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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"
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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I'm really not sure that it is possible to cut budgets in a way meaningful enough to have any kind of real effect, WITHOUT causing enough disruption to topple the house of cards.
Austerity at a level that would matter, could just be the ground shaking that would start the loss of confidence discussed in every other one of the last 323 comments.
I'm not saying they will be successful, I'm just telling you the script in the playbook... this is an attempt at a controlled demolition, period, end of story.
Also, we do not have to cut everything at once to sufficiently appease creditors. We're at the stage where we have passed stimulus measures with reckless abandon. Needless to say, it's not going to take much in the way of austerity to show a huge change in our thinking and desire to repay our creditors... at this juncture, we just need a plan of austerity more than anything...
Further, we have to separate international default from domestic default. We will do everything in our power to bow to international creditors' demands. This means default, repudiation, and confiscation of domestic promises (social security, retirements, medical benefits, etc.).
It is very possible that our present situation at all levels of government is so perilous that all remedial measures will be impotent. I understand that issue. But, I think there are many possible avenues, not yet attempted and not commonly thought to be attempted, to be utilized for a stay of execution... most all of which entail a massive reduction in most all of our standards of living... to somewhere more on the level of emerging countries.
Also, tax revenue in the future is going to be obtained a little differently than in the past... local governments will receive a reimbursement from the federal government from property taxes and GSEs/their equivalent will own all the residential real estate... our taxes will be in the form of rent... pay it or live on the street... on top of other taxes of course.
Budget cuts? Spending in the US only goes one way, it would be like waiting for a right hand turn in NASCAR. I expect them about the same time as I expect to see NPH riding down my street on a magic unicorn tossing out bags of gold and magic mushrooms.
you would have to wait, i'll give you that... but nascar does make right turns... say hi to NPH for me.
With good reason: When has there *ever* been a budget cut?!
Sure, some specific service may be reduced and this is branded as "cuts", yet the total amount spent by government never deminish.
When has there ever been a black president of the US? When has there ever been a big plastic blob out in the ocean of our trash? When has man ever stepped foot on the moon?
The past is sort of like the inflatable rails at the bowling alley. In general it corrales most all bowling balls... but sometimes, someone whizzes one down the wrong lane.
You have to put on your policy hat and throw out the constitution, throw out the past, throw out everything other than ways to fix the problem and, if no solution exists, then how to prolong the problem until a solution emerges. This, in a nutshell, is austerity.
And then Paul Vilker can advise Helicopter Ben at The FedBorg, and I can have 10% Money-Market returns! Woo-hoo...
Fedborg! LOL, I need to replace my keyboard, it's now coffee-flavored.
Hyperinflation happens when people addopt another "currency".
My bet will be that when we get there, the US will try to halt payments in silver dollars and other currency trades.
I'm loaded with silver and gold right now.
I've even bought the all abroad in case they try to trace it. Once it happens, I'll even dig a hole in my yard and put in most of my stash.
That's like saying "Titanic goes goes underwater when passengers flee to the lifeboats", hate to brake it, but "people" will have little say in this process - most of them will be clueless until it's already too late.
Name 1 hyperinflation scenario where people did not adopt another currency before it all started.
How it mostly starts:
1. A slight but sudden rise in the price of a necessary commodity, such as food or oil
2. People start selling stocks to buy these commodities
3. Drop in markets, commodity spike
4. In the past, trades didn't want their own currency's anymore, they wanted for example dollars instead.
5. Nobody wanted their own currency anymore, so dump of the currency.
The real question is: What will be the currency!
Not dollar, not euro... which one? The Yuan? Don't think so but anything can happen. Once this becomes clear it will be 11.55h
Soviet Union collapse - no one had a clue before it happenned, savings were frozen one day and almost the next day prices skyrocketed. There was no time to prepare. People lost their lifetime savings overnight.
IOW, "Shit Happens."
Before you say such things, you should study some history.
1. The wall fell because of a misinterpretation in communication and a powerstruggle at the Kremlin. Nobody saw it comming because it was a fluke accident.
2. The rouble got a hit because of the sudden transition of a communistic system into a kapitalistic system.
You just took the worst example thinkable. So please: Buy some books and read them, knowledge has always been the best investment.
I really appreciate your kind advice, but I happened to learn history of this particular hyperinflation episode first hand as I lived there, fine with me if you don't take it as a good one, but this particular passage:
There was no transition to any kind of system at all, it was a transition from something (bad or good system, doesn't matter) to an almost absolute absence of it. It was not a free market system that followed, it was a pure mess.
....and that's being gratious!
Since you knew first hand let me ask
- Was Dollar being used by People in USSR as a medium of exchange before the price hike or after ?
- want to know how it played out on the ground. If you can write a more detailed report how it unfolded, it would be great for us unexperienced.
On the black market or within the infamous Beryozkas (http://en.wikipedia.org/wiki/Beryozka), but neither was for the majority since currency exchange was illegal. It wasn't until 1991 that one could exchange ruble for any other currency legally. Prices in the Soviet Union were regulated, so officially there was almost no inflation, but as neither was anything available, at least in the last years - the most popular word was "deficit". Inflation kicked off in the beginning of 90s, partly because prices were liberalized, partly because of the monetary policy.
First of all, the primary result of hyperinflation was a massive transfer of wealth. In less than a decade, what used to be a 'common ownership' or state ownership of most of the economy was concentrated in the hands of the very few. Whether it was intentional or not is subject to debate, but too much of a coincidence to happen by the chance and the rest of the effects of hyperinflation are derivatives of this process. When people are starving, the last thing they will think about are the long-term investments, thus real estate and other assets were dirt-cheap. And that is a lifetime opportunity for those having money and understanding what is going on - classic 'buy when there's blood on the streets'.
Second, any productive activity except the one that gives revenue in hard currency is virtually impossible, thus manufacturing became extinct in a very short period of time causing massive unemployment (contrary to the popular belief - inflation and unemployment can be very high at the same time).
Third, hyperinflation had much broader social consequences, all 'services' that government used to provide: law enforcement, healthcare, education momentarily dropped in quality. Being on the government payroll, with salaries adjusted at best for the official rate of inflation, people working in these sectors were forced to accept other sources of income. An infamous corruption, which is still one of the main problems in Russia, is a result of exactly this process. Again, when people are almost starving, last thing they would think of, are someone else's interests, let alone interests of the public.
Last, but not the least, pensioners were the worst hit category, being unable to work and support themselves and depending on the pension that was supposed to be guaranteed by the government, these people were literally hammerred.
Nobody saw it comming because it was a fluke accident.
No, "nobody" saw it coming because they did not want to see;
The socialist governements and their union backers in Europe back then were kissing the commies arses, much like they kiss muslim bum now, so they liked the USSR to be the most powerful ... yada, yada, yada; The conservatives did not know what would happen if the USSR collapsed so they kept mum. Finally, the obviously stupid, incompetent and corrupt "intgelligence" services liked an enemy that could drive ever increasing defence spending. E.t.c. Same as the "Finacial Crisis": Nobody wanted to know!
I traveled a lot in the former USSR. It was totally obvious that they were not earning any money and that nobody gave a rats arse about society or the locally produced goods. There was black-market people everywhere exchanging currency. I would buy Leica cameras, classical records, leather goods, dark room equipment, laboratory kit at stupidly low prices and sell it back home. The mosts expensive drink one could possibly have was Vodka + Orange Juice because the latter component was imported. Totally obvious that everything was going in the shitter, if one cared to go there.
Now, the US looks more and more the same way: Dilapidated infrastructure; Rustbelts; City areas too dangerous to visit; Security goons everywhere; Overpaid, rude, lazy, civil "servants"; Hyper-rich oligarchs with private security outfits visiting places that noone else can even get into. The US has got nicer cars and better clothing - to deceive the outsiders IMO.
... And the Rouble is still the Currency of Russia!
What will be the currency? Perhaps it will be regional. If there's global rejection of global currencies, then could see the following reserve currencies:
Americas - CAD
Europe - CHF
Asia - AUD
One thing that is possible in the US is a scenario where the government intervenes at the cusp of a currency crises-- and effectively revalues by issing another currency. If the new currency is backed by something tangible, like gold... or more likely silver... then dumping may not occur. If we just drive the whole thing off a cliff, there will be a lot of black market transactions in anything but dollars-- though there will still be dollar transactions, via government programs like food stamps, etc.
That is actually the missing piece of the puzzle.
And believe me: the day a country will try to push a new currency they'll get a US nuke in their backyard.
So real hyperinflation: I give it a 10% chance.
I'd give it 100% chance.....because I'm betting the bankers can't control the masses despite all their technology and weapons (not too mention natural disasters that will push them over the tipping point of control).....BUT as pointed out earlier....the transition from deflation to hyperinflation will be extremely quick (if not nearly instantaneous) thus negating the profit from any massive gold/metal plays.
Best bet will be location, location, location.....and guns n' butter (ie - food....storage along with production capability)! Best be gettin' to know your neighbors really well....and if you don't like what you see....best be findin' new ones you do!
what is with all the gettin' to know your neighbors, very well. you advocate finding new neighbors cause you don't want to know your present neighbors? Yo Fat, that seems crazy to me. i knew all my neighbors and adjoining land owners, of 30 yrs, they aren't that nice. my next door neighbor and his son probably wanted to kill me cause i rode a bicycle every day. i am not going to back down on my lifestyle cause of neighbors. build a fence, dude.
Whoa...refresh! Neighbors in terms of silo's don't survive - i.e. teamwork is best policy! As in neighborhood block party when SWAT team tries to take you out....or the local gangbangers....take your pick!
IOU's
"Holding assets outside the U.S. also may have some benefits."
http://www.swissquote.ch/index_e.html
"Holding assets outside the U.S. also may have some benefits."
http://www.bullionvault.com/#sutski123
lol @ the blatency of the affiliate linkdrop
good luck ;)
There's no sense in trying to argue with hyperinflationists unable to summarize in a short paragraph? Just a guess.
I would like to believe this, but I don't. The velocity of money is zero. All the money goes into the banks and sticks as if to fly paper. Small business is scared shitless by ObummerCare.
Buy more T-bills? To what end? To drive the interest rate below zero?????
Ben is out of ammunition and ideas. He's shot his wad. The only way to generate inflation is to get cash into the hands of consumers who would spend it. For that Timmy/Ben would need Congressional approval. The have no credability and couldn't get a resolution in favor of motherhood passed. Like it or not, and I don't, the dollar is the least awful of the fiats. Deflation/depression are here until real cash hits the wallets of consumers. Don't hold your breath.
That's what happened in 1938. I'm surprised that nobody can see it coming. Just look at the weekly chart of the discount rate.
Pdf file:
http://www.files.me.com/fransix/ldsgky
"Web of Debt" is the worst book I have ever read - it's full of historical fabrications, and the author clearly knows nothing about economics. So for a website to quote this book instantly discredits it, in my eyes.
Bush tried the $300/$600 stimulus payments. Everyone just paid off debt. The money would just go to deleveraging... stimulation is impossible at this juncture. You can either print more now and put us out of our misery quickly or wait and let us default on our own... end result is the same, hyperinflationary depression... until then, we have bi-flation that eventually succumbs to deflation.
Point well taken, but maybe a problem of scale. We would need something in the tens of thousands per household to have a real effect. Unthinkable in normal times, but so is most of this crappola.
This is my take as well. I could see hyper inflation happening in a panic but it will be VERY short lived. Not sure about least awful of the fiats though.
Again....confusing inflation with hyperinflation...two very different beasts....this is the problem with the deflationists...
The only thing Mr Williams essay deomonstrates is that he does not understand how our system works.
You do not get strong price inflation without wage inflation and supply constraints; we are so far from either of these conditions that it is barely worth continuing the discussion
Mr Williams trots out the usual "China will dump our dollars and treasuries, blah blah blah". What is so hard about this to understand. China does not fund our deficits; nobody does. we control our currency. china sells us goods. we pay them dollars. they invest those dollars in USD assets. To argue China is going to "dump dollars" is to argue they are going to cut off the USA as an end market. That is naive and stupid.
Mr Williams then trots out the "treasury won't be able to fund our deficit spending". Dude, the treasury does not fund Congress' deficit spending. Congress just spends. the spending ends up as excess reserves in the banking system. where do those excess reserves go? treasuries, that's where. This is not to say that Congress can spend whatever it likes without consequence, but it is ignorant to think of funding the federal government in the same way you think of funding your household spending.
Here's the point I don't understand: " To argue China is going to "dump dollars" is to argue they are going to cut off the USA as an end market." It seems that the US will be perpetually rich just so China will always be able to sell us stuff. Doesn't matter what we do, or how much we produce in return. At some point do they decide that they're just giving stuff away that they could use themselves? Can the dollar remain the reserve currency forever? Seriously, what don't I understand? I'm asking honestly because this is really important.
It's really simple. The USD is the only medium in which one can pay his/her income taxes. The UST is a claim against the tax payers (labor and capital) of the world's wealthiest nation. The USA is the world's largest consumer market by far. China is not going to "dump dollars", i.e. no longer sell goods to the USA, in your lifetime or that of your children.
If China dumps dollars?
If China(plus others) starts buying say Yen instead of dollars, this would force Japan to buy dollars to keep the Yen from exploding (This is happening now).If this continues Japan must buy dollars so we get the money anyway or the US trade deficit gets transfered to Japan from China.
In the 1930s this was called beggar-thy-neighbor.
And all these years I thought it was "bugger-thy-neighbor".
I better go apologize. BRB
Did Zimbabwe have wage inflation?
to compare Zimbabwe with the USA makes you a nitwit unworthy of debate
In other words, you don't know.
Zimbawe has a black president too!
>> To argue China is going to "dump dollars" is to argue they are going to cut off the USA as an end market.
Yes, the US will always be the most important end-market. Empires last forever - just ask the British.
the British empire was wrecked by WWI and WWII. The British have limited natural resources. The British live on a small island. The comparison is ridiculous.
Doesn't the Federal Reserve still answer to the Bank of England????
Looking at the question of deflation/inflation/hyperinflation often gets conflated as a consequence of definitions of terms and how currency (the dollar) will perform during a collapse. The definitions used are not completely consistent perhaps.
It really rather all boils down to whether or not you believe that fiat currency (the FRN dollar) will strengthen as a consequence of the view that debt is money and the tremendous deleveraging that must occur will result in the individual pieces of colored paper we call federal reserve notes will become scarcer and thus more valuable as a consequence of the deleveraging. This is the Mish, Karl Denninger (to some extent), Prechter, Nicole Foss/Ilargi (Automatic Earth) view.
The hyperinflationary case comes to us from John Williams, Bob Chapman (although Chapman is a serial hyperinflation/deflation proponent), Gonzola Lira, Peter Schiff, Celente etc. who recognize hyperinflation as a currency confidence event.
Both groups may be/probably are right, depending upon the timing of the collapse and the confidence, at the time, in the dollar as a store of any value. If the sheeple maintain their belief in the FRN (for failure to understand the creation of that colored paper and/or electronic pixels associated with same) even as the markets implode and people rush into anything to avoid stocks, then deleveraging may actually strengthen the FRN. The Federal Reserve loses control of the dollar and confidence erodes (likely), then the hyperinflationary event which will ensue will either be a devaluation phenomenon (figure say 40-90%) or a collapse in confidence (barter- silver, gold, food, ammo).
It all depends on how easily Bernanke can input electronic pixels on a ledger (noting that the PTB who remain in dollars such as US bondholders) will be pushing back like crazy to prevent Bernanke from doing just that.
John Williams may well be right somewhere along this path- it is all a matter of time to determine how quickly individuals move out of the dollar (dollar denominated treasures) in the resulting collapse in confidence.
Gold is the big winner here.
Excellent summary.
Mish has linked hyperinflation to political decisions.
Here's one: US military presence in 160 countries, Pentagon's primary focus on "full spectrum dominance", bloated military budget with major off-balance-sheet commitments to Iraq and Afghanistan, Iran sabre-rattling demanding alertness to protect oil chokepoints. Homeland security run amok with 27 million feet of office space.
The political decision which triggers hyperinflation is preservation of military over and above the dollar.
It might already be happening as there were some long lines at Costco the other day.
Take a few moments to read this, history is repeating itself as it always does.
http://wakeupfromyourslumber.com/node/6720
I recently saw very well supported and convincing opinion piece in a self-reliance/homesteading magazine calling for the imminent collapse of the financial system/currency. This guy anticipated it for decades, and is sure that finally "this is it." I would post the link to the article, but it was from a 1997 issue and is not on the internet.
Don't to underestimate the ability of the Powers That Be to extend and pretend.
Exactly.
"They" are smart enough to run a multi-national, muti-generational ponzi, with false flag attacks and keeps it all out of (mainstream) sight.
But, "they" are not able to avoid hyperinflation/mad-max collapse? Sure they can. If they want a hyperinflation/mad-max collapse, they could have gotten there much sooner then now. Unless of course, they have their own timing when it comes to the collapse.
OR, they are just as clueless as the rest of us and living on a prayer and hope. Unicorns & rainbows, puppy dogs & ice-cream.
LOL
Just like they kept millions from starving to death during the collapses over the same period of time. "It ain't the end of the world! Unless you're the little guy...".
Hey, Maniac, how do you keep all those people fed?
You don't. No analysis necessary.
Couldn't agree more. What do people think that recent meeting at the BIS was all about?
I wish a majority of ZHer's would be honest with themselves about the message they want to hear. This often is not an objective prognosis. While true objectivity is often difficult produce, every time I turn around, the "end" seems to be around the corner. I find there's a huge difference between market analysis and a millenarian sect. I prefer more analysis.
...or people can yell in an echo chamber and junk those they don't agree with..there's always that popular option.
So because it hasn't happened yet, does that mean we should ignore critical data and analysis? Should we ignore 2008? The Flash Crash? Gold at $1260? ZIRP? Dollar at multi-decade lows?
Mt. Saint Helen had a minor quake in 1980 before the second one blew its top. You can ignore the warnings signs if you wish.
I still say there is a significant difference between predicting a crash and hoping for one.
Out of curiosity: why did you pick the name Spartan? I was taking a break from studying modern geoncides to look at some perpetrated by ancient civilizations (ie. Sparta)
Dunno, I am still on the 'Japanification to try to prevent paying The Tab for the Big Party' boat. (hat tip to Cassandra Does Tokyo for coining The Tab as the name for our collective predicament).
That means, slow painful deflation accompanied by the ever-present RISK of hyperinflation as TPTB try to have our cake and eat our cake too while enjoying our delicious cake as well as a little extra cake of ours on the side. So it is a bipolar system, not necessarily sequential. It could 'quantum leap' from one state to the other in a matter of hours, any day for the next 20-30 years.
There is no way to predict if or when. But blaring warnings about the risk, both of eternal bleeding bailouts and sudden death by currency collapse, is entirely appropriate. As is preparation for both scenarios by the average American household. Which is why consumer deleveraging and a permanant reduction in consumer spending is not only inevitable, it is entirely good and would be promoted by sane monetary bosses. Of which we have none.
Consumer spending remains way below its pre-Tab peak. There it will abide. The Iron Rule of Japanification, I hereby coin thee: ZERO REAL RETURNS ON STOCKS OR BONDS OVER A MULTI-YEAR TIME FRAME. The natural corollary: YOU ONLY GET TO KEEP WHAT YOU SAVE AND DON'T LOSE. And a subcorollary: YOU MUST INCREASE YOUR SAVINGS TO MAKE UP FOR ZERO INVESTMENT RETURNS.
And that is not even counting debt and debt service. How about that???
Good luck everybody. From an investment perspective you might as well stay diversified, just don't expect any return! The diversification is to protect portions of the portfolio as meteors, er, financial policy insanity, destroys big chunks. It's not as fun as it sounds.
Go long liquor and anti-anxiety meds.
Every day, my man. And NFL on the weekends.
Yo Ho Ho and a bottle of Tums!
There too Trundle.
Diversification and flexibility are what will get you through this.
Gold, booze, guns & ammo, pills, assets outside the USA, etc.
Have a friend. Strong personal balance sheet. 50 year family business. FICO over 800. Wants to buy a deeply discounted commercial building in town with great foot traffic. Shops the loan to 6 banks with a LTV of 50%. No bank will bite. If its was one bank, fine, but all local six can't underwrite that kind of loan. Please.
I watch food prices and gas. Food started moving up the charts over the Summer so in protest I am buying form a local organic truck farm. The best food I have tasted since I was a kid for less than half the retail/Costco price. Oil is back to around $80/barrel, so gas is hovering above $3. I stopped driving as much, sold the SUV for nothing and will not take air travel in protest of all the naked body scanners being deployed. I am adjusting to the new normal.
Why adjust? Because my wages are not going up. Period. In fact they are going down because clients also don't physically have the money they used to. Its all being systematically drained to the banks for interest payments on assets that have half their old value. The cycle downward means there is no secondary market to sell idle machinery as competitors close or retract. The housing contagion has firmly spread to PP&E.
I think looking back at the post-Soviet collapse is worth the effort. As I recall, Larry Summers was the West's man on the ground to turn the Soviet system into a market driven in the early 90's. The result was massive upheavals and the creation of the "oligarchs." Somehow I am starting to believe we will see the same in the USA as the Fed and Summers do anything to keep themselves from being cannibalized. A massive consolidation of various industries, with the merged and downsized outliving the marginal existence of everyone else.
Speaking as a regular guy in the street, my family economic situation is impacted not so much by price, but a lack of business. The dollars are not coming in as fast and doubtful accounts are rising. I am divesting in things like; vacations, exotic cell phone plans, all the cable channels and extra cars. If I was a lawyer, I would selling my furniture to stay warm. Not because prices are too high, but because there is no business - except the business of "shrinkage."
Costco jeans, planet fitness, truck farm organic, heat on 60 at night, vitamin D3 for colds and the flu- you're on the right track. Now, just go for a walk and hug your kid.
Who needs all the bullshit?
Thanks for sharing this. Great post!
Well said and great anecdotal comments.
Based on what I am seeing on the ground in my location, I may "go dark" in the very near future.
Godspeed fellow ZH'ers.
Likewise, john_connor. I am reminded of the men in the rocket, after the explosion, falling forever away, radios fading....
cf. 'Kaleidoscope' by Ray Bradbury
www.scaryforkids.com/kaleidoscope-by-ray-bradbury/
"Make a wish", said his mother. "Make a wish."
I do not mean to pry so ignore this if you want, but I am VERY interested... what are you seeing on the ground that has you ready to "go dark"?
Just wondering how it matches up with what I am seeing...
....well having the NSA spend $1.5 billion for a computer room in Utah might be a good starter! ....and that's just 1 of 4 to go in around the country over the next 12 to 18 months...
Its a war of power and control over assets! They are preparing on their side just as much or more as the most tin foil wrapped prepper!
.....look at Obama's EO in January creating 10 governors to rule the (most likely) 10 FEMA regions. Might investigate NORTHCOM while you are at it.
Trust me that option is well planned for!!! You might think XE (Blackwater)...or any number of similar private contractors that rule the roost behind the scenes!
FYI - Obama is CIA! So was Bush Jr & Sr....and Billy Bob Blythe the third was money launderer for CIA Mena AR cocaine flow! The only one in the past 5 decades who wasn't pro-CIA was JFK and he didn't live long after declaring he was going to smash them into a thousand pieces (not to mention firing Prescott Bush's BBH banking buddy Allen Dulles....who ironically had the last laugh as a member of the Warren Commission). Of course Reagan may have initially had issues but a member of the Bush family friends...the Hinckley's helped shape his views (actually it was the secret service agent who landed on him....unless of course you believe in those magic bullets).
Agreed on all counts. Merci.
DHS is preparing to lease massive, massive sq.ft. of space for "coordination".
I don't get why the banks won't do the 50% LTV loan on the commercial property.
If they had a suspicion that Real Estate had further to drop, like another 50% or so, then that 50% LTV would actually be 100% in two years or so.
Don't do as the banks say, (buy RE now!)
Do as the banks do (don't buy/finance RE now!)
Banks know they have at least 3 years worth of existing RE inventory (commercial or residential) either in foreclosure, REO or 90+ days delinquent.
I can remember the fallout from the S&L fiasco of the late 1980's. At that time, real estate was run up just like the mid 2000's. The flip was all in the refinance via "friendly" appraisers - not much regulation of the appraiser industry back then - no FIRREA. Anywho, you could dissect a handful of community banks and find shareholders were limited partners in loans made by the bank. At the height, some commercial properties were reappraised 2-3 times a day and refinanced. A ton of cash out over the last half of the decade. And then.... collapse and the Resolution Trust Corp (RTC) - who takes all that inventory from seized banks .... and guess what? Nobody has any money to purchase these OREO at auction rate - EXCEPT the very people that refinanced and defaulted on those loans in the first place.
The more things change the more they stay the same. MBS, TBTF, etc - they are all terms for this Fourth Turning. 'He who has the gold makes the rules' and those banks that are being propped up will simply continue to hold what they have and enjoy rent yields higher than bond rates and pick and choose what to buy deeply discounted using the only money around. You can already see this between out of state OREO departments and local brokers with pocket listings.
The Fed is buying stocks, dollars, fake assets. They will have a claim on everything before it all falls apart. Just remember they have the cash and cash will be king in a distressed market. In the meantime, expect food, clothing and shelter prices to go up regardless of your social economic place in the world.
I would like to hear from other small business owners about their experiences. We are not going to divine much from just a Bloomberg terminal
Stopped servicing low margin items, only fabricate custom high margin devices .
Less business and revenues, higher marins and saticfaction with a slight drop in income, but less hours of paperwork which was required with low margin products.
Changed from a C-corp with a few emplyees to just me as a sole proprietor. Less headaches
Love cash cutomers; discount available.
Dropped Verizon for vonage and metro pcs for cell.
Family members turn lights on and put up heat. I turn lights off when I leave a room, turn down heat and oput a sweater on.
Its constant frugality.
great earlier post. Think I said this before, I have a solo law practice in criminal defense. When their kid was in trouble, or in jail, parents could always find the money or the credit card or the relative with money. That has changed. Although some crime is down, property crime is up (no surprise). There is one community that seems to be able to draw money from multiple connections no matter what - the russians. I guess they've had more practice.
The banks are all insolvent.
Or - They are wary of inadvertently stepping on some crony-interests toes. Maybe, when the property goes on the bancrupcy auction, person(s) known to the bank management will get a loan to buy it at cents to the dollar. I know of banks that are deliberately keeping insolvent property speculators "alive" because declaring the loss will push the bank into recievership and management gets sacked. Such a bank will be motivated to "clear the way" as it were for "their" speculators to trade themselves back into green figures again.
I don't think the banks are getting smarter - most recapitalised banks I know of managed to blow at least half of the new capital on the exact same deals that got them into the shite the first time round.
Inflation/ deflation/ currency crisis/ hyperinflation. All you need to know is the US is toast. Put a fork in it.
These arguments are somewhat moot as the consequences of either spectrum is a disaster.
In reflection, it was never a very well-run country to begin with. Just another greedy, self- emolating pyramid aristocracy. So all the tea baggers who want to get back to the good old USA, can you please point out which one that is supposed to be?
SILVER!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
http://www.talismancoins.com/catalog/Australia_2010_Year_Tiger_Kilo_Silv...
That is most beautiful ...
John's a smart guy. Maybe we don't get "hyper" inflation, but even something like a change in relative currency values like what happened to EUR/CHF would make it very expensive to jet off to Paris on the Concorde for the weekend.
The layup trade is to buy a foo etf, since that's wher it hits first - DBA, RJA, CORN, etc. The food riots have already begun.
Mish is a wildlife photographer from Wisconsin. Lets not forget that! LOL!
I give him credit. He's made some great calls that were far from the conventional wisdom.
And Gary Shilling is a bee keeper, what's your point??
HAHAHA
I'm going to go happily writhe in my pile of silver...
LOL....enjoy until someone sticks a gun to your head!
R U an alarmist?
Have always held firm to the thesis that deflation is the midwife to hyperinflation. A real deflation, not just disinflation, requires liquidity evaporation due to multiple sovereign crises, where the backstop is called into question.
Deflation is the dollar bid, hyper-inflation is the downgrade of America's citizenry commensurate with a currency devaluation .
Would suggest that the quantity of liquidity evaporation will very much define the quality of any hyper-inflation.
We have a free skate while there are troubles in Euroland (should stretch over months not weeks) and then we'll find out just how thin our ice really is.
The debate is not inflation versus deflation it is debasement versus deflation. Your money Mr. Federales has no velocity here for the band of The Hand can only conjure a Potemkin demand. Organic wage growth, absent for the last decade, comes from ... wait for it ... the productive allocation of capital when a free market pins winners and chooses losers. (AM Rule #8)
What has been will be again, what has been done will be done again; there is nothing new under the sun.
I very much appreciate JW's insight. If one were to just look at the US, I think he would be right....however, me thinks much of the western world is in the same heap of dung. China will not have anywhere to park its trillions in cash. To have everyone dump US currency valued assets would mean they could go somewhere else and I just don't see enough avenues for it to happen. Deflation in its simplest terms is currently happening, there is a decrease month to month of outstanding money supply. People aren't borrowing (even if they are eligible). Debt is being paid off, credit card debt is decreasing every month. Basel III and the new regs are going to even reduce the available money supply and multiplier even more.
Check it out.... Hyper inflation (HI), is already here, you may want to define it as a "gate crasher".
Thanks for the easy math problems....! ;-)
Econolicious
Fed continues to pay a premium on reserves on deposit. They can also increase reserve requirements.
No lending is happening. How does money supply increase without lending?
No confidence in the USD? No safety in UST's? Where then? The Euro? The Yuan? Extend and pretend to infinity is the plan.
i would say that the fed is break dancing on a nuclear detonator....
the people and leaders of america have been fools since fuhrer (and imbecile) roosevelt came to office. the chickens have come home to roost goaded by the banksters....currency debasement represents symptomatically - not causally - the corruption and immorality of a people.
"...hyperinflation may hit as soon as 6 to 9 months from today "
Or not.
Hyperventilation seems to be more of a threat, it seems.
http://www.shadowstats.com/article/hyperinflation-2010
.
Thoughts to ponder:
What is hyperinflation? Your money becomes worthless.
Why should I care? Because 99.99% of us are dependent on being able to buy stuff with money in order to get by. (Those who live in the remotest areas of the world as subsistence hunters, good for you.)
So, should I really worry about hyperinflation, or about not being able to buy the things that I need to get by? ("yes," but the latter is the more direct worry)
What if we in the US were unable to buy the things we need, regardless of prices? Perhaps, if food production or oil imports shriveled up, but the market somehow didn't price in the shortage (perhaps due to a mix of government price controls* and inability to form a black market). [*I'm aware that govt price controls are a standard response to hyperinflation and have always failed.]
What if store shelves were empty and gas stations closed? Would it matter whether the nominal prices for the unavailable goods had two digits or 15?
I say this because I think the debate over hyperinflation vs. deflation vs. stagflation vs. biflation is not focused on the most important question. I don't care about the nominal value of my money or assets, I care about what I can trade them for as I need or want to do so.
And from that, I'm more concerned about agricultural harvests, oil production levels, and the slowing global economy than I am about nominal dollars.
Sudden Stop
Well, there was one success during the 80's when Volker raised interest rates and crushed the economy short term- and saved the dollar.
Remember WIN- whip inflation now?
There is no inflation and the FED only fights the symptom at hand,which is a collapse in M3 money supply and credit.
Japan is the only example we have, they are in debt like 400% to GDP- still in a deflation after all these decades
Bring on the hyperinflation, I have student loans to pay!
Hyperinflation is really more like sudden stop.
Nothing at any price.
Banks closed.
No paychecks.
Hungry hoardes flowing out of the cities to ravage the 'burbs.
Mad Max in a nutshell.
Yeh, and not going to happen. It's like putting a penny on a train track and it expecting to derail.
Me too, and I am not even a student. but my kids are and were.
I think certain jobs allow you to get rid of or lower the amount to pay back; like some teaching positions, peace corps etc..Kinda like going in the service for a couple of years to get rid of the debt. Its difficult to default on student loans.
In a real hyperinflation environment I would want to own 3 things: 1) gold 2) oil and 3) V (Visa).
2 more commodities you might consider, toilet paper & ammo - the ammo not so much for shooting but as a trade commodity. I don't know which ammo is best but it seems .22LR is very popular, relatively cheap, and small enough to store a lot in a small container/area.
Also consider soap, shampoo, vitamins, canned foods, instant noodles, candles, vegetable seeds, wine, vodka, cigs, 10 gals of gas, 10 gals of diesel, water filtration systems....... All good trading items - and don't forget to stock up on any prescription drugs you use.
And if public utilities are temporarily off for a while, think about a water supply (neighbors pool, stored water bottles/containers) and a way to heat your food (extra propane tanks for your outdoor BBQ - which could also be used to heat water for a luke warm sponge bath).
Wishing all ZHers safe harbor in the storm ahead.
Semper Paratus, The Navigator
6 to 9 months eh, That gives me plenty of time to load up on some more Juicy , Overvalued high PE momentium stocks. It's 1999 again.
Slashing Social Security is beyond absurd and downright evil. We should be lowering retirement age in order to get aging boomers out of the job market and helping get a young "lost generation" to work now. People who say these things about SS are simply hell bent on looting it.. not, you know, trying to make sure millions of peoples last supper isn't a generic can of Friskies special dinner. We may be in trouble and it may happen anyway, but I'll be damned if I am going to sit still and not call out these cretins who cheer for it to happen.
Slashing medicaid and medicare should only come (in terms of GDP) after killing off privateer insurance companies who serve no useful purpose... and after strong-arming Pharmaceutical prices. We simply must initiate a tri care or single payer system. And we should ramp up the training of doctors, nurses and other professionals, such as home care and hospice for the aging boomers. Otherwise we will simply have to bring in a million folk from places like India to do it. We should employ ourselves for a change.
And these people never mention the most egregious waste in human history... our defense spending. Nor do they mention the death grip addiction to oil. It's beyond telling.
No... this authors intentions are to preserve a cannibalistic keyboard grifting operation for his kind as far into the future as possible... despite the fact he knows it's likely to end.
Cry me a river and get a soul.
All the hyperinflation predictions are incredibly tired. The point has already been made but I'll make it again - hyperinflation is a political phenomenon. It happens when governments control monetary policy and they make a conscious decision to destroy the currency. We have the Fed - for what reason would they shoot themselves in the head? Hyperinflation isn't a comet that will suddenly strike without warning no matter how bad gold bugs want it to happen. Yes, it would make your holdings in gold look genius. You really, really want your predictions to be right. We get it. Now, give it a rest.
'Why would the Fed destroy itself?' is not a valid argument. No central bank chooses to destroy itself with hyperinflation but many have. They get there just like we did, painting themselves in a corner a little more each day, buying time, hoping things will get better. Pretty soon they are buying time in weeks, then days. Once you are on the treadmill you can't get off or the system implodes. That's where we are, but don't worry, it will never happen here. Sure.
Well, that sounds good, I'll give you that. Would you mind specifically naming "central banks" who have destroyed themselves with hyperinflation? Did the countries they represented have a mobile, educated workforce? A population of 300 million plus? The largest military force in the world? The world's reserve currency? Half the world's attorneys? I'm not waving the flag, merely pointing out relevant facts that any policy maker or bond holder around the world would be weighing while considering whether or not they dump the dollar.
And the veiled character attacks are juvenile. Along with being disingenuous, implying people that don't toe the "impending economic apocalypse" line are somehow psychologically incapable of contemplating the gravity of such circumstances and, therefore, denying their possibility isn't proof of anything.
Sometimes things can reach a breaking point that starts a cascade that no one can control. I am not saying it is going to happen, but it could. Between the overleveraged banks, the debt, the highest sustained unemployment ever, the housing debacle (not marked to market), foreclosures, credit defaults, huge debt monetization programs, unfunded liabilities, aging baby boomers, largest % ever on food stamps,healthcare, etc...These could overwhelm some of the points you mention.
That's fair. Those are definitely looming issues. My point above was that, relative to other countries around the world, we are a good risk. That's not to say these problems don't need to be dealt with through regulating banks, reducing the deficit, and your basic financial belt-tightening.
What nobody ever talks about is who exactly where all US bond holders will flee to. After all, our survival and prosperity are dependent upon continued highly productive economic output. That means even in the face of all the things you point out, we still need to be starting businesses, innovating, and generally working our asses off. That means credit needs to flow. An abandonment of USTs means that the consensus is we won't do these things, output will plummet, and we'll come to a full stop. Obviously, I'm not betting on that outcome. Furthermore, I see no evidence that's occurring.
educated workforce? and having half the world's attorneys means many things but not an economic asset.
Obviously that's incorrect. A well-functioning legal system is an economic asset for many reasons. What is your level of business experience and understanding?
You're implying that more lawyers means a well functioning legal system? Do you live on Bizzaro World?
No, I live in a world where you have to decide in which country to open a new office and must weigh all factors. The US court system is a huge asset when those types of decisions are being made.
And I'm not implying more lawyers means a well-functioning legal system, I'm stating that explicitly.
It is not just the Fed it is the fantasy that fixing the problem of debt is more debt, and the military industrial complex and the empire that spans the globe of military bases, and belief that the economy can be controlled at all, and the willingness to dupe the populace with blatant lies and misinformation, and the power hungry egomaniacs, psychopaths and sociopaths that are willing to destroy, suppress and exploit the middle and lower classes for personal gain, and the governments that believe they can endlessly tax to support failed policies and intervention in markets as well as unsustainable social security and health care, and the big stack of free money that everyone is trying to grab at with any reason for favors they can conjure, and the big business of the media, finance, pharmaceuticals, real estate, pensions, insurance, oil and energy, willing to kill for the bottom line...it is everyone accepting the scam until the house of cards crumbles from its own flimsy foundation of lies and deceit.
That has nothing to do with precious metals.
Deflation already happened, just take the price of everything over the past 9 years in gold ounces, it's all down. What distorts everyone's analysis is that they're trying to make inferences with a faulty unit of measure. When the unwashed masses realize this, bang! Hyperinflation!
You got it right. Everything deflates against gold. That's deflation and hyperinflation all at once.
Please somebody explain how we can have inflation, or hyperinflation at the same time we have oversupply, flat wages and high unemployment?
Seems to me that those conditions would be major contributions to deflation, not inflation, as the Fed would have it. Helicopter Ben is probably whacking off reading Williams' article, probably the first boner he's had in months. Sorry to say, Ben, your brief period of excitement will be followed by penile deflation and depression.
Pushing on a string doesn't work, despite the best efforts of the Fed and the corrupt, insolvent banks. Maybe there will be hyperinflation at some point, but not in housing (and that's a big number) and not any time soon. The Fed will probably try to starve us first.
I appreciate Williams' work as much as the next guy, but he's missing the big picture here.
Hyperinflation isn't high inflation, it is a confidence collapse. Zimbabwe had plenty high unemployment.
Anyone who uses Zimbabwe as an example hasn't the foggiest idea of what they are talking about and knows nothing about what happened over there. The hyperinflation was a direct result of expelling the white farmers so the US gave them the big F U with international sanctions.
the international economic community is about to give us the big one too
ITG,
What folks are not seeing here is exactly what you said, it's a collapse in CONfidence in your currency.Also, the collapse in confidence does NOT have to start here, it can come to us.
When the other nations of any size lose confidence in the USD, it won't make a damn, what we think or do.
Reserve or no Reserve, it's just a word...........
If TPTB, want the Yuan to be the Reserve currency, they could do it today......eveyone goes to Jerry McGuire...........Show me da moneee!!.
As we type, they are already bypassing US, and our currency.
We cannot self sustain to any large degree anymore.We have shut up shop so to speak in the real area that drives countries,Mfg.
Serfin USA.................
Its simple, really.
there is deflation in the things you already have,
but inflation in the things you don't have, but need.
Check out the prices in the "other" yellow commodity ...
corn has gone from $3.40 to $4.94 in the last several weeks ....
Cotton increasing as well, sugar, grain and meat...
LONDON - RISING grain, meat and sugar prices pose a threat to the nearly one billion people who are undernourished, with global hunger still above pre-economic crisis levels despite the first decline in 15 years in 2010.
http://www.straitstimes.com/BreakingNews/World/Story/STIStory_578965.html
"Please somebody explain how we can have inflation, or hyperinflation at the same time we have oversupply, flat wages and high unemployment?"
Sure.
As the economy implodes, Lord Christ Bernanke will come to the rescue.
To summarize, this is what will happen:
1. The bond market will implode due to people fleeing the dollar because of the systemic risk of a sovereign default.
2. Normally, this would lead to massive deflation and layoffs as fascist government subsidized businesses go under and the economy is rebalanced away from a centrally planned economic system to a free market system.
3. However, this will not be allowed to happen because the Christ God Bernanke will print the money necessary to prevent the layoffs of government workers and federally subsidied corporations.
4. This will cause hyper-inflation and the total destruction of America as it devolves into a post-apocalyptic Soviet police state.
Michael,
"1. The bond market will implode due to people fleeing the dollar because of the systemic risk of a sovereign default."
That's a pretty strong assumption and based on fairly extreme circumstances. Even in a deflationary environment (we have the Great Depression as prologue), bond markets do not have to "blow up."
I'm sure the gold bugs here (personally, I favor silver, but that's beside the point) would love to see 10YT at 9%, but it just ain't gonna happen. If the US is in that bad a position, the rest of the world would probably be worse off. I think it's more likely that a mania of default ensues in Europe first, repudiation of debt that eventually comes here, but not before lots of fighting from the ECB and the Fed, who, by the way, can buy up all the Treasuries they like (I know, it sounds like I'm making your argument for you), but the Fed won't pay 9%. They will crowd out everybody at anything North of 3.5%.
I think you are deluding yourself as to the US's debt position.
Currently, we are only able to keep up with our debt payments thanks to the God King suppressing rates.
We are in a totally unsustainable debt position and the rest of the world is beginning to recognize this. If the Christ allows rates to rise, its game over for the US. He WILL print.
Silver is good, gold is better. Silver is still an inflationist's metal - there's simply more of it and it can be readily produced. Gold is far more limited. Silver is seeing good action right now, but when the money printing reaches epic levels, it will be gold that comes out on top.
If hyperinflation is such a certainty, what to do with Bernanke and Co when it happens?
Move to Dubai where there is no extradition, but not before stealing every last ounce of gold out of the Feds vaults.
I'd love to know how much gold there really is in those vaults.
Inflation For Dummies
Chapter 1: The Law of Resupply in a Zero Demand Growth economy.
topics: Just in time inventory systems create sporadic holes in the supply chain. Retailers market products available, "sorry we haven't any Big Mac's today, how about a grilled chicken?" It's Thursday? Sorry no Big Mac's at any price.
Chapter 2: Peak-A-Boo Oil and energy
topics: Commodity sellers begin holding back product when the notion of inflation finally takes hold, accelerating the process. Would you sell your gold today, if you thought it would be worth 5X what is now, in a year?
Chapter 3: Representation without Taxation
topics: Public initiatives to raise taxes takes hold, the majority passes laws taxing the wealthy minority. The Tea Party is replaced by the anti-Tea Party. We want to pay taxes America says after the largest expansion of the social safety net in the history of the world. We realize our politicians can be bought, and we want to buy them.
Chapter 4: The crisis in debt is solved by the Zero Demand Growth economy. There is no credit, and nobody wants it, although some realize that borrowing money at 0% apr is safer than a Money Market fund whose NAV can fall below a dollar, a debt is a debt.
topics: Small business lenders are allowed to set their own rates, especially non-profits, like CU's, and in turn sell CD's based on those rates. Goldman Sachs is replaced by Lower Manhattan Dock Workers Credit Union and Bagel Factory.
Chapter 5: The government prints a second currency. The first currency is called a kinetic currency, or sweat dollars, for transactions. The second dollar or inert dollars, are investment dollars. These dollars leverage out depending on the health of the economy, which protects the poor, whose sweat dollars actually gain value in a recession. There is hyperinflation in inert, or investment dollars, but the real money supply is fixed, by Congress.
topics: It could be a somewhat failed attempt to issue a regional currency, but we'll take it. No sweat.
we are currently IN deflation i think. it is ongoing in the items that represent the accumulation of the last age - our houses, cars, overpriced educations, clothing, commercial RE, retirement plans, morals. don't wait for a government statistic to tell you about deflation.
I just read the Weimar section of your report John, it totally avoids the reason for the german inflation. The world was still on a gold standard and in 1921 Weimar was forced to give almost its entire gold reserves to the western powers as reparations. There was no longer any gold backing up the Reichsmark. That is what precipitated the rapid devaluation of the Reichsmark against foreign, gold-backed currencies and forced foreign investors to pull their money out of Germany. Your report makes it sound like a loss of faith in fiat currency when it was the switchover from gold-based to fiat that caused the hyperinflation.
So tell me how do we get to hyperinflation in 6-9 months? We are living in a credit-based fantasy land and as long as banks are in debt and reluctant to hand out money, the M3 will continue to drop (as I know from visiting your web site) and despite Bernanke's best efforts, we'll be in a deflationary depression.
I wonder how much gold the gov. has at Fort Knox. Paul wants to audit the stock but has got resistence in the past.
I just read the Weimar section of your report John, it totally avoids the reason for the german inflation. The world was still on a gold standard and in 1921 Weimar was forced to give almost its entire gold reserves to the western powers as reparations. There was no longer any gold backing up the Reichsmark. That is what precipitated the rapid devaluation of the Reichsmark against foreign, gold-backed currencies and forced foreign investors to pull their money out of Germany. Your report makes it sound liek a loss fo faith in fiat currency when it was the switchover from gold-based to fiat that caused the hyperinflation.
So tell me how do we get to hyperinflation in 6-9 months? We are living in a credit-based fantasy land and as long as banks are in debt and reluctant to hand out money, the M3 will continue to drop (as I know from visiting your web site) and despite Bernanke's best efforts, we'll be in a deflationary depression.
You're still stuck in the mindset of thinking we have a private market economy.
We do not.
All those government paychecks and fascist subsidies will still need to be paid, eventhough there is no tax revenue.
Do you think the government is going to layoff all of its workers and downsize the military because tax receipts have plummeted?
Of course not.
So how is government going to pay for all of its spending?
The money press.
Eventually the rest of the world is going to wake up to the US's unsustainable debt position and quit lending us money to finance our empire on a credit card. When this happens, there is only one option left.
"arguably" is the key word here.
Any bets on hyperinflation in 6 to 9 months?
What odds do you want? Amount?
Define hyperinflation as percent of CPI-U, and I'll take no hyperinflation.
Sorry for the basic nature of this post, I'm just trying to investigate this scenario. If some of my assumptions are false, I would gladly appreciate other people's insight.
The scenario presented in this article is a hyper-inflation scenario. As I understand it hyper-inflation is actual mis-named and should be read as currency crisis.
Why a currency crisis occur?
It occurs because no one has faith in the currency as a valid store of wealth which can be used to purchase good/service or to pay debts.
How would a collapse in a currency affect affect treasuries, which in my mind is issued debt in that currency?
Well, as I understand it it would basically wipe out the debt. Wouldn't this be similar to default or write down?
How does this affect those that hold the currency or debt issued in that currency?
Well, I would imagine that that would not be happy that they just lost what they thought was a store of their wealth.
What would cause those holder to lose confidence?
I suppose it could be anything. I think an actual breaking point would be tough to define. I would think that initially efforts would be made to prop up the currency, or the country issuing it so that the value doesn't have to be written off.
What would signal that confidence has been lost?
Well, a refusal to take on more of the currency or debt issued in that currency. This basically says, "Your money is no good here." A shift to build up other stores of value. This could be another currency, or some other arbitrary and agreed upon store of value, perhaps gold, but also food stores.
How does a currency regain confidence?
No idea here. Some sort of proof that you can pay your debt, that you are somehow cutting back in your spending.
How likely is this to happen here in the US?
No idea. It seems that real people are start to cut back somewhat. Are real people indicative of a country?
If it does happen what does it mean to the average person?
If you are paid in the failed currency your wage would have to hyper-inflate as well to keep up the same standard of living. Anything denominated in the failed currency (foreign stocks(?), commodities, gold, food) would cost more in the failed currency. Basically, you wouldn't want to be caught in cash or treasuries.
If I think this is going to happen what can I do?
Find the new thing that is regarded as a store of value. Lots of people think this is gold. My understanding is that they mean physical gold, and not something like an ETF/ETN. Other people think food and/or land. Most of this seems difficult for the regular guy to obtain.
What if I take action but a currency crisis never happens?
Well, i suppose you have things that are traditionally considered to have value, they just aren't worth as much as you thought they would be. You probably won't lose everything.
you should read Conquer the Crash and other Prechter books, as he discusses the likely outcomes. In the 1st Great Depression there was a physical shortage of cash. That isn't going to be the problem here, but a lack of confidence will hurt investment more than transactions. In some part you could say that Bernanke and co are deliberately destroying confidence in the currency to encourage people to spend, (avoid the savings glut is the economists mantra) The problem is our leadership is confronted with self negating policies (like Walmart's policy to cut costs, destroying the profit motive, which is essential to capitalism. What Greenspan calls creative destruction, which he sees in microterms, but in macro terms results in wholesale destruction of the entire system.)
Currency during the first Great D the money supply was shrinking during the second Great D credit is shrinking. What replaces Credit, or notational money? Systems of value arbitration, and a return to a society which confers status instead of wealth on its most valued citizens. (or a collapse and return to barter??) For the moment credit is dirt cheap and hard to find, and the government will have to create GSEs for consumer lending institutions. This time around its all about the credit.
BURN IT DOWN!!! BURN IT ALL F$$$ING DOWN!!!
BURN IT DOWN!!! BURN IT ALL F$$$ING DOWN!!!
"likely will trigger massive flight from the U.S. dollar" -- but into what? Oil will be traded
in euros? Fat chance.
Some problems with the deflationist mindset (mind you I believe that right now the economy has strong deflationist tendencies but the end game will be the same like for every fiat currency)
- They fail to mention how the government is going to pay its bills (and all the half-assed crazy stimulus programs they roll every other day) in a protracted deflationary environment with shrinking tax revenue.....a little hint...direct monetization which bring us to the point that hyperinflation is very different than high inflation....hyperinflation is loss of confidence in the currency (and in the government ability to pay its bills), in other terms "velocity" goes suddenly infinite.....and for a country with chronic trade deficit as the US (very different from Japan...more of it later) it is very possible. Budget cuts they say....pleeease......if they wanted that they would have done already....no politician with cojones is left in Congress (except for Ron Paul and maybe few others)
- Another of the deflationist arguments is "Why Bernanke and the banksters would want to destroy the system?". First of all, Bernanke, of course, does not want to destroy the system as much as Rudolf Havenstein (president of the Reichsbank in Weimar Germany) did not intentionally want to destroy the mark or Gideon Gono (president of the Reserve bank of Zimbabwe) and Robert Mugabe want to destroy the Zim$.....hyperinflation is not something planned or wanted.....it actually happens as consequence of hubris ("it's not going to happen here", mindset) and desperation. The same is for every other fiat currency that experienced hyperinflation...nobody planned, wanted or (crazily enough) actually expected it....Bolivia, Brazil, Argentina, Jugoslavia, you name it. Second, why you suppose that, if hyperinflation happens, the banksters and PTB would lose their grip on society? They would definitely try to hold on it, creating a new flawed currency or (paraphrasing Jim Rickards) "kicking the problem upstairs" with SDR, etc...They do not care what is the name of the currency or the color of the notes as long as they remain in control and own the physical assets. Remeber the hyperinflationary period of Weimar Germany was a godsend for many big German industrialists which saw the burden of their debt wiped out...Big corporations (big debts in general) can benefit substantially from a hyperinflationary event....remember once again high inflation (or hyperinflation) helps debtors tremendously...I do not need to remind you what is the status of United States.
Bernanke was crystal clear in his 2002 speech.....he will drop money from an helicopter if is necessary...I take the man to his word...how much more explicit than that do you want? Again hubris mixed with desperation....a very dangerous combo.
- "Inflation cannot happen without wage spiral"....again and again hyperinflation is very different than high inflation......Zimbabwe had 80% unemployment rate......Weimar Germany labor market was in shambles, same for Jugoslavia or Argentina.....by the way, credit existed in Germany or Zimbabwe....obviously not to the extent of the United States, but a modern fiat currency is by definition a debt based system. You could use credit cards in Zimbabwe (and they were also actually issued in the country) and ATMs were common.
- Another deflationist gem..."if you believe in hyperinflation you should buy real estate!!". Actually real estate and luxury goods deflated in real terms in Weimar Germany, Argentina or Zimbabwe...hyperinflation tend to hit where it hurts the most....basic necessities.
- Money "printed" by the Fed are parked as excess reserves doing nothing......no they don't.....they are being recycled in Treasuries and/or getting interest paid by the Fed....this is feeding public sector and banking/financial sector salaries and bonuses, stimulus programs related unproductive wages and expenses in light of reduced economic activity (less output). Granted is not as explosive as if that money hit the credit creation spindle but is not "money doing nothing" either...it's going somewhere...
Deflationists sometimes seems to forget that prices drop up to a point (mainly initially to move excess inventory)....corporations eventually "get religion" and reduce costs/size to adjust to the new reality (and many go out of business in the process). Fewer competition and prices can actually rise for the fewer people that can afford that particular type of good (I have more than one client, importers, that did exactly that).
- But what about Japan? Yes What about it? This should be obvious to the deflationists but evidently it needs repeating over and over. Japan could not be more different than United States....90% or so of their public debt was subscribed internally with their savings, the country had a huge trade surplus and massive foreign exchange reserves (someone else liability). They do not have military forces spread all over the world playing sheriff or fighting wars (another hint...military entanglements with related expenditures are often triggers for currency collapse events). Japan will hit their wall (horrendous demographics is one of the major reasons) but so far can sustain a Debt/GDP ration of about 200%......Greece blew up at 118%.....can you imagine what would happen to, let's say, Argentina at 150%? Every country is different and the market can cut a lot of slack to some, very little to others. In addition to that, again quoting Jim Rickards, United States is not geared for an extended low growth period...the US is not Japan.
Yes the dollar is ultimately backed by 10 aircraft carrier battle groups circling the globe...but how long it can last?
Just as a reminder, Japan never had official consumer price deflation and our own CPI (both official and pre-Boskin BS adjusted, courtesy of Shadowstats) is re-accelerating.
- I don't know what food or gasoline deflationists buy or if they produce their own electricity or own their own medical practice...my food, energy and medical bills are rising (I don't even mention college for my stepson) hint hint....basic necessities are actually going up....
I remain strongly in the camp of the "reasonable" hyperinflationists (not the "sky is falling" crowd) such as Marc Faber, Peter Schiff, John Williams, Jim Rickards, James Turk, many at ZH, etc....The natural state of the economy at the moment is to deflate after a credit binge, as correctly stated by the Austrians, these deflationist tendencies are furiously fought by the government and central bank and if enough idiotic and irresponsible actions are taken (which at the moment is very likely) the end game is the destructiuon of the currency. I would refrain myself to make exact predictions about time (John Williams and Peter Schiff in the past) or precise dynamics (Gonzalo Lira) of a hyperinflationary event affecting the US dollar but that does not mean that it cannot happen or is unlikely. Interesting enough, Jim Rickards uses exactly the same analogy of John Williams, a land mine and tripping on one is very possible. Rickards (and many deflationist including Mish, to be fair) says correctly "the Fed can control the quantity but not the velocity" and the system is so fragile at this point than any event can trigger the loss of confidence which equal velocity sudden acceleration.
You cannot be an Austrian and believe in permanent deflation in a fiat based currency system.....it's antithetical.
A few further thoughts on the practical issues of hyper-inflation as it pertains
to the Dollar in the modern "plastic" economy of credit and debit cards.
First off, estimates I have read are that there is at most $1T of actual Paper
Federal Reserve Toilet Paper floating about out there, the rest of it is all
digibit currency. Of the $1T TP, a good half of it is floating around outside
of our borders, so when the supposed hyper inflationary period begins, its
unlikely those notes can be repatriated fast enough to buy anything.
Now, we also must realize that probably 80% of current dollars including the
digibits are held by the mega rich, and if/when there is a loss of faith in the
currency it will be these folks who start the hyperinflationary cascade by
trying to get rid of their dollars for hard assets before they go worthless. So
off they go to the Commodities market and drive the price of everything from Oil
to Pork Bellies to the MOON. Gold skyrockets to $30K/oz.
So now said Illuminati has a few warehouses full of Pork Bellies. He can't eat
them all himself, he has to sell them. Who is he going to sell $1000/lb Bacon
to? Only if Da Goobermint starts issuing out Free Money to the end consumer to
buy the Baby Back Ribs could he sell them off at that price. So obviously, he
isn't going to make his money back, especially on a perishable item like Pork
Bellies.
So instead he decides to dump all his Toilet Paper into GOLD, since it never
rusts and always holds its value, the Gold Bug Credo. He coughs up a few
$Billion to buy a few bricks he can put in the lock box of a Ford Pickup.
Perhaps if he waits around long enough for Da Goobermint to issue some new TP he
can trade for it with the Gold, but short term that Gold has just sucked up $1B
that might have gone to drive up the price of something else. If everybody
decides to pile into Gold as the only safe place to store your wealth, it would
drive the price of everything else down unless the guy who sold the $1B worth of
Gold uses it to buy something else. What is that guy going to buy? He needs to
get rid of it also, so say he buys Real Estate with it. So now he owns $1B
worth of McMansions or Farmland which Da Goobermint drops a 5% Property Tax on,
so if he doesn't collect Rents or sell produce to the tune of $50M a year, he'll
be negative just on the tax bill, neglecting the cost of fuel, maintenance and
farm labor he also has here. Who is he going to sell the Soy Beans to who can
pay his tax bills? Who will be able to pay the rents he has to charge on his
McMansions to cover those bills and make a profit?
For hyper inflation to occur, some mechanism must be put in place to get Money
into the hands of the end consumer of products. If/when Da Goobermint takes over
all industries they can start flinging out as much money as they can print to
Goobermint employees. Goobermint is in fact becoming the employer of last
resort here, but so far Goobermint is in contraction mode as all sorts of
classes of Goobermint workers are being laid off. An alternative to this is to
fling out free money to Corporations and hope they will start hiring people with
the money, which they are doing to an extent but the corporations aren't
cooperating and hiring people with the Cash, they are using it to deleverage,
pay down debt, gamble in derivatives and of course pay the managers
mega-bonuses.
The bottom line here is that unless and until a mechanism is found to move money
into the hands of the consumer, you cannot have hyperinflation. Prices can go
up, but once the consumer is bankrupted, they can rise no further. A few folks
at the top of the food chain making mega-bucks does not an economy make. What
we have to watch for in terms of hyper inflation is some Goobermint mechanism to
get a LOT of money into the hands of the consumer. I am not talking dribs and
drabs of Tax Rebates. I am talking a massive Goobermint Make Work project,
and/or Welfare payments.
You want to solve the Unemployment problem? I can do it tomorrow. Create a new
Goobermint agency and hire everyone unemployed at say $30K a year. Make them
National Fingerpainters. LOL. Then in order to hire anyone in private
industry, you would have to match or better that. How do you fund your
Goobermint Fingerpainting Department? Have Helicopter Ben print the money.
THEN you will have your hyper inflation. However, with ever increasing numbers
of people unable to even meet their monthly mortgage because they are unemployed
or underemployed, exactly from where does the money come to make it possible to
push wheelbarrows full of dollars to Walmart just to buy a loaf of bread? It is
my guess that whether it was Weimar, Zimbabwe or Argentina, in all those cases
Da Goobermint became the Employer of last resort and simply printed money to pay
Goobermint employees. This being the result of ever increasing unemployment due
to the failure of private industry, itself likely caused by credit related
problems. I could be wrong on this of course, its just a guess.
Anyhow, the National Fingerpainting Dept or Free Money Citizen Paychecks just
for breathing do not seem politically likely in the near future, so I am not too
worried about hyper inflation. The political zeitgeist in the FSofA at the
moment doesn't support such a solution. It will only come when unemployment is
so vast that many people are literally out on the street begging for food. So
far, SNAP cards are preventing that from happening, along with literally free
rent for may folks for over a year as they wait for a foreclosure notice. When
this support system breaks down, watch out. Then TSHTF for real.
RE
you have painted a good summary, and since rich people own most of the money, they cannot buy food. But they/oil producers can buy energy/withhold energy which can cause loss of confidence in currency and cascade to food, which may the spark.. Again these are only one of the many possibilities.
Also it is not just rich owning money, there are lot of physical dollars in drug deals/petty saving dispersed through out the world. They also can start the strike. It could also be a take down by Russia if it promises to give Oil for Gold.
Gold is up, like wise silver and oil..food inflation is here.
my 2 cents: we struggle to maintain a standard of living in USA, but we will fail. As our economy has been gutted. FRN's will continue to loose purchasing power.
Our imports will decline, our public debt will increase. Inflation in items not produced in USA. oil as an example.
taxation will increase.
illegal immigration will continue, adding to the decline in wages and drain on social services.
Pols will continue doing what they have done, so gov spending will not decrease, endless wars will continue but will only effect those who fight them..much as today.
Japan and China will be unable to sell here.
Asia will become it's own market.
As standards of living decline, expectations will decline and people will adjust with very little violence.
The elite rich and powerful will see little change in life style.
hoarding of PM's will not off set the decline in standards of living as they will not become a substitute for fiat.
eventually deflation destroys marginal companies and banks
Middle class will cease to exist.
Few will escape the drop into poverty
there is no life boat.
Sorry but without total removal of DC and corporate elites..the policies we see today will continue to drain wealth and capital away from
America.
That is the plan, that has always been the plan since W Wilson and perhaps before.
For Americans there is no life boat, only a modern form of serfdom.