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Matterhorn Asset Management There Will Be No Double Dip... It Will Be A Lot Worse

Tyler Durden's picture




 

THERE WILL BE NO DOUBLE DIP…..

by Egon von Greyerz – Matterhorn Asset Management

 

No, there will be no double dip. It
will be a lot worse. The world economy will soon go into an accelerated
and precipitous decline which will make the 2007 to early 2009 downturn
seem like a walk in the park. The world financial system has temporarily
been on life support by trillions of printed dollars that governments
call money. But the effect of this massive money printing is ephemeral
since it is not possible to save a world economy built on worthless
paper by creating more of the same. Nevertheless, governments will
continue to print since this is the only remedy they know. Therefore, we
are soon likely to enter a phase of money printing of a magnitude that
the world has never experienced.  But his will not save the Western
World which is likely to go in to a decline lasting at least 20 years
but most probably a lot longer.

The End of an Era

The hyperinflationary depression that
many western countries, including the US and the UK, will experience is
likely to mark the end of an era that has lasted over 200 years since
the industrial revolution.  A major part of the growth in the last 100
years and especially in the last 40 years has been built on an
unsustainable build-up of debt levels. These debt levels will continue
to swell for another few years until the coming hyperinflation in the
West leads to a destruction of real asset values and a debt implosion.

In the last 100 years the Western world
has experienced a historically unprecedented growth in production, in
inventions and technical developments leading to a major increase in the
standard of living. During the same period government debt, as well as
private debt have grown exponentially leading to a major increase in
inflation compared to previous centuries.

Until the early 1970s the growth in
credit to GDP had been going up gradually since the creation of the Fed
in 1913.. But from 1971 when Nixon abolished gold backing of the dollar,
virtually all of the growth in the Western world has come from the
massive increase in credit rather than from real growth of the economy.
The US consumer price index was stable for 200 years until the early
1900s. From 1971 to 2010 CPI went up by almost 500%. The reason for this
is uncontrolled credit creation and money printing. Total US debt went
from $9 trillion in 1971 to $59 trillion today and this excludes
unfunded liabilities of anywhere from $70 to $110 trillion. US nominal
GDP went from $1.1 trillion to $14.5 trillion between 1971 and 2010.  So
it has taken an increase in borrowings of $50 trillion to produce an
increase in annual GDP of $13 trillion over a 40 year period. Without this massive increase in debt, the US would probably have had negative growth for most of the last 39 years.

Total US debt to GDP is now 380% and is likely to escalate substantially.


The coming hyperinflationary depression
and the credit and asset implosion that is likely to follow will most
probably lead to the end of a 200 year era of growth for the Western
world. If only the excesses from the 1970s were corrected we might have a
circa 20 year decline. But more likely we will correct the era all the
way back from the industrial revolution in the 18th century and this could take 100 years or more.

So after the tumultuous and very painful
times that we are likely to experience in the next few years, the West
will have a sustained period of decline. All the excesses in the economy and in society must be unwound.
These abnormal and unreal excesses are not just corporate executives,
bankers, hedge fund managers or sportsmen earning $10s to $100s of
millions but also a total collapse of ethical and moral values as well
as a breakdown of the family as the kernel of society.

Most people believe and hope that this
major trend change could not happen today with all the measures that
governments have at their disposal. But very few people comprehend that
it is precisely the government interference, controls and regulations as
well as money printing that have created the problems in the first
place. Power corrupts, and the more pressure a government is under the
more they intervene. Because they believe that their interference in the
economy will save the country – read Obama, or the world – read Gordon
Brown. Little do they understand that each interference, each
regulation or each dollar or pound or Euro printed will exacerbate the
problems of the economy manifold.

Governments now have two options;
continue to spend and print money like the US or introduce austerity
programmes like Europe. Whichever way they chose will not matter since
they have reached the point of no return. The economy of the West cannot be saved by any means. But governments both in the US and in Europe will still apply the only method they know which is to print money.

Government is Stealing from the People

Very few people understand that money
printing is a form of robbing the citizens of their money and their
work. Money is supposed to be a medium of exchange for goods and
services equalling the value of the good or the service produced.  For
example, an individual works extremely hard to earn an annual wage of
say $40,000 which he receives in the form of paper money. The
government, due to its mismanagement and incompetence simultaneously
prints $40,000 in order to cover its deficits. So the government has by
pressing a button produced the same amount of money that a man had to
work a year for. This is what is currently taking place all over the
world and which will accelerate in coming months and years leading to a
total destruction of paper money. Paper money has completely
lost its function as a medium of exchange or a store of value. This is
why gold is gaining and will continue to gain value against perishable
paper that is called money.

Deflation Inflation or Hyperinflation

The only reason that the US could build
up such a major debt is that the US dollar has been the reserve currency
of the world and therefore the US has been able to finance its debts
and deficits internationally. The US has now reached a point when debts
have to increase dramatically for the country just to standstill. Like
all Ponzi schemes this one will also come to an end – and this very
soon. The US dollar will decline dramatically and lose its reserve
status and the US government will be unable to finance its deficit in
any market. This process will lead to endless money printing, collapsing
treasury bonds (substantially higher interest rates) and the dollar
becoming worthless in a hyperinflationary black hole.

Let us just reiterate that
hyperinflation arises as a result of money printing leading to a
currency collapse and not from demand pull. The slight deflation that we
are experiencing currently is a prerequisite for hyperinflation. The
fear of a deflationary implosion forces governments to print money,
leading to a collapsing currency which historically has always been the
cause of hyperinflation.

Real M3 (source: Shadow Government
Statistics) is falling at an unprecedented rate. This is the precursor
to economic decline, quantitative easing and inflation (see early 1970s
in the chart).

Many “experts” make the analogy between
the deflationary period in Japan since the 1990s and the US today. In
our view the US is in a totally different situation for the following
reasons:

  • In the early 1990s Japan could still export their production to the rest of the world.
  • In the current downturn all countries (even China and
    India) will suffer and there will be no one to export the problems
    to.
  • The ability to export made Japan a creditor nation with major
    payment surpluses.  US are a major debtor and have been for 25
    years.
  • Japan had a very high personal savings ratio at the time (which
    has now disappeared). US has had a declining savings rate for
    years (the US savings rate is now going up which it always does in a
    downturn).
  • The balance of payments and the personal savings surpluses made
    it possible for Japan to finance their budget deficit without
    resorting to QE. Very soon he US will only be able to finance their
    deficits with QE and so will most of the rest of the Western
    world.
  • Japanese unemployment in 1992 was 2% and went slowly up to 5%
    by 2000 where it is now. Real US unemployment is 22% and
    increasing.
  • Many major sovereign states are now virtually bankrupt and the
    financial system is on life support. This was not the case in the
    1990s.

The above are some of the reasons why
the current US situation is totally different to Japan. QE will
accelerate in the US and worldwide.

What will make this process so much more
complex than the world has ever experienced is that the same
development is likely to take place in many countries around the world
simultaneously. It will most probably happen in the UK, the rest of the
EU and most other European nations. Due to the total interdependence of
the world financial system, it will be difficult to forecast which
countries can withstand the coming worldwide tsunami of money printing
but many Asian countries probably stand a good chance.

Can we be wrong in our forecast of a
hyperinflationary depression? Yes, of course we can. But the alternative
can only be a deflationary collapse which would be unacceptable to
(dropping money from) helicopter Bernanke and deficit demagogue Obama as
well as most other governments.

Conventional wisdom and most
experts say that we will not have inflation but deflation. The problem
with most conventional wisdom is that it is only conventional without an
ounce of wisdom. When have the world’s so called experts, politicians
etc ever been right on the current crisis? They will be wrong this time
again.

The “conventional wisdom experts” also
say that it will be years before we can see inflation or hyperinflation.
In our view it can happen a lot faster. The world economy is resting on
a foundation of matchsticks. All that is needed is a change in
confidence or psychology for this fragile foundation to crumble. Falling
currencies, rising bond yields and falling stock markets could very
quickly result in a vicious and fast spinning hyperinflationary circle.
The frailty of the financial system could make this happen like a flash
fire.

Wealth Creation

Banks and the financial industry have
throughout history existed in order to finance production and trading of
goods. But in the last 100 years and especially in the last 20-30 years
it has become a major industry in its own right and an important but
unproductive part of the economy in many countries. Today, the financial
industry is too a great extent involved in trading for its own and
clients’ accounts, creating a raft of obscure instruments that only
benefit the banks and as well as financing consumption rather than
investment. All of these areas are totally non-productive and the only
beneficiaries are the participants in the financial industry. And the
rewards have been absolutely astronomical. In investment banking, hedge
funds and private equity in particular, the most massive wealth has been
created. Many players have become billionaires or created fortunes of
tens to hundreds of millions of dollars in the last 10-15 years just by
shuffling money around. In the past fortunes were created by building
factories and industries. But today any normal employee working in Wall
Street or the City in London will, by just showing up to work, make
hundreds of thousands to millions of dollars. This is the proof
of a world totally out of balance when people dealing in money become
the richest segment of society. Since this activity contributes very
little to the prosperity of a nation (but very much to its participants)
it is not sustainable.
The biggest reason why it exists is the
massive amount of money that governments have created or printed and
the fact that the financial industry has developed into a fractal wealth
creation machine for the benefit of its participants.

For the last 40 years in particular the
rich are getting richer and the average person has seen very little
increase in real income. In the US, the real annual income of the bottom
90% of US families has increased by only 10% since 1970. And in the
expansion between 2002 and 2007, median US household income dropped
$2,000. The perceived increase in wealth for the majority of
Americans derives from an increase in their debt level not from an
increase in real earnings. So the improvement in living standards that
the average American and many other Western countries have enjoyed in
the last 40 odd years is primarily based on debt – debt that can never
be and will never be repaid with normal money.

On the other hand, management has
achieved a major increase in income and wealth. In 1973, chief
executives in the US earned 26 times the median income. Today they earn
300 times. This enormous widening of the gap between the top few percent
in society and the masses is morally and socially unacceptable. When
the bad times start in earnest, this is likely to lead to major social
unrest and violence directed against the privileged.

The Focus will Shift

For a major part of 2010 the focus has
been on the problems within the EU starting with Greece, then Spain,
Portugal, Italy etc. The problems in Europe are major and many European
countries as well as the European financial system will lead to massive
money printing. Although the problems in Europe are very serious, the US
economy is in a much worse state. The diversion of the focus away from
the problems in the US economy onto Europe has suited the US
Administration perfectly. It can hardly be a coincidence, for example,
that US rating agencies downgrade the Sovereign debt of Greece and Spain
on the same days as Treasury auctions are held. But the problems in the
US economy are deteriorating at a rapid rate; factory orders, consumer
confidence, existing home sales, retail sales, the ECRI index (Economic
Cycle Research Institute) are all falling more than expected and real
unemployment, personal bankruptcies (will exceed 1.6 million in 2010),
trade deficit, state and federal deficits are all increasing.

The ECRI index is an important leading indicator. It has now fallen for 10 straight weeks.

There are three insurmountable problems in the US economy that are of a magnitude and gravity which can only be remedied by money printing:

  • Federal and state deficits will soon escalate at an
    exponential rate. The US Federal debt has increased from $ 8
    trillion in 2006 when Bernanke took office to soon $ 14 trillion.
    Many forecasts expect this debt to go up to nearer $ 20 trillion in the
    next 5 years. In our view it will be substantially higher. Add to
    that interest rates of 15% or higher and the American people will
    work just to pay taxes that don’t even cover the interest payments
    on the federal debt. This is why the US will either default or more
    likely print unlimited amounts of money.
  • The real unemployment rate is now 22%. Since 2007
    over 8 million Americans have lost their jobs and it will get a lot
    worse.  Non-farm unemployment in the 1930s reached 35% and we
    would expect this level to be reached in the next few years.
  • The financial system is bankrupt. Banks are failing
    at a much faster rate than last year. To date circa 110 banks have
    failed. More seriously the assets of the failed banks are only
    worth an estimated 30-50% of their balance sheet value. Banks are
    valuing their toxic debt at phoney values with the blessing of the
    government. But even debt that today is considered safe will soon
    turn toxic with the consumer coming under enormous financial
    pressure. Add to that the OTC derivatives held by US banks of at least $
    400 trillion. A big percentage of these are worthless and there
    are virtually no reserves to cover potential losses.

Within the next few years, the three
areas above are likely to result in the biggest money printing programme
in world history and simultaneously lead the US (and many other
countries) into the abyss.

Markets

There has probably never been a period
in world history which has caused the amount of wealth destruction that
we are likely to see in the next few years. If we are correct in our
assumption that the West will see a correction of the excesses of the
last circa 40 years but more probably of the last 200 years, since the
start of the industrial revolution, we could see a total annihilation of
the assets that have been fuelled by the credit bubbles. The spike in
asset values in the last 100 years, which is unprecedented in history,
is likely to be corrected by a waterfall which could start at any time.
We will issue a separate report in the next 10 days covering our market
predictions and the importance of physical gold for wealth preservation
purposes.

16th August

Egon von Greyerz

 

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Mon, 08/16/2010 - 20:11 | 525043 Milestones
Milestones's picture

Popullution.   Milestones

Mon, 08/16/2010 - 13:06 | 524081 Unscarred
Mon, 08/16/2010 - 12:25 | 523957 WaterWings
WaterWings's picture

Kill a billion people worldwide and the economic problems will be solved.

As Martin Armstrong pointed out in reference to the Black Plague human capital would become valuable again - we have too many unskilled workers and not enough jobs. Uh oh...

Mon, 08/16/2010 - 15:45 | 524527 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

One could suggest that it would be even easier to address a few oligarchs rather than try and bomb 1 billion or so.

Mon, 08/16/2010 - 11:24 | 523815 edwardscpa
edwardscpa's picture

If this deflationary episode is but a brief precusor to epic hyperinflation, would not the obvious choice be to immediately buy up anything that can be bought with borrowed money?  Seems like it would be the ideal time to lever up at <4.5% and buy that million dollar spread on 5 acres.

Mon, 08/16/2010 - 11:26 | 523819 Internet Tough Guy
Internet Tough Guy's picture

A million for 5 acres? Sounds like the price of real estate has farther to fall.

Mon, 08/16/2010 - 12:57 | 524053 ATM
ATM's picture

I think he's talking about a house on 5 acres. But his premise is correct. Cash out refi and use the money to buy something tangible then make payments on the loan with inflated dollars. It's almost free money and you win on both sides of the bet!

I'm doing exactly that. I still have equity in my home and a HELOC rate of prime less .75%. Hell I don't even need inflation to make money on that deal.

2.5% loan rate that's tax deductible in my 30-something income tax rate..... equals free money in my book! I'm in some junk bonds right now yielding me close to 13% and I've made about 20% capital appreciation on top of that. I figure to be getting out of those around end of 3rd quarter or maybe year end then buying some gold, land and lead.  

Mon, 08/16/2010 - 15:42 | 524523 edwardscpa
edwardscpa's picture

See, I've got the cash but no clue where to put it to 1) earn yield and 2) still get it back.  People forget about #2. 

5 acres in the better parts of the DC region with a million dollar structure sitting on it would top $3M very very easily.  Go 10 miles out, and that 5 acres with a half million dollar structure might be a million bucks.  With the proper application of leverage and ZIRP, either might one day sell for a billion flat.

Mon, 08/16/2010 - 17:07 | 524710 ATM
ATM's picture

I'm thinking farm ground. People are still going to have to eat and commodities are going to explode. I've got about 650 ac in Wisconsin and am looking for more but funny thing is there is hardly anything for sale. Real assets are already getting harder to come by.

Mon, 08/16/2010 - 11:24 | 523816 Mad Mad Woman
Mad Mad Woman's picture

This has been an interesting read. I do not agree with their feeling that the decline will last 20 yrs or more. I feel it will last a good 10 - 15 yrs. It'll take a while to bounce back, and we'll have to re-invent the wheel again, so to speak. The world will come back, with new regs for the financial world and new industries, and hopefully better leaders.

Mon, 08/16/2010 - 11:36 | 523834 MachoMan
MachoMan's picture

We don't care about the world, we're concerned with america...  and I do not believe that it will come back...

Mon, 08/16/2010 - 13:31 | 524158 Abigail Adams
Abigail Adams's picture

Have a bit of faith, MachoMan.

http://www.youtube.com/watch?v=7fWqQGOGMJY

 

Tue, 08/17/2010 - 18:01 | 527100 Geoff-UK
Geoff-UK's picture

Romans who fled collapse by running to Britain made a good move, for their great great grandkids.  The ones who stayed might have had faith in the Roman Empire, but they got slaughtered.

The ones who ran had their grandkids enjoying the British Empire.  But the British Empire is no more.  And will be majority Muslim before too long.

And I'm sure Germans and Italians who fled to the U.S. in early 20th century were bummed out about the future of their country--but felt they had to flee.

Now it's our turn to deal with collapse--only question I have is:  where the hell do free market capitalists run to this time?

Mon, 08/16/2010 - 11:33 | 523830 Thucydides
Thucydides's picture

Help out an old codger...what the heck is slight deflation?  Why wouldn't the world economy just roll over into a GREAT GREAT Depression and unwind the mountain of paper debt?  (Who knows how long that would take?) If you raise prices through the roof and people can't pay them and so businesses can't pass the rising prices on....why wouldn't it be on the other way around with inflation followed by deep deflation?

Mon, 08/16/2010 - 11:53 | 523874 redpill
redpill's picture

In terms of Federal Reserve notes, if/when they lose their world reserve currency status, there will be a massive oversupply of them because no one will want them anymore, so in effect it will look like inflation.  Almost immediately anything imported would see its price skyrocket.  China will probably be the biggest "ally" in not allowing that to happen, since it holds many dollars and wants them to retain their value when they sell us things in exchange for them.  But of course the knife cuts two ways, with our currency remaining artificially strong we have no chance to recover in exports and manufacturing to compete in the global marketplace.  So we'll have a currency of a strong economy despite our production capacity declining and unemployment rising.  We'll have no wealth, only debt. 

Without US Dollars acting as the world's reserve currency we never could have gotten to this point, but it will be quite a predicament.  China will keep its currency pegged to ours so it can continue to sell us most of the consumer goods we need and advocate for USD to remain world reserve, at least until it is sufficiently divested of its holdings and its domestic consumption market has matured.  But we'll be stuck, we won't be able to manufacture consumer goods at lower cost than China can, and our other manufacturing capabilities won't be competitive against other economies, especially in the face of ever-growing taxes and regulation as American politicians flail about in their attempt to appear to be trying to fix everything.

 

Mon, 08/16/2010 - 12:24 | 523954 spinone
spinone's picture

We won't be able to compete with China in export prices until we have the same standard of living. Chicken feet, anyone?

Mon, 08/16/2010 - 11:39 | 523844 bobola
bobola's picture

Liquidate assets and buy a few acres of fertile land with a good water supply and easy access to a big city..??

This sounds like Y2K all over again... 

Mon, 08/16/2010 - 11:40 | 523845 MrTrader
MrTrader's picture

Ha, ha, ha,ha, ha. "This is why gold is gaining and will continue to gain value against perishable paper that is called money." OMG, what sort of paranoid reasoning is this ?

Can you eat Gold ? Bullsh1t !!!!!!

Buy land. Buy commodities.

 

Mon, 08/16/2010 - 11:59 | 523887 redpill
redpill's picture

Land is a great idea until it occurs to one of our government goons that we should have a national property tax.  And you can only carry so many commodities.  Having a portable store of wealth with a long history of value will be necessary.

If I were to buy a substantial tract of land, it probably wouldn't be in the US of A.

 

Mon, 08/16/2010 - 13:11 | 524097 Mercury
Mercury's picture

"Now I don't know, but I been told it's hard to run with the weight of gold.
Other hand I have heard it said, it's just as hard with the weight of lead."

Mon, 08/16/2010 - 11:42 | 523848 billhilly
billhilly's picture

Ok, someone please help me on this one, I've really tried to understand it but still have a brain-fart...How can the "job-loss" number, 8 million +, still remain the same (for many months now it seems) when we keep having "initial jobless claims" of 450K +/- per WEEK?  Every MONTH 1.5MM+ people lose their job.  Shouldn't we be at  12+MM "job loss"?  Does not "initial jobless claim" = new job loss?  Please help.

Mon, 08/16/2010 - 12:25 | 523955 hedgeless_horseman
hedgeless_horseman's picture

Initial jobless claims is a gross number.  It does not account for the people starting a new job during the period.

Mon, 08/16/2010 - 12:58 | 524056 NotApplicable
NotApplicable's picture

All three of them?

Mon, 08/16/2010 - 13:23 | 524136 Dismal Scientist
Dismal Scientist's picture

Now that really is funny

Mon, 08/16/2010 - 20:54 | 525112 jakoye
jakoye's picture

Also, the Feds do a neat trick of no longer counting those who have "given up" their job search (discouraged, they call them). So the "real" unemployment rate is even higher.

Mon, 08/16/2010 - 11:42 | 523849 Oswald Spengler
Oswald Spengler's picture

The conviction bias exhibited on this site has caused many followers to misplace their investment funds. Gold is fine if you are only interested in wealth preservation; but if you are serious about increasing your wealth, sell everything you have, convert the proceeds into Brazilian government bonds and enjoy your fine Bordeaux.

Mon, 08/16/2010 - 12:29 | 523962 WaterWings
WaterWings's picture

O Real e uma bobagem como as outras. Mulheres e terra e o que voce quer.

Mon, 08/16/2010 - 11:44 | 523854 bluehorsesandal
bluehorsesandal's picture

You guys better look at some "recent" hyperinflation experiences. Brazil is a great one in the 80s and early 90s. The entire economy was implicit rebased to a strong currency (dollar at the time... not being funny here). So real estate, business and everything else were priced back to this value reference. Obviously people used to buy and store 3 months worth of food, clothes, etc... Money kept on interbank overnight accounts earning 30-50% a month. Businessmen were really heroes, some did not adapt but many managed to survive. Economy operated with very little or almost zero leverage. Planning investments were pretty difficult so companies and companies focused always in the very short term. It was tuff but the country managed to survive and today is on the sweet spot. Point is you need some credible storage value to debase the economy (gold definitely a strong candidate) and huge deleveraging to see the economy operate again. And no you don’t need to build a bunker full of guns, food and water...

 

 

Mon, 08/16/2010 - 17:15 | 524723 Psquared
Psquared's picture

Blue, I don't think we have a model for what is happening in the US. Brazil just does not illustrate what will happen to the largest consumer nation in the world sporting the world's reserve currency. Brazil is a homogenous culture but the US is actually the entire world in a microcosm. We are divided on just about any issue and hyper-inflation followed by a deflationary spiral will not just cause GDII in the US but it will bring down all the exporting countries and probably most of Western Europe. Someone in SE Asia or the Asian Mainland, or perhaps in the Middle East, will see this as an opportunity to snag a piece.

Even if we voluntarily went through a National Reorg our allies (and enemies) will both pay the price and see the opportunity. Shooting will break out and the only question is how wide spread it will be and how far it will escalate.

Mon, 08/16/2010 - 17:40 | 524768 Snake
Snake's picture

+1000

Mon, 08/16/2010 - 11:45 | 523858 Hopium
Hopium's picture

Someone needs a hug

Mon, 08/16/2010 - 11:46 | 523860 Gimp
Gimp's picture

Extend and pretend. Ach Tung baby!

This and future administrations playbook.

In the meantime, load up with food, guns ammo and friends you can trust.

Mon, 08/16/2010 - 11:55 | 523879 ex VRWC
ex VRWC's picture

These things always end the same - how important physical gold is to your financial future.  I wish I could read this stuff without feeling like they are just trying to sell me gold.  If we do get 20 years of 'western collapse' that will just about take us into the peak oil decline.  We will reach war and other nasty stuff before then.

ex VRWC

Protest the old-fashioned way at economicprotestproject.blogspot.com

Mon, 08/16/2010 - 12:03 | 523903 redpill
redpill's picture

Either way it can't hurt to cover your bets with some physical PM holdings.  If the world descends into war and chaos most of your paper wealth will be useless anyway.  I'd say there's a better chance of people reverting to using precious metals as currency again instead of trusting another piece of paper with a dead politician on it.

Mon, 08/16/2010 - 12:35 | 523982 ex VRWC
ex VRWC's picture

That is agreed - I just don't trust the messenger when he is trying to get me to 'invest' with him.  Also, there is a case to be made for cash being king in the presence of deflation.

ex VRWC

Protest the old-fashioned way at economicprotestproject.blogspot.com

Mon, 08/16/2010 - 12:54 | 524039 redpill
redpill's picture

By all means I think there is a great case to be made for holding both cash and PMs, both physical.  One or both may turn out to be worthless, or they could be a life-saver.  If we really knew what was going to happen, this would all be much easier :)

 

Mon, 08/16/2010 - 12:09 | 523917 Bitch Tits
Bitch Tits's picture

Sometimes you make me feel so . . . used!

A little perspective is due, methinks. Inflation calculators put 2010 prices at 1,564.21% higher than prices in 1933.What was $100 then, would be closer to $1700 now.

http://www.inflationdata.com/inflation/Inflation_Calculators/Inflation_R...


 

Mon, 08/16/2010 - 14:36 | 524336 Hunch Trader
Hunch Trader's picture

Old pre-confiscation gold price $20.67 x 17 = $351.39/oz

New 1933 (1934?) gold price $35 x 17 = $595/oz

Jan 1980 peak gold price $850 in today's money = ~$2200/oz.

 

That does look possible, a future peak to 2200-2500 and base around 600.

Which means that anybody buying today and unable to unload at the very peak, will probably just become a bagholder.

 

Mon, 08/16/2010 - 12:11 | 523918 digalert
digalert's picture

"I love the smell of Napalm in the morning"

Mon, 08/16/2010 - 12:11 | 523919 proLiberty
proLiberty's picture

Very few people understand that money printing is a form of robbing the citizens of their money and their work.

From Alan Greenspan's essay, Gold and Economic Freedom:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
 

Mon, 08/16/2010 - 12:19 | 523940 Turd Ferguson
Turd Ferguson's picture

+++++

Mon, 08/16/2010 - 12:32 | 523973 flacon
flacon's picture

Greenspan is one sick puppy. 

Mon, 08/16/2010 - 12:46 | 524016 Cheyenne
Cheyenne's picture

You can melt gold into whatever you want--golf clubs, shoes, a frying pan--and be gone intact.

I make it a point to tell one stranger a day that the same 1962 quarter that bought a gallon of gas back then buys the same now. And I've yet to meet anyone who knew this. Bubble my fucking ass.

Mon, 08/16/2010 - 13:11 | 524094 ATM
ATM's picture

You forgot to mention the really great part about that 1962 quarter. Now you get change back!

Mon, 08/16/2010 - 12:44 | 523959 tom
tom's picture

Anybody who reads my stuff knows I'm very pessimistic, but this is just too too too much, Egon.

"Without this massive increase in debt, the US would probably have had negative growth for most of the last 39 years."

What, all our advancements in technology over the past 40 years, and our population growth, were all thanks to excessive monetary stimulus? Oh come on. Perhaps what you meant to say is that a big portion of officially counted "real growth" over the past 40 years was not real growth, but inflation caused by excessive monetary stimulus. With a reasonable, responsible amount of debt growth in line with GDP growth, the US could have grown more strongly than it did.

"Paper money has completely lost its function as a medium of exchange or a store of value."

Oh come on. Paper money still works perfectly as a medium of exchange, and it even works fine as a store of value, right now (although I don't use it or recommend its use for that). Because developed-world governments are not really "printing money" at any alarming pace. Total new US paper currency created since Lehman fried is around $110 billion. Which is a slightly accelerated pace relative to pre-Lehman. But except in extreme situations, broad money is the issue for inflation, not currency. Broad money has been growing at a slower pace than pre-Lehman, as Fed intervention has gone up against de-leveraging and de-risking. You have M3 shrinking.

"The balance of payments and the personal savings surpluses made it possible for Japan to finance their budget deficit without resorting to QE."

Japan surely did use QE, but otherwise it's true that the US and the world today are very different from Japan and the 1990s.

 

I agree that there is no real threat of a big increase in risk appetite causing high inflation. But a QE2 of a similar scale to QE1 would I think cause stagflation, as even with their current risk appetites, I don't see why commercial banks would put 90% of QE2 into excess reserves as they did with QE1. Also, a more difficult-to-judge near-term threat comes from the possibility that the Fed could eliminate interest on reserves, prodding banks to shift excess reserves into other low-interest-bearing investments, which unlike money kept at the Fed would be re-deposited somewhere and re-utilized, potentially causing a doubling of broad money, without any increase in risk appetite.

I completely agree that the US public debt pile-up is heading for a blow-up, I think in 2012, latest 2013. But I think there are different ways that could play out, of which a hyperinflationary monetizing of continued supersized deficits plus debt repayments is just one. Default and forced restructuring is another and I think more likely. Above all, I don't see any point in betting this early on which way the blow-up will play out.

http://keynesianfailure.wordpress.com/2010/08/13/qe2-the-overblown-herohorror-stories-and-the-mediocre-reality/

 

Mon, 08/16/2010 - 16:26 | 524625 proLiberty
proLiberty's picture

One fact to consider is that while the price of gold has changed by a factor of 60x from 1930 until 2010, the per capita income in constant dollars has gone up by a factor of about 5x  (depending on how much you trust official stats).   I think this is because people have had the ability to adjust and adapt.  Reconciling a 60x decline in the value of the dollar with a 5x increase in real income would make a great PhD thesis.

 

Mon, 08/16/2010 - 12:28 | 523963 derangerofsybils
derangerofsybils's picture

It is very misleading to use "arithmetic scale" graphs for this kind of analysis.  Convert to Logarithmic and it's a very different story.

Mon, 08/16/2010 - 12:33 | 523977 carlo
carlo's picture

I don't get it ...... Matterhorn talks about the huge run up in assets over the last 20 years yet thinks hyperinflation is our future.

 

The hyperinlation HAS HAPPENED .... it is not going to happen in the future. We are squarely looking at deflation, Japan style but worse because of our financial shape going into this period.

Mon, 08/16/2010 - 12:41 | 524001 bernorange
bernorange's picture

Sovereign debt problems beget currency crisis.  I'm just praying Americans have the wherewithal to tell the IMF/BIS/World Bank to stuff it when they try to foist their SDR based one world currency on us.

Mon, 08/16/2010 - 14:57 | 524418 Hunch Trader
Hunch Trader's picture

$5 coffee was the most obvious first peak of it.

Later eclipsed by the $13.76 coffee, http://www.energyfiend.com/2008/01/what-is-the-most-expensive-starbucks-drink .

 

Mon, 08/16/2010 - 12:36 | 523985 chistletoe
chistletoe's picture

Is our society the only one

which has completely lost track of this simple truth about wealth?

With all the talk about guns, gold, silver, food, farmland, ammo,

or bonds, cash, whatever,

none of you ever seem to mention this or recognize its possible value.

 

Around the world and throughout history, most societies recognize

that the very best place to store your wealth,

with the best chances for maximum returns when needed,

is in your neighbor's belly.....

 

Mon, 08/16/2010 - 13:17 | 524112 downrodeo
downrodeo's picture

so, you're saying Cheetos?

Mon, 08/16/2010 - 21:02 | 525124 jakoye
jakoye's picture

Haha! Nice.

Mon, 08/16/2010 - 12:40 | 523986 iPood
iPood's picture

This statement from the report is key, which is why I believe both deflation and inflation respondents to the recent ZH poll got it right...Asset deflation from lack of demand pull leads to monetization leads to currency devaluation leads to hyperinflation....

Let us just reiterate that hyperinflation arises as a result of money printing leading to a currency collapse and not from demand pull. The slight deflation that we are experiencing currently is a prerequisite for hyperinflation. The fear of a deflationary implosion forces governments to print money, leading to a collapsing currency which historically has always been the cause of hyperinflation.

 

Mon, 08/16/2010 - 12:41 | 524000 onlooker
onlooker's picture

I see mention of gold, farmland and ammo as some sort of security. If everybody is broke, you will have a hard time selling your gold. Farmland is not cheap and you cant buy it like a house cause the banks will not loan you the $. If the fabric of society tears, a little ammo may be useful, but, we are not going to war. I do own all of the above but see them as limited assets--- not the ANSWER. Because most of the expert advice the US population has been given over the decades now appears to be wrong, original thinking may be the only solution for an individual. We are in a trap within a trap within a trap. One way out will not get you there. Get out of one, then out of the next and then the next one. One size does not fit all.

Mon, 08/16/2010 - 13:24 | 524134 ATM
ATM's picture

You won't sell your gold, you'll use it for what it is  - money.

Too many people have too hard of a time dispensing with the fiction that is paper money and that gold is some sort of asset. Gold is nothing more than real money. You will use it to buy the things you need. You will not trade it for some funny little paper scrips then trade those for goods.

The paper scrips will become worthless as people will simply stop accepting them as any form of a store of value. They cannot have any value since government can create as many more of them as they wish. 

Look at it this way. If I can manufacture a good that everyone wants and that costs me zero to produce how many of those goods will I make? An infinite supply. If I have an infinite supply of something it's price necessarily drops to zero because that supply will always be infinitely higher than any demand there can be. Since price equals value the value of a dollar is thus zero, we as a society just haven't realized it yet, but we will. 

Mon, 08/16/2010 - 14:02 | 524240 tom
tom's picture

yeah sure, seven billion people will use gold as daily money. we'll carry around little vials of microscopic droplets and everyone will have special high-tech machines to count and verify them. whoops, i just dropped a million bucks, and i can't even see it!

sorry, there's just too damn many of us at this point even to go back to silver or copper. want to or not, we're going to have to fix the politics that broke the paper currency system.

Mon, 08/16/2010 - 15:22 | 524485 akak
akak's picture

Fallacious argument --- there is almost exactly as much gold today, per capita, on a worldwide basis (~0.8 oz./person) as there was in 1900, and as there was in 1800.

"Paper money" is an oxymoron and perhaps (next to war) the greatest crime, fraud and abomination ever inflicted upon humanity by the sociopaths who masquerade and have masqueraded as our "leaders".

Mon, 08/16/2010 - 14:02 | 524244 Gully Foyle
Gully Foyle's picture

Advice from those who have actually experienced a collapse.

http://www.thepowerhour.com/news/items_disappearfirst.htm

From a Sarajevo War Survivor:
Experiencing horrible things that can happen in a war - death of parents and
friends, hunger and malnutrition, endless freezing cold, fear, sniper attacks.

1. Stockpiling helps. but you never no how long trouble will last, so locate
    near renewable food sources.
2. Living near a well with a manual pump is like being in Eden.
3. After awhile, even gold can lose its luster. But there is no luxury in war
   quite like toilet paper. Its surplus value is greater than gold's.
4. If you had to go without one utility, lose electricity - it's the easiest to
   do without (unless you're in a very nice climate with no need for heat.)
5. Canned foods are awesome, especially if their contents are tasty without
    heating. One of the best things to stockpile is canned gravy - it makes a lot of
    the dry unappetizing things you find to eat in war somewhat edible. Only needs
    enough heat to "warm", not to cook. It's cheap too, especially if you buy it in
    bulk.
6. Bring some books - escapist ones like romance or mysteries become more
    valuable as the war continues. Sure, it's great to have a lot of survival
    guides, but you'll figure most of that out on your own anyway - trust me, you'll
    have a lot of time on your hands.
7. The feeling that you're human can fade pretty fast. I can't tell you how many
    people I knew who would have traded a much needed meal for just a little bit of
    toothpaste, rouge, soap or cologne. Not much point in fighting if you have to
    lose your humanity. These things are morale-builders like nothing else.
8. Slow burning candles and matches, matches, matches

http://www.survivalblog.com/2009/12/letter_re_the_bosnian_experien.html

I would advise that you don’t keep everything that you have in one location. I was forced to leave my house and take off with just my backpack and weapon. If you can, keep a bug out bag [cached] a few miles away from your house so that you could go to it, if you are forced to abandon your residence. Be prepared to not return to your home for years and try to have another place to live in another part of the country or even some other country. I was not able to go back to my home until years later. Stash as much ammo in different locations as you can. I did not have enough ammo in the first place and whatever I had was used or traded within first month of me leaving my home. Ammo was good trading currency and could get you a meal at any time. Local paper currency was basically worthless but if you had foreign currency, then you were in better shape. At that time German Mark was most popular currency in Europe and could get you anything in former Yugoslavia during the war. The Gold and Silver were good to have but it was harder to find someone that would accept gold and silver as form of payment .

People that lived in big towns also had their share of problems. If they lived in apartment buildings, they were dependent on central heat and when the things started to go bad, there was no more fuel to heat these apartments. Not that many people had wood burning stoves and the winters in Eastern Europe can get really cold. I would advise that if you don’t have a wood burning stove, to get one and store it somewhere until you need it. You will need it not just for heat but also for cooking. The people that had stoves or were able to obtain them or make them then had another problem, getting the firewood. If you live inside of city that is surrounded and you can’t just go outside of city and cut some trees down, obtaining firewood can become your daily battle for survival. Burning your furniture, books, park benches, trees from the parks and every other tree that you can find will be normal. I would advise that if you are going to have a stove either store at least one winter supply of firewood (if you have a place to store it at) or have a plan where you get that firewood when you need it. Another issue that people from the cities faced was the shortage of water. Some people ended up digging wells in the courtyard of their apartment buildings but majority of people who tried this were unsuccessful since they were digging where there was not water or old city utilities were under the places where they tried to dig. Most of the people were forced to make daily runs to water points and bringing the water back to their families. Water points were favorite targets for snipers. Having extra water jugs will help you minimize your visits to water points.

Since this is my first post, I will not make it too long and will stop here until the next time. - A Bosnian Survivor

 

Now shut the fuck up about Gold being used as a currency!

Mon, 08/16/2010 - 14:17 | 524283 Cheyenne
Cheyenne's picture

Right on.

These "you can't eat gold" frat boys are hopelessly comical in their paper worship. Let 'em eat that shit. Strangely, they're the same folks propping up the ponzi paper empire. Go figure.

Went to my local restaurant Friday night in Chi-Town. A New York broadcaster was there asking to change the TV to CNBC. I asked him who was worthy on that station.

"Maria Bartiromo does a good job," he said.

"So I take it you buy into this recovery bullshit."

"Well, yeah, job losses are down," his authoritative baritone voice informed the bar.

"You musta missed the June jobs revision, now minus 221K. Or the fact that food stamp users went from 33 mil to 41 mil in during this motherfucking recovery."

When he disputed the revisd fig I offered to pull it up on my blackberry. He never looked at me after that.

Interesting thing about that episode is the restaurant staff, who roll their eyes nightly as I rant, enjoyed the show.

Mon, 08/16/2010 - 20:18 | 525058 Client 9
Client 9's picture

Restaurant?  How did you pay the bill?  Did you whip out a cheese cutter and shave a few crumbs off your yellow metal 5-oz'er?

Mon, 08/16/2010 - 14:51 | 524390 LoneCapitalist
LoneCapitalist's picture

On one hand youre saying that you cant spend gold. On the other hand, youre saying that you cant buy farmland. How about spending the gold on farmland?

Mon, 08/16/2010 - 12:41 | 524002 RobotTrader
RobotTrader's picture

 

 

 

Mon, 08/16/2010 - 14:03 | 524242 ElvisDog
ElvisDog's picture

The bond plots in particular are screaming "Deflation".

Mon, 08/16/2010 - 12:42 | 524004 spinone
spinone's picture

Our currency is fractional reserve fiat.  It grows well, but doesn't shrink well.  Thats because additional money has to be loaned into existance so past borrowers have the money to pay back debt plus interest.  Banksters killed the goose that laid the golden egg by debt-saturating the economy.  Now banks don't have enough borrowers with collateral to lend out.  Once our currency is debt saturated, its dead. If it doesn't grow, borrowers default.  Borrowers defaulting destroy money (even if the banks are allowed to hide it for awhile, they are still building reserves against defaulted obligations).  Money destroyed removes money from circulation, meaning even more people can't pay their debt pus interest. On and on in a deflationary self-reinforcing spiral.

Get out of FRN's while people still trade PM's for them.

Mon, 08/16/2010 - 12:44 | 524007 gloomboomdoom
gloomboomdoom's picture

I do not believe the BS of "any printing can/will be offset by the over-trend of Massive Deflation".

That is a trick Monetarists like Bernanke and his Chicago-school buddies and Milton Friedman's worshipers want you to believe.

Mon, 08/16/2010 - 14:48 | 524012 RockyRacoon
RockyRacoon's picture

All information is useful, even if a bit apocalyptic.  The comments for the most part have been reasonable and informed.  All wavelengths of the spectrum must be examined in order to gain perspective.  Thanks to ZH for posting the article, and thanks to all of you for posting your comments.

How does all of this unfold?  One layer at a time:

http://www.creditcontraction.com/images/affiliate/Great-Credit-Contracti...

Mon, 08/16/2010 - 12:52 | 524024 Bagbalm
Bagbalm's picture

This view the 'western' world will collapse and the third world glide along unharmed is silly. The third world is dependent now on government handouts and government subsidized fertilizer and seeds. They are surviving on the scraps of the first world and on charity. Any cuts will be devastating. A suburb dweller in the US has a better chance of planting a survival level garden in our climate than a family in say the Sudan. The suburbanite has far more ability to buy basic cereals than someone in Africa too. Even unemployed and with no benefits we have more wealth than the African. A garage sale will yield more income than he has a chance at in a year.

I'll add that if you are worried about gold being confiscated - be prepared to turn it into jewelry. They have yet to get to the point they confiscate jewelry as well as coins and bullion.

Mon, 08/16/2010 - 13:27 | 524142 ATM
ATM's picture

but the African already knows how to survive on nothing while the suburbanite doesn't. When everyone has nothing I'll be on that person from the Sudan as the survivor.

Mon, 08/16/2010 - 13:36 | 524177 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

But don't wear a 40 lb. ring on your left hand.  Wear two 20 lb. rings, one on each side.  Better for your back.

Mon, 08/16/2010 - 12:52 | 524034 Warren Bonesteel
Warren Bonesteel's picture

 Google: "A Reader's Resources on Systemic Collapse."

 Ignore my own comments, if you wish and merely read all of the references and resources. Should take about a week or so.

  It's just a matter of timing and deatils.

 It is no longer a question of outcomes.

 Soundtack: R.E.M "It's the End of the World as We Know it."

Mon, 08/16/2010 - 12:57 | 524036 jmc8888
jmc8888's picture

Glass Steagall or Die

It's really that simple. 

But of course you need to impeach Obama before that happens. 

We've had negative physical economy growth every year since and including 1968.  Kick the Queen's monetarism to the curb, or we will indeed have a new dark age.  If we kick them out, we can turn this around, but we'll have to pass Glass/Steagall and wipe out all that does not pass the strict 1933 Glass/Steagall standard of what is considered legitimate money, including derivatives.  (hint: the derivatives won't pass)

 

Whatever isn't, is wiped away, out of existance. 

 

We need not have a dark age.  But if we continue on, we will, NEEDLESSLY. 

Glass/Steagall, or suffer and die NEEDLESSLY.  Your choice, and before you choose wrong, there is no bailout from this one.

The author is right, but also a dumbass.  WIPE THE FRAUDULENT DEBT AWAY, and we can be saved.

Maybe the author thinks this is impossible.  Or improbable.

But if you actually did this, and you can, you can save us and the world.  But even after being saved, anyone invested in crap, will lose.  So lots of pain ahead, saved or not.  But we can save ourselves.  Just not if we want to keep the Queen's imperailist monetary system, and her lackey's fraudulent debt honored.

Glass/Steagall, in it's truest, fullest form, applied to everything, including derivatives.  This IS the issue.  That and we need Obama to be impeached to get it done.  Because he won't do it.  Neither would most republicans.  He'll we're running with their trickle-down 2008 detroit lions playbook.  I'd rather go with LaRouche's '72 Dolphins playbook.

Impeach Obama

Institute Glass/Steagall

Outsource Glass/Steagall to other nations (Worldwide Glass/Steagall)

Whoever wants to hold onto the trash, can, and will be broke.

 

 

 

 

Mon, 08/16/2010 - 20:24 | 525067 Girl Trader
Girl Trader's picture

Sounds like a plan.  We just need to figure out how to get it done.

Mon, 08/16/2010 - 13:17 | 524108 Hang The Fed
Hang The Fed's picture

Screw paper money, real estate deeds, or even gold, for that matter...pretty soon, the only "assets" that will matter will be knowing how to grow food and shoot straight.  Since currency will become absolutely worthless (gold, too, since you can't eat it and jewelry doesn't protect you from the elements very much), there will also be a demand for practical skills when we're back down to a roughshod bartering economy...knowing how to build/repair things, invention of techniques and goods that can substitute for the lack of social services, etc.  Make no mistake...we will be abandoned by the infrastructures upon which we so heavily depend right now, and only the "personal ingenuity" that gets used as a buzzword now will come to save anyone, if at all.  If von Greyerz is right, and I have no reason to believe that he isn't, then any further participation in this sham of a system is totally worthless.  A forward-thinking "asset position" would be better represented by taking wood shop and buying some decent tools than screwing around with your portfolio.

Mon, 08/16/2010 - 13:30 | 524153 ATM
ATM's picture

Sorry but you will still need a medium of exchange and that medium has been gold for thousands of years.. Barter only takes you so far. A transfer medium is always necessary and gold has always proven to be that medium.

Mon, 08/16/2010 - 21:32 | 525174 Milestones
Milestones's picture

ATM I think you are terribly wrong as well as many others. Out of 7 Billion people maybe 1% can tell gold from canary crap. Trying to use gold at what ever value means breaking it down in some manner similiar to money: is $1.00, 5.00 20.00 of value.

I live in a small town 15-20,000 and is basically arig. though most of our retired nitwits from Calif. don't know it. Lets say a farmer wants to sell his small tractor and implements for $5,000 and everyone agrees that is a fair price. You offer him 4 oz gold coins @ $1250.00 each and I offer him 50 $100 dollar bills--guess which one he will take. He can check the 50 bills at the bank for validity--how does he check if the gold is true? This isn't Chicago so there is no gold dealer. and even if there were, would his neighbors or local car dealer take them without wanting a big discount.

I guess my point is, even though the farmer knows the dollars  value is sinking it is still something that he can exchange for something he needs rapidly while he may have a pig in a poke even if the coins are real.

Assuming the dollar devalues 50% while he has it and finally uses the $ to buy something with it (rather unlikely as he would have already had something lined up to spend the 5,000 on) he would in his mind rather have 50% of something (devalued dollars) than possibly 100% of nothing. (gold is fake which he had no way of verifying it).

I don't think all of the folks shouting "store of value" have really thought thru the pragmatic problems involved.  Milestones

Tue, 08/17/2010 - 00:37 | 525424 akak
akak's picture

I don't think all of the folks shouting "store of value" have really thought thru the pragmatic problems involved.

 

And with all respect, I don't think you have a very deep grasp of monetary history.  That particular wheel has been reinvented hundreds or thousands of times throughout the last 6000 or so years, and if the dollar were truly to go up in a puff of smoke, believe me, the hard money wheel will be reinvented again REAL quickly!  Nothing is as firm and fast a teacher as economic necessity.

Sun, 08/22/2010 - 12:19 | 536041 RockyRacoon
RockyRacoon's picture

Move that scenario about selling a tractor to India and you'll have no problems.

The 1% who don't know shit about gold are in the U. S., not the rest of the world.

Fri, 08/20/2010 - 02:18 | 532224 thermroc
thermroc's picture

Oh brother

Can you spell e v a p o r a t e

Mon, 08/16/2010 - 14:07 | 524252 Gully Foyle
Gully Foyle's picture

Hang The Fed

http://theautomaticearth.blogspot.com/2010/07/july-19-2010-rise-and-fall...

Thanks to globalization, we are much more dependent on trade than people were in the 1930s. The combination of credit drying up on the one hand and global trade wars on the other is an extreme threat to our vulnerable supply lines. Add to that the general upheaval created by severe economic disruption, which can easily lead to increased physical risks to transporting goods, and the longer term potential for much higher energy prices, and we could see an outright collapse of global trade in the approaching years.

The benefits of self-sufficiency will be seen in places where it still exists. So long as the whole supply chain is local, localized production means being able to maintain access to essential goods at a time when obtaining them from overseas may be difficult or impossible. It is currently more expensive, but the relative security it can provide can be priceless in a dangerous world. The ability to produce locally does not arise overnight however, especially where there are no stockpiles of components. In places where it has been lost, it will take time to regain. There is no time to lose.

We will be returning to a world of much greater diversity as we lose the homogenizing effect of trade. That means the existing disparities between areas will matter far more in the future than they have in the recent past. We will need to think again about the pros and cons of our local regions - what they can provide and what they cannot, and for how many people. Some areas will be in a great deal of trouble when they lose the ability to compensate for deficiencies through trade. As the global village ceases to exist, the world will once again be a very large and variable place.

Mon, 08/16/2010 - 13:16 | 524113 JR
JR's picture

The slight deflation that we are experiencing currently is a prerequisite for hyperinflation. The fear of a deflationary implosion forces governments to print money… Egon von Greyerz

The “TBTF” bankers didn’t create fiat money in order to increase the value of the currency.  Fiat money is just another name for inflation.  Deflation is just a pause in the march of inflation.

Mon, 08/16/2010 - 13:21 | 524128 ElvisDog
ElvisDog's picture

I'm not buying the "hyperinflation as inevitable" argument. Why would the people who hold the debt (and control everything else) intentionally destroy the value of that debt? The powers-that-be are the bondholders and bondholders want deflation. All they want to do is to keep the debt-serfs just able to service their debt. If hyperinflation does occur, it will be by accident because some of the oligarchy panics leading to a rush for the exits.

Mon, 08/16/2010 - 13:32 | 524160 realtick
realtick's picture

Word.

Mon, 08/16/2010 - 13:23 | 524133 Assetman
Assetman's picture

More and more, I think default is the eventual endgame.  But this Administration doesn't want to have any part of it, so it appears that money printing becomes the central part of their strategy.  We will need to wait until 2013 before there's any change in thinking.

In Europe, default may be approaching more quickly.  At least the Germans see what is happening and are at least mentally prepared for the scenario with their southern counterparts.  The ECB isn't ready yet, though.

What I think is funny is that Obama knows we are broke.  And he said so more than a year ago on national television. 

Does anybody recall where he said it? 

Mon, 08/16/2010 - 13:31 | 524159 ATM
ATM's picture

Has any government ever defaulted when it has still been able to print? I don't think so.

Mon, 08/16/2010 - 13:57 | 524205 Rusty Shorts
Rusty Shorts's picture

 - uh, HELLO,

 

 


 It is an established fact that the United States Federal Government has
been dissolved by the Emergency Banking Act, March 9, 1933, 48 Stat. 1,
Public Law 89-719; declared by President Roosevelt, being bankrupt and
insolvent. H.J.R. 192, 73rd Congress m session June 5, 1933 - Joint
Resolution To Suspend The Gold Standard and Abrogate The Gold Clause
dissolved the Sovereign Authority of the United States and the official
capacities of all United States Governmental Offices, Officers, and
Departments and is further evidence that the United States Federal
Government exists today in name only.
 

The receivers of the United States Bankruptcy are the International
Bankers, via the United Nations, the World Bank and the International
Monetary Fund. All United States Offices, Officials, and Departments are now
operating within a de facto status in name only under Emergency War Powers.
With the Constitutional Republican form of Government now dissolved, the
receivers of the Bankruptcy have adopted a new form of government for the
United States. This new form of government is known as a Democracy, being an
established Socialist/Communist order under a new governor for America. This
act was instituted and established by transferring and/or placing the Office
of the Secretary of Treasury to that of the Governor of the International
Monetary Fund. Public Law 94-564, page 8, Section H.R. 13955 reads in part:
"The U.S. Secretary of Treasury receives no compensation for representing
the United States."...

Mon, 08/16/2010 - 15:29 | 524459 RockyRacoon
RockyRacoon's picture

The Bankruptcy of The United States
United States Congressional Record, March 17, 1993
Vol. 33, page H-1303

Speaker-Rep. James Traficant, Jr. (Ohio) addressing the House:

"Mr. Speaker, we are here now in chapter 11.. Members of Congress are official trustees presiding over the greatest reorganization of any Bankrupt entity in world history, the U.S. Government. We are setting forth hopefully, a blueprint for our future. There are some who say it is a coroner's report that will lead to our demise.

Just thought ya'll should know where the "info" comes from.

http://www.afn.org/~govern/bankruptcy.html

They stack it thick in Congress
It's really awful raw
What should be spread by tractor
They enact and call it law
-author unknown

Mon, 08/16/2010 - 14:37 | 524339 Assetman
Assetman's picture

And that is the problem with the current Administration, and precisely the reason why they will attempt to kick the can down the road (as they hope) to the next greater fools in 2013. 

But I do see your point, though.  Any government with the ability to can print to infinity and can effectively "default" by making their currency totally useless.  But here you have a situation where many developed governments are effectively in the same boat with debt and debt servicing issues.  Japan has been at it for over 10 years, and has gained little traction.  Developed nations either will race exponentially to print currency against one another -- or have a "let's stop the madness moment" and choose the path to targeted defaults.

I think it really all depends on whether the country with the most powerful military wants to maintain its global reserve currency status as well.  While governments have been able to print to oblivion, they also tended to cede things at great cost militarily.  Great Britian had reserve currency status and a top military for a very long time-- and promptly lost both over 100 years ago.  And yeah, they were able to print just fine... up to a point.  For the Romans, it took a little more time, but eventually they got the same result.

But, perhaps, keeping that reserve currency status in modern times isn't really all that important as it was in the past.  I'm wondering whether the U.S. can keep its military dominance intact while trashing its currency and global reserve status.  I mean, keeping thousands of nukes at the ready must have some value regardless of currency status, doesn't it? 

 

Mon, 08/16/2010 - 13:46 | 524197 breezer1
Mon, 08/16/2010 - 13:56 | 524223 robertocarlos
robertocarlos's picture

I am retiring in Jan of 2013. I doubt my CPP payments will be in gold or silver. Should I send Cramer a dollar and hope for good returns?

Mon, 08/16/2010 - 13:56 | 524224 Alcoholic Nativ...
Alcoholic Native American's picture

Look! Over there!  The Muslims are building an Islamic Center!  This is an outrage!

Mon, 08/16/2010 - 14:04 | 524246 mauistroker
mauistroker's picture

I'm very pessimistic and hunkering down but honestly have a problem understanding the 'print' thing. John Hussman and the folks at the Automatic Earth make it sound like any 'printing' (at least so far) is not actually creating any net new money.

Mon, 08/16/2010 - 14:13 | 524265 Caviar Emptor
Caviar Emptor's picture

Good to see Matterhorn echoing the themes I've been posting here on ZH. They're predicting a "hyperinflationary depression" (ie inflation mixed in with deflation) as an apocalytpic endgame. They may be right, but let's hope not.

Rather than predicting I have been simply trying to describe the present (which may reveal the earliest glimpses of the future). In the present moment we have signs of combined deflation and inflation. I believe the root causes are similar to what Matterhorn has invoked: excessive debt levels with monetization across the developed world, large capital and current account imbalances, the dollar glut, excessive growth of the US FIRE sector.

In the near term, it's clear that personal assets such as income, real estate, retirement assets and employment prospects will continue to erode in a gradual deflation. It's gradual only because of heroic efforts by global central banks to preserve the status quo ante 2008. Mixed in we'll also get rising costs in personal necessities. THis too will be mild on an absolute scale, but if measured against deflating incomes it will be crushing to the middle class and small business that will suffer from a constrained consumer. 

Gold remains the best hedge, short term and long. There are many scenarios that will provoke a spike in gold: a major policy mistake, a major sovereign devaluation, geopolitical unrest. Even if there is no sudden shock, one thing is for sure: The Fed needs to keep on printing to prevent a deflationary collapse and a price reset. They won't allow it , so the dollar will crumble, just slowly.

Mon, 08/16/2010 - 15:07 | 524448 RockyRacoon
RockyRacoon's picture

Well worth the watch:

http://www.youtube.com/watch?v=rH6_i8zuffs&feature=player_embedded

Argentina's Economic Collapse

There was deflation, a temporary condition, before the final fall into inflation.

Mon, 08/16/2010 - 23:57 | 525397 Lord and Master
Lord and Master's picture

@ caviar emptor -  agreed re. deflationary and inflationary force at work now, and in the end hyperinflationary.  Its f*cked up that people still argue this whole inflation/deflation thing-- its like YES YES of course deflation - in stocks, housing, some luxury items etc etc... and then at SOME point the Fed has to come in to reflate things--- OR the government stops operating...  

 

Its interesting to me that the majority of people are blind to all this crap-- the debt, deficit, unfunded liabilities, currency issues, etc etc.  Its F*cking retarded and shameful for the species that so many people are blind to this stuff-- and the reason is clear to me:  the great majority of people- while being literate and having the verbal skills to excel in life- are at the same time sorely deficient in the MATH skills to excel at life... Someone with a 100 iq can have a conversation with you and they can maybe sound reasonably intelligent-- and wherever verbal skills are needed in life (with the possible exception of writing more than a few sentences at a time) they get by quite well.  But ask them to subtract 268 from 1123 and it can take them an hour.  AND people are laughably bad with recognizing the COMPARABLE SCALE of numbers. For example, total federal tax revenues are currently 2.4 trillion or so.  Medicare liabilities are 76 trillion or so, prescription drug liabilities are like 17 trillion or so.  That anyone can go out and vote and carry out civic 'duties' etc and not at the same time envisage 10s of millions of starving grannies a few years down the road is, quite frankly, hilarious.  Every voter should have the image of millions of diseased, starving grannies in their heads as they pull the lever and so cheerfully grant the power to govern to the next round of politicians.  The cretin-drooling inability to recognize and appreciate the basic comparable scale of one or two digit numbers threatens to wipe our homo sapiens, i might go so far as to say.  Perhaps and offshoot or subspecies will carry on in our stead, though I would imagine Asia is RELATIVELY well situated to carry on well enough of course. 

On the gold issue, and in response to both the people who say some form of "you cant eat gold" and the delightful fellowfrom Bosnia or wherever it was who now sits warmly and contentedly typing at computer somewhere in the world-- perhaps sipping a fine wine or starbucks coffee or etc etc: in response to him,id say YES YES -- WHILE one is scampering from pillar to post like a rabbit avoiding machine gun fire - YES, then ammo and canned goods and tree branches to burn are very good things to have.  But when we are all 20 or 30 years down the road, speaking our internet posts into our little laptops, wouldnt it be very good to have a bunch of gold that one got while the getting was relatively very easy?

I think society has to break down a lot before gold will not be highly valued (obviously) ... and something tells me any farmer will take gold any day... unless his ranch were going to be overrun by starving city-dwellers the next day, and in that case he might need bodies and firepower more than anything.....  but in any case....   the SECOND you return to ANY semblance of normalcy.  the SECOND women wear makeup for a couple of days in a row... then you have CIVILIZATION again... and with it the best civilization has come up with for 'money' , i.e. gold (obviously)

One last comment about this page--- obviously very intelligent (mostly) people on here... and seemingly financially educated--- why dont all you guys just leave the country... go buy a citizenship in Canada, or in some other country... or work on setting up some job possibilities overseas, instead of figuring out whether to go long 10 wood stoves and 15 generators, vs. 15 generators and 10 wood stoves?

 

 

 

 

 

 

 

 

Tue, 08/17/2010 - 18:23 | 527146 Geoff-UK
Geoff-UK's picture

Because we expect the problem to be world-wide, and the U.S. has more arable land per person than anyplace on earth?

Having said that, I'm looking into Permanent Resident Visas for both Australia and Canada as plans B and C.

Mon, 08/16/2010 - 14:12 | 524270 PureGuesswork
PureGuesswork's picture

"Egon von Greyerz ," wasn't that the name of the character Mike Meyers played on Saturday Night Live?  You know, the one that said, "Now is the time on Sprockets when we dance."

Mon, 08/16/2010 - 19:35 | 524979 Pope Clement
Pope Clement's picture

No, Egon Von Grayerz is the gentleman in the lederhosen (with a dueling scar?) hiking in the Alps scoping out the gold stuffed aeries of the criminal gangster owners of the planet and getting ready for the time of reckoning...

Mon, 08/16/2010 - 14:12 | 524273 TideFighter
TideFighter's picture

A lot at the end of my street was for sale in 2006 for $578,000. It was prime, near ocean front that would probably support a 2mm house. The bank that now owns the property called me and offered it to me for $40,000. I didn't bite. THAT'S how bad things are. Scared shitless to take a deal for essentially 10% of its once listed price. Because of GoM spill, nobody is renting now. We had tar balls again on the beach this weekend, spoiling many vacations. Why take the risk? The county released its plans to increase our tax bills, while property rental revenue is down 90%! BP claims office said, "No more rental claims, the economy is causing the problem now!"

Mon, 08/16/2010 - 14:28 | 524315 Gordon Freeman
Gordon Freeman's picture

Egon's really gettin' his freak on!  But I love this guy...

Mon, 08/16/2010 - 15:23 | 524487 Greyzone
Greyzone's picture

There may be other explanations for the entire coming collapse, but I suspect that such explanations might not be well considered at Zero Hedge.

However, rather than stirring up that particular hornet's nest, let me ask some questions:

What if we are not looking at 10-20 years of "depression" but the actual ending of globalism?

What if global trade patterns fall back to the levels of, say, the early 20th century and continue falling, ultimately ending up being more heavily local and regional than global?

What if the cost of energy continues to rise dramatically (in real terms), negatively impacting travel and particularly exports?

What if climate change, regardless of whether it is man-made or natural, is real and begins to adversely affect all the world's primary grain producing regions?

How would your response to what is happening differ if this was what was occurring, resulting in a vastly different world, focused far more on regional aspects than on global ones?

Don't argue with me about the reality of the assumptions behind those questions. I'm not interested in that discussion. Instead, do a thought exercise and assume the above things are happening. How do you envision such a world unfolding over the next 20, 50, and 100 years?

Mon, 08/16/2010 - 17:28 | 524725 linrom
linrom's picture

I agree with you on globalism. It is the biggest Ponzi scheme in the history: much larger than housing and stock market bubbles. In fact, unbalanced trade is creating massive flows of capital from one asset group to another thus allowing bankers and industrialsits to command enormous financial gains and indebt everyone else. Economies are like  ecosystems that must be balanced at the local level.

Tue, 08/17/2010 - 18:29 | 527160 Geoff-UK
Geoff-UK's picture

Globalism is a Ponzi scheme?  Er...no. 

The problem wasn't that labor was so cheap in China.  It's that unionized labor in the U.S., which FORBADE companies and individuals coming to a mutual agreement on hourly wage below the govt level, made Chinese labor so cheap by comparison--EVEN WITH SHIPPING GOODS HALFWAY AROUND THE WORLD!

Thank you AFL-CIO and UAW.  You have totally screwed us all.  There are plenty of unskilled female high school dropouts in SC who would be happy to have textile jobs right now at $4.00 an hour or perhaps less.  But Uncle Sam forbids it.

Tue, 08/17/2010 - 23:12 | 527538 MachoMan
MachoMan's picture

Bingo.  This is ultimately THE battle...  always has been.  I've had too many posts on the subject, but it's just one big morphing cycle.  Effectively, the capitalists become productive, ultimately become oppressive, we become unruly and begin collective bargaining, they capitulate, and we keep piling on their coat tails until they throw us off or they die/collapse from the weight/exhaustion.  And when you introduce cheap credit into this dynamic, it...  can speed up/intensify the process.

They always opt to attempt to throw us off...  for some reason...  by any means necessary (the allure of credit being a major one).

Sat, 08/21/2010 - 22:40 | 535548 Monk
Monk's picture

Not just unions but members of the middle class who want higher wages and easy credit in order to maintain their lifestyle, and that's what they got. And this was taking place even in countries that did not have unions.

I do not think that middle class, which earns 10 to 20 dollars daily (or more, believe it or not) and which makes only around 20 pct of the world population, would have accepted a daily wage of 2 to 4 dollars for the same work hours and conditions. Heck, most of them wouldn't even want to work in factories!

$4 an hour or less is low enough for you? Try $4 to $8 a day, which is what workers earn in exporting countries.

 

Mon, 08/16/2010 - 18:30 | 524853 TomJoad
TomJoad's picture

It's been a while since anyone's said it.

 

Jump! you Fuckers!

Mon, 08/16/2010 - 20:11 | 525044 Client 9
Client 9's picture

2 Thumbs up Tom.  I totally support your argument.  This forum is littered with people who apparently have a lot more riding on the ascent of the yellow metal than they reasonably should.  Poor suckers probably went out and mortgaged their homes (or trailers) to buy every once of the fizzzzzzzzical stuff.  The Paulson's of the world own it because they are momentum traders.  They will exit when you've made their profit. 

Tom- how do you feel about unleveraged, prime, income producing real property?

Mon, 08/16/2010 - 22:39 | 525283 TomJoad
TomJoad's picture

I have no idea how things are going to shake out, but I am leery of any and all investments at this point. During a revolution, when the "have nots" get turned against the "haves" all bets are off, it's not a stretch to my mind that private property in all asset classes might become less than private.  Real property, either rent producing or commodity producing in a couple of different countries is what I am currently concentrating investment on (hint, mostly south of the Equator) I do hold some gold though. I hold several things. All of which can easily be taken from me by the power of the state.  Hopefully my skill sets will prove adequate to their upcoming trials.

Sat, 08/21/2010 - 22:34 | 535544 Monk
Monk's picture

Given the fact that most money worldwide is created by commercial banks through credit extended, then it's likely that "money printing" is not the only factor involved. In which case, it's probably not government interference that's the cause but the opposite of that: a free-wheeling economy involving $800 trillion in unregulated derivatives and, for the U.S., total debt shared by the three sectors of society: around $14 trillion for government, $10 trillion for households, and $40+ trillion for corporations.

 

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