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Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression
- AIG
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- Hyperinflation
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John Williams, who runs the popular counter government data manipulation site Shadowstats, has thrown down the gauntlet to deflationists, and in an extensive report concludes that the probability of a hyperinflationary episode in America over the next year has reached critical levels. While the debate between deflationists and (hyper)inflationists has been a long and painful one, numerous events set off in motion by the Bernanke Fed (as a direct legacy of the Greenspan multi-decade period of cheap and boundless credit) may have well cast America as the unwilling protagonist in the sequel of the failed monetary policy economic experiment better known as Zimbabwe.
Williams does not mince his words:
The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar. The results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.
And even as Bernanke continues existing in a factless vacuum where he sees no asset bubbles, Williams takes aim at the one party almost exclusively responsible for the economic carnage that will soon transpire:
The crises have been generated out of and are centered on the United States financial system, triggered by the collapse of debt excesses actively encouraged by the Greenspan Federal Reserve. Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies -- policies that limited real consumer income growth -- Mr. Greenspan played along with the political and banking systems. He made policy decisions to steal economic activity from the future, fueling economic growth of the last decade largely through debt expansion.
The Greenspan Fed pushed for ever-greater systemic leverage, including the happy acceptance of new financial products, which included instruments of mis-packaged lending risks, designed for consumption by global entities that openly did not understand the nature of the risks being taken. Complicit in this broad malfeasance was the U.S. government, including both major political parties in successive Administrations and Congresses.
As with consumers, the federal government could not make ends meet while appeasing that portion of the electorate that could be kept docile by ever-expanding government programs and increasing government spending. The solution was ever-expanding federal debt and deficits.
Purportedly, it was Arthur Burns, Fed Chairman under Richard Nixon, who first offered the advice that helped to guide Alan Greenspan and a number of Administrations. The gist of the wisdom imparted was that if you ran into problems, you could ignore the budget deficit and the dollar. Ignoring them did not matter, because doing so would not cost you any votes.
Back in 2005, I raised the issue of a then-inevitable U.S. hyperinflation with an advisor to both the Bush Administration and Fed Chairman Greenspan. I was told simply that "It's too far into the future to worry about."
Indeed, pushing the big problems into the future appears to have been the working strategy for both the Fed and recent Administrations. Yet, the U.S. dollar and the budget deficit do matter, and the future is at hand. The day of ultimate financial reckoning has arrived, and it is playing out.
Looking at the events over the past year demonstrates that Williams is not just being a drama queen.
Effective financial impairments and at least partial nationalizations or orchestrated bailouts/takeovers resulted for institutions such as Bear Stearns, Citigroup, Washington Mutual, AIG, General Motors, Chrysler, Fannie Mae and Freddie Mac, along with a number of further troubled financial institutions. The Fed moved to provide whatever systemic liquidity would be needed, while the federal government moved to finance corporate bailouts and to introduce significant stimulus spending.
Curiously, though, the Fed and the Treasury let Lehman Brothers fail outright, which triggered a foreseeable run on the system and markedly intensified the systemic solvency crisis in September 2008. Whether someone was trying to play political games, with the public and Congress increasingly raising questions of moral hazard issues, or whether the U.S. financial wizards missed what would happen or simply moved to bring the crisis to a head, remains to be seen.
More on the impending timing of the complete economic collapse of the US financial system:
Before the systemic solvency crisis began to unfold in 2007, the U.S. government already had condemned the U.S. dollar to a hyperinflationary grave by taking on debt and obligations that never could be covered through raising taxes and/or by severely slashing government spending that had become politically untouchable. The U.S. economy also already had entered a severe structural downturn, which helped to trigger the systemic solvency crisis.
The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year.
What are the alternatives for the US? In a word, none. Presumably this means you should ignore what the axed "experts" from various bailed out sell side research chop shops try to tell you.
The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover obligations. The alternative would be for the U.S. to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money. With the creation of massive amounts of new fiat dollars (not backed by gold or silver) will come the eventual destruction of the value of the U.S. dollar and related dollar-denominated paper assets.
What lies ahead will be extremely difficult, painful and unhappy times for many in the United States. The functioning and adaptation of the U.S. economy and financial markets to a hyperinflation likely would be particularly disruptive. Trouble could range from turmoil in the food distribution chain to electronic cash and credit systems unable to handle rapidly changing circumstances. The situation quickly would devolve from a deepening depression, to an intensifying hyperinflationary great depression.
While the economic difficulties would have global impact, the initial hyperinflation should be largely a U.S. problem, albeit with major implications for the global currency system. For those living in the United States, long-range strategies should look to assure safety and survival, which from a financial standpoint means preserving wealth and assets. Also directly impacted, of course, are those holding or dependent upon U.S. dollars or dollar-denominated assets, and those living in "dollarized" countries.
In other words, the economic cycle will come back with a vengeance. Having pulled America out of the abyss by the last hairs on its Rogaine infused head, the Fed and the Administration have merely purchased one-two years of excess time in which insiders can sell all their holdings (look at recent reports indicating the ratio of insider sellers to buyers) and banks can book one/two years of record bonuses before signing off.
And whether one is a deflationist or inflationist, the take home message from Williams' thesis that everyone should be able to agree on, is what everyone knows yet is unwilling to admit: that the US economy (and its derivative, the undecoupled global economy, which that most certainly includes China) is that we are now caught in the greatest Ponzi bubble of all time. One small hiccup in which there is no incremental hollow value added on the margin courtesy of printing presses pushing fiat pieces of paper in overtime, would lead to precisely the same outcome as the world saw with Bernie Madoff: from $50 billion to 0 overnight. It is somehow fitting that world GDP is 1,000 time greater, at $50 trillion. Take away the fiat illusion, and the real value collapses to those concepts of tangible value that will remain in a post bubble implosion scenario: whether these be spam, gold, or lead.
And just so there is no confusion about the course of events, Williams presents the Zimbabwe hyperinflation episode as the case study that the historian Bernanke should have been focusing on, instead of spending long nights, "learning" from the Great Depression.
Hyperinflation in Zimbabwe, the former Rhodesia, was a quadrillion times worse than it was in Weimar Germany. Zimbabwe went through a number of years of high inflation, with an accelerating hyperinflation from 2006 to 2009, when the currency was abandoned. Through three devaluations, excess zeros repeatedly were lopped off notes as high as 100 trillion Zimbabwe dollars.
The cumulative devaluation of the Zimbabwe dollar was such that a stack of 100,000,000,000,000,000,000,000,000 (26 zeros) two dollar bills (if they were printed) in the peak hyperinflation would have be needed to equal in value what a single original Zimbabwe two-dollar bill of 1978 had been worth. Such a pile of bills literally would be light years high, stretching from the Earth to the Andromeda Galaxy.
In early-2009, the governor of the Zimbabwe Reserve Bank indicated he felt his actions in printing money were vindicated by the recent actions of the U.S. Federal Reserve. If the U.S. went through a hyperinflation like that of Zimbabwe’s, total U.S. federal debt and obligations (roughly $75 trillion with unfunded liabilities) could be paid off for much less than a current penny.
What helped to enable the evolution of the Zimbabwe monetary excesses over the years, while still having something of a functioning economy, was the back-up of a well functioning black market in U.S. dollars. The United States has no such backup system, however, with implications for a more rapid and disruptive hyperinflation than seen in Zimbabwe, when it hits.
Maybe in retrospect it is good that banks are not lending out. If the $1.2 trillion in excess reserves were to actually hit circulating currency overnight, or even in a much more gradual fashion, then hyperinflation would surely be unavoidable, not so much as function of the consumer becoming a dominant force once again, which is the deflationists' key point, but as a result of the excess liquidity of the capital markets, which is the only reason why the S&P is where it is, into Main Street. As it stands, banks' unwillingness to recreate the cheap credit bubble by lending to anyone who has a pulse and can walk is the only thing that is so far preventing America's name change to the United States of Zimbabwe.
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Ms,
I thought about that too. A hoard of gold or silver should get you through the next ten years of property taxes. But, I tend to think that tax levels would be depreciated along with all debts in hyperinflation. Where I live, a majority vote is required to increase any property taxes, and for the first time in a very long time, a big school levy went down by a 20% margin. A sign of things to come. One could argue that they could change the state constitution, seize gold, or declare martial law, but that is all speculation.
This much is sure. Local governments simply cannot throw everyone out of their houses. There would be anarchy.
Your post/response sounds very reasonable. I felt the anarchy contemplating how carefully I have tried to live to make sure my family and I are protected, and then that happens? My property seized for unpaid taxes? Yeah, someone would get hurt, bad. They wouldn't want to try that with all of us in the same boat.
The truth is, the system is so broken, they are only pretending there is a system up and running. There isn't. They just do things and hope it helps keep the engine running. I had a friend that had a car that caught on fire everytime he started it. He drove that thing for years. Always had what he needed to put it out, every time (it was an old Saab, something with the airfilter, the fire would come out of the center of it, he would put it out with water, I don't know cars). I think the economy is like that Saab. Can appear to run a long time. Things are still getting where they need to go. It just isn't happening "well."
I am guessing the Saab eventually was retired, but who knows?
Yea. The government is running on fumes. Just like the Saab
I am the type that would buy that car - cheap-. It probably had a overflow in the carb or a leaky fuel injector combined with a faulty choke or cold enrichment sensor. $50 bucks at the junkyard. Due to circumstances I invested in skills. Check the unemployment numbers for skilled anything. If the fecal matter hits the fan, not much of a problem. Want your car fixed? Roof? HVAC? Got gold, silver, something to trade? Under the table untaxed? If I can't do it a friend probably can. Please accumulate gold, drugs, guns etc. I might need them in the future.
Heard that loud. You are a good neighbor. I'll be one too.
There's been dozens of little burg cities created in the People's Republik of Kalifornia over the past 20 years....each with their own contingent of overpaid bureaucrats and paper pushers.
Kali voters did a thumbs down on any new State taxes and Prop 13 and downward prop reassessments are in play. Now the yahoos in the newly created burgs are trying to devise new schemes to pick the taxpayer pockets. The State is fukkin' them on their promised revenue, too.....large and small. It'll be a free for all to jam it to the taxpayer in '10. Guaranteed.
You should do like I did. Teach the voters how to vote the fuckers out in your local government. So far there's only 2 out of 8 fuckers left in our city council and the barbarians now know what to do when they get out of line.
There's going to be tax revolts. If you don't kill the tax collector someone else will.
Yup! I'm quite revolted already.
Many states limit annual increases in property taxes on your primary residence to the lesser of inflation or a fixed rate (e.g. 6%). If you live in one of those states, no worries. You'll be nearly tax free after a year or two of hyperinflation. Of course local government will collapse and services will dry up.
Maybe get a HELOC, purchase tangibles with the FRNs, and make minimum payments until the lights go out.
I believe in the '30s in Florida property taxes approached 35%
I wouldn't worry about paying taxes in the HGD. I won't be, and neither will the other 200 Million gun owning Americans.
How will they be able to enforce it, if that many people say Fuck You at the same time?
I want you to be right so bad. I want to know there are a bunch of us NOW. I am so ready. Give them nothing because all they do is steal.
Why pay off home and car? When the collapse comes who do you think is going to try to come to foreclose or repo? If the cops won't come because they aren't there (because they all busy picking cans up off the side of the road to earn enough money for their donut habit) then what idiot is going to put his life at risk for an asset that he doesn't personally own? Just default and forget it.
As for unsecured debt, not sure what the creditors can do short of trying to sue you in court, then try to collect. First, they need to subpoena you. Second, they need to get their day on court. Third, they need to prove you own the debt they are trying to collect on. Fourth, if successful, they need to try to collect on the judgement.
Then again, after hyperinflation, your old debts will be the equivalent of mere pennies. Just wait until the dollar has hyperinflated and then pay off your mortgage and your CC debts with pocket change.
Bottom line, I wouldn't worry. Hold onto your gold and guns. If you can outlast them, you win.
I am Chumbawamba.
Because there won't be any jobs for income. They still own your home and they will still take it because you can't pay for it because of your unemployment, just like they did during the great depression.
Right, and just like in the GD you get a bunch of neighbors with shotguns together to form a human line of firepower in front of your property, then dare the sherriff to run the gauntlet. Sherriff, sensing a losing proposition, and realizing that it's not actually HIS money--"and say, isn't the bank trying to foreclose on me as well?"--will simply turn around and drive off into the sunset.
As far as employment goes, that's why you are buying and holding gold and silver now. You are leveraging your fiat currency for a big win further on down the road. Besides, bank robbing will become a promising (and rewarding) career in a few years.
I am Chumbawamba.
While I agree with shooting those fuckers directly in the head because they have body armor, The banksters can still wait you out till they get around to taking your home. I suppose you can still destroy the house before that happens.
Body armor means nothing.
http://en.wikipedia.org/wiki/.338_Lapua_Magnum
.223 goes though any soft body armor at close range. Just don't try to shoot at the rifle plates on chest.
.308 is not as good at drilling.
It's just a false sense of security suit.
Just don't be trying to use handguns.
But ya go ahead and wear that shoulder and upper arm armor and leg armor. It'll sop up some of the blood. It's all mostly to make the person wearing it feel safer and to make him "appear" more inpenetrable.
Good information.
No one is using 338 Lapua. You can get body armor that will stop 5.56 NATO and 308. Of course if you get hit enough you're screwed anyway, but it's way overblown to say that body armor is useless.
Not really overblown at all. It's useless against high powered rifles. Relies on the psychological principal of the halo affect.
http://en.wikipedia.org/wiki/Halo_effect
Which is simply peoples inability to dicriminate data correctly. They tend to overgeneralize or undergeneralize. Having protection against handguns, MP5's minor protection against 7.62x39. etc etc Doesn't translate to a .223 or a hick coming after you with a .458 win mag. It's easy to halo effect yunguns and overstate strengths and diminish weaknesses.
Agreed - but it's more likely that someone will walk up on you with a .45 and try to blast you in the chest, which a basic level III can handle. If someone is taking shots at you from a distance then it's better to have different movement tactics anyway.
the banks, ended up owning 60 % of the farmland after the great depression. their agenda has a long timeframe.
I'm thinking that in most urban/suburban communities they could just park a tank or two in front of the local water treatment plant, shut off the valve, and then direct all the thirsty refugees to the nearest detention center for processing after a week or three.
I'm also thinking that a well would be a good investment...
Way ahead of you there :)
I am Chumbawamba.
A well...
One of the best investments ITSHTF...
Yes Sir! 3 bank robberies in metro Denver in one day this week. Christmas is just around the corner............
Exactamundo!
Neighbor Sam to neighbor Ralph: "Are those dead bodies on your lawn a new fangled ornament?"
Neighbor Ralph responds: "Nope, just a bunch of repo guys who still thought they had a job."
Chumbas on fire
Then try for a jury trial. What are the odds that one in twelve is not willing to say 'fuggit' and stretch things out for the free lunch. And then vote no anyway?
Belt-Fed 7.62mm MG43 or M60A2, A3
When will you sleep ... everyone will come after for for the gun. Beans, Rice, and Soybean oil is a much better solution ... he who lives by the Belt-Fed 7.62mm, dies by the knife.
Look into soy. It is not so good, particularly for men. Even as he dies by the knife, you, my friend, may die...
Adds tits to men, but also makes for good arteries ... tits never killed anyone, i'll stick with my soy.
No, you've got it the other way around. They will want your beans, rice, and oil so that's why you need the gun.
When will you sleep? What kind of question is that? Uh, yeah, they're just gonna sneak up on me and slit my throat. If I had only bought more food they wouldn't have come and knifed me? Obviously, you are not a golfer.
put assets, property autos etc, in a family trust, or better yet incorporate. (like creating a new person)
Research: 'debt verification letter' - and send it certified mail within the 30 period stated in the letter from the debt collector.
"With the creation of massive amounts of new fiat dollars (not backed by gold or silver) will come the eventual destruction of the value of the U.S. dollar and related dollar-denominated paper assets."
That's a rather large leap, don't ya think? What about velocity? What about the massive amounts of credit contraction? Wouldn't you call a house in CA valued at $200K in 2001, but selling for $680K in 2006, hyperinflationary?
I believe the consumer and small business is not interested in credit, therefore inflation is remote.
But ZH has an interest in striking it rich in the next "gold rush", so hyperinflation gets their vote and a post.
And here we thought CNBC was biased.
No. GS, JPM and FED have every interest in "revaluing" assets.
Wouldn't you call a house in CA valued at $200K in 2001, but selling for $680K in 2006, hyperinflationary?
No, you would not.
I am Chumbawamba.
what would you call it? is monetary inflation only possible through additions to supply and not via relaxed regulation on velocity? maybe you had slower monetary base growth during that time, but system-wide leverage expanded many times, making more dollars available to chase rising asset prices.
so opposite could also happen --> ie, spike in monetary base w/ strong contraction in velocity could equate to less dollars in the system (whats happening now).
right now people are still playing by the rules and repairing balance sheets (deflationary). If some catalyst makes people believe that the rules have changed and there is no penalty for default, then you'll have the switch from "balance sheet repair" to "obtain physical assets as fast as possible".
Of course it is. Credit expansion causing asset values to climb is inflation. But Chumba made a fatal mistake: Gold went from $200/oz in 2001 to $750/oz in 2007 during those hyperinflationary years and he was late to the party. We've already had massive inflation, but central banks lied on the official inflationary numbers to keep the lending going. Now we've hit the wall. No amount of credit is fixing anything. Deflation previals going forward.
To admit inflation already happened is akin to Chumba admitting he made a stupid play by buying Gold - which he did.
John Williams is making a reputational stake here. He risks a great deal making such a bold statement. He wouldn't post it frivolously; it projects the same thorough thinking that pervades his statistical revelations.
Most commenters here simply don't rise to the caliber of Mr. Williams; and certainly don't have the "time in grade" to lend weight to argument.
I agree.
Williams has already staked his reputation many times on inflation, and to be fair -- he was right on the money from 2003 - 2007. But then he did something very strange -- he lost sight of credit destruction as a path to monetary contraction. He lost sight of monetary velocity, and he clung to too few metrics for the measurement of money supply -- becoming obsessed with countering official M1/2/3 with his own stats based on Fed credit creation (as is the goal of his Shadowstats site). But this ignores distribution.
His hunt for red herrings has caused him to miss the forest for the trees: America is broke. The banking system has been recapitalized, yes. But Main street is contracting at a rate that can only be called deflationary. We have skyrocketing unemployment. We have a debt crisis which is spiraling out of control. We have an overhang of capacity, and we have rapidly collapsing demand. There is nothing remotely inflationary here.
If everyone goes bankrupt including our foreign creditors who will buy treasuries? Hence the implosion of the US government bond market and hyperinflation.-------
We're already buying our own treasuries.
Viewed on a global level, we have put military bases in most of the important countries in the world. The rest of the world is trying to decrease the power of the world's only superpower (read the Prince by Machievelli) because we are taking advantage of the situation of being the worlds reserve currency.
The central bankers want central banks in every country, I suspect trying to get muslim countries together (gulf currency) would serve their purposes especially if the military arm of the bankers (world's superpower) could be attacked by said oil superstate and the victim could then respond by defeating the entire group in a battle and adding a central bank.
The bankers are playing Civilization with the real world - they brought China into prosperity.
Mine was more a semantical issue. Hyperinflation is not inflation. If s/he said "inflationary" then I would not have made an objection. If you don't understand the calls then please leave the arena.
As for the rest of your inane comment, it doesn't merit a response.
I am Chumbawamba.
the only people playing by the rules, are the little guy, do you think he can win with that handicap?
The little guy knows.
right now people are still playing by the rules and repairing balance sheets (deflationary). If some catalyst makes people believe that the rules have changed and there is no penalty for default, then you'll have the switch from "balance sheet repair" to "obtain physical assets as fast as possible".
Some people might be playing by the rules, this person isn't. If the banks and the government aren't then fuck that, I'm not either.
It's been "obtain physical assets as fast as possible" for me since 2007. I'm still way ahead of the curve.
Hyperinflation != inflation.
I am Chumbawamba.
fair enough.
Great post with a lot of very usefull resources. Thanks for sharing.
mediahuset nova as
I thought Tyler was in the "deflation" camp. Did I miss something?
Nothing wrong with posting a wide variety of opinions on the matter. If it were easy, anyone with a higher than room-temp IQ could figure it out - right?
there are several people posting under the same nick.
The bond-expert Tyler is still in the deflation camp.
Hyperinflation "works" in small economies, but the dollar-hegemonie is too big for hyperinflation. There are simply not enough alternatives outside the dollar room.
Ah, thanks! I should have guessed that.
I tend to agree. I'm a total novice at this prognostication thing, but I can't help but think that everything points to deflation no matter how much Chopper Ben prints. If he was going to devalue I can't imagine why he wouldn't have done it by now (though he of course has that option at almost any time).
He's waiting for a miracle recovery that is never going to come and isn't going to be able to react fast enough once the asks start to creep ugly on the bids for the Obamadollars he needs to create out of thin air.
But like I said, I really have no idea (so I'm hedging between metals, staples - paper products, matches, etc. - and cash).
When you say "deflation" do you mean the currency or the price type?
You folks need to be more clear when you throw these terms around. There is a difference.
There is no deflation going on. With Ben printing trillions of dollars, there is actually inflation. This assumes we are speaking of the currency.
As far as prices, yes, we are witnessing price deflation. In some areas. In others we are seeing inflation (again, of prices). The price of gold is not so much inflated as it is an actual manifestation of inflation itself. The price of gold is the value of the dollar in the inverse.
I am Chumbawamba.
Where do you see deflation?
In equities?
In real estate (but do you want any now?)
In commodities?
In retail?
In consumer goods or durables?
In second hand sales?
In MBS or any corporate bond?
No, excepting real estate that is in a gargantuan bubble and has recently burned so many, so deeply, prices are not reflecting deflation. Currency gimmicks have in fact made many prices much, much higher relatively, and certainly for imports.
We die by fire. Inflation will allow the debt default short of official default. It may kill globalism, and may change the gov't.
Agreed. Anyone who thinks we are in deflation doesn't shop where I do and doesn't pay utilities that in some case have tripled in the last two years. Also, price is only one indicator of inflation. I used by soap as a full bar but over the last two years the manufacturer has been carving out the bottom - same price though.
Not this old saw again. For the last time (or, unfortunately not) MANY PRICES SKYROCKET DURING DEFLATION.
Supply chains collapse during a deflation, which causes the price of many items to go through the roof.
You can't point to granular metrics like the price of soap and then throw up your hands, calling it "inflation".
There is net credit destruction. There is rising unemployment. There is an overhang of manufacturing capacity. There is less liquidity around.
That's deflation. Period.
Net credit destruction= less ability for people to purchase treasuries. There goes the bond market.
even while oil prices are still high in dollars, consumer goods and services have gotten much cheaper, should oil go down some, as fundamentals suggest will eventually happen, things will get even cheaper.
In the construction biz, you can get some stuff built for 30,40, 50 percent cheaper than 2002 prices (let alone compared to 2006 peak) between the cheaper labor (contractors are desperate) and the cheaper materials, imagine if commodities and energy prices revert to the mean after having quite a good run this year, how much cheaper will things get? Again, even with oil prices high, shipping is cheaper. Housing is cheaper. Land is cheaper. Building a house is cheaper. Shingles are cheaper. Computers, appliances, toys, retail mark-ups are all way down in price. Wages and earnings are down.
If you buy this once-in-generation rally in equities prices since March will continue at this pace and dollar will continue to tank as much as it has, then you have an argument, but given the state of our economy, it seems much more likely this has been a bear market rally that will correct some....already, the increase in equities price has slowed way down from September.
I assume you are talking about the fact that the US dollar is the worlds reserve currency, thus making the US economy tied to the world economy. But to believe that the US currency can retain such a position is rather foolish and is what will ultimately cause the hyperinflationary event. Imagine what happens when we can no longer get imports and every dollar in existence is chasing all the goods left in this country.
Are we talking short term, long term, mid term (and what is a "term)? A lot of the times, people don't specify their time horizons. Someone could be anticipating near-term deflation and mid-to-long term hyperinflation and be correct on both counts.
Hyper-inflation is $1 million per loaf of bread.
One thing to keep in mind - Allowing hyperinflation to take place is suicidal for the Fed. The Fed only has power as long as the dollar is the dominant vehicle for commerce.
As far as the Fed is concerned, deflation is the real threat; it crushes their leveraged system. Inflation is the only hand they have to play.
Almost correct.
The Fed sees deflation as the immediate threat, and they will print as much as it takes to offset those forces-- to an extent. And, technically, reflation is the hand they are trying to play.
Hyperinflation is the ultimate threat, because it not only risks the rapid devalution of the dollar-- but it seriously puts at risk the Federal Reserve's existence. Just take a look at global examples of hyperinflationary downturns and what happened to central banking authorties. Not good. My guess is perhaps, our own Federal Reserve will ultimately save their own ass, depsite putting everyone else on theirs.
Despite all the despair from deflation in the last Great Depression, the Federal Reserve survived because the dollar maintained a semblance of value. We can always debt how successful that was, but it allowed the Fed to stay intact.
That all being said, this Federal Reserve probably sees more underlying debt deflation that we could all fathom. Otherwise, they are playing a very, very deadly game of dollar devaluation "chicken", that they would most likely lose.
Severe deflation kills everyone and everything in the financial system. The Fed will do all it can to prevent deflation. If they are faced with a choice of severe deflation and near-certain hyperinflation, they will choose the latter.
why does it kill people who work and save ?
They aren't really "in the financial system" in this context. The Fed cares about banks and bankers, and to a lesser extent government, major borrowers, and various extra-large businesses. They don't care about responsible mom and pop savers.
It kills savings because it inflates it away in the same way it inflates debt away. If you saved up $100,000 that's a tidy sum in 2009 dollars. But in 2014 dollars it might be the equivalent of $100. Or, looking at it in the hyperinflated currency, $100,000 in 2014 might buy you dinner for three at a nice place. Imagine eating your life savings in one night.
I am Chumbawamba.
To the point. Good illustration.
they prefer, controlled double digit inflation, spread out long enough to convince people that they prevented hyperinflation
It's the lull before the golden shower. Get under those legs and prepare for the hot trickle.
I am Chumbawamba.
We are already in a depression. What lies ahead of USA is Hyper Stagflation.
The only solution to our debt problem is destruction of the dollar, which will result in the destruction of the debt the households owe to the banks and destruction of the debt our nation owe to the foreigners.
Sounds like allot of destruction.
Actually, I hope you are right and believe hyper stagflation is what THEY have been hoping for and working towards.
The problem is, over the years I've been following this ShadowStats fellow, I have found him to be extremely conservative, econometrically speaking, and arrived at the same conclusion he did quite some time ago (but hoped my numbers were off!).
This is what has me a lil freaked too. This guy is not screaming about the end of the world every other day and his numbers are very credible.
It'll probably TRY to get off the ground. The banksters will probably try to make things like they want it get a year into and figure out this is doomed. Eventually they'll give up go into a deep depression.
Would the US not be lined up behind a number of other countries? I do not think the US is the first disaster awaiting the world.
Having the reserve currency makes us ground zero.
i think that is not true. do world market participants move assets out of US and into... Greece? no. so take that to the logical conclusion. who is left standing? rightly or wrongly, i have a feeling the US is one of the last few standing in your apoclyptic scenario...
You are probably right, but one should diversify 10% of survival fiscal base across NZ, Aus, Can dollars ... all asset rich countries with sound rule of law.
The US economy/society is way too dependent on transportation of necessary goods produced in foreign countries. I live in rural/agricultural NC and my local supermarket is stocked with fruits and vegetables from California, Chile, Brazil. Our stores maximize profit by keeping large warehouses in shipping/distibution centers and having an army of trucks circulate just enough inventory to keep the shelves full for a week at most. This dependence on long-distance distribution systems and outsourcing is very vulnerable to price increases in energy prices.
Most other countries don't operate this way, food is much more local sourced and stores are more mom & Pop verieties. Most other countries already deal with $8 a gallon gass after converting local currency, so they have smaller distribution lines in order to keep prices affordable. Small hyperinflation in the US might not cause foriegn capitol to flee to strength immediately, but our consumer spending and domestic economy will grind to a halt as people try to eat, let alone support our rediculous conspicuous consumption. Foreign capitol flight then happens as it becomes obvious our economy is structuraly/logisticaly flawwed. That is why I believe the US will suffer greater than most other countries in this scenario.
JIT (Just In Time) is a huge problem when things break down.
Josey,
The flight to suburbia and long lines of distribution is a relatively recent development.
Local sourcing and local fabrication is a recipe for full employment, re gentrification, public transportation and reindustrialization. Granted we wind up living circa 1947-1960, but that was not the worst thing in the world
That is my best hope. Not likely.
They don't necessarily go anywhere. A la post-1931 after the British pound defaulted on gold, trade simply shut down.
do world market participants move assets out of US and into... Greece? no. so take that to the logical conclusion.
Okay, I logically conclude China. C'mon, you can't set up some straw man argument like Greece as the only option. The scenario is sharp devaluation of US $$ makes panic - all those $$ holders flush as fast as possible. Everybody selling $$, nobody buying, except the now over its head Federal Reserve. The Fed has no non-dollar options to remotely soak up the influx of $$. Those dollar panic dumpers aren't going to want T-Bonds or even T-bills which are merely derivatives on the value of the dollar. Neither will they want the toilet paper derivatives sitting like a massive pile of turds on the wobbly balance sheet.
Hyperinflation by crashing value versus other currencies. Hyperinflation is not a sever manifestation of price increases - it is a mass repudiation of the currency.
Bigger they are, harder they fall, etc.
Evidently you missed out on Iceland, Latvia, Greece and Ireland?
What percentage does he consider hyperinflation to be?
I mean, if this country sees 10% inflation, people will go crazy. Remember the last time we had that kind of inflation, Reagan won 49 states in a landslide.
My point is it does not have to be hyperinflation to bring major changes to the country. 10% would do it, or even less.
Ok, we're at 10%. Now what?
I am Chumbawamba.
change we can believe in...
Fed buying MBS at par and allowing serial rollovers while the transacting bank takes FRN and levers them 10:1 to speculate in commodities, emerging markets, equities, and treasuries IS inflationary.
At 10:1 fractional lending to Treasury, a bank can borrow from the Fed at 0% lever that sum 1000%, buy any term Treasury and gain 10% to 40% per annum. Even if the currency is depreciating, they pay back over time with depreciated currency. That is inflationary.
Parking funds with the Fed at 2.5%, is inflationary.
In other words, everything the Fed is doing is generating huge spreads for the banks while they hide the massive impairments in their collateral.
Every US and global citizen who transacts in $$ pays except the bankers as their currency is debauched while banks are slowly made whole.
The game is between fixed nominal debts and rapidly moving relative currencies subject to the whims of the printers.
Banks and gov't will win, the weak and powerless will be plundered.
But it is all inflationary. And despite all the deflationistas, inflation IS EASY TO PRODUCE. It is just not easy to uniformly distribute. Joe sixpack will be ruined, but the power elite and financial oligopoly will be saved.
It is true too that hyperinflationary flame fanning plays to the psychological hopes of the central bank. They wish to create a sense of extreme inflation to smoke out the hoarding of currency and increase the velocity of money exchange.
But it is all a terrible mess, only haltingly steered or managed.
A rather pessimistic article. Unfortunately, I find little fault in his reasoning. The real key, of course, is the timing. The bit about the insiders getting while the getting is good is especially telling.
Perhaps its time for a bit more of that so called "barbarous relic" (Element 79), before the real barbarous relic, a.k.a. central banking, sends us all to economic hell?
I find massive fault in his reasoning. There is almost no empirical evidence for inflation. Where's the logic here?
Williams is a nutjob.
Besides, if the bond market smelled inflation they would slap the shit out of Bernanke and he would obey like a good little boy.
Let's not forget who runs the show here. (Hint: It isn't the Fed).
No Bernanke is slapping the shit out of the bond vigilantes when he stepped over the line with QE monetization. Any lack of demand in Treasuries is artificially supply by fresh printing and thus when gov't debt should have rapidly rising yields to reflect the much greater risk and compensation for ballooning money supply, QE may actually garner NEGATIVE yields in real terms.
Gov't can pretend it is borrowing as cheaply as any time in the republic's history, but it is all an artifice!
Gov't is an inflationary beast that has snowballing needs of expediture with dwindling resources. Making up the deficit with pretend borrowing and outright printing is INFLATIONARY!
They were once restrained by a Gold Standard. No longer.
So the argument is that noone sells from here until Dow 50K? Interesting. The fact that downside volume far exceeds volume on up days should tell one that will not be the case. But who knows, maybe 2 computers will shake hands at Dow 1 million before things vaporize to zero.
The Final Solution
I feel a little queasy.
Ummmm, the smartest economist in the history of the world, Larry Summers, is responsible for the USA's current economic policy and he said yesterday that "everybody" agrees the recession is over.
All is well again.
Carry on.
heh...thanks I feel so much better now.
Breath In Breath Out....
Yeah....and Iris Mack still disagrees with Summers, and so does her attorney, who got a nice fee in that Harvard settlement which favored her in that unlawful-termination-due-to-dickhead-Summers suit.
It could be genetic, though, as Samuelson, his uncle (still at MIT?), just recently experienced an epiphany of sorts, and muttered, "Maybe offshoring all American jobs isn't such a good idea after all....."
It's settled science ... didn't you get the email ... oh no, I guess it got deleted.
DH - We're right back to words vs deeds again pal... Time to send some spades.... Some folks must be forgetful and require a reminder
what a ridiculous article, USA like zimbabwe? it is just over blown poppy cock and im sick of reading idiots like you, blowing things out of any realistic perspective.
Just follow bond and gold markets, yes i agree there probably will be inflation, but cant even be bothered to explain why i have this view.
Yeah, thanks, Nouriel. I'm sure your explanation would have been mind-numbing.
I am Chumbawamba.
what a ridiculous article, USA like zimbabwe? it is just over blown poppy cock and im sick of reading idiots like you, blowing things out of any realistic perspective.
Just follow bond and gold markets, yes i agree there probably will be inflation, but cant even be bothered to explain why i have this view.
"im (sic) sick of reading idiots like you"
Really now?
Don't feed the trolls!
And make the math questions harder!
Amen. How about some algebra to keep the im idiots at bay.
Throw in some Roman numerals.
Seriously, I like how some of the posters also compare us to north korea. As long as all of the united states debt is based in dollars, and the world reserve currency is in dollars, we are holding all of the cards, we have all of the control.
Tell that to the Saudis, or the UAE. Or anyone else with oil.
It's still $ / gallon ... so we don't worry until it's Yuan / liter.
Uh, they have oil. We have paper. Turn on the switch.
I am Chumbawamba.
Tell that to the iraqi's and iranians (soon)
Do we really hold all the cards or are we just in a multi country game of chicken. All the countries trading in $ and holding our debt eventually their going to say why am I allowing america to have sex with my countries future (sat nite live obama and china http://www.danwei.org/featured_video/saturday_night_live_on_obama_v.php).
I don't have half the knowledge of Mr Williams or for that matter alot of the posters here but I can't see how something along the lines of a zim/viemer happens as long as we are still the reserve currancy. So therefore don't we have to lose that status first?
Once we lose reserve status and our economy with its massive debt structure and trade imbalance has to stand on its own and be judged what will things look like?
How do we hold all the cards when they hold all the dollars?
We hold cards when they really want more dollars, not when their trying to get rid of the dollars they have. Sure it gives a bit of leverage because no one wants a major devaluation of their principal asset (US dollars and Bonds), but how long can the Fed control hold apart the rock of debt deflation and the hard place of currency repudiation?
Not much longer, I bet, judging by the massive increases in federal deficits.
im sick of reading idiots like you..
Well then,
Go to your router, URL 192.168.1.1 log on, and block the URL: 'www.zerohedge.com" that should do it.... Any other questions consult your manual.
You'll feel much better in the morning.
Michael,
If the sheet heets the fan,
I don't think you'll need to worry about the bankers repossessing your car.
Ok, I'll bite.
What then of the treasury market? What then of our ability to sell bonds? What then of dollar holdings in foreign central banks?
1) There will be no treasury market
2) See number 1 above
3) When the peasants march on the foreign central banks, they can use the dollars to fuel their lynching fires.
Extreme avatar makeover!!! I'm loving it.
Rorschach, for the win!
Well, if this article is correct, then the only thing to own would be:
PHYSICAL gold/silver
GUNS / AMMO
MREs / FARMLAND & ANIMALS
CLEAN WATER
If this article is correct, then civil society in the US will cease to exist.
Mass riots will lead to a new revolution and new social order.
Politicians, bankers, private equity folks WILL BE BURNED AT THE STAKE.
Make no mistake - if this article is correct THE USA WILL CEASE TO EXIST. PERIOD.
Zimbabwae, Germany, Argentina, all still exist, and so will we.
Yes, ditto.
Hyperinflation everywhere else has been horrible and has lead to social unrest and political disruption, but it's not as if all the nations that experienced it just ceased to exist.
I would be most worried about the political fallout after such an episode, and the potential for more fascism than we already have.
A big difference between Germany, Argentina, Zimbabwe versus the US is the standard of living in the US is much higher. People might get over not having food readily available but take away the flat screen TV and the Xbox and boy, there'll be some hell to pay.
I own my Xbox and flatscreen thank you very much. Now I just need the generator so I can watch my huge collection of adult movies. Even after the collapse.
It's always been said that he adult industry is recession proof. I now wonder whether it's also depression proof? If I had to venture a guess, I'd say yes but that's only one man's opinion.
Actually no. They are getting hammered and reducing production in the face of decreased demand. They can't sell $35 dvds when the internet is free... especially when cash is tight.
Good. Fuck those fuckers (literally). Why should a bunch of douchebags get paid ridiculous amounts of money to fuck on camera? People do it and post it on the internet for free. fucktube.com, mother fuckers. Visit it and weep. Er...well...anyway.
Porn. The original and longest lasting bubble. And oh what a wonderful bubble it was.
I am Chumbawamba.
.
you mean to tell me the fake tits industry is a bubble? I've been popped (and so have they)
Cable TV. Take away their cable tv and riots will start in hours. Fortunately for the powers that be, cable tv is cheap and easy to keep running, even if food and water are drying up.
Not if someone drives a truck through the headend on his way to loot the food king.
Germany was once the Weimar Republic.
Just say'n
Zimbabwae?? you are right on ITG it still exists
http://www.guardian.co.uk/world/2009/feb/11/zimbabwe-secret-film
Zimbabwe even has a functioning stock exchange.
historically, it will look like it happened overnight, but it will be years
That was a very succinct point and as right on the mark as it can get, Internet Tough Guy.
There will be radical change and hardship, but people have endured some pretty rough times and have perservered.
While America is not likely to be the same-- and likely to be more isolated from the rest of the world than most of us could ever remember-- we have the ability to redefine ourselves and recover.
Yes, the survivors will redefine themselves after having lost half their current body weight and learned how to garden.
Does Zimbabwae really (still) exist? If so, for how much longer? As the rest of the world contracts (tightens down on capital) what are the odds that it will be kept afloat?
Both Germany and Argentina (though it's teetering again) had the luxury of an outside world keeping them from total collapse. If the US tips I wouldn't count on there being anything out there to keep it from crashing: Japan and China have been providing crutches, but soon they'll have to pull them back for their own use.
Nation states are collapsing, the US cannot escape this pull. It was really the goal by the corporate world, but alas, silly them, without government to subsidize/empower them they too are gonners...
When you run out of ammo, do you plan to throw your gold and silver at the invaders???
And the Balkanization of America has long been correctly predicted, only the world's dumbest pollack, Zbigniew Brzezinski, thinks otherwise (sorry about that ethnic slur, but in the 'hood I grew up in, everyone slurs ethnically...it's cultural!).
Orlov has a slightly different take regarding the supply & availability of weapons/ammo. As the USSR collapsed, a vertible flood of high-grade military weaponry hit the market resulting from 100s of thousands current/ex-military selling their arms for cash. This trend accelerated as Russia brought back troops stationed in the 'Stans and other republics.
I think the same situation will play out here. In conjunction with the collapse of unfunded liabilities such as S/S & Medicare, we'll see large scale troop repatriation. As controls become more confused, we should expect to see a flood of weapons & ammo hit the markets, just in time for our own home-grown Balkan war(s).
when I run out of ammo, I will pillage trinkets, from the invaders bodies, and then feed the bodys to my dogs,and pigs. sometimes, you don't need a gun, just a baseball bat and an attitude. no need for overkill. I plan on having a commune, safety in numbers, besides, man is a social creature, we won't turn into savages. most people will work, before they will steal. plan to produce more than you need, plan to help as many others as you can. plan to give your fellow man a way to preserve his dignity. you can't get that at the bank, or from the government.