This page has been archived and commenting is disabled.
Let's Think This Through Together
Discussion prompted by my recent commentary on hyperinflation continues to evolve and may yet enlighten us sufficiently to produce some useful conclusions about the banking system's looming endgame. Hyperinflation, or deflation? At this point, I'll concede that it could be either that brings us to economic ruin. But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation. Under this scenario, it would not be a question of paying $1,000 for a barrel of oil, or $100 for a carton of eggs; rather, those in a position to supply such basic necessities would simply stop taking dollars. This clearly implies that we would move rapidly to barter, abandoning a currency system that might conceivably have become useless overnight. (The spectacularly bullish implications this holds for gold are impossible to miss). To drive the discussion toward a conclusion, I would urge readers to immerse themselves in this idea. You can skip the commentary itself if you'd like, since whatever insights it might provide at this point pale in comparison to the gems that have turned up in the forum. Simply click on the "Comments" link above to enter the forum.
When you jump into the fray, argue not from theory but from the logic of how you imagine your life would proceed in the wake of a collapse of the banking system and the dollar. You might pretend that the catalyst for the collapse was a Treasury auction at which the Fed was the only buyer amidst wholesale dumping of U.S. paper by...everyone. To heighten your acuity and stimulate the imagination, make this catastrophe a personal one. Pretend, for example, that it is the first of the month, that your employer and your $100,000 job are unexpectedly in dire jeopardy, and that you are about to send your mortgage lender a check for $2000 drawn on an account with $10,000 in it. The evening news is filled with reports that the Federal Reserve will do everything in its power to keep the system liquid, but they note as well that the dollar has fallen steeply relative to other currencies. All interest rates have soared spectacularly, threatening to send your ARM in the same direction.
One Tough Nut to Crack...
If anyone needed convincing that the stock market has become invincible, yesterday was the day. Japan was shaken badly by another big earthquake, crude oil quotes were bounding above $110, Portugal was threatening to topple Europe’s financial house of cards, and the U.S. government was hours from shutting down. How did Wall Street take the news? Like a pro, actually. The stage-managed panic was over almost before it began. Stocks dove on word from Japan — but not in a way that showed even the slightest sign of fear. Rather, the market swooned in the fashion to which we’ve grown accustomed, violently shaking down widows, pensioners and a few other nervous nellies, but few “players.” A precipitous, 100-point loss in the Dow was recouped in minutes, and when the dust had settled it were as though the day’s headlines were no more alarming than the kind of routine stuff that fills the “Daily Roundup” box on an inside page. Now, I’m no Irving Fisher, and I don’t mean to suggest that stocks have reached a permanently high plateau. Far more likely is that they will give back in a week everything gained since 2009. In the meantime, however, it is clear that it will take far more to bring this market down than the latest evidence that the world is indeed going to hell in a handbasket.
(Get my daily market commentary delivered free via email.)
»
- advertisements -
All the people who say "QE3 is not coming" are forgetting that QE2 is funding the gigantic current deficit. If monetization ends with QE2 in June, then Congress gets to figure out how to operate this country on 57 cents of each current dollar of spending.
I've seen your chart any number of times now. Could you please explain the underlying reasons or give some idea how you constructed your chart? I'm not trying to steal trade secrets here. I just want some kind of back up that would make your analysis credible. Is that too much to ask?
The markets are an alternate economy. Groceries and gas are our economy.
me thinks deflation would bring some honesty and leadership to a overwhelming situation
.
inflation will just continue to sink us into untenable agreements and break down aliances and trust in billions of little pieces of paper with Americas Great Presidents on them
golds at 1460 silvers at 40 oils at 112 and that
.
looks like alot of money
This is very interesting...Gonzo Lira had argued well for a flat Fed Treas auction as a possible trigger for hyperinflation, but what if this all happens with a whimper instead of a bang, as is suggested in this article?
I still believe hyperinflation could occur in the actual U.S. dollar, as the definition of hyperinflation is the rapid loss of public confidence in a currency. Sure, the dollar might be swapped out for an Amero, IMF SDR, New Dollar, or whatever else, but the original dollar as we know it today would likely be hyperinflated out of existence.
If I saw the signs (and don't we all here on ZH?) approaching rapidly and being squawked by the MSM on the nightly news, then I'd sure want to swap any cash into hard tangible assets right away. Sure, I already have several months of food, some extra new clothing, lots of stabilized gasoline, silver, etc., but I still wouldn't want my current supply of cash to wither away, so I'd hit the ATM to take out the remainder and go right to WalMart to get what I could. And guess what?...I'll bet it'd be a zoo, as everyone else would be doing the same and freaking out.
And there you have it...no matter whether the dollar dies with a bang or a whimper, we'd still have an indeterminate length of time in which the masses would be panicked. So it's still a good idea to make sure you can live "off the financial grid" for a while until the dust settles.
But this is a good theory we're discussing. I'll be visiting this thread a lot to see what others are saying.
"I'd hit the ATM to take out the remainder and go right to WalMart to get what I could. And guess what?...I'll bet it'd be a zoo, as everyone else would be doing the same and freaking out." -
So I guess that would mean a great next quarter for walmart(WMT)!
The transition from macro-econ to micro-econ is always treacherous since "it involves actual numbers." the price of eggs will not go to $100 a dozen in the USA--although strangely they might do so in Euro's for reasons i cannot comprehend. Anywho...i think one problem is as always "the silly words we use." I've settled on "a mild hyper-inflation" as i simply cannot imagine anyway of "turning this machine known as the Bernank off" anymore. I know i'm not suppose to give up--be a fighter! fight! fight! well--i give up...not the least because i have to poop.
But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation. Under this scenario, it would not be a question of paying $1,000 for a barrel of oil, or $100 for a carton of eggs; rather, those in a position to supply such basic necessities would simply stop taking dollars.
Then you've just lost the argument.
It makes little difference if your dollar assets rapidly become worth less and less every day before becoming worthless or if they just become worthless overnight.
Try telling grandma that although her fixed-income and life savings can no longer be exchanged for groceries, she technically hasn't suffered a hyperinflationary event.
You nailed it!
It seems to me that what most discussions like this on economic forums always leave out of the equation is the human cost. They ALWAYS seem to steer the discussion on how it will affect the market or commodities. Failing always to call "commodities" what they are to the vast majority of the world that is not invested in the stock market; FOOD!
...and water and fuel. Man does not live by bread alone, but also by water and Exxon.
Rick makes some excellent points on the viability of continued upward mobility of this market. By every consideration of what a sound economy is base on, jobs, savings, real asset appreciation, equitable trade, sufficient raw materials, manageable debt, etc., our market should be floundering. IT is not and it will not.
I say this not because I have a crystal ball looking into the future, but because the world power structure will do everything it can to to keep it elevated. American failure is not an option. For were America to fail economically, the world goes to war for basic resources.
Every major world government, every world wide financial institution has looked over the abyss in 2008 and they do not see a bottom.
The US is the only guarantor and guardian at the economic gate. Our spendthrift ways will be tolerated for a long time come. The unpleasant truth for most economic pundits is that economic reality does not apply to the USA.
(Junk away - if you must.)
you seem to be profoundly enamored with the myth of America exceptionalism....all the while failing to realize the most obvious of all things...that it is A FUCKING MYTH!
I agree with you that there is no American exceptionalism. I should have been cleared in my comments. We are were we are relative to our situation not because of exceptionalism, but because we are the only game in town. We arbitrate world issues OR you know what hits the fan quickly.
The current situation in Lybia is a prime example.
I do agree that we have no legit reason for being in Libya at all. Or Iraq. Bring 'em home and let other countries go through their own internal issues. We can help on ocassion in a humanitarian way, but we can't police the whole world.
@alien,
America is exceptional, because we still have a lot of people here who believe in the original ideas that made us great. Yes, we have a serious banker-roach infestation problem that needs to be dealt with, but if all you want to do is complain and do nothing to help the problem, then go back to Mars.
"America is exceptional, because we still have a lot of people here who believe in the original ideas that made us great."
To think that America is exceptional due to a lot of people believing in the original ideals is simplistic. If you have traveled the world and observed the people in other countries you might not say that with such conviction. Hard work and thrift played a role, but abundant resources were the predominant factor.
how the fuck does believing in something that is patently false make things any better? you seem to be advocating mass delusion over facing reality. you sound like you would have been the ideal Jonestown cult member.
Do you also believe in Santa Claus and the tooth fairy?
in case you haven't figured it out, civilization is nothing but a mass delusion.
You can have the opportunity to stay exceptional as long as a sufficient number of people believe it and work to keep it real.
America is exceptional. as long as enough people work to keep it that way.
Once the critical tipping point is reached, it ends.
Lord of the Flies anyone?
you see no futility in perpetual delusion?
Exactly. A hard truth, but well said. I choose to be one of those who works to keep it real.
America is, unfortunately, different than it was in the past, but how much of it is due to the moronic masses that keep voting the moron leaders into office to make the moronic decisions (such as Ponzi-scheme entitlement handouts) that led us here? The ideals are still alive, but the "tipping point" in the electorate was passed decades ago. It's time to tip it back in our favor. It won't happen right away, and it won't be easy, but it's better to do something than roll over and play dead (or bitch and moan and complain).
'Nuff said. Let's get back to the original thread.
Sort of a vicious cycle this voting business isn't it? We keep voting for morons because that is what they keep giving us, and they giving us morons because we keep voting for them. I have never missed an election I was eligible to vote in despite the dearth of greatness in the proffered candidates because you never know from whom greatness will rise, Lincoln was not great until it was time to be great or fail totally, and in my opinion only one man in the last 100 years has been president that deserved the title, FDR, though had Kennedy lived he may well have been deemed as great, but then I was raised Irish Catholic and he was a religion rather than a politician, sort of like Obama is now.
But the real problem is that voting is itself a sham, I had been a life long dyed in the wool FDR liberal democrat (still am) but the party that installed Obama is not even remotely related to that party except in name only, and I, now having no party that represents my interests, may never vote again. In fact I have taken out dual citizenship so that I might soon leave the USA for good, I consider it so debased and so ruined that it is beyond repair and will go the way of Bourbon France or even tsarist Russia. If wealth concentration gets any worse you will not be able to tell where the US/Mexican border is.
K Street and corporate "citizens" run the USA and if any benefit should fall from on high to your plates it is purely an accident. Until bribery (call it what it is) is wiped out, and there is one man one vote even in primaries we will not have a republic but a kleptocracy. It is only a matter of time till some illiterate tattooed carney is elected to the Oval Office as spokesperson for the 1% who own us outright. But then that could be an improvement, you never know who will turn out great.
Unfortunately, this is all pretty much true in the upper-level politics of this country. One man, one vote at your local City Hall? Sure. At the state level?...maybe... But the highest Federal levels are all fully corrupt, no question about it.
I'm a (to use your term) dyed-in-the-wool conservative who's been a registered Republican since I turned 18 a long time ago. And yet I don't recognize my own party anymore, either. I can probably think of half a dozen Congressmen who I consider as true Statesmen, but the rest are all corrupt, as is the system. I agree with you there wholeheartedly.
What I was trying to tell alien is that moaning about it like an angry ungrateful child isn't going to change it. Is it an uphill battle? Absolutely. Will it ever change into the perfect system we all hope it could be? No way. But if nobody ever tries to do anything about it and reverse the course in even the slightest manner, then we may as well all curl up into a fetal position.
We might be doomed to lose ground on four points, but if I do nothing, then we'll definitely lose a fifth. I'll fight for that fifth, and hope that others around me will do the same.
"All that's necessary for evil to succeed is for good men to do nothing." - Edmund Burke
We've all heard this, but now it's time to put it to the test and live it.
beautifully said. Big thumbs up on that post!
Say what you wish, alien, but some of us have loyalties to noble ideals. A house is fantastic when it's first built, but decades later when it needs to be refreshed, a person can angrily write it off as a loss and walk away, or he can fumigate, paint, restore, etc. All depends on your state of mind and what you're willing to do, but it can be brought back to some degree. Junk away if you want, but I choose to do what I can to help things - however limited it might be in the grand scope of this mess we're in - instead of piss and moan and complain. Nothing you say will change that.
Oh...by the way...I didn't junk your comment above, so apparently there are some other people here who - while accepting the reality of the problems around us - still don't like hearing America trashed.
have you considered the possibility that the reason it has gone so horribly to shit is due to the fact that nobody complained when it was starting to go to shit but instead opted to believe that if they just pretend it's not happen then it will magically not happen?
You can't hope, wish, pray or delude yourself out of the mess your hoping, wishing, praying and delusion created.
Alien, I would like to think of myself as the "majority" and explain that I didn't complain when it was 'starting to go to shit', and I didn't do any pretending.
I was too involved in my own daily life and work to pay much attention to what congressvermin and global corporations were doing. I had to struggle to pay my bills, taxes and everything else while trying to observe the family traditions of avoiding debt for trivial items, and incurring it only with the intent of swiftly paying it off...in spite of a paycheck that seemed to dwindle rapidly over the years.
My wake up moment was in 2008 with the first AIG bail out. I knew then that we were in deep shit, and would be for a long fuckin' time. I started to review the history that I had long ignored while it was 'current events'. What came in November/December 2008 radicalized me.
I'm fully awake, paying the fuck attention, and have no illusions as to what went down and continues to go down. Now I'm reading people much smarter than me as they scheme and debate (bitch/whine/moan, too) and snipe at each other. I'm hoping to gleam a few tidbits I can profit from before some asshole uses my dessicated corpse on the side of a desert road as a form of toilet paper.
I think changing the currency name amounts to the grammatical equivalent of moving the decimal point, especially in the case of pegged currencies. I think in order to bring stability, a change needs to be implemented across the major currency crosses. If a change were implemented across major currencies- given the number of players involved and the diversity of interests and ambitions, that substantial time would be required and secrecy could not be maintained- and effects of uncertainty in the marketplace might lead negotiators to seek a resolution faster than otherwise prudent.
I believe that the total numbers in the world has actually declined since 2008 due to the collapse of the velocity of money through the banks. The Fed is trying to fill this hole by printing cash to reinflate the housing market to 2008. Unfortunately, there are 3 problems with this 1) the housing market was way overinflated in 2008 (too many dollars due to high multiplier rate at banks) 2) the dollars being printed are no longer being funneled into real estate, but into commodities leaving the real estate market down 30% and commodities up say 30% (but with no increase in total dollars) 3) the real problem is the collapse of the world using dollars and wanting to convert dollars into mobile assets to bring home their wealth (as opposed to buying US real estate).
So, now we have the hyperinflation of commodities as dollars in world being thrown into mobile assets at the expense of deflating immobile assets. But, some day, will that rotation reverse? If an egg costs $100, wouldn't I bid up farmlands and produce eggs to get gold?
"wouldn't I bid up farmlands and produce eggs to get gold?" Yes, been doing it since November when I sold half my gold profits to buy arable land that is now being leased to foreign companies. Don't kid yourself. Smart money knows what real value is and can not wait to buy, well all of America, for pennies on the dollar.
I am a farmer myself but I am under no delusion that when the SHTF my family will be safe and insulated. How will I protect my land from the hundreds if not thousands of suburbanites who will arrive en masse to strip my land of everything edible?
Well, in my case. I (like my father and his father) am also ex-military and I have many like-minded neighbors. I also have many rental units in town and could probably bring on some of my tenants in exchange for their survival. I don't think it will get that bad. I am already leasing 40 acres for soybean production by a foreign company (you can probably guess which country).
On hyperinflation, Edward Harrison has a good post over on Naked Capitalism:
http://www.nakedcapitalism.com/2011/04/what-are-the-preconditions-for-hyperinflation.html
If by "good post" you mean horrendously confused and utterly irrelevant, than yes I agree, Mr. Harrison's piece is in keeping with his well earned reputation.
I am unaware of Mr. Harrison's reputation. Please enlighten me.
Still more nonsense. If the man selling eggs won't take dollars and I need eggs and have dollars, then I have to go buy gold with my dollars to give the gold to the egg-man. Dollar collapse = Hyperinflation. Flip-side of the same coin, so to speak.
A better argument is that the same amount of gold will be able to buy the same amount of eggs (or close) before and after a currency collapse.
If the man selling eggs won't take dollars, why would the man selling gold take dollars? Is it hyperinflationary if it takes an infinite amount of dollars to buy eggs?
Again these "economic" bullshit terms need to go away. The bottom line is that some will have buying power and some won't. Inflation/deflation is totally fucking irrelevant. Those without buying power will riot, because they are also too stupid to do anything aside from watch T.V. and collect entitlements. The rest of us will keep working, because we actually have skills and the like-minded and like-talented networks to survive while the new world army executes these assholes. Win-win.
and just what makes you think that an educated person with personal assets isn't going to be on the NWO list to be rounded up first?
The Bolsheviks didn't go around arresting the homeless peasants. They stuck rifles in their hands and said: "go get even, and turn any proceeds over to the local commissar for redistribution."
read some history for how its been done before.
Exactly, the low hanging fruit are picked first. Foraging parties will be organized and they will target the cities, then the suburbs. It will all be done in a "lawful" manner under some emergency proclamation bullshit. Isolation and obscurity will be the only real defense against the pillage unless you really want to die in a pointless gunfight outnumbered 5:1.
Because the smart money is divested, well hidden, and constantly has their finger on the pulse of the beast. Just like in business, or any field for that matter, it is always good when your competition underestimates you. If you don't already know where those "armed peasants" could suddenly "pop up" then you don't deserve to live to begin with. Look around, I certainly can see the potential for this already. Especially in areas with plenty of peasant already use to the entitlement gravy train. Moreover, the rifles had to come from somewhere - be the arms dealer.
I've never found market timing the best strategy. unless you're on Jamie Dimons speed dial.
and then there's always those fluke events. get caught flat footed by an unexpected currency transition. your farmland gets collectivized. local politial officer was the guy you used to wedgie back in school.
you know, personal black swans.
A whole lot of smart people have found themselves on the wrong side of paradigm shifts.
Double true on the "fluke events".
The rebellion blew up the Death Star... TWICE!
Despite the Empire having their finger on the pulse... they didn't see it coming. Bam! Just as Yoda foresaw...
So what is your point? Stop trying to be smarter than the average bear? If your philosophy is that you can't win to begin with, then I can tell you how your entire life is going to play out. Yes, a fucking meteor could kill us all tomorrow, so fucking what? Be mindful, be a really usefully engine and hide you wealth in assets people fail to recognize until we all need them. You will have more than enough friends to survive then.
>>>If anyone needed convincing that the stock market has become invincible, yesterday was the day. Japan was shaken badly by another big earthquake, crude oil quotes were bounding above $110, Portugal was threatening to topple Europe’s financial house of cards, and the U.S. government was hours from shutting down. How did Wall Street take the news? Like a pro, actually...<<<
Yep. When I saw the Nikkei 225 futures down -150 yesterday afternoon, I actually thought I had bad data.
No need to worry. The index closed up about 2% at the end of trading.
Yep. This will be the pattern until one day when it is suddenly not.
Until someone takes Zimbabwe Ben's computer away, and hopefully leads him away in cuffs.
"But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation. Under this scenario, it would not be a question of paying $1,000 for a barrel of oil, or $100 for a carton of eggs; rather, those in a position to supply such basic necessities would simply stop taking dollars."
Rick brings up a good point. A dollar collapse wouldn't necessarily have to be a long, drawn out nasty period of compete anarchy. The Fed doesn't want blood in the streets nor pitchforks in DC. If they sense that a dollar collapse is imminent, wouldn't they try to get ahead of it? We could all theoretically wake up one morning to an announcement that the dollar has been replaced with a new currency. And it could be done with the click of a mouse while we're sleeping (cash under mattress of course.) Yesterday you had 5,000 Dollars in your checking account, this morning you now have 2,000 Ameros, Soros (or insert name of your choosing.)
They wouldn't necessarily need to have new paper money available immediately. Bank customers simply use their debit card until such time that the bank refills its vaults with new paper. This would certainly be a more orderly process than trying to buy a Quarter Pounder with cheese from the MCD's drivethrough with a shaving from a Kruggerand. (guns and ammo under seat of course.)
Tawdzilla
if the US Dollar collapses the Fed can do precisely nothing. Understand a collapse in the USD would first signal the Feds currency is in the toilet and second the Fed has lost any/all control over its currency (ie. the Fed and its currency are out of the game)
A currency collapse is a social event, not a Federal or Govt event. It means society, citizens and business at large, has said "fuk you" to the Feds.
This is my (one) problem with the usually bang-on-the-button Jim Sinclair who is suggesting the World Bank etc are neatly going to peg all world currencies to some (centralised) world electronic base currency.
When the Euro and Dollar collapses the wider public are going to have zero confidence in any authority structure. When these currencies collapse it'll come at the same time as these zones Govt also collapse into the sewer. That will take the EU and UN with it (ie. no funding).
When the parasite systems that are Govt and its quangos like the IMF and World Bank collapse we should take our pitchforks to tear down all and any attempts by the parasites to re-erect a new sham (debt based) money system. Just let the free market develop its own (competing) money systems, not another unelected, unaccountable, centralised monopoly parasite money system
...or we will have learnt precisely zero from the entire fuking shambolic failure that will shortly hit us
I'm saying to never underestimate the willingness of the politicians to delay pain and keep the herd in the pen. They will try anything to retain power. My dollar swap scenario is just one of many 'oh shit' levers they will probably try to pull. BTW, I'm not saying that it will be necessarily effective, sustained, or beleivable. The public may or may not go for it. I tend to think people would choose order over chaos, and they would choose a political solution over a civil/revolutionary war. But then again, if the politicians lose control, all bets are off.