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Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression
- AIG
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- American International Group
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- Bear Stearns
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- Excess Reserves
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- Hyperinflation
- John Williams
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- Monetary Policy
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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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Wells to repay TARP -
One of the best things I can think of to do at this point is;
Pray for the swift deaths of these Democrat Senators
Carl Milton Levin (born June 28, 1934) 75
Dianne Goldman Berman Feinstein (born June 22, 1933) 76
Arlen Specter (born February 12, 1930) 79
Daniel Kahikina Akaka (born September 11, 1924) 85
Daniel Ken "Dan" Inouye (born September 7, 1924) 85
Frank Raleigh Lautenberg (born January 23, 1924) 85
Robert Carlyle Byrd (born November 20, 1917) 92
Oh, come on. They are all already dead. They all need a jumpstart from a truck battery.
And replace them with what? People like Phil Gramm?
Sigh, one day people will get it, get that it's the SYSTEM! Party hack stuff is great for creating distractions, merely shuffling chairs on the deck of the Titanic.
I'd like to think that the critical difference between the US and Zimbabwe is representative government. No matter how many zeros Robert Mugabe added to his currency, there was no way to remove him from power. If inflation hit even 10% (which isn't quite hyper inflation in my book) in the US in 2010 the Democrats would lose 15 seats in the Senate and at least 100 seats in the House. Ok, wishful thinking, perhaps.
Do you know anything about Zimbabwe? It is, and always was, a "democracy," in the sense that elections were held. Just like here. Now, their elections were increasingly rigged, and large violent gangs savagely beat anyone suspected of voting for the opposition candidate, but you could equally ask "why didn't they just vote Mugabe out?" So, here in the US we have the iffy 2000 presidential election, the even iffier 2008 presidential election, voter intimidation in various places (black to white, white to black, it cuts both ways), likely considerable voter fraud especially relating to absentee ballots, etc. etc.
You forgot the ohio iffy 2004
What are the alternatives for the US? In a word, none.
Enough said...been arguing that we are in an irreversible negative feedback loop (inflation monster and deflation monster battle for the ages) since Aug-Nov 2007.
Stepping away from the linear timeline of it all, this thing is actually already signed, sealed and delivered - sit back and watch prophecy unfold folks - you're in for quite a show.
Exactly - this thing is on auto pilot. In some regards, our present situation is similar to DOA.
The die was cast generations ago; the poison was drunk. Peak US oil production was reached in 1973. Taxes, regulations and societal expectations (don't wanna sweat for a livin'), combined with radical foreign mercantilism (ie slavery) drove off-shore production. Credit inflation was substituted to mask declining living standards.
Well, our 48 hours are nearing an end. We found out who "did us in" (in was, in fact, ourselves). It doesn't matter, however, since we're still gonna die without getting any revenge.
I have a hard time saying "ourselves" especially when the ourselves never had any influencing power in any of this. "We" didn't do this and that's the point.
We've always had the option of not participating in this crime.
"May we look upon our treasures, and the furniture of our houses, and the garments in which we array ourselves, and try whether the seeds of war have nourishment in these our possessions, or not."
- John Woolman, mid-1700s American Quaker & an early American anti-slavery activist. In his 1770 essay, A Plea for the Poor
You must be in the Baby Boomer generation. Know how I know? Because with everyone that age, it is all about the absolutes and fatalism. YOUR 48 hours are nearing an end, pal, not mine.
And YOU are certain of this, how?
I have posted this before, but here it goes again. Inflation and deflation occur as a dichotomy of Asset and Monetary. As the "Deflationists" correctly assert, we are in the death grip of a crushing ASSET DEFLATION due to credit destruction. However, the United Stated government cannot grow it's way to affording it debt repayment or it unfunded liabilities. If the US goes the route of debt repudiation the US will quickly discover what life is like without imports...of anything. The only option the US has left is to default by printing. Expect a banking holiday and currency re-valuation sometime in 2010.
This didn't all happen because of short-sightedness and self-interest.
There was a co-ordinated effort going back to long before Greenspan started cutting rates.
In all likelihood, the same people who planned 9-11 planned the Housing Bubble and the Financial Crisis. Until we recognize that, we don't even know who the enemy is, or what we are fighting against.
All ya gotta do is take thier feet off the ground. The assholes sync up to sensibility.
http://www.collegehumor.com/video:1813456
I was thinking some kind of aerosol distribution system for psilocybin, combined with widely available BC Bud would wake people up in no time at all.
Awesome!
This didn't all happen because of short-sightedness and self-interest.
It happened due to a fundamental flaw of believing that there can be perpetual growth on a finite planet. Yeast go through this all the time; humans are just starting to face it for the first time (on a global basis that is).
and that's why Bernanke needs to be reappointed. so that he's in charge when TSHTF. i mean if the boat's sinking, why let the captain board a lifeboat and paddle away. naw, we want him at the helm, in full uniform, reassuring everyone to be calm when the ocean takes us.
Ben,
Out in your helicopter campaigning?
This article explains my view of the deflationary collapse coming.
http://jengafinance.blogspot.com/2009/12/fractional-naked-shorting.html
Friday, December 11, 2009
Fractional Naked Shorting
Every dollar-denominated loan can be viewed functionally as a partial naked short position in FRNs (Federal Reserve Notes, 1.e. cash). The extent of the naked short is the inverse of the reserve ratio, so at 10% reserve, the position is written as 90% naked short. The entry is created where the bank shorts notional dollars into existence where none existed before. The Fed is a mechanism for supporting those naked shorts against margin calls that would otherwise happen in the real world - that's what a bank run really is, a margin call by lenders (depositors).
The continued existence of this naked shorting depends utterly on the willingness of the lenders to accept repayment in virtual instead of real dollars. Wire transfers, checks and book entries are all dollar substitutes, not actual dollars. An entire massive infrastructure has been erected to push people towards the conclusion that these are actually identical to FRNs. Banks will freely exchange your book entry with them for cash - until they can't anymore. The FDIC exists to guarantee that you will get cash for that book entry or other cash substitute. The Fed holds stocks of FRNs which it can exchange on a limited basis to commercial banks in danger of running out.
The scale of the pyramid scheme can be measured by the ratio of actual cash to virtual cash. Total cash in circulation (real cash) is $923 billion per the H.4.1 release dated December 10. The amount of virtual cash is the total credit outstanding, which is $52.6 TRILLION as of September 30 per the Z.1 release also dated December 10. In other words, each one dollar of cash is supporting nearly 57 dollars of credit. Through the mechanism of this gigantic naked short position, the value of the underlying security - the US dollar has been driven down to a huge extent. In fact, the short ratio can also be expressed as 98%. Not coincidentally, that is also the extent to which the US dollar's purchasing power has been reduced since the advent of the Federal Reserve.
This gives you some idea of the extent to which the value of the supply of dollars has been diluted by all of the substitutes that have been introduced into the system. If the dollar were a drug, it would be so heavily cut as to have no discernible effect. It also explains the desperation with which the financial world is attempting to save "the system" - by which they mean the machine that issues dollar substitutes and convinces you to accept them. There are sufficient dollars to cover less than 2% of domestic debt outstanding. That takes no account of the naked short positions of foreign banks. The bankers are short 57 dollars for each dollar that actually exists. You can well imagine what would happen if such a short position were to be squeezed to any significant extent.
One can justify banking to the extent than it increases productive capacity and therefore ultimately wealth. The increase in the pool of dollar substitutes will have minimal inflationary impact as that growth will be counter-balanced by an increase in the pool of goods those dollars can buy. This is a social good and one of the few philosophical reasons to support banking. Of course we are long past the point at which such banking was the norm, or even a large minority of credit activity.
That's an interesting take on fractional reserve banking. Thanks for sharing.
Banks are telling you that this is inflation.
THEY AREN'T LENDING.
Deflation would encourage lending as long as prudential standards were observed, because the principal and interest paid back would be in dearer currency terms than granted, AND if default occurred the judiciously established collateral (lending at deep discount to par value while insisting the pledge of whole collateral) could auction off without loss when loan terms are considered in the sum.
They don't lend because future dollars will simply not compensate in purchasing power terms. This systemic mending they are attempting exists outside the traditional channels.
It is between the FED and banks where money supply and money creation is almost wholly outside the productive economy and is, indeed, a process of time and numbers duplication.
The time is to prevent too great a shock to the economic actors who would overthrow the FED and banks. But slowly done, they may pull it off.
Yes, they are furthering the extend and pretend. The theme of this site is 'make money until the lights go out'. And the fiat-currency lights will go out. They always go out. On a long enough timeline the value of a fiat currency returns to zero: it's true value.
The FED is just delaying the inevitable - and the longer we let them do it the harder the crash will be.
They aren't lending because they blew themselves up. It has nothing to do at all with purchasing power. They aren't lending because they can't collect what is already out there and they can't take on more risk when the only reserves they have are on phoney-baloney balance sheet at the Federal Reserve.
Nice read, Sushihorn.
Bullshit. The stupid idiot doesn't even know what a "dollar" is.
A "dollar" is a bookkeeping entry. It's a credit (or a debit, from the other point of view.) And that's all it is.
The distinction he's trying to make, between a "real" dollar and a "virtual" dollar is nothing but imbecilic drool. It does not matter WHERE the bookkeeping entry is. All "dollars" are the same.
When you hold a dollar bill, you're holding a portable bookkeeping entry in your hand. Thus the "One dollar" and the "1" written on it. The value is not in the tangible paper, it's in the NUMBER.
The moron thinks it's the paper, that you can carry around, that's the valuable part of a dollar bill. It's hard to believe anybody could be so ignorant. Well, no, it isn't hard to believe, I see that kind of thing all the time.
Somehow, with all the insults and repeating yourself, I think you missed his excellent point.
He doesn't have a point. He doesn't even know how the system works. But of course there are ignorant people who will swallow the most ridiculous garbage, and call it excellent. They don't know any better - which is how we got into this economic mess in the first place.
There you go, missing his point again.
Well, to throw my two cents in, which depending on whether you are an inflationist or a deflationsit, is worth somewhere between 1/10 of a cent and $2,000,000, I find myself in the deflationist camp - for now. Hey, we don't live in a vaccuum and we need to remain flexible!
One inflationary factor, historically, has been wage price inflation. Given the fact that unemployment and underemployment is somewhere around 10% and 16% respectively, depending on whose stats you use, I just don't see huge inflationary pressures working into the system right now. Now again, if the SEIU takes over the entire employment system of the US as they'd like, this could change rapidly! lol
For me, it makes sense to have the proverbial pack packed, the guns loaded, and ammo and food stored. And if I don't need it, I can use it on a camping trip in the future!
Suckers....come April 15, 2010..do what Federal employees do below...
http://www.wtop.com/?nid=428&sid=1838232
I think that there will be both the forces of inflation and deflation going in a left right body blows.
deflation means you will have less money/income/savings
inflation means the things you need will cost more.
priorities will change as to what you need and can afford. people might start getting critical about the quality of the goods and services they are purchasing rather than blindly purchase junk at mallwart. a real market will emerge.
we are still in competition with $150 a month laborers in china so why would a laborer be worth 50x more on this continent. during the depression wouldn't the men chop wood or do whatever for a meal and acoin or two.
I think that there will be both the forces of inflation and deflation going in a left right body blows.
deflation means you will have less money/income/savings
inflation means the things you need will cost more.
priorities will change as to what you need and can afford. people might start getting critical about the quality of the goods and services they are purchasing rather than blindly purchase junk at mallwart. a real market will emerge.
we are still in competition with $150 a month laborers in china so why would a laborer be worth 50x more on this continent. during the depression wouldn't the men chop wood or do whatever for a meal and acoin or two.
Before I get to my question here, I've got to admit that I don't know nothin' about nothin'. I lurk here, and read Mish and Market Ticker (and others), and you guys have me pretty well convinced that we're screwed. I've got a degree in physics and work in a technical field, but the nuts and bolts of this whole economics/finance/banking field is largely just magic to me.
That said, I am fairly well convinced that Bad Times approach. I've been stocking up on the "lead-based consumables", if you know what I mean, and am late to the game on gold (but I see that is a question open for debate here). I've got a little USD cash here at the house, but only enough to only last for what I envision will be the first couple of days of the crash--which I think will put me miles ahead of the great majority who aren't paying attention to this stuff at all.
But here's my question: Let's say that it's inevitable that the big hyperinflation event is going to hit the US and our economy will come crashing down like no one has ever seen. Jobs are lost; Food riots; Civil unrest; the whole gamut.
But as I see things, in addition to being a big lender to us (suckers!), China is in the middle of their own bubble: GDP growth. They've been trying for the last 2-3 decades to get themselves out of the Second World and into the First. Their people want to get out of that miserable peasant life in the village, and move to the city where they can live in an apartment, ditch that bicycle for a car, and maybe have the internet. So the Chinese government has been inflating this "Jobs Bubble". They're more concerned with supplying jobs for their people than selling the stuff those people make at a price that makes economic sense.
Also, the OPEC states (mainly the Arab ones) are basically welfare states. Maybe this is unfair, but their people don't really know how to do much of anything...they import both their white- and blue-collar workers. They've had the advantage of poking a hole in the ground and extracting enough wealth to give their people (the ones who don't know how to do anything) an extravagent lifestyle.
So given that the US and Western debt is going to crush our economies, we're not going to buy anything that the Chinese make. There's got to be a limit to how much infrastructure the Chinese can continue to build for stuff that we can no longer afford to buy. The Arab OPEC states aren't going to have anyone to sell their oil to because the West will be in some sort of inflation/deflation scenario, and the BRIC states won't have markets for their stuff, and therefore the Arabs (already unstable, if you ask me) aren't going to be very happy about their welfare states collapsing.
So that's it, smart guys....What happens then? Anybody got any ideas?
Jim Rogers, Peter Schiff and a host of others subscribe to "de-coupling". That is, China, Japan and other Asian countries already possess all the necessary savings & productive capacity. Now all they have to do is cultivate more internal/domestic consumption so as to have self-sustaining economies. Sort of like what the USA had back in 1950.
If they pull that off, then it's game, set & match. Multi-cultural societies have never succeded at any point in history; we are no match for Asian mono-cultures. Thus, they will move to solidify their comparative advantages while we sink into a series of Balkan wars.
I cannot disagree with your anylasis but maybe just maybe defeatism is the wrong medicine - radical isolationism may be cure at least for the moment and remember the Asian landmass is in a poorer strategic location then the USA which has only 2 borders and access to 2 great oceans.
"radical isolationism"
My gut tells me this is the answer, only I call it, like some others, relocalization. I hear that isolationism is one of the big mistakes of GD1, so we don't want to go there. But it is absurd to:
1. Catch fish in US.
2. Ship to China.
3. Fellet the fish in factories, then package.
4. Ship back to US to sell to Americans.
Right now we do this because it MUST be cheaper. But all the energy wasted, even if it is cheaper, is obviously wrong. There are a lot of things going on like this. We need to shut it down.
This ain't your Grand Daddy's depression. All new, all shiny, all tech, all fucked up.
japan fucked china hard in WW2, japan's rise after the war, was financed by wealth, they stole from china, I don't think japan, has anything china needs, beyond some technology. and they have long memories. not potential BFF's
This is why the deflation/inflation debate is so good for gold. There's a lot of currency out there looking for a safe haven and store of value. Since both arguements have merit and the govt keeps getting more insane, the real outcome is confusion and distrust...no matter which way it actually goes. And this type of chaos makes safe havens even more desireable.
John is a real smart and honest guy. Based on the posts here, most are still in denial. Not surprising. The nice thing about this Depression, which we're in, and will soon get much worse. Is, if you have any money left, it will give you some time to prepare for the storm. BTW, there will be no recovery. This country is going through a major sea change, and many are not prepared. The days of driving the BMW, and living in the McMansion are over. BTW, real estate should never be considered an investment, at least the home you live in.
bicycles, will regain popularity
http://commonsenseoracle.com/2009/12/inflation-or-deflation-nobody-fucki...
And there it is. Still, we must plan.
In the first three years of the next decade, the United States will look like Brazil in the first three years of the nineties (1990-92): very high unemployment combined with hyperinflation.
I know what I'm saying: I'm brazilian.
Se voce realmente fosse brasileiro voce avria escrito, 'brasilian' em vez da outra. Hehe. Brinco com voce. Tomara que eu estiver la, no Brasil, de novo algum dia.
No wonder Felix Salmon thinks you guys are a bunch of tools. Who CARES what John Williams thinks. He has zero credibility in finance or economics, and near zero in his "stats".
Hyperinflation THIS YEAR? When no one, not labor, not retail, not real estate, NO ONE can raise prices?
Try a trip to reality some day - you might enjoy it.
OK, no one is raising prices.
So what is happening to the price of gold? Food prices are up, oil has been at inflated levels for the last 3 years so when it goes down a little we think there hasn't been an increase in its price.
Now you have to pay a downpayment to get a house, right? Can you finance a new car as easily?
It only has to hit you about three places for it to really hurt, and that would be when people would demand wage increases, right? And prices would go up?
Increased utilities, check. Increase in food bill, check. Pay a lot for gas, check.
Hey Lucy, xsplain to me why you ration something that has no value..like mr. rubeini sayz....cause there's too much of it?
Monday, December 14, 2009
The Return of Gold and Silver Eagle Rationing
http://mintnewsblog.blogspot.com/2009/12/return-of-gold-and-silver-eagle...
Look more deflation,"
UC Berkeley students involved in the student movement, which opposes a recent 32 percent increase in student fees as well as an alleged privatization of the university, said the attack was not representative of their cause.
but thats only a fee for this year...wait til next year to see if it inflates...
http://www.dailycal.org/article/107793/eight_arrested_after_attack_on_ch...
Thank you Mr. Williams for your absolutely correct Austrian Economic (real economics)educated viewpoint.
Zimbabwe is a shitty example. I hate when people use Zimbabwe as an example. Japan is a better example, but not a great example either. I would also have liked to see some numbers in this piece. Considering Williams is mr. statistics. I think we are in a shit world of hurt, but hyperinflation is a strong statement with the credit collapse we are experiencing. Where is everybody going to get all of these dollars to buy all this stuff. There is going to be a bunch of heads on platters if this happens in my opinion.
The people who believe in arguments like these skew poor since they believe its their one chance to catch up to the wealthy who have run several laps ahead of them. That is J. Williams' base and this is more red meat.
For your own sakes hedge your bet that the world wont end in two years and buy equities, then enjoy life.
So what about the Technology that you haven't thought of yet? The ground breaking, game changing stuff?? Oil??? Who needs it then?
I'm intrigued. Please inform myself, and any others who puzzle over this, how technology, which is a PROCESS, can replace oil, which is a RESOURCE.
One can have the greatest design in the history of the planet, but without actual resources to apply to the design the design is nothing but a design, it will only sit there and look good on paper.
Energy exhaustion has occurred several times.
Charcoal, Sperm whale oil, Pennsylvania oil, slaves are the ones I can think of immediately. Think of the current Green movement to replace oil usage. Then replace
environment with cheap in your thoughts. It is
possible to burn things for energy. Oil is scarce thus expensive. Ignore coal for the moment. It is
possibele to burn alcohol for energy. This is more expensive than oil. How about burning the entire corn plant to produce steam -> electricity? Cheaper? But this costs in terms of cultivation. How about prarie grass? Evolved to burn in wildfires and re-grow. Ashes are the fertilizer of choice. Cheap? Oil home heating? Is nat-gas cheaper? Geo-referenced HVAC - lifetime cost vs capital cost? Wind? Solar? Geo? Nuclear? Once these are evaluated for lifetime cost we then sort and resort with social cost included. Then technology development is used to re-sort cost. This is a robust means of allocating resources to get the most bang for the buck. Unfortunately we are sorting our choices by social cost first instead of monetary cost. And using highly theoretical 'wild eyed guess to make the answer come out the way I want it to' estimates of cost. And when this looks fishy we are adding 'technology' as a buzzword. This process probably will not work well in the real world. It is similar to the inflexible goal type of reasoning used religions. ALL resources are depletable but resources of any subclass
are interchangeable and essentially infinite. Technology develops after the initial decisions aremade and lowers cost until depletion occurs.
On a related thought - do a Google search for climatic optima. Related to Middle Ages and late Roman. Why was this considered optimal? What were the temperatures? What was the non-optimal? Why? Compare and contrast. Relate to current thoughts on global warming. Remind you of college? After finishing add a paragraph on how this relates to your personal philosophy and beliefs. Include this paragraph for extra credit.
If your point was that there have been transitions to different energy sources (of choice) I have no argument. But... in ALL cases it has been to a higher density energy source. Switch grass (or whatever bio-fuel) is hardly more energy dense than oil: speeding up mother nature's processes comes at a cost of time and energy (the processing of oil/tar sands is a good example).
Technology develops after the initial decisions aremade and lowers cost until depletion occurs.
That's called Jevons Paradox: efficiency means a more rapid depletion of a resource.
Remember this: technology is a PROCESS, it's not an energy source or a physical resource.
I'm sure that there's some influence (always the case given the butteryfly effect) by "climatic optima," but I wish to stay more on path re energy. :-)
If you like reading about williams you will love the movie Collapse by Michal Ruppert. It just came out and you can find it on http://extramina.com/ to stream it. Best documentary i have ever seen.
The dollar rally i forecast could last for some time ...
http://www.zerohedge.com/forum/market-outlook-0
I think that it's too early to say that a rally is occurring (http://www.bloomberg.com/apps/quote?ticker=DXY%3AIND). I suppose that it's possible that it _could_ happen, but there's no real trend yet (it has pointed up from its nose dive though).
''2012 Apollyon Rising'' will shed light on the subject for you, if you are investing and not divesting provision.
http://www.youtube.com/watch?v=G3mzHJMj1t8&feature=player_embedded
The 30 year is real worried about hyper inflation.
This story was effectively and very efficiently quelled last year. The govt is ready for all kinds of STHTF. Are you? Or would you rather continue on with such a useless debate about inflation-deflation. No matter how it ends it will be ugly and painful. Trade that.
Is federal government stockpiling survival food?
'These circumstances certainly raise red flags'
Posted: July 25, 2008
12:30 am Eastern
WorldNetDaily
A Wall Street Journal columnist has advised people to "start stockpiling food" and an ABC News Report says "there are worrying signs appearing in the United States where some … locals are beginning to hoard supplies." Now there's concern that the U.S. government may be competing with consumers for stocks of storable food.
"We're told that the feds bought the entire container of canned butter when it hit the California docks. (Something's up!)," said officials at Best Prices Storable Foods in an advisory to customers.
Spokesman Bruce Hopkins told WND he also has had trouble obtaining No. 10 cans of various products from one of the world's larger suppliers of food stores, Oregon Freeze Dry.
He said a company official told him on the telephone when he discussed the status of his order that it was because the government had purchased massive quantities of products, leaving none for other customers.
That, however, was denied by Oregon Freeze Dry. In a website statement, the company confirmed it cannot assure supplying some items to customers.
"We regret to inform you Oregon Freeze Dry cannot satisfy all Mountain House #10 can orders and we have removed #10 cans from our website temporarily," the company tells frustrated customers. "The reason for this is sales of #10 cans have continued to increase. OFD is allocating as much production capacity as possible to this market segment, but we must maintain capacity for our other market segments as well."
The company statement continues, "We want to clarify inaccurate information we’ve seen on the Internet. This situation is not due to sales to the government domestically or in Iraq. We do sell products to this market, but we also sell other market segments … The reason for this decision is solely due to an unprecedented sales spike in #10 cans sales.
"We expect this situation to be necessary for several months although this isn’t a guarantee. We will update this information as soon as we know more. We apologize for this inconvenience and appreciate your patience. We sincerely hope you will continue to be Mountain House customers in the future," the company statement said.
But Hopkins wasn't backing away from his concerns.
"The government just came in and said they're buying it. They did pay for it," he told WND about the summertime shipment of long-term storage butter. "They took it and no one else could have it.
"We don't know why. The feds then went to freeze dried companies, and bought most of their canned stock," he said.
A spokeswoman for Oregon Freeze Dry, sales manager Melanie Cornutt, told WND that the increasing demand for food that can be stored has been on the rise since Hurricane Katrina devastated large sections of the Gulf Coast, cutting off ordinary supply routes.
"We are currently out of stock on our cans. We are not selling any of our cans," she confirmed.
She then raised the issue of government purchases herself.
"We do sell to the government [but] it is not the reason [for company sales limits]," she said.
Officials with the Federal Emergency Management Agency told WND whatever government agency is buying in a surge it isn't them. They reported a stockpile of about six million meals which has not changed significantly in an extended period.
But Hopkins said it was his opinion the government is purchasing huge quantities of food for stockpiles, and Americans will have to surmise why.
"We don't have shelters that [are being] stocked with food. We're not doing this for the public. My only conclusion is that they're stocking up for themselves," he said of government officials.
Blogger Holly Deyoissued an alert this week announcing, "Unprecedented demand cleans out major storable food supplier through 2009."
"It came to our attention today, that the world's largest producer of storable foods, Mountain House, is currently out of stock of ALL #10 cans of freeze dried foods, not just the Turkey Tetrazzini. They will NOT have product now through 2009," she said.
"This information was learned by a Mountain House dealer who shared it with me this morning. In personally talking with the company immediately after, Mountain House verified the information is true. Customer service stated, 'I'm surprised they don't have this posted on the website yet.' She said they have such a backlog of orders, Mountain House will not be taking any #10 can food requests through the remainder of this year and all of the next.
"Mountain House claims this situation is due to a backlog of orders, which may very well be true, but who is purchasing all of their food? This is a massive global corporation.
"One idea: the military. Tensions are rampingup with Iran and news segments debate whether or not we will implement a preemptive strike in conjunction with Israel," she wrote.
Hopkins raised some of the same concerns, suggesting a military conflict could cause oil supplies to plummet, triggering a huge increase in the cost of food – when it would be available – because of the transportation issues.
The ABC report from just a few weeks ago quoted Jim Rawles, a former U.S. intelligence officer who runs a survival blog, saying food shortages soon could become a matter of survival in the U.S.
"I think that families should be prepared for times of crisis, whether it's a man-made disaster or a natural disaster, and I think it's wise and prudent to stock up on food," he told ABC.
"If you get into a situation where fuel supplies are disrupted or even if the power grid were to go down for short periods of time, people can work around that," he said. "But you can't work around a lack of food – people starve, people panic and you end up with chaos in the streets."
At his California ranch, the location of which is kept secret, he said, "We have more than a three-year supply of food here."
In the Wall Street Journal, columnist Brett Arends warned, "Maybe it's time for Americans to start stockpiling food.
"No, this is not a drill," he wrote.
His concern was about various food shortages around the globe, and the fact that in a global market, prices in the U.S. reflect difficulties in other parts of the world quickly.
Professor Lawrence F. Roberge, a biologist who has worked with a number of universities and has taught online courses, told WND he's been following the growing concern over food supplies.
He also confirmed to WND reports of the government purchasing vast quantities of long-term storable foods.
He said that naturally would be kept secret to avoid panicking the public, such as when word leaks out to customers that a bank may be insolvent, and depositors frantically try to retrieve their cash.
"[These] circumstances certainly raise red flags," he said.
Why is it that the most sensationalized apocolyptic posts get *the most* comments and attention on ZH? Human nature certainly more predictable than any markets.
...never will happen.... have you forgotten already? we can simply change the rules of the game to suit our desired outcome whenever and however we damn please....yeah, it's that easy....
Apocalypse (Greek: ?ποκ?λυψις Apokálypsis; "lifting of the veil" or "revelation") is a term applied to the disclosure to certain privileged persons of something hidden from the majority of humankind.
Because the great unveiling and unraveling is underway....people are gravitating to truth and truthseekers.....and its definitely not MSM or other outlets that are more comfortable in the middle than actually trying to figure it all out and how to go forward.
I don't trust that the rules of the game will be changed in our favor.
i.e. breakdown of government.
Do you trust the people who are making the rules right now?
You have all been SOOOOOOOO accurate over the last 12 months, thank you so much. I've made 250%+ YTD in the market by ignoring you fools, and I'll continue to do so. By all means, keep buying gold and shorting stocks, you're making my life really, really, easy.
The meek shall inherit the earth.
You don't sound so meek.
As Fofoa says...deflation is coming. Deflation in anything priced in gold. Inflation is coming to anything priced in Dollars (or any other fiat currency)
You cant expect deflation when the underlying measure of deflation is elastic. Deficits will continue, countries and banks will be bailed out and money will be printed.. until the ages of ages, amen.
Yesterday, I stopped at the grocery store to get a couple of things. I grabbed some milk and bread and headed to the checkout. Ahead of me in the line was a 300-pound slob who had a cart full of Twinkies, Ding-Dongs, Ho-Ho’s, brownies, cupcakes, etc.
So I yelled, “Hey, you fat bastard; this is the express lane!!!”
He turned around…and it was Elvis.
Bond market doesnt say Inflation let alone Hyper.. 3.5%. What if we already had the Hyper inflation.. 1200 Gold and Mcmansions for 1 Mil?
"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run." - Wikipedia
So, the bond market would likely be reactionary, rather than anticipatory.
Here is a way to prevent hyperinflation: we have a change of guard in the senate, and the presidency-- it becomes popular and essential to stand up against the evil puppetmaster of our captured government, (yes, i am speaking of the privately held fed); the fed is audited, and the legislators and lobbyists (and treasury secretaries, and fed chairmen) that enabled laws that helped create the gambling of depositors money, all get publicly humiliated for their evil, and if possible incarcerated--our nation turns it's eye to what is good and some leader other than the juggernaut obamao, steps up to speak the truth against the evil that has stolen our future. amen
Power already knows the truth, no need to waste one's breath on them...
But, when you've tossed them all out you will find that the system still exists, the very system that depends on un-ending growth to survive. No, it's not replacing people that will bring change, rather, replacing the system. And the system WILL die. Like all deaths, it won't be pleasant, but it's essential. Decentralized power and localization, that's what's coming our way in the future, and there's little anyone is going to be able to do to stop this natural progression (back to a more standard and sustainable human system).
I know this isn't the popular viewpoint to take on this thread, but how is hyperinflation actually possible? For it to occur, the USD has to decline against all major currencies, right? You can see this happening easily in countries like Zimbabwe, and someone always pulls out the inevitable Weimar republic picture of the lady shoveling worthless currency into the fire stove, but work your way through it and help me understand...
The US collapses into a default, taking down world markets with it. No other market out there can handle the flight to quality like the US market, so where does all the money go in a collapse? The Euro? Does anyone think the EU won't collapse as well if the US goes down? Truly, now. Or that Asia manages to escape the after effects of a destroyed United States?
I don't get it, and am hoping you guys can educate me without the tinfoil hat stuff. Pure economics, please. And I swear, I'm not trying to be sarcastic. Just trying to understand.
The "money" doesn't go anywhere, it's only rewritten, in terms of currency. Keep in mind, "money" and "currency" are two different things. The distinction is important.
Starting out, you build your neighbor a nice Zimbabwe-style mud hut. You use plenty of cow dung ornamentation, to make it fancy. What the "real" value of the mud hut is, only the Mole Rat God knows. That's no affair of man. However, when the hut is completed, you are paid 10 Zimbabwe Dollars for your effort.
Now, your neighbor is all smiles as he enjoys his new hut, and you are all smiles with 10zd of your very own.
In human terms, that initial transaction establishes the "money" value. The money value is set where currency is traded for something else, something which has a use other than as money. Thus, the money value, in this case, is 10zd per Fancy Dung Mud Hut.
With the 10zd in hand, you go to the store to buy a loaf of bread. But you discover, to your dismay, that the price of bread at the store is 20zd per loaf. Unfortunately, the store owner is bigger and meaner than you are, and you cannot persuade him to lower his price.
But you are in luck, because Zimbabwe is a democratic country. You complain to your Representative, and tell him you will not vote for him unless he does something to alleviate your woe. He greatly sympathizes, and to help you, he takes out his pen, and writes two more zeroes on your 10zd currency note, to make it 1000zd. That should take care of the problem. You are pleased.
So you return to the store, thinking you will buy many, many loaves of bread. But when you get there, you discover that the store owner also has a pen, and the price of a loaf of bread is now 2000zd. And he is even bigger and meaner than before.
Fortunately, Zimbabwe is still democratic. So you go to your Representative, who still has a pen.
However, when you return to the store with your 100000zd currency note, you discover the price of bread is 200000zd per loaf.
And so it continues, until you suddenly remember that you have a gun.....
It's nice the U.S. is a democratic country. And there's an election next year.
Now then. Currency versus money. In the example, the actual money value is 10zd per Hut, and the "money" stays that way, since the money value was established at that point. The rest of what happened was only currency alteration.
To assess the possibility of hyperinflation in the U.S., one must ponder currency versus money. What is the "money" status, versus what is the "currency" status? Then, what are both of those likely to be in the foreseeable future?
Recently, the 'money' value in the U.S. has been quite substantially down, with the decline in asset values, especially the infamous real estate problems. The "asset value" of work, so to speak, has also declined, as shown by the unemployment numbers, and the underemployment numbers.
I don't have currency numbers at hand, to compare. Mea culpa. I'm inclined to think it's trending to be excessive.
What the future holds, pray to the Mole Rat God for a sign.
My country tis of thee,
You've screwed us, royally.
All this stuff is making my head spin. Inflation or deflation, both sides make a reasonable case. It seems to come down to personal opinion. It does not seem to be just a US problem; everybody (including, NO especially China) is in the toilet too. Perhaps this fits; According to chaos theory when a system becomes chaotic it will automatically revert to some stable state. This is a law of nature. The catch is that initial conditions are delicately sensitive (the famous 'Butterfly Effect'). Also the new steady state can be ALMOST ANYWHERE. We certainly seem to have a chaotic system here, & a complex one at that. For those old enough to remember, every day is Wednesday. You know on Mickey Mouse Club, "Anything can happen day." The gong always blew up.
I did a face-plant once when skateboarding.
Was probably a sight to see for the onlookers.
Body completely vertical above a head face down on the pavement..moment in time snapshot kind of thing.
This was a learning experience. I think now that if Greenspan, Bush, Obama...if our leaders had ever done a literal face-plant at some point in life they'd be much better leaders. Built in aversion to doing it again even metaphorically.
I'm just lucky there wasn't a board full of nails sticking up at that exact place.
-MobBarley
OK, Here are my thoughts...
First we need the proper perspective for where we are, after experiencing significant inflation in oil and housing fueled by easy cheap credit we hit the parabolic wall (PPI, CPI, Real Estate, Oil, Wages, Jobs, Loans, Money supply including credit - they are all down = deflation now). We have added no jobs since 1999 and all real economic growth is from increased household wealth which increases disposable income, which is used on consumer spending (70% of the economy). Notice that the stock market has not increased in the last 10 years as well - it is not a coincidence. During that same period, housing credit was extended based on low rates and even lower down payments to increase housing prices.
We papered over problems with government deficit spending and dramatically increasing debt leverage to support government, corporations (capex and M&A), and consumer spending (Home equity lines of credit, 401K wealth, and credit cards tapped). We have too much principal to pay, if interest wasn't near zero that would be difficult and the finances of the country appear to be more and more short term cash flow oriented.
We are the world. US markets are the largest in the world and the countries of the world must continue to sell or risk social unrest in their countries - if the US didn't matter, those exporting countries (including Japan and China) wouldn't be worried about their exchange rates relative to the USD. They are all in worse shape than we are. Many countries are doing just what we are doing so there is no relative exchange advantage (global printing).
Many of the imported scarcer goods that we are concerned about can be "acquired" like oil in the middle east. But we should not talk of such things, it is better to talk softly and carry a big stick which we can leverage to get what we want - the danger is involvement of another major power. Behind the scenes, Dubai would have involved gold and oil not paper (things that matter - and you didn't think Bankers would allow the Arabs to create a competing financial center without interest charged - Islamic loans - did you?).
We can't compare ourselves to Weimar and Zimbabwe because our loans are in $USD and we control the interest rates on our debt. The last point is important, and I believe we are already monetizing (buying our own debt). In Weimar, Unions had a mechanism in their contracts that automatically increased wages in conjunction with inflation (like TIPS but for wages). We have no similar circular feedback loop, and from what I understand social security had no COLA this year and wages are down across the board.
There is no feedback loop mechanism to increase prices on mainstreet (stock exchange markets are just an illusion and easily manipulated), we had significant inflation on housing with debt - as that debt which supported RE investments collapses (can't repay principal or interest), asset class values collapse (remember banks 40 to 1 leverage?). I buy the possibility of supply disruptions based on required economies of scale, in that case the government has come in (GM is a perfect example). Oil disruptions, we can convince exporting countries to provide oil. The whole hyper-inflation argument (now) needs to show the mechanism for this happening for the world's military superpower.
Another supply chain issue is declining sales of manufacturers to the point that they can't make a profit and cover their fixed and variable costs (because of less jobs/buyers/consumer spending) requiring higher unit prices from loyal brand buyers to stay in business. Only strong brands will survive and lowest cost producers will survive and thrive. If there are significant supply disruptions, the government should be willing to step in and nationalize temporarily (if critical).
Global liquidity and debt leverage have elevated assets in all classes as banks have chased yield in a zero interest rate environment. There was a time that principal could be paid off, in the future interest payments will be difficult and rates must stay at near zero since the debt has gone parabolic and there is no income (JOBS / Wage growth) to pay back principal. If we are just paying back interest to ourselves on debt we purchased, I am not sure it will show up in increasing prices. The foreign debt is real, revalue gold at $100K an ounce and send China, Japan, and Saudi Arabia the equivalent ounces. Or let them buy debt in our dollars at almost no interest rate (how does this hurt us again?)
The real question is capital allocation for the money printing. How do we get money into the hands of deserving individuals since banks are not lending and avoid moral hazard.
We need to look at this situation from a behavioral finance perspective which the government and CIA use to promote national security (manipulating information for our collective good). The discussion of hyper-inflation is an attempt to jump start spending and get the cash off the "side lines" to escape the deflationary credit death spiral. You see it's a catch 22 between expected inflation and growth (this stimulates jobs and capital spending) and deflationary expectations which would cause consumers to wait on purchases because it would be cheaper in the future. They are managing these expectations - some reporters you see on tv or read in the papers are CIA (it's all about controlling information and social stability).
Pension actuarial assumptions REQUIRE 7-8% return per year or the companies must pay significant cash contributions (less hiring/less capex) into the funds. Investments should yield more than tax and inflation to get any REAL return, especially for the risk today and the last 10 years are flat. The cheapest way to increase the appearance of wealth (consumer spending) is to keep pumping up the markets - it's now political and I expect it to continue to mid-term elections after BB's confirmation (not based on EMH). Capital will flow to risky assets because it is assured failure (not hitting 7-8%) sitting in zero interest bank accounts not covering taxes/inflation/interest costs promotes/requires speculating.
Short term interest rates can only go up, equity shares are at all time high valuations in terms of P/Es even using adjusted earnings while dividend yields are at an all time low and could be cut. Both Warren Buffet and Bill Gross (Equities & Bond Kings) said to expect 4% return per year in the future - if that is the case on both of the major investments, perhaps government will take over the 401K/pension assets and pay out 4% (they need another slush fund) to "protect retirees." (Venezuela).
Another thing that many missed is that connected companies have issued secondary equity offerings (possibly acquired by the same offshore black boxes) and paid off debt so that they might continue to exist if interest rates rise. Perhaps the government could convert all the short term debt to equity in a similar fashion (treasury sales/ buying our own debt is an illusion, so why not equity?) and show the reality of the United Corporations of America. We could buy shares into ticker USA and vote per our shares along with referendums, eliminating the need for lobbying and the polling. There are limits on number of shares per entity (corporations =1, taxpayer/equity owner =1).
The future? Hope for Japan's second lost decade, a low growth, low interest rate environment for a long time. To avoid social unrest in the US, seriously promote small and medium business job creation, credit access, and tax incentives (give the people something to do with all their free time). Trickle down is not working, the bankers are just paying themselves fat bonuses with our tax money. If Helicopter Ben could literally get money to the spenders he could reinflate the housing bubble. Foreclosures are in limbo land with markets frozen because banks don't want to recognize losses based on the new sham wow balance sheet mark to models.
As the only thing that matters anymore is central bank liquidity pumping activity and its impact on the deflation and then inflation timing question - asset classes are responding with the correlations of 1 to USD weakness (implying inflation is working). Right now there is no incentive for risking capital due to the extreme downside risks and environment, while if you win you will pay significant taxes. It is the black holes option pricing model. The FRN doesn't represent anything but debt now, so it could be replaced by a regional currency (elites want this). One of their worldwide plans is to put forward a form of money that would balance capitalism with socially responsible consumption - carbon credits.
Investors will soon realize that the strong lowest cost multi-nationals with diversified global currency exposure have much better true credit profiles than sovereign countries (Wal-mart, McDonalds). With little opportunity costs due to ZIRP and record high valuations on equities coupled with low dividends and record low interest rates on bonds, investing is really tough based on fundamentals. The government will continue to print money, but I am not sure what the effect will be since debt is being destroyed (credit is part of real money supply and supports asset prices) at a fast rate. Heirarchial top down banker assets will stabilize, but there is no mechanism for propping up citizens asset prices (cash for clunkers and $8k housing credit were attempts).
The wealthy and the central banks of the world are accumulating precious metals. Esoterically, as we approach Christmas remember one of the gifts to the baby in the manger was gold and that Christ was betrayed for pieces of silver (11 ounces), as we approach Hannakah remember the Ark of the Covenant was made with gold and silver.
Greenspan stated gold was the only protection against confiscation through inflation. In hollywood movies, is treasure depicted as paper notes (Goonies/National Treasure)? One of the problems of precious metals is valuation (it is not a perfect science), and we can take a look at various prices and their percentage increases I computed since 1913 in the table that follows. As a side note, housing prices were a bubble because the prices went up faster than wage increases. In addition, the average income increase is somewhat misleading because now 42% of households are dual income - back in 1913 it wasn't that high. If we adjusted for assuming it was 10% in 1913 the avg income would only have increased by 2426% instead of 3568%.
Notice that gold, a new house, and a new car have all increased in price by roughly the same percentage (5155% - 5706%) while CPI went up 2500%, gas went up 2192%, a loaf of bread went up 4650% (gold price using the loaf of bread would be roughly $1,000), and average household income went up 3568% although taxes are much higher now than then so disposable after tax income would be less. Based on the price of a loaf of bread, gold should not go lower than $1,000 assuming the price of bread does not increase - this is the lower end of my gold price range.
When you consider the lack of investment opportunity costs due to bloated valuations, the unprecedented risks in the market, and the deflationary collapse of incredible paper asset values due to leverage I believe there is significant upside to silver and gold - as the asset triangle collapses into physical assets that are portable and is accepted world wide while preserving purchasing power for 6000 years.
1913 Price 2009 Price % Change
CPI $ 0.04 $ 100.00 2500%
Gold $ 20.67 $ 1,135.00 5491%
Average Income $ 1,296.00 $ 46,242.00 3568%
Loaf of Bread $ 0.06 $ 2.79 4650%
Gallon of Gas $ 0.12 $ 2.63 2192%
Gallon of milk $ 0.36 $ 3.45 958%
New Car $ 490.00 $ 27,958.00 5706%
New House $ 3,395.00 $175,000.00 5155%
Dow Jones Index 78 78 10,500 13462%
1913 Price // 2009 Price // % Change
CPI $0.04// $100.00// 2500%
Gold $20.67// $1,135.00// 5491%
Average Income //$1,296.00//$46,242.00//3568%
Loaf of Bread //$0.06//$2.79//4650%
Gallon of Gas//$0.12//$2.63//2192%
Gallon of milk//$0.36//$3.45//958%
New Car//$490.00//$27,958.00//5706%
New House//$3,395.00//$175,000.00//5155%
Dow Jones Index//7878?//10,500//13462%
Worth our time, though I bet I got the first dow value wrong.
The format looked good when I originally posted from Excel, not sure what happened but the original dow was 78, not sure how or why it repeated. Notice milk looks like it is a pretty good deal since wages inflated much higher than the milk price - that's because with technology cows now average 20,000 #'s of milk a year (isn't that insane?)
Right now bonds suggest deflation, equities suggest inflation and I would be interested in feedback on my investment environment musings/outlook.
Looks like Liesman is feeling quite defensive and has taken to attacking Santelli on the trivial and petty of issues.
So, how is the Dollar up again today? Is this just a dead cat bounce, or is Bucky going to be the 'best of the worst' in the meltdown of all fiat currencies?
Since i'm not schooled in economics, i'll step out of my comfort zone here and voice a suspicion which formed in my mind recently with regards to this seemingly paradoxical inflation/deflation situation currently undergoing in the US.
To start off, i'd like to state that i belong to the inflationary camp. And in the following i'll attempt to explain my reasoning.
As we all know, money created - but withheld from circulation - does not effect inflation. To this end, the Fed has been (rightly) tenacious in keeping the freshly-created liquidity on its own balance sheet, where it has sole discretion in its use, or more aptly, its non-use. It is merely a numbers game insofar as 'bailing out' the banks is concerned. So i personally do not see the TARP funds as the culprit.
Now let us compare the present US recession with the 30's depression or similar recessions in less generous countries, where a jobless man will basically either have to sell possessions (general deflationary trend across all asset classes, including farm produce), try to tide through with savings (depletion of real wealth), or when that proves inadequate, obtain economic relief from his better-off relatives (same as previous).
What is far more devastating, then, is the massive boost to welfare spending; Eg, extending unemployment benefits to 99 weeks. Given the magnitude of unemployment, such welfare programmes will continuously inject huge amounts of (debt-funded) liquidity into the hands of the general public. i like to think of it as the US federal govt adding millions more (lowly-paid) employees to its ever-growing payroll.
The effect will be more readily apparent in basic daily necessities than high-end luxury items which, from what i can gleam from earlier replies in this thread, is indeed happening. If the above line of reasoning holds true, then any future initiative to find alternate use for recouped TARP funds , instead of simply wiping them off the Fed accounts, could potentially result in more harm than good.
Property prices have been deflating, of course, but from overinflated highs. So it is both expected and logical. They will decline until aligned with true value which, unfortunately, is also on the decline due to an increasingly uncertain economic future. So there is some way to go yet.
A plausible scenario that i can foresee is accelerating inflation. However, the Fed can and will step in at the earliest sign of this happening, so hyperinflation is unlikely to take root. How quick the Fed reacts will determine the eventual dollar interest rate when the dust settles. i think the key market participants know that the Fed is on a hair-trigger, and recent behaviour in the currency markets seem to confirm this.
Personally i think in the aftermath, this crisis will not be the end of fiat, the US dollar will weaken substantially but retain its reserve status, and capital will migrate eastwards and remain there for decades to come.
Thus, i believe stagflation for the US is the most likely scenario in the near future. All comments/criticism welcome.
world news: It's official: Fake tungsten goldbars in Ethiopia.
http://jsmineset.com/2009/12/15/how-to-make-convincing-fake-gold-bars/
On Wednesday, the BBC reported that millions of dollars in gold at the central bank of Ethiopia has turned out to be fake: What were supposed to be bars of solid gold turned out to be nothing more than gold-plated steel. They tried to sell the stuff to South Africa and it was sent back when the South Africans noticed this little problem.
World news: fake tungsten goldbars in Ethiopia
http://jsmineset.com/2009/12/15/how-to-make-convincing-fake-gold-bars/
On Wednesday, the BBC reported that millions of dollars in gold at the central bank of Ethiopia has turned out to be fake: What were supposed to be bars of solid gold turned out to be nothing more than gold-plated steel. They tried to sell the stuff to South Africa and it was sent back when the South Africans noticed this little problem.
Any chance of posting the BBC link instead of your non-credible source link?
No you say? Why? Because it does not exist?
umm... I will now prove that you are fatuous
http://news.bbc.co.uk/2/hi/africa/7294665.stm
The more I consider this scenario, the less I agree with it (while remaining in the asset deflationary camp).
Armageddon might come, but even if it does, Williams assumes a lack of options for the US and sees only hyperinflation. This is simply not the case. I mentioned it in another comment earlier: foreign debt repudiation. (Or the US could create a second currency, used to service external debt, but that's another matter.)
Obviously, repudiation of external debt only makes sense as a last resort, used only when the Four Horsemen are in sight (whites of their eyes and all that). Williams, however, is talking about hyperinflation as an inevitability, so for me to suggest the alternative action of repudiation is not beyond the pale in the context of his views. It is like the mountain climber whose arm was caught, and who decided cutting it off and surviving was preferable to keeping the arm but dying alone in the wilderness. Williams says the US just dies; I say we can cut off the arm and live another day. (France and the UK have still not paid back the US for monies borrowed in WWI; we forgive and forget.)
Look at the benefits of repudiation: Of the total $12+ trillion in USG debt, 40%---or almost $5 trillion---is held by foreigners. And it is priced in dollars. In a sense, this represents a kind of asset, rather than a liability, for the US. It is like having a one-time "Get Out of Jail Free" card. It is like the underwater homeowner walking away and renting at a much better price than the old mortgage with its huge monthly payment.
Would there be retaliation? Probably, but of what form? The world could get by without Argentina. Zimbabwe is even more easily replaced, as is Iceland, Latvia or even Greece. The US, however, is still the largest or second largest exporter in the world, and is not easily replaced. It is far and away the largest importer, virtually impossible to replace in the lifetime of anyone now alive.
China can de-couple? Good luck achieving that before Cultural Revolution II removes the CP from power! Total US imports from China this year might "only" reach $300 billion, the equivalent of the 30th largest GDP in the world. Just the decline from last year's import pace ($360 billion) forced China to pump its own economy with $578 billion of questionable stimulus (which will create its own problems down the line). There is no way the Communist Party could survive if the US market was cut off all at once, so no matter how miffed China got at a debt repudiation, they would still have to try to make nice and export to the US.
In the Armageddon scenario outlined by Williams, the US has the repudiation card in its hand, and can thus stave off hyperinflation by eliminating $5 trillion instantly. Suddenly US Federal debt would fall back to 50% of GDP, a quarter of what Japan's government debt is right now. And upon repudiation, the US becomes a kind Japan (100% domestically financed debt), but with a much better balance sheet and far less need to import necessities. Fiscal restraint would come regardless of whether it was forced by hyperinflation or by an inability to fund future deficit spending due to a foreign buyers' strike.
Sure, China, inter alia, would squawk. Then what? Stop exporting lead paint toys and poison dogfood and gas-emitting drywall? Stop buying US grains? Yes, China could seize US corporate assets within its borders, and maybe detain a few US expat investment bankers and hedge fund managers domiciled in Hong Kong, but this is a small price to pay. And Blankfein could afford to pay the ransom if anybody really wanted those people back before China harvested their organs and sold them.
The most that China can do is force fiscal discipline on the US now by going on a buyer's strike while everything inflationary is still in the nascent stages. If it ever gets out of hand, repudiation or its threat takes all of China's clout away. (The Soviet Union used the threat of repudiation to gain access to new funding plus avoid foreign interference in its nascent revolution from the latter stages of the first World War into the early 1920's.)
Even oil imports might not be impacted too much by debt repudiation given how much of the US supply comes from Canada (21%) and Mexico (11%). Toss in Venezuela (13%), led by a man who would prefer staying in power to being lynched, and oil might not be such a huge problem. Also, would Nigeria stop exporting oil to the US? Would Saudi Arabia? Maybe, maybe not. Greed makes for short memories; witness the equity market rise since March. Heck, even Argentina can access international capital markets, at a price.
The US still produces more than 300% of its caloric needs in grains, so starvation is not about to be a problem even if oil imports are dramatically cut and fertilizer becomes dear. The dollar would also still be good domestically, pumped up by a populist President who extolled the virtues of sticking it to the Commies and the oil sheikhs. Patriotism, especially the bad kind, would soar. We'd be proud of our dollars.
Yes, this repudiation scenario is a bit silly, but less so than the hyperinflation scenario of Williams, because repudiation sits one step closer to the center on the spectrum of seriousness to silliness.
Finally, to state the obvious, timing is everything. Will the dollar eventually disappear? Of course. Someday. The trick is living while it survives, which could be some time still. Repudiation before hyperinflation!
------------
*Addendum
Is the US irreplaceable? Can the US be more self-sufficient?
Here are some numbers regarding US exports and imports, which can shed light on the two questions above:
Imports
US Imports 2009 -30% YTD of which...
Food is 5.3% of total imports, of which the largest component is liquor (substitute Jack Daniels and California wines?), the second largest is fish (who needs the mercury?) and the third is fruit (use Ex-lax instead) or eat more oranges and peaches and prunes...Americans, already grossly overweight, can probably eat just fine from homegrown produce.
Crude Oil is 11.7% of total imports, and is down 51.6% YTD
Capital Goods are 24% or total imports, down 21% YTD
Consumer Goods are 28% of total imports, down only 13% YTD (huge room here to cut)
Autos and parts are 10% of total imports, down 38% YTD (get a tune-up and drive the clunker another year)
Exports
US Exports down 21.8% YTD of which...
Food is 9% of total exports, the largest components of which are soybeans and meat (down only 10-11%, foreigners need to eat, too)
Consumer Goods are 14.5% of total and down 8.7% YTD, but the largest component is pharmaceuticals which is up 17% YTD (sick people will pay)
Capital Goods are 37.6% of total exports, down 17% YTD...but among the largest components, medical equipment is only down 1%...semiconductors, surprisingly, are down 31% (hard to love or believe Intel)
Bottom line is that much of what the US continues to export is essential and not easily nor quickly replaced, while much of what the US imports is either unnecessary or comes from a fairly stable source.
Nice post, but your oil number is waaaay off. The hitch is in "crude."
http://tonto.eia.doe.gov/ask/crudeoil_faqs.asp
The crude figure is from official Census Bureau data, and squares with the data from the site you link. The 11.7% of total imports represented by crude in dollar figures (through October) is $148 billion out of total YTD imports of $1.269 trillion. If one tried to break down that total crude number, it easily fits about 12 million bbl/day at the average price of crude over the first ten months of the year. And as it says, it is “crude”, not refined products. The decline y-o-y of crude as a percent of total US imports reflects both lower product import and pricing on the existing contracts.
Importers could resolve a lot of their ills if they just ran out US corporate entities from their countries and take control over those assets. This is exactly what has been happening, and what will continue to happen. NOTE: much of the assets are land, land that's used to grow food for export; eventually these lands will fall back under local control, producing food for the local people. So, the US food export market isn't the damocles that one might think it is.
you must be one of the smartest people in the whole world, alive right now.
aron ralston, knew him when he had both arms. he was a mountain climber, but his accident happened in the SW desert.
My mistake. He's an economist.
People who argue economics by invoking Zimbabwe (who cluelessly believe it has a "bank", a "government" or a "economy") have become like people who argue ethics by invoking Hitler - when you hear the name, you know you are in the presence of ignorance, fear, and emotional retardation. As with this post.
A dollar devaluation seems the most likely outcome, listen to the video/radio , 1st part is the "killer" - http://thecomingdepression.blogspot.com/2009/11/bob-chapman-video-this-i... then it's off to the FEMA detention camps with all the debt ridden deadbeats and unemployed (myself included - lost my job after 3 1/2 of faithful service)
If you all really 100% believe this hyper-inflation stuff, why aren't you:
1. Taking out as large of loans as possible at these ridiculously low interest rates.
2. Using the money to buy up stacks of non-perishable foods and can openers.
3. Using the money to buy up usable land, precious metals, and barter goods.
4. Using the money to buy guns and other security measures.
5. Creating a self-sustainable structure for energy (power/fuel/food).
There is a lot more. You haven't even taken enough action in any one of those areas to save yourself.
Or maybe you aren't really sure that this will come to pass?
I think you just enjoy thinking about the world coming to a crashing halt.
Chazzmoney
P.S. 8 years ago, I had $8,000. I traded the markets, and today my $8,000 is $250,000. Thats a return of a little over 50% a year. From July 2008 through today, I'm up over 68%. Why am I telling you this? Because the majority of "expert" opinions on here are from people unsuccessful at predicting economic outcomes. Listen to the market, to the world around you, not to people writing stuff they don't know about on some website. (That includes me.)
1. Banks aren't loaning.
2. Very few foodstuffs are "non-perishable;" anyway, sooner or later the supply runs out.
3. A reasonable suggestion.
4. You can't BUY security. If you have stuff that others want then you're never really safe.
5. Won't work unless the system on which it's all predicated is based on no-growth (otherwise we end up where we're currently at).
The real game is to know when to hold 'em and when to fold 'em. That $250,000 might end up being worth $0 if your timing is bad.
I have to wonder why you're here, if no one's opinion here (or experts) shouldn't be listened to. Maybe it's just to gloat? (I'd be careful, sometimes shoe leather can end up tasting really bad.)
Hmm, maybe but everyone seems to be overlooking the intrinsic wealth of this country along with it ingenuity and ability to adapt.
Just look at Exxon's natural gas play. I am not an NG bug but assume the dollar goes to crap, OPEC likely want to dump it as its currency of choice but to what? Who thinks the Euro will stay solid? If oil goes sky high, domestic production will crank up (the US has plenty of oil, it just not cheap to extract) and there would be much conversion to NG and other alterantives. It would be expensive and painful but one major outflow of our wealth would be slowed.
Inflation or deflation the “real” cost of cheap inexpensive foreign goods will rise but, for now, the US still has the ability to manufacture everything it needs at home.
Which is not to say many of the current politicians in power won’t be dumped. That Federal employees all just received wage increases is ridiculous. That many state employees still have defined benefit plans equally so. Things will change yes, but the doomsday scenarios are a bit over the top in my opinion.
As an aside, what happens to China if its biggest market goes kapooey?
We live in interesting times.
for now, the US still has the ability to manufacture everything it needs at home.
For now, maybe, but long-term... If the US was to try and meet our resource needs using only materials in the US it would only speed up the time in which those resources would be depleted. Ease back and you fall into stagnation, speed up and you will blow out. Take your pick, either path points to the cliff.
America's great strength has always been our self sufficiency. Off shoring has put a big dent in this strength but even so we are still much more self sufficient than any other country, especially in natural resources. So we owe? So what? given the strength of our military who can collect if we renege?
I think the answer is in the details. Japan's external debt/GDP is very low, unlike the USA which is heavily dependent on foreign countries PLUS we have over 50 trillion in entitlement promises. If deflation occurs, that means it will be even more difficult to pay the interest on the debt and impossible to continue to give entitlements = collapse! There is nothing to strengthen the dollar! Remember that the money supply has increased significantly even before the bailouts and stimulus.
Second, I don't see where this deflation would come from. If we are dependent on foreign countries to supply us with financing and cheap products, are they going to work harder to lower the value of their products? I doubt it. If we were a creditor nation than there would be a reason for deflation, but unfortunately I only see inflation and hyperinflation.
In relative terms, the entitlement promises in Japan exceed those of the US. As one who long ago managed some Japanese pension and insurance money according to the bizarre accounting rules practiced there, I can tell you their system is at least as wildly underfunded as SS or Medicare. I suspect over the lost decade or two the situation has gotten even worse. And the average age of people in Japan is? Oh my. As for it being internal debt, that only means that when default comes, it is to their own people. At least the US has the option of defaulting to foreigners.
I think the answer is in the details. Japan's external debt/GDP is very low, unlike the USA which is heavily dependent on foreign countries PLUS we have over 50 trillion in entitlement promises. If deflation occurs, that means it will be even more difficult to pay the interest on the debt and impossible to continue to give entitlements = collapse! There is nothing to strengthen the dollar! Remember that the money supply has increased significantly even before the bailouts and stimulus.
Second, I don't see where this deflation would come from. If we are dependent on foreign countries to supply us with financing and cheap products, are they going to work harder to lower the value of their products? I doubt it. If we were a creditor nation than there would be a reason for deflation, but unfortunately I only see inflation and hyperinflation.
The deflationists miss a very, very important point. The United States has the world's reserve currency. Japan does not. That means there are trillions of dollars "on the shelves" of global central banks. Hyperinflation is not a monetary event, it is a confidence event - or destruction of confidence.
When the ROW gets tired of funding our spending binge, they will a) quit buying our debt and begin selling it and b) begin cashing in their "inventory" of dollars.
This will lead to a stampede to the exits, which all are trying to avoid now. China hasn't because they are busy converting their stash to real assets (oil, metals, grains) as fast as they can without causing the rush to the exits.
Hyperinflation will come when confidence is the dollar is completely lost. That can happen literally overnight.
It doesn't matter how many $trillions are sitting on bank shelves. These amounts are dwarfed by $quadrillions of credit derivatives perched atop declining property values.
Central banks have been desperately attempting to re-inflate mortgage securitization with little success. So far, the only tangible result of giving away free money has been for banks to bid up equity prices. It hasn't effected the larger real estate market at all.
And those trillions in credit derivatives are dwarfed by trillions in interest rate derivatives. Interest rate derivatives which are used to keep rates artificially low.
Asset prices will continue to go down, however bond prices will go down as well. This will cause a decline in the underlying currency as the trust in a nation's sovereign debt decreases.
I think you B9K9 has got something here. The situation is like segregated inflation in the housing market. The rest of the economy didnt adjust because everything else we get is from China (soap, shirts, daily living things) and their money is pegged to ours. So, we have mom and pop taking out mortgages buying stuff like TV's, microwaves, computers and cars (should be inflationary if more money is injected but the prices of these items are artificially kept low). Where does the increase in home value come from? From (as we all know) the availablity of gobs of money to anyone that wants to buy a house but people werent getting these loans to buy goods, just houses, so the house was the inflationary vehicle that tied everyones money up. Now it should collapse but it cant because chaos will follow. People think they are entitled to their 500% increase in home price that they borrowed against.
People think they are entitled to their 500% increase in home price that they borrowed against.
And, I'd add, their 500% increase in pensions and retirement accounts! Most people overlook these as another pool of stored money/wealth; actually, it's more accessible than are homes because it's harder to pry a home away from someone than it is to steal the electronic bits in pensions and retirement accounts, which have a nice little protective TAX coating on them (keeping their owners at bay until the draining takes place).
It's all going to be sucked dry people. The great illusion is going to go up in a puff of smoke.
pivot says
'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...'
I wouldn't be too sure of that, see china's sneaky 200 Bln / month transfer of US debt into European assets (companies etc). The Japs are about to start too, I honestly believe the dollars days are numbers. Thats what we get for offloading all the REAL jobs!!!
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http://www.ecigfluid.us
enjoi
Thank God the screamers went away!
Do you really think that the US has three times as much
gold as any other country? I don't. Hell, Fort Knox hasn't
been audited in FIFTY years! Not to mention the Tungsten
scam that is recently making news. But the Fed. Gov.
sure is buying a lot of lead. The Dept. Of Homeland
Security has contracted for 200 million rounds of
.40cal ammo. On Wall St. they call that "Hedging You Bets".
Selah
I'm with Mish on this, Fed/govt stats ignored price increases in housing. In fact, beyond Mish on onto Eliz Warrens points, the politicians crowed about the low CPI in 2000s while middle class was being taken out by price of housing, health care, education (now very expensive college degree seen as min necessary to be guaranteed middle class life, middle calls life based on high school education and good paying manufacturing job is all but gone now)
So while middle class wages declined or stayed flat and the big important things got more expensive, all anybody could take about was price of computers, price of appliances, toys. Now, at least housing price is going down, along with cars, appliances, travel etc..So Feds track of inflation was off, as their track of deflation is off too.
And back to Mish's and many others points, credit destruction along with lower earnings, over-capacity of everything (even manufacturer robots are laid off) equals deflation, even in face of all Fed has done.
The credit destruction also reduces the ability for people to purchase us treasuries and hold onto our dollars. The only reason that foreign nations are able to hold such a great number of treasuries and dollars in their fx reserves is due to all of the excess that has been given to them via the economic boom caused by the US. The inflation occurred when the banks used credit derivatives to issues loans that otherwise could not have been possibly made to keep their capital ratios, which means that the banking system has been effectively in a zombie state for at least the last decade. There is no commodity peg for the US dollar to keep policy makers from inflating the economy into oblivion. I am not talking about asset prices, in the early stages of hyperinflation asset prices can decline yes. Hyperinflation is never demand-pull NEVER.
The largest element that the money supply date ignored is the 700 trillion dollar derivatives bubble. All not reported in the money supply, it is all a ponzi scheme the same derivatives bubble not only feed blood in the form of credit to a dead patient, but it also gives the appearance that the patient is still alive and healthy by keeping interest rates artificially low. When the US market disappears, their markets will initially disappear to, which will mean that A they will not be able to afford to buy new treasuries and hold more dollars, B they will eventually be forced to sell their fx reserves to fund their domestic budgets. Hence leading to a massive panic treasury market in the future which will lead to a currency crisis in the dollar. All of this will be greatly exacerbated when the IRS market implodes at the same time.
The lynchpin is reserve currency status. Rapid dollar devaluation (hyperinflation) can't occur without reserve status delink. Anything before that would be competitive currency devaluation... a steroidial version of comparitive poverty. As such the delink trail is being blazed by our other Asian friends who the FED believes to have safely hamstrung through debt notes.
I have seen the sentiment at the end of this article - "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" - repeated in many places.
For God's sake, think for a moment. Is that $1.1 trillion (not 1.2) of new money sitting in Federal Reserve vaults? No! It went to purchase Treasuries that at least earn a minimal return, risk free. So it went to the US Treasury where it sits in a back room so Timothy Geithner, if he's feeling low, can go and roll in it, right?. No, it got spent! It's already in circulation!
Got a better understanding of it?
I love it!
But... The money went out to banks whose CEOs ARE rolling in it! (basically used to patch the peep holes that would otherwise exposure this hideous scene)
The good folks at QB Management have given this question some thought in a recent article querying whether gold is a bubble. Here are a couple of excepts:
"It seems obvious to us that economists like Nouriel Roubini and other market watchers have this backwards. Some are “worried” today about price inflation and/or deflation in nominal terms at a time when we are experiencing severe asset price deflation in real terms. There is no avoiding the inevitable reconciliation. All the Fed and Treasury can do is to continue to try to hide or delay economic reconciliation via inflationary policy prescriptions. Being long gold is nothing more than a bet on credit/debt deflation in a world of money-printing central banks."
"Slack in the goods and labor markets are harbingers of further risky asset deflation. Further risky asset deflation is a harbinger of further debt deflation. Further debt deflation is a harbinger of further monetary inflation. Further monetary inflation is a harbinger of higher gold prices. Such is the chain of causality we, and the global markets, recognize."
I hate when statisticians get uppity and start
offering investment advice. I looked in vain for
solid backing for John Williams' inflation thesis.
Shadowstats is a great place, but show
me the money.(M1,M3? In the back of a dragster
at terminal velocity in 3 sec? Or
still under the FED's mattress...?)
GS exec selling apples: "I had a million
dollar dog once."
Joe Screwed: "Whadja do with it?"
GS: "I traded it for a million dollar cat, and
it ran away"
Joe: "So it was still a dog"
TruthHunter (but no hunting license)
No Money supply indicator by the Fed takes into account the 600 trillion or so derivatives denominated in dollars that are still out there. Those dollars generated by the derivatives ponzi scheme are also used to buy US government bonds, once the ponzi scheme falls apart so does the bond market.
L. Randall Wray, "Is It Time to Reduce the Ease to Prevent Inflation and Possible National Insolvency?
http://neweconomicperspectives.blogspot.com/2009/12/is-it-time-to-reduce...
Inflation was created by the $800 trillion shadow banking system. The money was already printed out of thin air years ago to provide credit to the economy and keep the bond market afloat. This pseudo-boom also gave our creditor nations trade surpluses which allowed for them to accumulate treasuries. When the derivatives bubble collapses, so does the artificially support given to the dollar via the shadow banking system and interest rate securities.
Hence there has been no deflation, only inflation. Hyperinflation would occur after a currency crisis. There was no alternative for the British pound in 1931 after the British defaulted on gold, so what happened? World trade shut down. It is a confidence event.
The money has already been printed and most of it has been channeled through the shadow banking system literally years ago. The Fed printing money now is only trying to cover the holes in the system and expand the greater bubble, to prevent an imminent collapse. The collapse will happen however, it has been delayed perhaps up to a few more years. When our creditor nations break down so will we.
This is an interesting argument which i believe is a fallacy, simply because if $800 tri were indeed pumped into the US economy, then it'd have collapsed years ago (despite being the world's largest economy).
The distinction lies in credit money and real money.
Real money is a form of wealth, such as a fully paid-up house - or a loan with that house secured as collateral; credit money encompasses real money as well as fictitious money - eg, an unsecured loan. The latter is nothing more than an obligation on the future labours of the borrower, and the former may contain elements of both monies, depending on whether the house was 'cashed-out' at bubble-prices or not.
Your point on creditor nations stand though. Wealth has been rapidly transferred into the coffers of US trade partners, who also happen to be her largest creditors (no surprise). Wealth has also been consolidated internally to the benefits of those working in the banking, insurance, construction and retail services sectors.
In short, i believe that the widespread impression of massive wealth destruction brought about by the sub-prime crisis is false; what is true is the consumption, outflow and redistribution of wealth. The common view that americans have spent away theirs and their children's futures is also right, to an extent.
The derivatives bubble is what is propping up the US Treasury market currently. If it were not for the derivatives bubble there would be no capital to invest in US Treasuries. Therefore the US Treasury market would collapse and the US dollar would as well.
Real money being the result of production has long since disappeared for the US. It was replaced over a decade ago by the derivatives bubble.
The 800 trillion has not been necessarily pumped into the economy. There is an appearance of support in the economy due to the 800 trillion which is giving life support to the credit markets and and US government bond markets, however they are unbacked. Derivatives in the Shadow banking system basically work as leverage, allowing banks to create money out of thin air as a fraction of the contract value.
Well-articulated and correct on most counts, though i beg to differ on your last point.
All money created is inherently backed, whether by real value, or unrealised output. Although at present that future potential is unclear; and by association, the value of newly-created dollars (another consideration being the quantity of it).
Despite gloomy forecasts by the naysayers, the US is still well capable of continued productivity, by virtue of her stable (relatively-speaking) political system, population size, literacy rate (arguable at times), modern infrastructure, resource pool, accumulated technological and scientific knowledge, and many other advantages which are often overlooked during times of rampant pessimism and distress. So the value (however diminished) of newly-created dollars is there.
Unbridled spending is necessarily bad; but that is not solely a government failing - the public have their fair share of blame as well. As for this 'shadow banking' system, that is a controversial issue. Some advocate self-regulation while others are in favour of more government controls; i believe either can be effective as long as properly implemented. The current administration has opted for the latter, so we shall see.
The amount of production necessary to maintain current living standards is currently lacking. The US infrastructure is in poor condition for a supposed first world nation. While the US does have a large manufacturing base much of that is oriented to the excessively costly military-industrial complex and will not support the current US living standard at all. There is also the incredible dependency that the US has on cheap oil more so than other nation. Yes while the US is a large geographic landscape however even half a century ago there were public transportation systems in place in major metropolitan areas. LA even once had a metro system, yes LA. Americans of course love their gas guzzling SUVs more than any other nation on earth. Unfortunately educational standards have not kept up for the US, the government has shifted to endless excess spending on education instead of efficient educational spending. Recently in 2008, more than half of US patents came from foreign companies. Let's not forget the large immigrants of skilled workers who come here for opportunities. Currently there is not enough productive jobs in place for when the dollar currency crisis does occur, for that will happen later on. Americans may be lied to and led into illegal wars or may end up bailing out rich banker, but as long as they have their Xboxes, Flat-screen tvs and SUVs there should be no problem. A mass currency devaluation would prevent americans from buying their oh so loved goods. Remember that Americans are one of the most well armed if no the well armed population on earth. Of course there will be at least some social unrest. Look at how states and municipalities are cutting services left and right. Soon the welfare class will run out of welfare.
As for the shadow banking system. Well it has always operated with the Federal Reserve. Obama wants to give more autonomy to the already independent Federal Reserve. JPM, GS, Citi and MS are the Fed. The fact of the matter is if they are "too big to fail" they should never have been allowed to create such a system to begin with. It will continue to operate as usual for a few more years at least that is what they hope. Remember the most important component is not necessarily the credit derivative segment of the market but the interest rate swap derivative segment. This is what gives the US government its purchasing power and the dollar its purchasing power. As long as that does not break down, we will be drifting in a "stagflationary" environment for a while. With falling or stablizing asset prices and rising or stablizing commodity prices. Either way there is no amount of productivity possible to even overcome the storm we face in the shadow banking system. The sums are too great for the US economy or even much of the world economy to bear ultimately. Instead of coordinating a revitalization of US industry while the currency still has a high value, all the US government and the Fed are doing, is reinflating the old unsustainable bubble.
Well... as the saying goes, "When the pain is too great to bear, share it." The devaluation of currencies, overall reduction in living standards, partial/total nationalisation of banks are all means employed by various governments/central banks to dilute the damage. Nationalisation of private assets brings about a state of hiatus which could be sustained for years, not necessarily a bad option. Of course, you disagree, but that's alright.
The future drivers of the US economy are found in non-labour intensive sectors, that i agree; nor have i stated otherwise.
Interestingly despite a lengthy exchange, we seem to have arrived at the same intermediate conclusion - that of stagflation being a likely outcome in the near future. Going forward, whether a currency crisis (aka. hyperinflation) is inevitable, or merely a far flung possibility, really depends on the degree of the proponent's faith in the your leaders' abilities to take the right steps - steps which are still very much in the making.
In other words, highly subjective.
The "hiatus" may be comfortable for some, however for the majority of the population in the US they will not see the end of that hiatus coming, all the while being lulled into comfort during that time. If the fundamentals of the economy are not improved, once the shadow banking system breaks down so will all the artificial economic output of the US will go as well. The US needs industrial and yes labor intensive employment. It does not make sense to excessively outsource production for corrupt business lobbies when the 19th century proved that the American system of economics in which internally produced and manufactured goods to give the US the highest standard of living in the world. In fact even our so-called friend (china, ahem) considers an enemy in the long term. Deng Xiaoping called “American imperialist leaders” enemies in the long run. There is no need to build up our future enemy, this is how empires die over corruption. Considering the trade-treasury tango we have with china, if the US is to become the preeminent power once more we need a long-term re-industrialization plan. We need to support alternative energies including Nuclear and Solar for the long run. This current green energy plan will not do much, all it is designed to do is complement oil not replace it.
As for the currency crisis, well once the shadow banking system collapses there is guaranteed to be a massive currency devaluation, with probably some mass selling of us dollar and treasuries. The policy makers in washington and new york have to decide how great that devaluation will be, and so far they are willing to make it deeper and deeper.
There is now a 'Balance of Fear' similar to the 'Balance of Terror' at the end of the cold war. This is the fear of inflation vs the fear of deflation. As long as the government & Wall St can exploit these opposing fears they are hoping to maintain a 'Balance of Fear' & neither will happen. I think this is another fool's game & one or the other will inexorably take the lead. Don't ask me which. Chaos theory only says that outcomes in such a situation could end up just about anywhere. A system enters a chaotic state & automatically seeks & establishes a new steady state according to the specific conditions as they exist in the true real world. No more & no less with no points given for individual hopes or wishes.
Well the inflation that was created in the past decade was also used to purchase US Treasury bonds and make it possible for foreigners to hold our dollars to begin with. When the system collapses foreigners will no longer have the ability to hold onto our dollars and treasuries in their reserves. Which will cause a currency crisis in the US dollar leading to mass devaluation if not a degree of hyperinflation.
From an outsider: it is very simple guys, the USA is caught in a deflationary hurricane, the basis of real wealth i.e. real estate held by individuals is deflating at a rate unseen in history. Your approach has been to inflate your money supply via ink and paper to shore up real estate values. You have trapped yourself in a double edged bind: deflating individual wealth combined with inflating living costs - sounds like stagflation to me. My biggest fear has always been stagflation - rising costs with declining opportunites - a recipe for fiscal disaster.
The U.S.A has 8,100 tons of gold. This comes out to 286 billion dollars in gold reserves. Compare this with the deficit of 12,000 billion dollars.
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