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The Real Inflationary Threat - Decreasing Foreign Reserves: Why the US Should Expect 8% Inflation For The Next Three Years

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Submitted by Taylor Cottam of EconomyPolitics

The real threat of inflation, decreasing foreign reserves: Why the US should expect 8% inflation for the next three years

Weekly we put out information on the US Dollar Money supply.  Current M2 money supply is over 9 Trillion dollars. 
Source: Federal Reserve
This is a good proxy for money growth and good predictor of inflation except for one crucial flaw. 
There is some money which is
printed, but does not make it into the money supply.  Consider the
scenario that the Fed prints a dollar that is then either lost or
destroyed.  It then cannot be used to buy goods, or be lent out and thus
does not create inflation. 
There is something else which
can happen to our money which has the same net effect.  Foreign central
banks can take cash printed from the Fed and place it on their balance
sheet.  US dollars on foreign banks balance sheets gives investors
confidence that their own currency will not be debased. 
In our current (weakening)
dollar regime, the US dollar is the main foreign reserve currency.  When
foreign central banks put US dollars onto their balance sheet, they
take them out of circulation.  They are not being used to buy goods. 
These dollars are not lent out.  As such, they do not create

10 year USD/EUR

?Americans have benefitted greatly from having central
banks prefer our cash to even their own.  It has allowed the Fed to
print money like mad without the fear of inflation.  ??

In other words, the real threat
of inflation is not the current printing of money which Bernanke et al
have been doing.  It is the previous printing of money which has been
taken out of circulation.  The threat is as great as its ever been.  The
amount of money in foreign reserves is about one third or more of M2,
or every dollar which is held by US bank account (business or retail),
and all currency combined.
are signs that this dollar regime will be ending.  The cracks have been
apparent for some time, but we just blew a big hole in the US Dollar
dam.  This week, China has announced that they will reduce their US
dollar holdings by more than 1.7 Trillion Dollars. Via Xinhuanet:
The amount of
foreign exchange reserves should be restricted to between 800 billion to
1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that
the current reserve amount is too high.
China's foreign exchange
reserves increased by 197.4 billion U.S. dollars in the first three
months of this year to 3.04 trillion U.S. dollars by the end of March.

Trillion dollars  is the amount that we have added to our money supply
since August 2007.  If all that money were to come into the current US
money supply all at once it would increase money supply by 19%.  That
would make US inflation among the highest in the world. 

Source:  SIFMA


If this action were to be followed by
other central banks in Japan or Europe, there would be a real danger of
hyperinflation to the tune of 50%. 
Now, odds are they won't do this
all at once.  That is why we have said that at least the amount of
inflation, should it be spread out over 3 years should be 8% or more.
See the total allocated and
unallocated foreign reserves above.  You can see that the US Dollar, is
the king right now, but the Euro is gaining.  What is gaining even
faster is the Unallocated foreign reserves, which means it is either in
something else (gold, or IMF certificates), or they don't want to


Either way, it should be concerning to anyone who has money in dollars... very concerning. 


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Fri, 04/29/2011 - 15:09 | 1221702 Ancona
Ancona's picture

8% inflation?!?!?

Try 15 to 20 percent. Obviously this author has not been to teh grocery store lately.

Fri, 04/29/2011 - 15:44 | 1221870 Imminent Crucible
Imminent Crucible's picture

He's not even worrying about the larger issue. There are more dollars circulating outside the U.S. than sit idle in foreign currency reserves. I've read that there are more Ben Franklins in Russia (where they don't like to save in roubles) than in the entire U.S. economy.

If all these fall into disrepute and come home, we'll see the truth of FOFOA's statement: Increasing the velocity of money can induce inflation without actually printing.

Especially if the printing was already done.

Fri, 04/29/2011 - 16:10 | 1221960 Fahrenheit451
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Fri, 04/29/2011 - 21:16 | 1222895 morkov
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+11 russians

Fri, 04/29/2011 - 17:22 | 1222174 Libertarian777
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but The Bernak can kill inflation in 15 minutes.

He said so on 60 minutes

it must be true.

(by my back of the envelope calculations Maiden Lane 2 portfolio duration is 0.00000000000000000001, so raising interest rates to 25% in 15 minutes will have no effect on the Fed's Balance Sheet)


/sarc off

Sat, 04/30/2011 - 00:26 | 1223269 10kby2k
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He can kill it....just like I can run around the city center nude.  I can do it, but never would.

Fri, 04/29/2011 - 16:13 | 1221963 kito
kito's picture

this grocery store analogy is getting old and overhyped. none of our family's staple foods has gone up 20%. our box of pasta is still 1.29. our tomato sauce is the same price. the meat we buy is the same, even our lindt chocolate 90% cacao is still 2.49. our poland spring gallon bottles have been 1.33 for the past 2 years. should i go on? the only volitile foods we see are veggies and fruit, and thats usually do to weather.  

Fri, 04/29/2011 - 16:35 | 1222033 akak
akak's picture

Please direct me to the portal to the alternate universe in which you claim to live --- mine is getting too damned expensive!

Fri, 04/29/2011 - 17:19 | 1222170 kito
kito's picture

give specifics instead of self serving complaints about food inflation. im not saying there isnt inflation, as gas is way up, but there is no way ive seen a 20 pct increase in our grocery bill. we are not anywhere remotely close to major inflation with regards to food in this country--yet.

Fri, 04/29/2011 - 17:29 | 1222198 akak
akak's picture

Certainly we have seen a 20% increase in groceries, and much more than that --- it just depends on exactly what starting point you want to chose as your basis.  But if you are talking about in the last year, then I would agree, but would have to say that overall prices are AT LEAST up 5%, and probably closer to 8% ---- in any event, vastly higher than the insulting and ludicrous claims constantly propagated by the pathological liar Bankruptke and his flying monkeys of disinformation at the BL(B)S.

Fri, 04/29/2011 - 18:44 | 1222459 Imminent Crucible
Imminent Crucible's picture

A little anecdotal evidence from my neck of the woods:

Milk from $1.89 gal to $3.29

Rolled oats from $1.69 to $1.99 (18oz pkg)

Eight O'Clock whole bean decaf from $4.29 to $5.94 (12oz)

Eggs (dozen large) from $.89 to $1.29

We buy beef, pork & chicken only on the specials, but the specials are all up.

Produce up an average of about 15% or more over the past year.  But hey, that's probably all seasonal. It's inflation season.

I'm wondering how kito's grocery store is absorbing a 100% increase in fuel prices over the past two years. Transport costs are a big component of grocery store overhead.


Fri, 04/29/2011 - 19:04 | 1222519 akak
akak's picture

Produce up an average of about 15% or more over the past year.  But hey, that's probably all seasonal. It's inflation season.

That's gold!

Fri, 04/29/2011 - 21:56 | 1222966 silvertrain
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They reduce package sizes..So your paying more for less..A double dip if I should say so myself...

Fri, 04/29/2011 - 22:08 | 1222991 Janice
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Please allow me give you a couple of examples.  All the gasoline in my area says that it now contains 10% ethanol.  Did the price of gasoline drop 35 cents when the ethanol displaced 10% of the gasoline?  Look closely at the can foods now, they are no longer in 16 ounce cans, now they are 14.5 ounces, I didn't see the price decrease to compensate for the reduction in product.  We have already seen inflation, just hidden.

Fri, 04/29/2011 - 16:39 | 1222035 Texas Gunslinger
Texas Gunslinger's picture





Fri, 04/29/2011 - 16:58 | 1222069 Cthonic
Cthonic's picture

Another day, another nudge of the caps lock key?  By the way, you stated 25% yesterday.

What exactly is your fascination with dog food, anyway?

Fri, 04/29/2011 - 17:02 | 1222088 The Alarmist
The Alarmist's picture

Remember the good old days during the Carter years, when your grandparents could get by on Dog food.  You should be so lucky as you reach your golden years today, as dog food is increasingly more expensive than other "foodstuffs" because it has more nutritional value.


Fri, 04/29/2011 - 18:35 | 1222438 Tedster
Tedster's picture

Gaines Burgers, Bitches!

Fri, 04/29/2011 - 17:02 | 1222090 akak
akak's picture



I believe that SNAP cards will also allow you to buy such things as ground meat and chicken --- no need to prematurely wear down your teeth.

On the other hand, I bet your coat is really nice and shiny.

Fri, 04/29/2011 - 17:33 | 1222233 theopco
theopco's picture


Fri, 04/29/2011 - 17:29 | 1222206 knowless
knowless's picture

I usually don't buy pre-packaged deli meat, but I wanted a sandwich.. the price had jumped to 9.30 a pound (from 3 or or 4) a couple of months back.. soooo.. also signs screaming BEST DEAL BUY NOW for under a pound of bacon at the low low price of 7.47..

Fri, 04/29/2011 - 22:54 | 1223071 Midwest Prepper
Midwest Prepper's picture

Don't you even know that... "The Rent is TOO Damn High!"

Fri, 04/29/2011 - 15:09 | 1221709 legal eagle
legal eagle's picture


Fri, 04/29/2011 - 15:14 | 1221714 SDRII
SDRII's picture

Dont worry there is a buoy system in place to foretell tsunamis


Fri, 04/29/2011 - 15:11 | 1221718 legal eagle
legal eagle's picture

Price of housing down 40%, price of food and gas and other necessities up 40%, no problem, zero inflation, lets move on.  (sarc off)

Fri, 04/29/2011 - 17:01 | 1222094 The Alarmist
The Alarmist's picture

<nosarc>That would be funny if you bought a house as often as you bought gas or food.</nosarc>

Fri, 04/29/2011 - 17:24 | 1222182 Libertarian777
Libertarian777's picture

back in 2005/2006 people WERE buying houses as often as gas and food.


I think The Bernak is trying to make sure we get back to that 'booming economy'.


Get rich quick! Flip-that-House!

Fri, 04/29/2011 - 15:13 | 1221720 Wynn
Wynn's picture

This might take longer than 15 minutes to fix.

Fri, 04/29/2011 - 15:14 | 1221735 tarsubil
tarsubil's picture

See above. That is why I read the comments.

Fri, 04/29/2011 - 15:14 | 1221721 gwar5
gwar5's picture

Exactly. 8-8.5% inflation is about where Shadowstats has been at for a while. Nothing on the horizon to change that except to make it worse. We're lucky since the DXY dropped a steamy 20% in the underpants this year.

OT: Anybody know what is going on with SLW and not keeping up spot silver? 

I know they changed CEOs and there are some sector mining issues (eg., Bolivia talk of nationalizations, strikes), but is that it? Am I missing anything? Thanks.

Fri, 04/29/2011 - 15:23 | 1221758 rich_maverick
rich_maverick's picture

No clue... My SVM is underperforming too!  They have nothing to do with Bolivia or CEO change of hands.  Seems like someone is trying to keep the miners out of the rally...

Fri, 04/29/2011 - 15:36 | 1221833 goodrich4bk
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Same phenom with CEF.  Discount was -2.1 today.  Usually trades at a premium, at least for the past few years.

Fri, 04/29/2011 - 15:47 | 1221895 candyman
candyman's picture

But HL is up 1% ?

Fri, 04/29/2011 - 15:54 | 1221920 Whatta
Whatta's picture

what is wrong with SLW is that I am sitting in between $44 calls and $40 puts....until "they" make sure my azz is handed to me in a bag IT AIN'T GOING ANYWHERE!!!

Fri, 04/29/2011 - 16:43 | 1222043 Richard640
Richard640's picture

The fact that PM stocks have been diverging from G&S these past 2 weeks is very bullish for PMs

In markets, when something is seen by all, known by all and widely discussed, it often isn't worth's effect is mitigated...I wouldn't worry too much about the big, bad, scary, bearish  divergence in PM stocks...there is wide spread disblief about the move in PMs because the spectre of the 2008 wipeout in PM futures and equities is fresh in investors minds...additionaly the financial community and media are constantly warning the herd that PMs are in a bubble--risky--and could turn on a this disbelief and skepticism are very bullish for G&S--SLW is not alone--most PM stocks are way under their 2007-8 highs when silver was $21-the real mania in PMs has not started-we will see the same soaring values and panic to own PM stocks that we did in 1980...sit tight and be right.

Fri, 04/29/2011 - 15:12 | 1221723 Re-Discovery
Re-Discovery's picture

There is no inflation!  What you are witnessing is TRANSITORY like a flock of geese that shits on your (old) lawn (the one you used to have) but a few days later the rain washes it away.

How many times does the Chairman need to say it -- in public, and in front of the skeptical press no less -- to get it through your thick heads?

Now go eat your McD's Lil Mac for dinner, enjoy the 4 mile walk back to your tent, zip up your sleeping bag and go to sleep!

Fri, 04/29/2011 - 15:12 | 1221724 CrashisOptimistic
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It's a little sad.  People do not see oil production's scarcity as the underlying cause of essentially all the problems, and as things get worse, and flailing begins, they won't understand until it is too late.

Fri, 04/29/2011 - 15:18 | 1221750 cossack55
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Just tell them to read Darwin or Malthus.

Fri, 04/29/2011 - 18:17 | 1222384 CrashisOptimistic
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Neither were geologists.

Fri, 04/29/2011 - 21:09 | 1222863 zhandax
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Darwin was a moron.  Natural selection my ass!  The concept that traits which contribute to the survival of a species are propagated and traits which do not are repressed.  How do you reconcile that with the abundance of complete idiots on the planet today?

Fri, 04/29/2011 - 21:27 | 1222910 Iam_Silverman
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"How do you reconcile that with the abundance of complete idiots on the planet today?"

Easy - natural selection.  This was the strong force where - barring any outside influence to help those species that cannot adapt to a changing environment, the weaker examples were not spared by the fury of nature.

Once we invented politicians to give us the advanced socialism we so richly deserve, we no longer had natural selection - we have, whatever....

Fri, 04/29/2011 - 21:43 | 1222940 akak
akak's picture

Once we invented politicians to give us the advanced socialism we so richly deserve, we no longer had natural selection - we have, whatever....

Unnatural selection?

Fri, 04/29/2011 - 22:18 | 1223007 zhandax
zhandax's picture

Bingo; pols protecting the unfit of the species so the protected will feel obligated to vote for them.

Sat, 04/30/2011 - 23:28 | 1224903 Iam_Silverman
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"Unnatural selection?"

Thank you.  Due to self-medicating from the liquor cabinet I was unable to grok a good answer.

And the "deserve" part was the end of a rant I had been delivering to my wife about the advertising I see on TV:

Get the loan that you deserve!

Buy that new car that you deserve!

et cetera....

Fri, 04/29/2011 - 15:22 | 1221756 Seer
Seer's picture

I see that the "the earth is filled with caramel" folks are out junking again... You should be careful of telling addicts that their FIX isn't guaranteed!

Fri, 04/29/2011 - 16:00 | 1221938 malek
malek's picture

Well the "it's all because of peak oil" folks are exposing the foolishness again... oversimplification won't help us here.

Fri, 04/29/2011 - 17:53 | 1222291 Banjo
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malek: It is no oversimplification. Quite basic really. You are correct that it is not "peak oil" in isolation it is "peak oil" and it's relationship to our growth based economic models.

Finite resource(s) are used to drive the global economy, oil alone comprising 38% of global primary energy and over 95% of transportation energy.

30 billion bbl of oil are consumed globally every year. The cost is:

$10 per bbl = $300 billion

$100 per bbl = $3 trillion

$150 per bbl = $4.5 trillion


As oil rises this money comes out of the consumer economy or pumped in via money printing or QE aka inflation. We have a growth based economic paradigm with over three billion Chinese, Indians, Africans and South Americans trying to get to the same level of consumption and lifestyle as the US and Europe.


As oil rises and sustains high prices it's input into mining down stream into manufacturing and the distribution supply chain causes either margin compression less profitabiliy or rising prices.

Some context the first stimilus was $750 billion.




Fri, 04/29/2011 - 23:36 | 1223157 malek
malek's picture

I think I understand that part:
$200 per bbl = $6 trillion

But are you saying oil going to $200 per bbl will not reduce consumption??
Will the "finite" resources not last longer then?





Sat, 04/30/2011 - 00:43 | 1223293 Banjo
Banjo's picture

malek: in theory it should last longer. ONLY if we have a sustained global economic contraction and less use of oil.

Last time that happened late 2007 and in 2008 global central banks raced out to sustain growth.

One number to look out for is global oil production year on year if this number stays at 30 billion bbl per year then it does not matter what the price is we are still using huge amounts of oil.

Ten years of 30 billion bbl is 300 billion

Thirty years is obviously 900 billion bbl. Some estimates put us at 1 Trillion bbl left.

If you are interested you can search on countries that are past their peak oil production capacity the USA being one of them but also includes, Australia, Mexico, the UK and Indonesio who used to be a member of OPEC.

This is part of a write up I did on Oil.

There are now numerous government reports on the subject of peak oil.


A 2010 German report evaluates the challenges of declining oil production and comes from the Future Analysis department of the Bundeswehr Transformation Center.


The report states "95% of all industrial outputs is dependent on oil as a fuel and/or as a chemical base for polymer production Oil has become a key driver of modern lifestyle and globalization."


"Substantial oil price increases pose a systemic risk, (emphasis mine) not just for obvious things like transportation, but equally for other subsystems." 4


A 2008 CSIRO report Fuel for thought. The future of transport fuels: states petrol prices could increase to between $2 and $8 a litre by 2018.

February 2010. The United Kingdom, The Oil Crunch A wake-up call for the UK economy Industry


"Virtually every sector of our economy is still dependent on oil"7


USA The Hirsch Report 2005 Peaking of world oil production: Impacts mitigation & risk management Robert L. Hirsch 8


"Without massive mitigation the problem will be pervasive and long lasting" (emphasis mine) 8



Peak oil is NOT about running out of oil it is about reaching a maximum amount of extraction and then starting to decline.



Some more stuff on the energy content in a bbl of oil.

Oil and our energy slaves.

We are beneficiaries of slavery and we really like it. Pause. I am of course talking about our energy slaves.


I want to discuss oil and energy and the benefits that accrue to us.


Energy content RAW numbers.

1 barrel has six billion joules of energy = 1,666,700 watts of energy. A barrel containes 42 gallons or 42*3.785litres or 158.97 litres.



We can't of course extract all that energy from the oil. Thermodynamics states we can't get more out than we put in and that you can't get 100%


Say we liberate 25% energy in ICE engines due to thermodynamics energy exchange with 75% lost in heat/friction/other.


Rubber hits the road energy. Real work. 1,666,700 * 0.25 = 416675


Pedalling stationary bike powers is equivalent to 100w of energy generation per hour. This would power a 100w light globe. If we were to pedal a bike how long would we have to pedal the bike to get the amount of energy in a barrel of oil?


Working 5 days 8 hours per day gives 4000w per week * 104 weeks = 416,000


If you convinced someone to work for you for $12 per hour it would cost you $49,920 dollars to produce the same energy as contained in the barrel of oil.


Alternately that same barrel priced at $80 is pricing the pedal energy at $80 / 520 days = (5work days pwk *104weeks) or

$0.1538c per day

$0.0192c per hour

$0.769c per day

$40.00 per year (52 weeks no holiday)


The bigger picture the economics of 85million barrels per day!


Let us use 25% thermic efficiency as a baseline this gives us a theoretical work capability in man hours of.


85*2.0(years of work per bbl) = 170 million workers * (520days) 8h/5d paying 1.92c per hour (15.36c/8hours) 44,200 million energy slave work days every day.


The secret behind these low numbers is that this cheap labor is essentially free.


Say we had someone earning $12 per hour and we said in order to hire twice as many people we would halve his pay the company has no extra money.


1 worker $12 goes to 2 workers $6

2 workers $6 goest to 4 workers $3

4 workers $3 goes to 8 workers $1.5

8 workers $1.5 goes to 16 workers $0.75

16 workers $0.75 goest to 32 workers $0.375

32 workers $0.375 goes to 64 workers $0.1875

64 workers $0.1875 goes to 128 workers $0.09375

128 workers $0.09375 goes to 256 workers $0.0468

256 workers $0.0468 goest to 512 workers $0.0234


What this represents is that at 1.92c per hour you are getting the equivalent of

512 * 170 million workers or 87 billion workers on a 8h/5d work week.


Energy Slaves

If we suppose 1.5 billion people on the planet have access to cheap oil relative to their currency then we take that volume of hidden slave workers and we find that 87/1.5 = 58 slaves each.

Working tirelessly and without complaint, digging ore and minerals out of the ground. Cultivating hectares of fields. Moving you to and from work, helping you carry your groceries. Moving all manner of goods textiles, footwear, electronics, food, water around the world. See a coles or woolworths truck there go our energy slaves hard at it. The bus that moves people around our energy slaves are toiling away.


Fri, 04/29/2011 - 15:34 | 1221834 Truthiness
Truthiness's picture

thankfully, the oil scarcity problem will be unfolding over decades, as opposed to years. 

Fri, 04/29/2011 - 18:01 | 1222340 CrashisOptimistic
CrashisOptimistic's picture

Think so, eh?  If there's no problem for decades, then why is Manifa IN WATER 2 miles down?

Fri, 04/29/2011 - 15:42 | 1221859 narnia
narnia's picture
the failures of central planning are all coming to a head at the same time.  centralized energy, food/nutrition, transportation, safety, health care, education, financial/monetary systems...  all supported with a ridiculous foreign policy at a taxation level that cripples growth.   when it comes down to life & the improvement of its quality, we need water, food, air, the sun & intellectual capital.  more energy is captured by earth from the sun in a matter of hours than we consume in oil all year.  oil scarcity is a problem for the existing industrial apparatus,  but it is not a long term problem in a free society.
Fri, 04/29/2011 - 17:24 | 1222194 CrazyCooter
CrazyCooter's picture

when it comes down to life & the improvement of its quality, we need water, food, air, the sun & intellectual capital.  more energy is captured by earth from the sun in a matter of hours than we consume in oil all year.  oil scarcity is a problem for the existing industrial apparatus,  but it is not a long term problem in a free society.

Wonderfuly stated.




Fri, 04/29/2011 - 17:52 | 1222283 Dr. Impossible
Dr. Impossible's picture

"more energy is captured by earth from the sun in a matter of hours than we consume in oil all year"

I've always believed there is enough temperature difference between 20 foot above your roof to 20 foot below your basement to power your whole home year round...if appliances were efficient....the proof i found is that all energy using devices(appliances, heaters, ac..) every device is designed in respect to its power what do you use for a power source decides this....not the device.

Fri, 04/29/2011 - 21:57 | 1222968 CrashisOptimistic
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1) The total arable land surface area at plant level efficiencies collect Just Barely enough calories of energy (yes, you can convert) to feed 6.8 billion.  Because there is loss in the system, fertilizer handles it.  So that is surface area you can't use for your magical energy to oil converter.

2) A house uses 24 kilowatt-hours per day on average.  Good luck collecting that on your roof.

3) A barrel of oil is what acres and acres of microorganisms collected from solar energy 160 million years ago before they were washed in some flood off a shore and immediately covered up with silt to deny rotting bacteria oxygen.  Operative word: Acres and Acres, as in thousands.  Good luck equaling that.

Fri, 04/29/2011 - 23:01 | 1223096 Midwest Prepper
Midwest Prepper's picture

But the wall outlet that I plug my TV into is tiny... Millions of them would fit on an acre....

Sat, 04/30/2011 - 21:10 | 1224721 Dr. Impossible
Dr. Impossible's picture

"2) A house uses 24 kilowatt-hours per day on average.  Good luck collecting that on your roof."

I sorry if i left that a little confusing. What i was getting at is more along the lines of energy transmission from power plant(think solar panel, nuc.plant, to a sterling engine) to device, motor or w/e  energy has to be matched for either side to work. At this point yes...the electric we use in our house 110/220 about 24kilowatt-hrs ..but that 110/220 has to be "converted"(great efficiency loss) multiple times, between PP ,and device. try matching a solar panel to a device that doesn't require mechanical motion, and efficiencies change, as attaching a sterling engine to a matched water pump or refrigerator. the efficiencies would be different than converting 110/220. all 3 ways are energy transfers. with gains due caused by similar functions. matched energy generation plant to is function as needed by device. not forced through energy conversion by a minimum power of 3.matching would be conversion by a power of 2 instead. Even in a car, the gasoline(energy) gets converted atleast 5 times( before the car moves forward.

Fri, 04/29/2011 - 23:21 | 1223133 ThirdCoastSurfer
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Unfortunately, oil is used in far more than just the production of gasoline so we'll need to keep pumping it for many generations to come. That's why I've always argued that it's better to buy it from others while it's relatively cheap compared to its' future value and keep at least some of it (North Slope, etc.) for our children's children.

Near where I live are many caverns that maintain a constant temp of 56 degrees. Right underneath Austin and San Antonio, Texas is a large aquifer (160 square miles) that is quickly being depleted of water but there is as a result a large area of this "cavern air" that could be tapped.   

Fri, 04/29/2011 - 18:20 | 1222400 CrashisOptimistic
CrashisOptimistic's picture

I'm afraid not.

This is the common, desperate mode of thought.  The human brain cannot accept powerlessness.

Central planning didn't do this.  No one "did this".  There was only so much there, we drained it just as fast as we could for 100 years, it purchased spectacular increases in technology and a 500% increase in global population -- and now the party is over.

There is nothing anyone can do about it other than select which people are among the 5 billion who will die.  That's done via use of nuclear weapons.

Fri, 04/29/2011 - 19:22 | 1222566 BigJim
BigJim's picture

You couldn't wipe out 5 billion via nuclear weapons without the survivors dieing shortly afterwards

Fri, 04/29/2011 - 16:34 | 1222025 r101958
r101958's picture

Sorry, can't afford it anymore. The price went up.

Fri, 04/29/2011 - 17:03 | 1222106 The Alarmist
The Alarmist's picture

<sarc>Indeed, there is no inflation</sarc> if you are given a car, driver and Government National Credit Card (yes, there is such a thing) or if you have access to the 89th MAW for your transportation needs. 

Fri, 04/29/2011 - 17:24 | 1222193 Libertarian777
Libertarian777's picture

it truly is transitory.

In 2 years time when no one can afford food even with SNAP, and 15 million unemployed people die of starvation, the unemployment rate will be 0%.

/sarc off/


Fri, 04/29/2011 - 17:53 | 1222297 The Alarmist
The Alarmist's picture

If they starve, it is only because the former Academics who are running the show will not yet have figured out how to get the rice they have insisted be planted in Kansas to grow.


Fri, 04/29/2011 - 21:33 | 1222925 Iam_Silverman
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"will not yet have figured out how to get the rice they have insisted be planted in Kansas to grow."

Energy drinks (Brawndo)!  Water is for flushing toilets.

Fri, 04/29/2011 - 20:12 | 1222726 The Alarmist
The Alarmist's picture

If they starve, it is only because the former Academics who are running the show will not yet have figured out how to get the rice they have insisted be planted in Kansas to grow.


Fri, 04/29/2011 - 15:14 | 1221726 Clorox Cowboy
Clorox Cowboy's picture


Fri, 04/29/2011 - 15:14 | 1221727 gbresnahan
gbresnahan's picture

I no longer accept US dollars for monetary transactions

Fri, 04/29/2011 - 15:37 | 1221848 cxl9
cxl9's picture

How do you pay your taxes?

Fri, 04/29/2011 - 17:56 | 1222299 Dr. Impossible
Dr. Impossible's picture

..if you don't accept $...what tax liability would he income means what?..oh ya.....DELTA NEUTRAL! it love it...

Fri, 04/29/2011 - 18:35 | 1222436 cxl9
cxl9's picture

If you believe that's true, you probably need to find a new accountant.

Furthermore, it is possible to incur tax liability without any income or spending. Property taxes, for instance.

Look, I fully support barter, exchange, tax avoidance, and a return to honest money, but my point is that taxation creates a demand for dollars. There is simply no avoiding that fact. So long as the government demands taxes in FRNs, and you incur tax liability, you are forced to participate in some way in the monetary regime. (Or simply refuse to pay, of course, which carries its own set of problems). From anyone says they've opted out of commerce in dollars, I would simply like to know what they do about taxes.

Fri, 04/29/2011 - 21:21 | 1222904 zhandax
zhandax's picture

Move to Utah.

Sat, 04/30/2011 - 21:21 | 1224740 Dr. Impossible
Dr. Impossible's picture

property taxes ARE a direct reflection of your spending(poor investing)..and its your choice NOT to participate in a garden ,for food. I can tell from here you eat more than your value to this planet...and i come from a family of accountants...forced to do my own taxes, wouldnt be allowed at the dinner table if i didn' the damn thing every year..80 fukkin hours for taxes.......ask GE how that works...."and you incur tax liability"..

Fri, 04/29/2011 - 17:58 | 1222312 Dr. Impossible
Dr. Impossible's picture

..if you don't accept $...what tax liability would he income means what?..oh ya.....DELTA NEUTRAL! it love it...

Fri, 04/29/2011 - 17:57 | 1222328 Dr. Impossible
Dr. Impossible's picture

..if you don't accept $...what tax liability would he income means what?..oh ya.....DELTA NEUTRAL! it love it...

Fri, 04/29/2011 - 15:12 | 1221728 lolmao500
lolmao500's picture

According to JPMorgan, it's time to load up on silver shorts!

Fri, 04/29/2011 - 21:38 | 1222934 Iam_Silverman
Iam_Silverman's picture

"silver shorts!"

Way too expensive.  I have been able to afford some lead undies though - just in case that Fukushima thing gets outta hand.

Fri, 04/29/2011 - 15:15 | 1221730 Bam_Man
Bam_Man's picture

And the yield on the 10-year UST is 3.29% and falling daily.

Makes perfect sense.

Fri, 04/29/2011 - 15:16 | 1221731 redpill
redpill's picture

China is patient and I don't think substantial action on their part is imminent.

However it is interesting to think about the fact that the three main world currencies (USD, Euro, Yen) that large financial institutions rely on for daily forex flows are all facing massive structural problems.  The USD is in a death spiral, the Euro may cease to exist at some point, and Japan has become a shadow of its former economic self.  The wobbly 3-legged table of the global currency paradigm is set to collapse at any time.  And most rational parties will seek to find a safe haven in gold bullion before taking a risk on some funny money made-up SDR crap or a centrally-controlled renminbi.

Fri, 04/29/2011 - 16:17 | 1221984 trav7777
trav7777's picture

nothing whatsoever about China's previous 20 or 30 years in ANY way suggests patience is their strong suit.

Fri, 04/29/2011 - 17:10 | 1222125 redpill
redpill's picture

I think the fact that Taiwan still exists refutes such an assertion.

Fri, 04/29/2011 - 23:05 | 1223101 Midwest Prepper
Midwest Prepper's picture

I can think of 3.04 Trillion reasons that China will take Taiwan without firing a shot, as Obama caves to Chinese "accounting realities...."

Fri, 04/29/2011 - 15:13 | 1221733 Bazooka
Bazooka's picture

During 2008 prices surged, oil, food, etc.

But housing prices deflated and unemployement went higher and higher.

Today: Oil, food, etc goign higher...housing going lower, unemployment not budging but truthfully going higher since gov fudges data.


If Hyperinflation was happenning, then all prices should be rising, including housing; wages should be rising (it's not!). It's an abnormal increase of prices which can only be explained as a temporary reflation that will return to deflation.

Fri, 04/29/2011 - 15:18 | 1221743 Clorox Cowboy
Clorox Cowboy's picture

<yoda> Stagflation it is... </yoda>

Fri, 04/29/2011 - 15:31 | 1221778 ivana
ivana's picture

I like to call it BIFLATION since there are some serious assets deflating in price besides our RE and some industries. Check Greek sell list:

What Greece plans to sell

• Stakes in railways, water utilities, electricity and natural gas companies

• Public holdings in banks, including 34% of Hellenic Postbank, in which the state has a 34% stake

• Athens’ former international airport, Hellenikon, as well as hundreds of ports and regional airports

• Loss-making defence companies such as Hellenic Defence Systems and the Hellenic Vehicle Industry

• Government-owned buildings, land plots, hotels, beaches, thermal baths, marinas and casinos

• Billions of euros’ worth of venues built for the 2004 Athens Olympic Games

Fri, 04/29/2011 - 15:39 | 1221858 Caviar Emptor
Caviar Emptor's picture

Thank you. I'll take a victory lap for having called it that for over a year

Fri, 04/29/2011 - 15:59 | 1221935 RichardENixon
RichardENixon's picture

Firesales soon to come to a town near you.

Fri, 04/29/2011 - 15:24 | 1221781 Seer
Seer's picture

I called it a good four years ago.

It's like the other day when I was on the tractor and was pushing on the accelerator only to have the tractor's speed decrease MORE as I pushed down MORE!  Duh!  Had the brake set!  The economy's brake is set and it's NOT coming off: oil price (affordability) is the brick UNDER the pedal!

Fri, 04/29/2011 - 15:29 | 1221808 Hugh G Rection
Hugh G Rection's picture

bi-curiousflation is a bitch

Fri, 04/29/2011 - 15:20 | 1221757 tarsubil
tarsubil's picture

Well, I'm hedged either way so que sera sera.

Fri, 04/29/2011 - 15:23 | 1221776 Henry Chinaski
Henry Chinaski's picture

the article is taking the position that odds are that there won't be hyperinflation

Fri, 04/29/2011 - 15:54 | 1221918 slewie the pi-rat
slewie the pi-rat's picture

i found that reassuring, too.

only 50% = transitory.

Fri, 04/29/2011 - 16:01 | 1221934 narnia
narnia's picture

you should take from this the understanding that hyperinflation can take two forms (1) an explosion of credit on existing excess reserves or (2) a run on the $ since it is so widely held.    

even if the expansion of credit domestically & the reduction in $ reserves internationally are orderly, dealing with these will be impossible for the Fed to do without major inflation, major austerity or a deflationary spiral. 

Fri, 04/29/2011 - 16:26 | 1222007 slewie the pi-rat
slewie the pi-rat's picture

i'll take door #3, please:  deflationary spiral. 

it's a tough call.  i have a voice in my head saying, "Take the reds, man!"  but i'm hoping the deflationary spiral leads to the "Default Bonus" and besides, what America needs is a good deflationary spiral!

Fri, 04/29/2011 - 23:44 | 1223193 StychoKiller
StychoKiller's picture

Lebanese blonde hash!  Makes yer eyes red just thinkin' about it!

Fri, 04/29/2011 - 15:25 | 1221788 redpill
redpill's picture

Your continual insistance on comparing the present to 2008 is highly flawed.  We are seeing market forces now being impacted by the printing of trillions of dollars, which is an entirely different scenario than the deflationary contraction in 2008.  The Fed will do everything and anything to stop deflation.  That is the ONE THING they cannot allow to happen.

Fri, 04/29/2011 - 18:29 | 1222428 Dr. Impossible
Dr. Impossible's picture


"The Fed will do everything and anything to stop deflation.  That is the ONE THING they cannot allow to happen."

i totally agree....if the US has deflation...what happens to all those China trillions?

I'd guess a way no American wants...

If inflation....what happens to the price of the MENA oil supplies?

where is the bigger evil?....Chinese ownership by way of purchashing power..or MENA Kingship by wrath of oil pricing, aka lack of purchasing power?..OH BUMMER!!!


Fri, 04/29/2011 - 15:32 | 1221817 sun tzu
sun tzu's picture

It's called stagflation. This happened during the 1970's and early 1980's. The cost of daily necessities increases while the price of anything that requires credit will flatline or decrease. If the Fed keeps printing, it will eventually lead to hyperinflation.

Fri, 04/29/2011 - 21:49 | 1222953 zhandax
zhandax's picture

Depends on how you define 'requires credit'.  When I started driving, the new 74 Camaro in the showroom had a sticker of $3600.  The next year, the 75 model was $4300 (up about 20%; essentially the same car but they changed the trim options).  More of these were probably financed than bought for cash. 

Fri, 04/29/2011 - 15:43 | 1221866 masterinchancery
masterinchancery's picture

wrong. In hyperinflation, real estate loses value along with everything else--only hard currencies  and precious metals have value. Read Prof Bernholz's book.

Fri, 04/29/2011 - 15:45 | 1221873 D1eeeeeNAHHHHH
D1eeeeeNAHHHHH's picture

Wrong, supply and demand has to run it's course.

For example if people are doubling up and moving in with their parents or friends then their are more housing units in supply.

The fed has lowered rates, but not enough to create demand as it's still cheaper to live with others.

Food is higher, gas is higher making the average buyer concerned about other utilities going higher.

Housing lags in hyperinflation.  Just read about Zimbabwe to find that out.

Robert Kiyosaki interviewed some people shortly after the hyperinflation.  One couple was excited as they paid off their house then after other prices went up the house was no longer as valuable nor did it have the same demand.

All prices don't necessarily go up in hyperinflation or at least initially.  Peter Schiff says rents lag in hyperinflation.  Prices are moving up, wages are going down.  Employment demand is down.  Buying a home in this environment sounds crazy to most people.  No one is buying homes!  That is why home prices are still falling.  In hyperinflation many times jobs are scarace as well. 

Hyperinflation has been in effect in food and energy (which are the key things that bring life.)

Metals have been hyperinflating as more smart money does not want to have anything to do with fait currency.

Believe what you want to believe, but I encourage you to plan how you can afford things that are still rising fast in price.


Fri, 04/29/2011 - 18:22 | 1222330 knowless
knowless's picture

your assertion that if people are moving in with family and friends, then there is more housing doesn't match any reality I have ever viewed..


in any envirement where there is still work at the bottom, people flock there.


in my city, we have seen massive waves of people over the last few decades, often leaving political or economic situations which they can't handle (we have generous programs to assist low income people..), many of them unskilled, all competing for the same pointless min wage jobs, all competing for the same housing.


these people have no where else to go, and live wherever they can, it is not uncommon for a room in a shared house with rent under 400 here to get literally hundreds of applicants..


houses designed for a family of four can often have 8+ tenants, if you include those who drift from place to place. everything is converted into housing in these situations, unfinished attics, basements, garages/sheds.. if there was a housing glut (for actually available housing, not kept off market because the ownership is disputed, or because it is so far out that no one can afford the commute) then you wouldn't see a shitty basement room with no door and the window busted out going for $300 dollars with 20 people getting interviewed for it..


I don't dispute anything in your post besides the comment about housing units in supply, the question is not how many total units there are, but how many of them can anyone actually afford to live in and still eat.

Fri, 04/29/2011 - 15:16 | 1221737 Bazooka
Bazooka's picture

I'd love to debat Krugman or Peter Schief on hyperinflation vs deflation.

Fri, 04/29/2011 - 15:25 | 1221770 tarsubil
tarsubil's picture

What about stagflation vs deflation?

Fri, 04/29/2011 - 15:28 | 1221789 Seer
Seer's picture

Are you saying they're Chiropteras?

Fri, 04/29/2011 - 16:40 | 1222039 akak
akak's picture

Holy fuck! DAMN that was funny!

I'm still laughing!

Fri, 04/29/2011 - 19:31 | 1222601 BigJim
BigJim's picture


Fri, 04/29/2011 - 15:43 | 1221876 D1eeeeeNAHHHHH
D1eeeeeNAHHHHH's picture

Schiff would cream you.

Fri, 04/29/2011 - 16:25 | 1222005 AZSovreign
AZSovreign's picture

You would lose, even Fofoa creams your thesis....

Fri, 04/29/2011 - 15:17 | 1221738 101 years and c...
101 years and counting's picture

a decrease in foreign reserves is transitory.

Fri, 04/29/2011 - 15:19 | 1221753 Aristophanes
Aristophanes's picture

Of course.  This whole article boils down to the obvious observation that the danger in the recent ramp-up in printing is that it robs wealth from current debt holders.  It raises the threat that they will dump America's debt because America's hasn't honored the implied agreement of value preservation in its debts.

Fri, 04/29/2011 - 15:28 | 1221791 A Lunatic
A Lunatic's picture

Could be bullish for exports.

Fri, 04/29/2011 - 15:50 | 1221907 Aristophanes
Aristophanes's picture

Yes, but what do we export outside of "Engineered financial products"?

Seriously though: I wonder if America's markets might crash due to foreigners no longer having to use its markets/banks/clearing once the locus has moved away from the dollar.  I mean "why go out of your way to get screwed by these criminal middlemen if you can just go around or stay in you own currency"?  Much of what some of the large institutions do is collect fees to play in their pond.  Has anyone really contemplated the financial implosion that could take place once that tipping point has be reached?

Fri, 04/29/2011 - 16:42 | 1222044 slewie the pi-rat
slewie the pi-rat's picture

we export fraud.  but, it's very expensive.  and, we export debt.  etc.

we usta export food, but some zH recently said we now import food.  talapia fat-tail. i don't know.  but i'm goin with food, just to have something up for the home team.  we do a lot of manufacturing, too.  paraphernalia comes to mind.  candles.

we also seem to have exported many of our companies.  they don't work here, anymore.  neither do we. 

Fri, 04/29/2011 - 17:17 | 1222140 A Lunatic
A Lunatic's picture

Well the Canadians who live five miles across the border from me are having a heyday. They are gorging upon the goods of Home Depot, Wally World, and every other big box store they can get their Calgarian gas guzzlers into the parking lot of. Were it not for their direct economic influence then I shudder to thinks where we would be financially in my area as our real unemployment rate hovers precipitously close to 17.5%. I believe that a week dollar coupled with the distinct taste of shit in the mouths of foreign interests could very well result in many of those dollars flooding our shores akin to the Japanese tsunami; dragging off refrigerators, Obama Mobiles, the rest of our timber, mining, and agricultural interests, etc on the outflow. What wonderful evidence (to the grossly misinformed) that the dynamic Duo of Obama/Bernanke have indeed saved the economy from total ruin; oddly enough, just in time for their reelection.

Fri, 04/29/2011 - 19:30 | 1222602 slewie the pi-rat
slewie the pi-rat's picture

they love it here!  fill up the ride and the boat tanks, too! 

soon, the europeans will arrive!  chinese, aussies, russians, even mexicans can come, just to shop and get the hell out here.  while we pour them iced tea, hoping for a $2 tip, they will comment about how cheap everything is, here, especially the gas.

this is why we have medical marijuana.

Fri, 04/29/2011 - 22:38 | 1223050 zhandax
zhandax's picture

You should have broken this down into its two sub-components; the fed and social security now own most of the interest-bearing debt.  But the rest of us are paid with, and need to maintain a little cash cushion of, the non-interest-bearing debt (FRNs).  Of course, most of us here have already dumped all but the most essential reserves of that debt.

Fri, 04/29/2011 - 15:28 | 1221801 gmak
gmak's picture

And who will they dump the debt to?


If one is selling, they all will be.  This means that the debt will not be rolled over, Treasury will have to make good on it - and the FED will probably monetize it.  This would, IMHO, lead to a loss in US citizens' confidence in the USD and hyperinflation - meaning no one would want to hold USD at any price.

Fri, 04/29/2011 - 15:32 | 1221824 sun tzu
sun tzu's picture

If the price is low enough, there will be a buyer. The USD will simply be revalued by the market.

DXY = 35?

Fri, 04/29/2011 - 21:47 | 1222956 Iam_Silverman
Iam_Silverman's picture

"DXY = 35?"

I haven't had a chance to look at any charts today.  Would that be a put or a call?

Fri, 04/29/2011 - 15:24 | 1221759 falak pema
falak pema's picture

As I have pointed out, its all a question of order of priorities to the Oligarchy. They have chosen that USD devaluate, but hyperinflation be avoided. That is the official spiel of their spokesman, Ben. He has promised end of QE and promised no inflation as a result. We will see if the theory holds up in the face of reality. If it doesn't its tough shit for current US Oligarchy as the new Oriental Oligarchs await in the wings to take over the global game..

Fri, 04/29/2011 - 15:23 | 1221761 McPoopypants
McPoopypants's picture

Margin compression. 

I have unique access to data about food prices in restaurants (read I'm a data monkey for a nightlife app developer).

Since 2009 happy hour specials saw a rise in food prices and a drop in booze prices. (+/-  $1 - 0.25 rise/drop on a $5- 10 dish/drink ).


I'm guessing this is because restauranteurs have fatter margins on booze than food (and booze is less labor-intensive). They are trying to compensate by dropping prices for the booze (like wal-mart dropping prices for electronics).


Maybe it's time to remember college and re-learn how to survive exclusively on booze calories?

Fri, 04/29/2011 - 15:39 | 1221856 ihedgemyhedges
ihedgemyhedges's picture

Maybe it's time to remember college and re-learn how to survive exclusively on booze calories?

Well, you can get more hard carbs too just like in college.  But to combine, just cook your ramen noodles in Pabst Blue Ribbon and then you've got both covered

Fri, 04/29/2011 - 19:36 | 1222618 Dr. Impossible
Dr. Impossible's picture

I'm not sure about your unique the past 15years the whole drinking game has gone under due to mothers against drunk driving, and the crack attack, and ecstasy, among other drugs. so people ain't going to bars to drink much in the last 10 years...there trashed on drugs instead, or if they do show up...its water to drink..maybe soda...but most have already blown their cash on the fix before the bar...that change happened over the past 15yrs, now...recession time, beer becomes popular again..because of cost effectiveness, granted the price of a beer hasn't moved much outside of regular inflation (15yrs ago i bought my beer for 2 bucks, now its 3) a restaurant..a good place that sell high dollar wine ain't selling those $100+ bottles as readily, but a good wine master knows this isn't a bad situation(this part makes it a great investment, with questionable taxation, seeings that wine isn't known to be good till its opened) a wine-master buys 10 cases of 2011 w/e Merlot at $10 per bottle($1200). sticks it all but 1 case in the basement cellar in the basement. 1 case hit the menu at price plus 3x...$ $360 in sales when/if sold the first year(same as year of bottling) offsetting some of cost, keeping 108 bottles in cellar. now that cellar stock...the very next year the wine master pulls 1 more case, but this year he's able to up charge 10% per bottle equalling ($10+3x(=30)+10% annual increase from bottle date) so 12 bottles hit the menu for a takin of $396(not bad for a $120 case a year later) now add that same 10% yearly going 10 years out..(or if you strike gold in a previous purchase of simi valley from last year, as anything newly bottled will glow in the dark.)

now the food side, any good restaurant purchases at market, daily, knowing they need to charge triple food cost to cover labor/overhead. 3x normally will cover this for most fine dinning. booze is much different as it does spoil behind the bar..ever seen behind the bar or drank a 10 year old opened bottle (pick ur flavor) booze?

but if ur refering to cheaper restaurants, i'm sure their beer sales volume has increased offsetting need to raise price outside of norm.but not the more, front side costly booze or wine...the booze can be liquidated with a few daily drink specials..but the wine is a long term investment for these guys, and currently have no customers with that spare $100 bucks to blow on a bottle. and I'd bet most wanna sell it as much as i wanna sell my gold for 1560. and the biggest assrape of them all in any restaurant is if u buy a soda (pepsi or coke from a fountain)....eight cents to fill the cup...and sold for $1-3, kindly, most offer free refills. also remember the wine can still be sold back to the distributor and exported directly after aging.

overall the booze is much more investment/term risk upfront then either the food or the wine

Fri, 04/29/2011 - 15:23 | 1221762 ivana
ivana's picture

Repatriation folks. Higher interest rates. Oil in USD skyrocketing. Do not forget that many CBs have dollar interests to pay ... that's coming and will probably be soaking USD for few years.

Than add: protectionisms, trade wars, closing of markets, domestic production restarting etc ... as soon as it starts, politicians will celebrate victory and USD may go even higher making imports cheaper.
How will chinese fit nto that - I do not know now.
Banksters also need to go shopping abroad, they will need strong USD (now they are trying to sell loans only in a foreplay)

Think we are only at the end of 1st quarter of great game.

Fri, 04/29/2011 - 15:30 | 1221800 Jim in MN
Jim in MN's picture

Right now man say repatriate, repatriate

I and I's patience has now long time gone

--Steel Pulse, 'Rally 'Round'

Fri, 04/29/2011 - 15:29 | 1221815 Seer
Seer's picture

Higher interest rates will kill the US's economic engine- the consumer, which will further place pressures to increase govt expenditures, which will further give upward pressure on interest rates.

Tipping points hit hard and fast.  This baby is going to blow...

Fri, 04/29/2011 - 15:36 | 1221835 sun tzu
sun tzu's picture

Unsecured credit is already at 15%. 

Fri, 04/29/2011 - 17:53 | 1222295 AK338WM
AK338WM's picture

It's overtime of a game started in 1913 and we are losing by over 14 Trillion points.

Fri, 04/29/2011 - 15:21 | 1221763 disabledvet
disabledvet's picture

can the banker use the trillions in RESERVES printed by the Fed to create GLD?  Come to think of it "maybe he already...



Fri, 04/29/2011 - 15:21 | 1221764 Magnix
Magnix's picture

Theres not going to be a 3 years. America might be GONE by that time or Chinese invaded us. LOL

Fri, 04/29/2011 - 15:32 | 1221825 Seer
Seer's picture

The Chinese will never "take over" things.  Their economy is also oil-based.  The entire global scheme was predicated on cheap ($20/bbl) oil, and here we are trying to keep it afloat with $100+/bbl oil- uh oh...

Fri, 04/29/2011 - 21:55 | 1222969 Iam_Silverman
Iam_Silverman's picture

"The Chinese will never "take over" things"

I agree.  To "take over" they would have to get here.  I know they have good swimmers (watched some Olympics), but can they all swim that far?  Of course, should we suddenly see some unexplained surges in ship charters (Baltic Dry Index off the paper) we should be very alarmed!

Fri, 04/29/2011 - 15:55 | 1221922 sdmjake
sdmjake's picture

China better turn that pile of FRNs into something else or they will be the ultimate bagholder of our crapola debt.

wong fooking vestmint

Fri, 04/29/2011 - 15:25 | 1221773 Jim in MN
Jim in MN's picture

Wholesale gasoline's knockin' on the $3.50/gallon door.....pounding on it...

Fri, 04/29/2011 - 15:36 | 1221832 fairlynumm
fairlynumm's picture

Rack moves of 6 cents/day we'll but through $3.50 next week -

Fri, 04/29/2011 - 15:27 | 1221786 gmak
gmak's picture

Nonsense.  Who are these clowns?

Foreign CBs who take USD onto their balance sheet do not do so in currency form. They buy T-bills, PM etc... The Foreign CBs hold assets, not cash. The cash remains in circulation. It goes out into the hands of those selling assets to the Foreign CBs, either the, or pension funds, or even retail investors who sell their PMs.

It is then re-used to either buy other investment assets, or utlmately it is spent on consumption. (Anyone who manages money knows that if you don't constantly market, your fund slowly dwindles away because someone somewhere always needs their money back to buy something for consumption, or resolve a debt from previous consumption). But it always remains in circulation.

"1.7 Trillion dollars  is the amount that we have added to our money supply since August 2007.  If all that money were to come into the current US money supply all at once it would increase money supply by 19%.  That would make US inflation among the highest in the world. "

How would this money 'come into the current US money supply all at once'? It is already there.


The only time it is not in circulation is if it is sitting in a sock drawer or in a can buried in a back yard - or in a wallet.


If the CBs sell their assets, they get cash. Let's say they spend the cash. So what? Whoever bought the assets used cash which is now NOT being used for consumption. Pushing assets back and forth does not increase the money supply, nor the money allocated for consumption.

Where inflation could come from is the FED creating money and buying these assets - then giving it to the .gov..... Which is why, if there is any inflation (money supply + credit growing more rapidly than the productive capacity of the nation), it is coming from the QE process. (duh!).







Fri, 04/29/2011 - 15:39 | 1221845 Seer
Seer's picture

I'm in total agreement with you.

Where inflation* will come from is when other countries eschew the USD, in which case the US will feel the effects of a huge surplus of USD (along with an inability to sell/rollover T-bills).

* Both currency (US will see more USD floating within its shores) as well as price inflation (imports skyrocket).

Fri, 04/29/2011 - 15:43 | 1221865 ivana
ivana's picture

>>Where inflation could come from is the FED creating money and buying these assets - then giving it to the .gov..... Which is why, if there is any inflation (money supply + credit growing more rapidly than the productive capacity of the nation), it is coming from the QE process. (duh!)<<

This is why I believe EUR will go lower for quite some time since Greeks will make biiig haircut but Greek GOV will recieve tons of new EUR cash from ECB for distribution (for consumption only!) in dead dead economy. Than other EU poor bastards will do same

Fri, 04/29/2011 - 15:44 | 1221878 faustian bargain
faustian bargain's picture

If the world's central banks were like two tubes of toothpaste connected to each other, the money sloshing around between balance sheets wouldn't mean much. But once they both start squeezing at the same time, you're going to get some toothpaste on the floor.

Fri, 04/29/2011 - 16:44 | 1222053 Seer
Seer's picture

Great analogy!

Fri, 04/29/2011 - 15:56 | 1221916 Raynja
Raynja's picture

I think the word that you are skipping over is velocity. When treasuries are parked at a cb the dollars they could be converted into are not circulating. If at maturity the cb takes dollars from the treasury and does not rollover bond holdings, then there are more dollars chasing the same amount of goods.

Fri, 04/29/2011 - 18:05 | 1222349 FreeNewEnergy
FreeNewEnergy's picture

gmak, I think you're confusing currency holdings with treasury purchases (debt).

This article also dovetails - without mentioning it - why the US gov. won't allow companies to repatriate their dollars held offshore without paying a sizable tax on it, because it causes inflation.

Fri, 04/29/2011 - 15:30 | 1221798 proLiberty
proLiberty's picture

I disagree with the author's premise.  "Inflation" as we now popularly define it, is the rise in wages and prices in response to the willingness of buyers to bid more for these things.  This willingness comes as result of the "appearance of propserity" that comes from the suppression of the market rate of interest by an abnormally increased money supply. 

To phrase it a different way, when Uncle Ben pushes money into the economy, and Uncle Sam uses it to bid up the price of the things he wants to buy, naturally sellers are happy to rachet up their ask price.  But printing money that just sits on a balance sheet (of the Fed or a bank), doesn't affect prices as long as it is sequestered from being in circulation. 

What counts is the money in use, not the total amount of money printed.   


Fri, 04/29/2011 - 15:37 | 1221850 faustian bargain
faustian bargain's picture

as long as it is sequestered from being in circulation

that's the whole point of the article.

Fri, 04/29/2011 - 17:33 | 1222232 hardcleareye
hardcleareye's picture

The other consideration is the historical (inverse) relationship between interest rates and the amount of cash people (not just foreign central banks) are willing to hold on to and not invest (liquidity preference). 

The lower the interest rates the more people sit on their cash....

Hussman has a detailed article about the feds pushing monetary policy to the unstable limits (end of the curve) and how to control inflation they are going to have to severely contract the monetary base, and the first moves are going to be ugly!!!

"..small increases in interest rates from near-zero levels imply huge changes in liquidity preference and velocity. If those changes are not offset by opposite and proportional changes in the monetary base, strong inflation pressures are likely to follow."

"Given the extreme stance of monetary policy, the avoidance of inflationary pressures increasingly relies on a very persistent willingness by the public to directly or indirectly hold the outstanding quantity of base money in the financial system. Small errors will have surprisingly large consequences. This is not a stable equilibrium. "

Sun, 05/01/2011 - 07:30 | 1225199 huggy_in_london
huggy_in_london's picture

exactly ... excess reserves are not themselves inflationary.  A lot of this is merely speculators trying to front run an inflation bout, and by doing so have caused a mini-bout of inflation.  However, all spec positions eventually get unwound, and quickly if the inflation doesn't appear.  I think the real vulnerability in the market is a REVERSAL of all these trades, a crash in metals and a resulting big bid to the USD.  


Pretty poor article if you ask me.....

Fri, 04/29/2011 - 15:27 | 1221799 Caviar Emptor
Caviar Emptor's picture

Oh Man this is exactly what I've said for months!!!

There's an ocean of dollars out there, the result of 4 decades of reckless printing, trade deficits and foreign entities partying off the proceeds. As dollar's buying power drops who's gonna want to sit on cash? It's one reason PMs are doing so well. Also mega yachts

Fri, 04/29/2011 - 15:31 | 1221803 Atch Logan
Atch Logan's picture

This percent by what measure.  I live in Kansas, and shop once each week. The upside percentage for me is never less than 8% on average EACH Week.  I shop now only at WallMart, but used to also shop at Dillons.  Often I can average down at Aldis, but never in the last two months have spent less that 8% more on a week to week basis.

Fri, 04/29/2011 - 15:37 | 1221842 duo
duo's picture

Just think how much prices will rise when Wal Mart is the only grocer in your area.

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