2010 - 19:35 | Link to Comment Pedro
Pedro's picture

^5 uncle.

Tue, 09/14/2010 - 18:36 | Link to Comment piceridu
piceridu's picture

I've spent the last 3 years traveling in Europe/world, from east to west. There were many days that fx exchange centers/kiosks would not take dollars. They would say "not today euros only". I couldn't believe it. I thought the US dollar was like gold. It made me think: are these little anecdotal events a precursor to things to come?

Wed, 09/15/2010 - 00:26 | Link to Comment goldsaver
goldsaver's picture

Really? You truly believe in your heart of hearts that President Obama's administration (or his handlers the PTB) would release nuclear weapons on other countries because of their rejection of the US dollar as a reserve currency? The same administration that wont call terrorist acts terrorism for fear of offending a medieval civilization. You believe it so deeply you are willing to bet your financial future and maybe your life on this? And you deeply believe at the same time that if the US does uses nuclear weapons against China that such nuclear strike would not be retaliated in kind?

Wow.

Tue, 09/14/2010 - 18:34 | Link to Comment minus dog
minus dog's picture

"Nuclear weapons are useless."

Right on.  We likely do not have the willpower to use the damn things even if someone nukes us first, which is increasingly likely.  We've busted up several (real, I'm not talking about Iraq) weapons programs in the last several years, some of which we had no fucking clue about until they were nearly operational.

Those who have not read this should do so:

http://www.rand.org/pubs/technical_reports/2006/RAND_TR391.pdf

Tue, 09/14/2010 - 14:43 | Link to Comment fiddler_on_the_roof
fiddler_on_the_roof's picture

why launch weapons when you can confiscate the returning dollars, tax the bond coupons...

Tue, 09/14/2010 - 18:07 | Link to Comment Cistercian
Cistercian's picture

George Orwell is correct.

  The United States is not the USSR.

 We will use the bomb.And any other means at our disposal.

 And we have lots of other means....and they are worse.

Tue, 09/14/2010 - 18:26 | Link to Comment theoakman
theoakman's picture

Rofl, you mean like the Soviet Union?  Seriously, how can you have a handle of George Orwell and make that post? 

Tue, 09/14/2010 - 20:28 | Link to Comment Cistercian
Cistercian's picture

Not like the Soviets...they were amateurs. We are much, much more violent, depraved, and pernicious.

 

Tue, 09/14/2010 - 21:51 | Link to Comment New_Meat
New_Meat's picture

Cis-

"Not like the Soviets...they were amateurs. We are much, much more violent,..."

give ya that.  Others, not so much, unless you can top Stalin's record?

- Ned

 

Tue, 09/14/2010 - 23:06 | Link to Comment Cistercian
Cistercian's picture

Stalin killed his countrymen like a pro...true enough!

 But if we go for broke(pun intended) I bet we can get the gold medal in all out no holds barred body count.Cities are dense target areas, think of only 10 high yield nukes over 10 cities and you see my point.I should also point out that TPTB are serious Malthusians.

  Which should give anyone pause!

Tue, 09/14/2010 - 18:32 | Link to Comment TeamAmerica
TeamAmerica's picture

"Tactical nukes can be used on those with oil so as to not damage the oil wells."

No-no-no. We have a delightful little device called the neutron bomb (or "enhanced radiation weapon"). Kills the people and every other living thing, but leaves the oil wells. Perhaps that's what you were thinking of.

Tue, 09/14/2010 - 19:09 | Link to Comment SILENCE DOOGOOD
SILENCE DOOGOOD's picture

 Was that George Orwell or George Bush? If you think our nukes can settle anything or as dickie boy put it, "The American way of life is Not Negotiable" It would take an idiot to make a statement like that seeing how the " AMERICAN WAY OF LIFE" was compromised long ago. The day THE AMERICAN WAY OF LIFE  ignored the Constitution,  ARTICLE 1 SEC. 10, the AMERICAN WAY OF LIFE WAS NOT ONLY NEGOTIABLE ( 1913, fed. reserve) IT WAS PROSTITUTED....... SOLD OUT..... Today's problems didn't begin two tears ago nor did these problems begin 50 years ago. They began the day the gov. allowed a private business to SCREW THE ENTIRE COUNTRY...... NEVER HAS SO MUCH BEEN OWED TO SO FEW BY SO MANY !!!!!!!!!!!!!!!!!!! Don't believe me?  Research our country from it's inception until it's near end........ And don't research via George Orwell or The Wizard of Oz.

Tue, 09/14/2010 - 21:59 | Link to Comment New_Meat
New_Meat's picture

sure glad you don't have any strong feelings on the subject ;-)

Tue, 09/14/2010 - 19:13 | Link to Comment SILENCE DOOGOOD
SILENCE DOOGOOD's picture

 ONE OTHER THING, NOT ONLY ARE WE A FIAT CURRENCY BUT WE ARE THE GREATEST FIAT CURRENCY AT THIS CURRENT PERIOD OF TIME.............

Wed, 09/15/2010 - 00:34 | Link to Comment Moonrajah
Moonrajah's picture

Ummm, welcome to ZeroHedge. And thanks for sharing this truly shocking bit of news.

Tue, 09/14/2010 - 14:42 | Link to Comment fiddler_on_the_roof
fiddler_on_the_roof's picture

BINGO. Loss of confidence then leads to Money printing to service Govt liabilities.

I hope this hyperinflation does not play out and people don't lose confidence in dollar because I don't want to prepare for that. Hyperinflation is an altogether different animal - outside the control of Govt/rulers. Hopefully they come up with some idea - tax the returning dollars to US...or something they have to do "IF" it comes knocking.

Wed, 09/15/2010 - 00:27 | Link to Comment decon
decon's picture

You are correct, after all, dogs can't lie.

Inflation/Deflation are economic processes.

Hyperinflation is a psychological event.

Tue, 09/14/2010 - 13:23 | Link to Comment Running on Empty
Running on Empty's picture

Sorry to jump Q. Sometimes the truth does rear it's ugly head even on CNBC.

http://www.cnbc.com/id/39154748/

 

Tue, 09/14/2010 - 13:43 | Link to Comment Hero Protagonist
Hero Protagonist's picture

CNBC, the "truth", come on :)  Better link is shitcnbcsays.wordpress.com.

 

Wed, 09/15/2010 - 00:13 | Link to Comment RockyRacoon
RockyRacoon's picture

Saw that live.  Kudlow was about to bust a gut -- the truth hurts.

His hammer is tax cuts, especially for anyone who lives in his neighborhood.

Tue, 09/14/2010 - 14:05 | Link to Comment midtowng
midtowng's picture

Mish is an arrogant prick. I understand and sympathize with the deflationist theories, but their supporters are such a**holes that I can barely stand listening to them.

Tue, 09/14/2010 - 14:18 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Posted: Sep 14 2010     By: Dan Norcini      Post Edited: September 14, 2010 at 2:10 pm

Filed under: Trader Dan Norcini

Dear Friends,

Today is a case of being careful what you wish for – the Fed has pulled out all the stops in an attempt to avoid a deflationary trap tied to the inception of the credit crisis that broke loose in the summer of 2008. Since then they have flooded the system with liquidity through a process dubiously referred to as Quantitative Easing. They have also loaded their balance sheet with worthless loan paper and shoved interest rates practically to zero.

Not to be outdone, our illustrious administration has saddled us with enough debt at the federal level to last three generations all in the name of “stimulus”.

The result – they have gotten their wish – sadly for all of us, who actually have to live with their damn stupidity, they have let slip the dogs of inflation who have bared their fangs and are now ravenously devouring the hopes and dreams of the middle class in this nation.

The funny money has made its way into the commodity sector driving food prices to unseemly high levels once again just as what happened in 2008. Corn is now within spitting distance of $5.00, wheat is more than $7.00, soybeans are over $10, sugar is over $0.24/pound, cotton is closing in on $1.00, coffee is up near $2.00 pound wholesale ( a 13 year high), cattle are just shy of $1.00/pound, bellies are trading over $1.50/pound for fresh product. In short, the consumer is on the verge of watching his or her’s disposal income decimated by high food prices at the very time that a record number of Americans are on food stamps and are either unemployed or underemployed.

I shudder to say it but based on what I can see of the price action across the commodity sector today, an evil has now been loosed upon the land that portends the eventual ruin of the middle class.

The only bit of saving grace is that energy prices have not YET begun moving up alongside the rest of the commodity complex. I think it is only a matter of time however before the crude complex gets involved. When it does, home heating bills, home cooling bills, industrial energy costs and gasoline prices will join the list of soaring costs nationwide.

The one-two knockout punch of higher soaring food cost and higher energy costs will finish off the consumer whose wages have been stagnant for longer than I can now remember.

Make no mistake about what you seeing, especially with the price action of gold and silver. Both metals are signifying a loss of confidence in the Dollar and particularly in its management team.  It is ironic is it not, that any supposedly friendly economic news now results in waves of Dollar selling whereupon in times not that far past, any negative news yielded a huge inflow into the Dollar as a safe haven. Good news – Dollar goes down; Bad news – Dollar goes up.

Tue, 09/14/2010 - 18:15 | Link to Comment HungrySeagull
HungrySeagull's picture

Yes the coffee is a tad more expensive, but nothing approaching what it will make to have us stop drinking it. We use one can per month at home. You can price it at 50.00 and we will still buy and use that can.

We are fixing to make a special order for 24 coffee cans to hold in the closet. Depending on the freshness dates on them, we will rotate as necessary.

Energy Costs? Not yet, we replaced all electric motors and replaced the obselete eletrical system in the entire house. We have SLASHED daily kilowatt useage by over half and we have not yet seen the bottom yet. So in theory you can double the electricity bill in a year and we wont have a issue.

The rest of the food prices are high yes. But careful menu planning and slow cooking with one or two meals daily based on physical activity and needs keep our food costs low. No we dont eat ramen noodles either. We eat meat and taters. Just have to wait a half day or so for it to cook in the crock pot.

Or cook the same in a Dutch Oven over a slow fire outside. The results will nearly be the same.

And we have gotten out of debt sufficiently so that we can and will withstand increases into the future. To a certain point.

 

In short we eliminated waste in spending, converted to cash only and have a reserve adequate for a number of weeks should the Nation fail to truck food and gas into our walmarts for whatever reason.

I have done everything I know how to "Harden" the Household against future problems and am always seeking to improve on or find new ways to make a problem go away before it becomes a problem.

Tue, 09/14/2010 - 20:10 | Link to Comment Dr. Sandi
Dr. Sandi's picture

I'm with you, Bird. No, I don't like it, but yes, the insurance is nice to have in these uncertain days.

Wed, 09/15/2010 - 10:36 | Link to Comment Temporalist
Temporalist's picture

So you think you are typical to most people?  If everyone were like you this mess probably wouldn't have happened at all.

Tue, 09/14/2010 - 09:25 | Link to Comment Turd Ferguson
Turd Ferguson's picture

"Holding assets outside the U.S. also may have some benefits."

 

http://www.lewrockwell.com/pr/american-expatriation-guide.html


Tue, 09/14/2010 - 09:37 | Link to Comment Ragnarok
Tue, 09/14/2010 - 12:17 | Link to Comment glenlloyd
glenlloyd's picture

+1

Tue, 09/14/2010 - 14:15 | Link to Comment Catallaxative
Catallaxative's picture

Yah, also called private land grabs with the eco-rich ideologically smoothing the way forward with palatable cuddly concern for Nature.

Land, land, land, forests, water, minerals, land, land...

Tue, 09/14/2010 - 22:28 | Link to Comment HungrySeagull
HungrySeagull's picture

uddly my ass.

Some city folks only think in parking, square footage and transit tolls. Section 8's and two day old produce too.

Drop em off into Nature and they will wave at a grizzly saying hi.

 

/sarcasm.

Tue, 09/14/2010 - 09:25 | Link to Comment ZeroPower
ZeroPower's picture

Risk remains exceptionally high in the next six-to-nine months for a combination of massive U.S. dollar selling and heavy Federal Reserve monetization of Treasury debt to boost inflation, and to open the early stages of a U.S hyperinflation

There we are.

How is there still a debate on deflation to begin with? Do people ignore the $$ being printed? Are they still constantly trying to calculate the velocity of money?

Tue, 09/14/2010 - 09:29 | Link to Comment Vergeltung
Vergeltung's picture

I thought velocity was an important consideration, no?

Tue, 09/14/2010 - 09:58 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

Velocity can change instantaneously, too quickly to be predictable.

Tue, 09/14/2010 - 10:22 | Link to Comment Vergeltung
Vergeltung's picture

right. but it having some velocity is important, if I understand it correctly. the fact that there's little/none now is part of the problem, no?

Tue, 09/14/2010 - 10:32 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

Not really. Imagine the forces at work, the pressure building. California isn't shaking right now but it could be in a moment. Impossible to time, but inevitable.

Tue, 09/14/2010 - 12:09 | Link to Comment idoubtit
idoubtit's picture

Yeah velocity is important.  It's like having a formula one car in your garage.  Velocity represents the movement of money in the economy.  Because nobody wants to borrow, there is no money exchanging hands.  Right now the only way money is moving in the economy is via federal spending.  Not enough for hyperinflation in my opinion.  When they start a) giving money away or by b) everybody starts getting raises, I'll change my tune. 

Tue, 09/14/2010 - 12:40 | Link to Comment Big Corked Boots
Big Corked Boots's picture

Well, they are already doing (a) based on the US Budget Deficit. Ben is dropping cash all over the place, except he is using T-bills and such to cover his tracks, and the drop points are semi-secret, like Freddie, Fannie, USDA food stamps, UIB, and on and on.

True that (b) isn't happening but the serfs still have to be kept in chains. 

Tue, 09/14/2010 - 13:33 | Link to Comment Yophat
Yophat's picture

Very important constraint that must be emphasized....it must be - "Debt free money"....otherwise its still inherently deflationary.

The only other force for hyperinflation is the confidence factor....which supposedly is what is forcing them to hyperinflate....which is why John Williams is full of the stinky stuff! 

Tue, 09/14/2010 - 19:10 | Link to Comment MrSteve
MrSteve's picture

As one bag-head avatar to another, I will point out the only debt-free money is gold. The FRNs subject to hypervelocity, hyperprinting and hyperinflation are backed by the credit/debt of the USA government FRB/FDIC/Congress.

You poo-poo Williams at risk to your own financial survival.

Tue, 09/14/2010 - 21:41 | Link to Comment Yophat
Yophat's picture

LOL....financial survival....give me a break!  Far far more at stake than just "financial survival".....and Williams is a government shill!  CIA disinformation 101!

Gold is a waste of precious resources imo fwiw!  At best it sits in a safe and gathers dust (like burying talents).....thanks but no thanks!  I'll put my resources into assets that multiply or add value.

I don't know what everyone else is seeing....but my FRNs continue to gain value on a daily basis!  I can buy 4X the house today that I could 3 years ago.....and lots of other stuff on similar track.  Only thing I see that isn't is food!

....and I highly recommend at least a years supply of food along with a means of production!

Wed, 09/15/2010 - 00:19 | Link to Comment RockyRacoon
RockyRacoon's picture

How have you survived this long -- anywhere?  Having an open mind in all matters will become an asset.  Consider it a survival tool.

Wed, 09/15/2010 - 12:12 | Link to Comment Yophat
Yophat's picture

.....maybe its the training I got in the Boy Scouts....nah....maybe its the training I got in Marine Corps bootcamp....nah...maybe its the training I got in the Persian Gulf....nah.....maybe its the time in the alley's of Bangkok, Pattaya Beach, Roppongi, Dubai, LA - South Gate, Kowloon, East St. Louis, Memphis - south of Beale street, or Tijuana....nah.....maybe its just sheer dumb luck....YES that's it!

From one open minded soul to another.....ROFLMAO!

Wed, 09/15/2010 - 13:41 | Link to Comment RockyRacoon
RockyRacoon's picture

You just proved my point.  I have very similar training and have travels as well to some of the same exciting places.  (I was born in Memphis, and was with the Air Force in Thailand for starters.)  Two people can see the same things and have different perceptions.  Seeing is not reality since it is tinged by personality, etc.   Since you mentioned the Gulf, I'll bet I have half a generation on you in age.  Let's see how you think when you are 62 years old and have seen several shit-covered fans.

Wed, 09/15/2010 - 16:01 | Link to Comment Yophat
Yophat's picture

Prove what point?  Air Force training is similar????  Don't think so flyboy!  Those boys pack up and go home at the hint of trouble!  How were the 5 star hotels in Korat?  LOL!

Air Force chumps at Millington got substandard housing allowance....

Memphis was okay except for the fast food....45 minutes to get from the order screen to getting the meal in the drive through at Taco Smell....vs LA which is 30 seconds and a honking car behind you.

Amen on the different perceptions!  Like the third time in a row we were going to take Saddam out and Billy Bob Blythe the third called it off hour before execution and all three happened to coincide with Linda Tripp tapes, Monica's dress, etc etc....and 99.9% can't see the connection and don't bother wondering why!

The fan & turd ball that's coming up will be the biggest of them all!  Everyone is gonna stink!

 

Fri, 09/17/2010 - 21:50 | Link to Comment RockyRacoon
RockyRacoon's picture

Oh, alright.  You're tough and a real man.  I'm not.  I'm obviously inferior.  Happy now?

Sat, 09/18/2010 - 09:59 | Link to Comment Yophat
Yophat's picture

LOL...may I remind you that you were the one questioning my ability to survive...then when I mention a few things and a few hotspots I've been in you try to draw a parallel to yourself albeit with wings rather than EGA....and I can't resist in giving a little back to you - my bag.  Now you get your panties in a bind. 

Reality is anyone who can apply a couple pounds of pressure on a trigger can be equal or superior to anyone else!  Gotta luv the leverage multiplier.....like watching a 13 yr old take out a special forces trooper with an old AK in Somalia.  Of course these days they do a pretty good job of shooting themselves as Pat found out the hard way.  Price of supporting CIA/Bush's drug empire I reckon.

Fri, 09/17/2010 - 22:20 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

Linda Tripp = john goodman

SNL  priceless

Tue, 09/14/2010 - 10:37 | Link to Comment Inspector Bird
Inspector Bird's picture

In addition, changes in supply of money can alter velocity.  Assume a doubling of supply in an environment where velocity of 6X.  The increase in supply should (in sheer number value) reduce velocity to 3X.

 

However, we know this is just temporary.  The real net result of supply changes on velocity varies based on the economic need.

 

Velocity is a more important consideration when supply is held steady or decreasing.

Tue, 09/14/2010 - 15:12 | Link to Comment Imminent Crucible
Imminent Crucible's picture

Here's the chart Vergeltung is looking for:

http://research.stlouisfed.org/fred2/series/M2V

 

As you can see, there is some velocity.  As you can also see, the chart has turned up.

Dollar holders beware.

Tue, 09/14/2010 - 12:12 | Link to Comment RoRoTrader
RoRoTrader's picture

Sublte difference;

Velocity of money in the usual or positive context implies an accelerating exchange for productive goods and services signaling the advent of an economic upturn.

Velocity of money in hyperinfaltion simply means how fast can someone get RID of the money in exchange for a useful commodity before that money becomes worthless........flight to safety out of fiat paper.

Tue, 09/14/2010 - 12:44 | Link to Comment bronzie
bronzie's picture

"how fast can someone get RID of the money in exchange for a useful commodity before that money becomes worthless"

I'm currently reading, "When Money Dies", by Adam Fergusson - very dry reading but interesting insight into the Weimar hyperinflation

There were numerous strikes by the workers - they demanded higher wages repeatedly because of the inflation - it got so bad that they demanded daily payment for their labor - each day they found something tangible to trade their wages for

Imagine inflation being so high that the money you earned yesterday is essentially worthless today - that's how bad it was!

 

Tue, 09/14/2010 - 13:37 | Link to Comment Yophat
Yophat's picture

LOL....print billions and trillions...but if it all goes into a vault somewhere....you'll never see an inflationary result.  Simply shoring up the balance sheets of the sharks as they prepare for a mighty deflationary feast!

Asset transfer time!

Better load up on all the debt you can load on while buying "useful commodities"....and fyi - the only real useful commodity that's not oversupplied by several magnitudes at this point is food!

Tue, 09/14/2010 - 19:16 | Link to Comment MrSteve
MrSteve's picture

Costco just mailed us a flyer pitching 84 #10 cans of freeze-dried food for 20% off. It was pitched as a one person's one year supply, net about $800 US.

 

Funny coincidence that it would show up in the mail "at this time".

Tue, 09/14/2010 - 21:43 | Link to Comment Yophat
Yophat's picture

....not much into freeze dried and CostCo charges a premium for that stuff!  Wheat is the best bang for the buck with nice protein/carbs ratio.  Also 30+ years if you store it right!

Tue, 09/14/2010 - 22:29 | Link to Comment HungrySeagull
HungrySeagull's picture

Mountain house is better I would think.

However, anyone buying something is better than no one waiting until weather man says the word Hurricane or snow.

Wed, 09/15/2010 - 16:13 | Link to Comment Yophat
Yophat's picture

like CostCo's 45 lb buckets of wheat for $14 a whole lot better!!!  .....along with the honey & olive oil!

Tue, 09/14/2010 - 22:36 | Link to Comment New_Meat
New_Meat's picture

lol**2

"LOL....print billions and trillions...but if it all goes into a vault somewhere....you'll never see an inflationary result."

yep, me an' my trusty computer got my digital printing machine all queued up.  Just gotta find a way to get my ones and zeros to print onto Bob Kraft's  paper, that's the trick.

- Ned

Tue, 09/14/2010 - 20:47 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

When you get done with When Money Dies I suggest you dive right into Defying Hitler by Sebastian Haffner. Written in 1939, it wasn't published until 2000 by his son. Has a mind blowing chapter on 1923, and the whole book is an excellent peek into the Weimar psyche.

http://tinyurl.com/2d787ub

Wed, 09/15/2010 - 12:41 | Link to Comment DavidAKZ
DavidAKZ's picture

Can you see wage inflation happening in so called advanced economies ?Nixson's unhitching of the USD from the gold standard was supposed to make American industry competitive. Take a look at all these former factory towns in New England for example and realise the extent of so called competitiion.

Tue, 09/14/2010 - 12:19 | Link to Comment Miramanee
Miramanee's picture

In my opinion, what is often missing in this conversation is a "big picture" understanding of credit and debt. As a history teacher currently teaching my students about the Panic of 1873, the focus of our study rests squarely upon an understanding of the roles played by over-exuberance and credit (or debt) expansion. As the post-Civil War railroad "bubble" burst (in 1873), and as overly-indebted banks found themselves unable to sell railroad company bonds, deflation---or a contraction in available and/or sought after credit---precipitated a fairly dramatic contraction int eh greater economy. During this time, the actions of the Grant administration further exacerbated monetary unavailability (interest rates rose), and depression was upon the nation. Many argue TODAY that it was "tight" monetary policies (a misnomer of sorts, in that fiat currency per se did not exist in 1873) that led to contraction and depression. But the REALITY is that ALL credit expansions must end with contraction, as there are little to no profits being realized in the "productive" economy. Hyper-inflation, again in my opinion, cannot occur in the U.S. because, even if the FED were to "print" 100 Trillion dollars, or a QUADRILLION dollars, those dollars would only find their way into the coffers of a few oligarchs...but the rest of the nation---some 300 million people, give or take---would still experience the results of a contraction of availability of credit. Yes, you can inflate the money supply---operationally---to the moon, but a lack of access to credit for the common man means IS deflationary, pure and simple.

Tue, 09/14/2010 - 12:47 | Link to Comment pan-the-ist
pan-the-ist's picture

With all that money, the monied interests will not be able to help themselves from buying commodities and increasing the prices, causing real inflation for those of us who must buy the product at the new price.  The government, to keep order, will need to give bigger and more unemployment checks (as more people lose their jobs and food and fuel become more expensive.)  The will cause hyperinflation.  The problem with economists is that they tend to fail to understand politics.

Tue, 09/14/2010 - 13:42 | Link to Comment Yophat
Yophat's picture

LOL...how's the theory holding up?  Unemployment, at best, is 60% of previous wages.  Add in food stamps, housing assistance, etc etc etc and maybe on a long shot you might hit 80-90%.  Doesn't cause inflation let alone hyperinflation.

In 120 days we will experience the biggest tax increases in history.  That isn't inflationary.

Housing is forecast to take another 20-50% dump in the next 12 to 18 months.  That isn't inflationary. 

Foreclosures are rising forcing people to start paying rent of one form or another - that isn't inflationary.

For every dollar the government prints the private side is losing two or three.  That's not inflationary.....just a transfer of power!

Tue, 09/14/2010 - 19:26 | Link to Comment ColonelCooper
ColonelCooper's picture

It would seem that you missed Pan's point entirely.

Tue, 09/14/2010 - 22:02 | Link to Comment Yophat
Yophat's picture

LOL....it would seem that way!

Tue, 09/14/2010 - 12:57 | Link to Comment packman
packman's picture

Agree with pan-the-ist above.  IMO it's an incorrect assumption that the oligarchs will simply hold onto the money in perpetuity.  Money held as such is useless.  Eventually they will spend it - be it on personal luxuries, investments (e.g. commodities), whatever - it will make it's way out.  This is especially true when we get into an inflationary environment - the oligarchs aren't stupid, they know that holding cash in such an environment is a net loss.

As a history teacher, I'm surprised (and disappointed) that you wouldn't realize this.  History is rife with examples of money being created for the purpose of stopping deflation in one asset class (e.g. housing) instead making its way into other asset classes and causing inflation there.

In this case the "other asset classes" will be just about everything, due to the scale of the current and coming money supply inflation via QE.

The initial primary conduit being the U.S. government.  Not all this QE is going to the banks.  QE done for treasuries does get spent by the U.S. government - almost immediately in fact.  It doesn't go into a vault.

 

Tue, 09/14/2010 - 13:03 | Link to Comment Miramanee
Miramanee's picture

@ Packman

You miss my point. I'm not asserting that the "monied class" will hold theier wealth, or that COST inflation will not result from monetization. What I am asserting is that in a system in which money IS credit, and vice-versa, the operational ability of the central bank to "print" money ad infinitum will not halt the crach in the availability of credit. IN FACT, it may accelerate the lack of such access, as institutions become even more reluctant to lend and borrow in such a destabilized monetary regime.

Tue, 09/14/2010 - 13:05 | Link to Comment Miramanee
Miramanee's picture

I should not have said "coffers" of the wealthy. That was misleading.

Tue, 09/14/2010 - 13:45 | Link to Comment Yophat
Yophat's picture

Should have mentioned the current stimulus (paying interest on non-required reserves) that further exacerbates the current lending panorama!

Its all about power transfer.....the final shift to dictatorship!

Tue, 09/14/2010 - 13:16 | Link to Comment B9K9
B9K9's picture

Please see my comment above. As long as people continue to conflate hyper-inflation with 'normal' credit-money inflation (and/or deflation), there is just going to continue to be confusion.

Look at it from your perspective - as a merchant, would you accept a personal check from a dodgy character? No - then you are unwilling to sell at any price. So too the market - at some point, everyone will wake up and realize the US is never going to make good on its debt obligations. At that point, sellers of goods/services will refuse to sell at any price in exchange for dollars backed by the soon-to-be defaulted debt.

It has nothing to do with the push + positive velocity of credit/money, it has everything to do with the pull + negative velocity of goods/services. Governments respond to this initial scarcity by upping the ante (hence, the wheelbarrows of cash). Ok, so you won't take $100 of our confetti for your used sofa, how about $1 million?

Tue, 09/14/2010 - 13:38 | Link to Comment Miramanee
Miramanee's picture

@ B9K9

You make fine points. My primary points are these:

1. There are two separate worlds in play vis-a-vis monetary policy. There is the world of the monied class, whose interests and wealth are directly impacted by FED policy. And there is a growing under (middle) class, who despite, claims official to contrary, NEVER in the long run benefit from loose monetary policy---because loose monetary policy ALWAYS decomposes into economic (Credit) contraction, inflated asset values (that the middle class cannot access), and the destruction of real, productive wealth.

2. Regardless of FED efforts of inflate the money supply (of course to artificially stimulate demand and economic growth), the AVAILABILITY OF CREDIT for the middle class WILL CONTINUE TO CRASH. This phenomenon is deflationary (by definition), and the middle class in America (of whom 1 in 7 are currently on food subsidy) will suffer tragically from the credit expansion of the past decades.

Tue, 09/14/2010 - 14:01 | Link to Comment B9K9
B9K9's picture

1. I would only slightly quibble on your order of control. To wit, the Fed is impacted by the power-elite's goals & objectives. It is important to understand who works for whom. The Fed was created long after a powerful cabal of monied interests controlled both the British & US empires. The Fed was just a mechanism to streamline this control into a more manageable entity.

2. As you correctly observe, credit availability for the middle-class will continue to crash. This is actually what brings on hyper-inflation aka scarcity of goods. Again, envision a tapped out, out-of-work neighbor. Would a local grocer/merchant extend credit to this person in exchange for an IOU and transfer (real) goods? If the answer is no, then he would experience his own personal "hyper-inflation" even in the face of zero/limited cash and/or credit.

Again, hyper-inflation is the absence (pull) of goods/services for any price in exchange for worthless fiat, not the presence (push) of excess/available cash/credit.

Tue, 09/14/2010 - 17:15 | Link to Comment sharonsj
sharonsj's picture

Some people, who don't have enough money, will be unable to buy goods at the grocer.  This is not the same as hyperinflation, where the price of goods is so high that most people cannot buy them.  It's not personal hyperinflation, it's being poor and not affording it any any price vs. having money but choosing what you can afford.

You are defining hyperinflation as the absence of goods.  If the grocery is empty, then it doesn't matter if paper money is worthless or not.  If the grocery is partly full, then prices depend on availability and how much someone is willing to pay for an item.

There's a lot more at work here than hair-splitting.  And I'm still annoyed that the media has completely ignored all the price inflation we've had over the last two years.  I think a 40% increase in a bag of sugar qualifies as hyperinflation for me.

Tue, 09/14/2010 - 17:40 | Link to Comment B9K9
B9K9's picture

If you continue to believe that hyper-inflation is purely a monetary phenomenon, then you will end up being caught by surprise when it happens with limited money-credit expansion.

Hyper-inflation isn't an absense of goods per se, it's an unwillingness to sell them at any price in exchange for the legal tender being offered. Hyper-inflation can occur during natural disasters, whether it be a hurricane, flood or earthquake. Typically called price gouging and/or profiteering, it's the same exact reaction when the herd panics and begins to horde.

As FOFOA, Gonza and others have patiently tried to explain, many people confuse the government's follow-up actions in terms of printing money to acquire necessary goods/services (paying cops & soldiers usually comes first) as the period of hyper-inflation. Excess money is merely the after-effect; the initial cause was loss of confidence in the means of exchange and subsequent removal of goods from markets.

Tue, 09/14/2010 - 22:33 | Link to Comment HungrySeagull
HungrySeagull's picture

Plenty of credit, at 24.99% to 29.99% for 78 months or whatever to keep a number low enought to choke (RAM) a monthly payment just sign here.

 

Also here, dont worry about the words "Security Agreement." that is all boring and routine.

Tue, 09/14/2010 - 13:52 | Link to Comment silvertrain
silvertrain's picture

1000% correct..

Wed, 09/15/2010 - 01:20 | Link to Comment scaleindependent
scaleindependent's picture

I used Gresham's law to understand B9K9'S post; " "Bad money drives out good". As the dollar becomes the bad money, through QE, and as more and more people realize this then the good money (less inflatable stores of wealth) will be sought out. Therefore bad money will drive good money into private hoarding.

B9K9's statement that "the US is never going to make good on its debt obligations. At that point, sellers of goods/services will refuse to sell at any price in exchange for dollars backed by the soon-to-be defaulted debt" can be misunderstood.  I will take some liberties in explaining it. B9K9 can correct me if I am wrong. One can read into his statement that the US will actually default or never make good on its debt. The way I understand it is that the US will print and create so much de novo money that people will realize that it is monopoly money. In other words, paying debts by devalued "legal-counterfeit" is another way of defaulting on ones debts.

Tue, 09/14/2010 - 13:28 | Link to Comment packman
packman's picture

What I am asserting is that in a system in which money IS credit, and vice-versa, the operational ability of the central bank to "print" money ad infinitum will not halt the crach in the availability of credit.

Here's the problem though - in a hyperinflationary environment money is not equal to credit (and vice versa).  Money created by the Fed and distributed via the Treasury is not a loan in the normal sense, where debt levels of the borrower cause the lender to pull back its credit and/or to increase its costs.  Since the Fed is part of the government (in essence), it's simply not subject to the normal supply/demand/risk rules of credit contraction.  The Fed isn't going to tell the Treasury it's not loaning to them because they're took risky.  This is the classic and all-encompassing case of the customer making the rules for the bank, instead of vice versa.

Tue, 09/14/2010 - 13:40 | Link to Comment B9K9
B9K9's picture

As long as you view hyper-inflation as excess money (or credit) chasing too few goods, you will fail to see the complete picture. It is the prospect of default risk that causes goods/services to flee; in order words, it is not a push function, but rather a pull function.

Tue, 09/14/2010 - 13:44 | Link to Comment Miramanee
Miramanee's picture

You make an excellent point. I believe that we are somewhat discussing apples and oranges, in that I am referring to monetary policy as it impacts the majority of middle class citizens---people who will not have access to credit (money!) because there simply will not be any viable means toward expanding access to credit for people who will have NO MEANS to service their debts. Maybe I should attenuate my argument to say, deflation for many years to come, followed by a period in which decades of insane monetary policy make credit that BECOMES available virtually worthless---which I suppose could be called hyper-inflation.

Tue, 09/14/2010 - 13:55 | Link to Comment Yophat
Yophat's picture

what happens in default......transfer of assets!  The assets are the real value....the money (debt) is just a tool to obtain them.  First you lend creating inflation (more money chasing same relative number of goods) of which you get your money first (thus stealing the excess).....then when the debt saturation point is reached (maximum debt service load which fyi is variable based on the cost of debt - interest rates)....deflation occurs since credit growth slows, stops, and then contracts.  Now all of the assets come flowing back to the creator of the debt.....which in this case is the banks....which then flow through the banks to the private shareholders of the banks!

And in our particular case the cost to the banks is zero!

Bank loans $500k to you to buy a house....they don't have the money but create it against your promisory note.  Then at say 5.5% interest you either pay them back roughly $1.2 million or you foreclose and they get the property (asset).  What did it cost them for the $1.2 million or the asset?????

As the system implodes from deflation (housing, CRE, etc etc etc)....big banks (sharks) acquire medium and little banks (feeder fish) for ultimate asset rollup strategy!

What better cover than the threat of hyperinflation?  Now is John Williams a shill or what?

 

Tue, 09/14/2010 - 22:29 | Link to Comment Matt
Matt's picture

So, are you recommending buying shares in TBTF banks?

Wed, 09/15/2010 - 12:17 | Link to Comment Yophat
Yophat's picture

If I were a betting man (paper pusher/acquirer) I wouldn't bet on the little guys!

Tue, 09/14/2010 - 22:51 | Link to Comment New_Meat
New_Meat's picture

and transfer of (real) assets was envisioned in the U.S. Constitution as "resolution" for bk.

you emphasize the bank (as a responsible individual would) but do not look at the incentives all up the stream from the mortgage origination.  Bonuses paid now on a 30 year obligation? yep.  Bawney and I both know where that behavior will go.

and yes, those who came through Weimar were owners of real assets and owners of ongoing enterprises.  To your point of threat.

No opinion on shill yet...

- Ned

Wed, 09/15/2010 - 12:29 | Link to Comment Yophat
Yophat's picture

WWI & WWII had predetermined conclusion points.....and the Weimar event was simply a tool used in that process.  Must rise above the trees and look at the forest.....then ask yourself - Why Operation Keelhaul?  Why remove Stalin's potential opposition in Eastern Europe?  Why would Eisenhower screw around in south France waiting for Stalin to reach his (predetermined) destination?  .....and that's just one of a dozen starting points!

One could also approach it from a genealogy standpoint - Who hosted the 1931 Third International Congress of Eugenics?  Who helped finance Hitler?  Who took out JFK?  etc etc etc

 

Tue, 09/14/2010 - 14:05 | Link to Comment augmister
augmister's picture

+1  Too bad most of your students will never be able to appreciate what you have taught them.   Thanks for posting here.  Too many gold humpers and other inflationists will be surprised when the stocks finally tank and take everything DOWN with them.

Fri, 09/17/2010 - 16:32 | Link to Comment akak
akak's picture

Yes, I am also struck by the uncanny correlation between the overall flat equities market (flat nominally, DOWN in real terms) of the last ten years, and the 400% rise in the price of gold during the same interval.

(sarcasm off)

Tue, 09/14/2010 - 13:46 | Link to Comment bart.naf
bart.naf's picture

Velocity is indeed important, and from here it appears to have bottomed during the last few months.

http://www.nowandfutures.com/images/velocity_preferred_short.png

 

Tue, 09/14/2010 - 09:31 | Link to Comment VK
VK's picture

What dollars are being printed? The FED is trying to expand credit. There is a fundamental difference and the system is choking on credit/ debt. All that 20 trillion global stimulus ended up in the toilet. Check this chart out for the state of the real US economy - http://www.consumerindexes.com/index.html

The US economy is contracting at 5.85pc today, deflation is here and now. Hyperinflation isn't now, it's a decade away. 

Tue, 09/14/2010 - 10:24 | Link to Comment NumberNone
NumberNone's picture

The US is fine...we still have plenty of money for such programs as genital washing in Africa. 

http://cnsnews.com/news/article/75198 

Not sure what everyone is so worked up about. 

Tue, 09/14/2010 - 10:36 | Link to Comment Clayton Bigsby
Clayton Bigsby's picture

"The royal penis is clean, your highness."

Tue, 09/14/2010 - 11:12 | Link to Comment Agent P
Agent P's picture

"Actually, I rather enjoy the bathing."

Tue, 09/14/2010 - 12:46 | Link to Comment bronzie
bronzie's picture

classic

Tue, 09/14/2010 - 11:46 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

"The royal penis is clean, your heinness."

Tue, 09/14/2010 - 11:44 | Link to Comment DeltaDawn
DeltaDawn's picture

If we are using stimulus funds to wash penises after sex, they should at least be AMERICAN penises washed by AMERICANS!

Are these African men paying us taxpayers for this service?

Tue, 09/14/2010 - 22:33 | Link to Comment HungrySeagull
HungrySeagull's picture

American? My wife perhaps, if she has time.. Where is the money?

 

Otherwise they can keep the soap and learn to pay for it.

Tue, 09/14/2010 - 22:52 | Link to Comment New_Meat
New_Meat's picture

just washing the penises that real Americans are unwilling to wash.

Tue, 09/14/2010 - 12:36 | Link to Comment Chemba
Chemba's picture

why is anyone surprised that the Kenyan socialist Grand Mufti ObaMao believes that washing the penises of African men is a legitimate use of "stimulus" funds?

Tue, 09/14/2010 - 12:50 | Link to Comment pan-the-ist
pan-the-ist's picture

Think that one up all by yourself kido?

Tue, 09/14/2010 - 13:01 | Link to Comment Oquities
Oquities's picture

wonder if barney frank added this pork before a fact-finding trip to africa?

Tue, 09/14/2010 - 13:34 | Link to Comment Translational Lift
Translational Lift's picture

LOL...........

Tue, 09/14/2010 - 15:14 | Link to Comment fiddler_on_the_roof
fiddler_on_the_roof's picture

Funny

Tue, 09/14/2010 - 22:54 | Link to Comment New_Meat
New_Meat's picture

and I always thought that bawney was of one of the non-pork persuasions. - Ned

Tue, 09/14/2010 - 10:40 | Link to Comment Inspector Bird
Inspector Bird's picture

Expansion of credit is, by its very description, the printing of money in a fractional reserve system.

 

The question is whether that expansion is being utilized.  To a large degree, it is...the problem is they are pushing so hard, and so much more was being utilized 2/3 years ago, that today it looks anemic.

 

It's called "pushing on a string".

You can flood the market with money, but people don't have to use it.  I know lots of people - almost everyone I know, actually, who have the same income as they did 2 years ago.  But they've cut back spending AND borrowing.  Why?  Uncertainty.

 

So why does expanding credit make things "better"?  It doesn't.  Just makes it more likely to engage moral hazard....and increases the likelyhood of inflation.

Tue, 09/14/2010 - 12:11 | Link to Comment Spitzer
Spitzer's picture

That does not matter.

a dollar selloff is inflation, m2 m3, "expansion being utilized" dont matter when the dollar is selling off.

Same with the Euro, the Euro sold off and inflated, it has nothing to do with increased lending or money printing.

Tue, 09/14/2010 - 17:49 | Link to Comment B9K9
B9K9's picture

Thank you, thank you, thank you.

Hyper-inflation results from loss of confidence in the underlying means of exchange, NOT from the net growth in money-credit aggregates. In this case, a dollar sell-off would occur as sellers refuse to accept them any longer as legal tender for their goods/services.

Ergo, prices would rise rapidly until product was actually removed from the marketplace. At that point, government steps in with its printing cannon and literally sprays out cash to acquire critical goods services necessary for its very survival, typically the loyalty of cops & soldiers.

Tue, 09/14/2010 - 19:27 | Link to Comment MrSteve
MrSteve's picture

Chart the value of money during the panic of a revaluation, as the US military did in VietNam to counter black markets in FRNs and military script. Military bases were locked down and troops had to exchange blue script for red script and then all blue script was worthless. Black market traders would throw old script over the fence to induce GIs to give them a few FRNs for 1,000s in script.

 

When the market and traders knew the script was losing value rapidly, they threw chunks of it to get anything of value. That's a mini-local-hyperinflation.

Tue, 09/14/2010 - 18:47 | Link to Comment Inspector Bird
Inspector Bird's picture

It does matter.
The dollar selling off has alot to do with the availability of credit. If there's too much, there's no faith in the dollar - why hold it?

On the other hand, if credit is easily available, there is faith in the overall system, and the credit is being used for productive purposes - then why sell off?

In essence, both play a role. The dollar doesn't just sell off because someone is mad at it. Unless that someone is Soros, LOL.

Either way, we're facing inflation and possibly hyperinflation. The alternative is a rapid hiking up of interest rates, a return to suppressed growth, and deflation. Bernanke is on a fool's errand.

Tue, 09/14/2010 - 14:09 | Link to Comment Yophat
Yophat's picture

....the string is called the debt saturation point....or the maximum debt that can be serviced.

We started to hit that point in the mid-90's and Greenspan created the Sweeps program to sweep demand deposits (checking account balances) into a savings account and loan them out (more leverage...money creation).  We hit it again 2000-2001 and the Maestro lowered interest rates to 50 year low (raised the debt saturation point by lowering the cost of debt).....and wa la - debt expansion.

But here we are with interest rates back at historic lows yet no one is borrowing this time around.....which is IE Debt Saturation!  And every additional dollar borrowed beyond the debt saturation point (meaning unservicable) only hastens the progress to default/asset transfer......not to mention banks are being incentivised not to lend with the Fed paying interest on non-required reserves!

Big asset rollup strategy!  The progression from homeowner to renter!!!

Say hello to my little deflationary friend!!!

Tue, 09/14/2010 - 14:20 | Link to Comment Spitzer
Spitzer's picture

No inflationist EVER said we would have demand pull inflation

Wed, 09/15/2010 - 00:33 | Link to Comment RockyRacoon
RockyRacoon's picture

Aren't ya glad Johnny Bravo has fled the scene?  This thing would be 5 pages longer with no more elucidation.

Tue, 09/14/2010 - 17:58 | Link to Comment B9K9
B9K9's picture

Credit deflation has nothing to do with monetary push hyper-inflation. Rather, as credit deflation reaches an inevitable point of default, it causes a loss of confidence in the underlying means of exchange and loss of all value.

Once more, picture all the homes in your neighborhood continuing to fall in price. In fact, as we have seen, many things are falling in price as incomes continue to deteriorate. How low can prices go? Well, they can go as low as the underlying means of exchange still has perceived value.

At some point, however, the means of exchange will finally be perceived for what it is, namely a piece of paper. At that point, it doesn't matter how low demand is, goods will be removed from the market in exchange for established legal tender.

Voila', depressionary hyper-inflation.

Tue, 09/14/2010 - 22:26 | Link to Comment idoubtit
idoubtit's picture

I've read your posts and I understand your point.  I think it you are arguing that a collapse in confidence of a currency causes hyperinflation, rather than money supply factors.  It amounts to saying it doesn't matter how much monopoly money you're offering for a gallon of gas, I'm not selling for monopoly money.  Fair enough.

While what you're saying is most definitely true when playing monopoly, it is not applicable at this point.  The main problem is that the vast majority of debt in the world right now is held in US dollars.  That means everybody that is owed money needs to be paid back in USD.  Moreover, debtors need USD to pay back their debts.  So a complete collapse in currency, although possible, is not in the cards for a while because the USD is still in demand.  Hyperinflation is a scenario we can forget about. 

It's simple: do people want/need more dollars right now or are people anxious to trade them in for assets.  Seems to me people want more dollars.

As for the future, who knows but preparing for a scenario like hyperinflation seems premature.

 

 

Tue, 09/14/2010 - 18:49 | Link to Comment Inspector Bird
Inspector Bird's picture

I was with you until the last sentence.  That is unlikely.

 

I think the Fed is partial to inflation and will do what they can to spark and maintain it without igniting hyper inflation.  This, of course, will spark hyperinflation.  That's just the way it goes....

Tue, 09/14/2010 - 14:10 | Link to Comment augmister
augmister's picture

+1  D-E-F-L-A-T-I-O-N !!!  Gold bubble!  Thank you for posting!

Tue, 09/14/2010 - 11:15 | Link to Comment 1100-TACTICAL-12
1100-TACTICAL-12's picture

In my view the debate is over, anyone with half a brain can see what's coming down the tracks. Gold is up $24.40 oil is going up silver @20. 50 the 10yr ticking back up, Dollar down 81.26. These are the things I watch. (Disclaimer) I know not what i speak of, nor have I made a single trade in my life...

Tue, 09/14/2010 - 11:57 | Link to Comment WaterWings
WaterWings's picture

Agreed. The debate is over. It is only a matter of time before the People wake up to the "fractional reserve" game that has been in play against them.

If you cannot guarantee yourself 2,000 calories a day without supermarkets a major revision of one's overall "investing" strategy is in order. Ignore it at your own peril.

All the Laker's fans will be as busy as bees, demonstrating abject discontent, once the diapers and baby formula run out.

I would be surprised, however, if the end of the United States was marked by simple food riots.

http://www.stratfor.com/weekly/20100908_gauging_threat_electromagnetic_p...

http://empcommission.org/

http://en.wikipedia.org/wiki/One_Second_After

Tue, 09/14/2010 - 12:00 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

This is not good. Not only must I wear a tin foil hat to protect the brain matter, but now I must wrap up my computers and various other consumer goodies to save them?

Say it ain't so WW, say it ain't so. :>)

Tue, 09/14/2010 - 12:19 | Link to Comment Trifecta Man
Trifecta Man's picture

I suggest a tungsten foil with gold leaf coating.

Tue, 09/14/2010 - 13:07 | Link to Comment downrodeo
downrodeo's picture

i power mine with zero point energy

Tue, 09/14/2010 - 14:52 | Link to Comment Mad Max
Mad Max's picture

well yer a purty high falutin' feller there.  why can't yer just use reglar vacuum energy like tha rest of us?

Tue, 09/14/2010 - 19:41 | Link to Comment ColonelCooper
ColonelCooper's picture

I put mine in a DeLorean and store them in 1955.

Tue, 09/14/2010 - 12:48 | Link to Comment bronzie
bronzie's picture

make sure you memorize the Tin Foil Hat song

http://www.eclectech.co.uk/mindcontrol.php

Tue, 09/14/2010 - 12:50 | Link to Comment WaterWings
WaterWings's picture

Long (Sn) and #10 cans of freeze-dried pad thai.

Tue, 09/14/2010 - 19:47 | Link to Comment ColonelCooper
ColonelCooper's picture

That's actually a really good price.  I have looked into that supply before, but I have a kid with some pretty touchy food issues.  I've had to put it together a little more piecemeal. 

Have you ever tried any of that TVP?

Tue, 09/14/2010 - 20:14 | Link to Comment WaterWings
WaterWings's picture

The version I have had is a little salty but it will be very damn good with little else to vary the palatability of various staples like rice and wheat.

I purchased most of my long-term items from WaltonFeed.com - most people don't realize you need to consume the contents of cans within 30 days for max nutrition. #2.5 cans are not that much more expensive and everything will be fresh when you need it.

55-gallon barrels now enclose buried mini-restart kits: bulk dry food, sleeping bag + tent, firearm + ammo, water filter, axe, batteries, precious metals, dessicants, more. I can flee and return with a small shovel.

No, I am not Mad Max. That is why I need those items.

Tue, 09/14/2010 - 20:20 | Link to Comment ColonelCooper
ColonelCooper's picture

Reality is, that as long as it tastes somewhere on the good side of dogshit, you aren't gonna care if you're actually opening those cans.

Good luck to you, Wings.

Wed, 09/15/2010 - 00:36 | Link to Comment RockyRacoon
RockyRacoon's picture

Beneful ain't really that bad and it has all you need in nutrients.

Tue, 09/14/2010 - 20:28 | Link to Comment Hulk
Hulk's picture

I haven't tried TVP. I did open a 5 year old can of spinach the other day and it was perfect. looks like canned food lasts a long time. many deals on nearly expired canned food.

Tue, 09/14/2010 - 21:03 | Link to Comment robobbob
robobbob's picture

hope you did your math. I saw they talked about servings, but not calories

its not the number of servings, its the calories/day that will make or break ya

Tue, 09/14/2010 - 22:26 | Link to Comment Hulk
Hulk's picture

spam bitchez! Fried spam and beans, yuk, but loaded with calories and very long shelf life

Tue, 09/14/2010 - 22:36 | Link to Comment HungrySeagull
HungrySeagull's picture

And mind the gas.

Fart or smoke, one or the other but not both.

Tue, 09/14/2010 - 23:57 | Link to Comment merehuman
merehuman's picture

and i love the dirt i walk on.

grow food

Tue, 09/14/2010 - 11:26 | Link to Comment chrisina
chrisina's picture

Just look at this graph :

http://research.stlouisfed.org/fred2/graph/?graph_id=29170&category_id=0

 

Despite the $$ trillions printed by the Fed during the last two years, TOTAL CREDIT money has fallen from a $+4.5 trillion change y.o.y to a $-1 trillion change y.o.y

Total credit includes Govt debt, household debt, Businesses debt and financial sector debt

conclusion : the Fed can print all it wants, but it can't force people to pile on more debt, nor banks to lend more

 

Knowing that total credit money = $54 trillion and dwarfs any other monetary measure (whether M2 =$8.7 trillion, M3=$13 trillion) we can safely conclude that the Fed is powerless to reverse credit deflation

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