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The Time to Prepare for Hyper-Inflation is BEFORE It EXPLODES
This is a
continuation of a series of essays I wrote concerning the global shift away
from the US Dollar as reserve currency. If you missed those essays, a brief recap
of the items listed were:
1) China
and Russia dropping the US Dollar for trade
2) China
ramping up trade with Brazil
3) Saudi
Arabia moving to strengthen trade with China and Russia
4) China,
Russia, Brazil, India, and now South Africa are moving to trade more in their
own currencies (not the US Dollar)
5) Singapore
(major financial center in Asia) starting to trade yuan
All of these
items are real and documented. And the pace of the move away from the Dollar as
reserve currency is not slowing.
Indeed, it
was just revealed that ASEAN+3 countries (Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, China, Japan,
and South Korea) are researching the prospect of a “common currency” similar to
the Euro.
The
significance of this development cannot be overstated. The primary question
those who do not believe the US Dollar could lose its reserve currency status
ask is: what will be the replacement?
For certain
there is no one currency that could fit the bill. The Chinese yuan could not do
it as China is not ready and in fact ready to suffer a housing and banking
collapse. Russia’s economy is a disaster aside from a few key areas (Moscow, St
Petersburg, etc), the Euro in its current form won’t even exist in a few years,
and Japan is both an ecological and financial disaster (they’ve just announced
a 1 QUADRILLION stimulus plan.
Thus, the
idea that any one of these currencies could replace the US Dollar as reserve
currency of the world at this time is absurd.
However, a
common currency comprised of most Asian countries (the primary creditor nations
and manufacturing base of the world) is a completely different story.
Understand,
I am aware that common currencies in general are flawed (especially when you’re
uniting a bunch of bankrupt aging countries like Europe). However, a common
currency comprised of Asian countries would
overcome be a much more viable alternative to the US Dollar as reserve currency
of the world.
The reason
for this is that a common currency in Asia would get past the individual risks
of any one Asian nation’s currency (Thailand and Japan in particular are a
mess) at least in the beginning.
True,
ultimately a common currency there would prove as futile as the Euro. However,
it would serve as a “stepping stone” in the process of finding a replacement of
the US Dollar as world reserve currency.
What I mean
is that should a common currency be introduced in Asia, it would probably work
for about 10-15 years. By then we’re well into the 2020s if not the 2030s at
which point it is quite possible China will indeed be in a place to provide a
world reserve currency on its own.
I wish to
stress that even if Asia doesn’t
implement a common currency and the US Dollar remains the world’s reserve
currency (I put the odds of this at 20%), we are still facing a debt default in
the US which will result in the US Dollar dropping dramatically in value and
ushering in serious if not hyper-inflation.
Indeed, most commentators fail to understand the real reason
Weimar Germany suffered hyperinflation. Niall Ferguson’s book, “The Ascent of Money” explains that it was in fact a
political mistake that ushered in hyperinflation:
Yet it would be wrong to see the
hyperinflation of 1923 as a simple consequence of the Versailles Treaty. That was how the Germans liked to see it, of
course…All of this was to overlook the
domestic political roots of the monetary crisis. The Weimar tax system was
feeble, not least because the new regime lacked legitimacy among higher income
groups who declined to pay the taxes imposed on them.
At the same time, public money was spent recklessly, particularly on generous wage
settlements for public sector unions. The combination of insufficient
taxation and excessive spending created enormous deficits in 1919 and 1920 (in
excess of 10 per cent of net national product), before the victors had even
presented their reparations bill… Moreover,
those in charge of Weimar economic policy in the early 1920s felt they had
little incentive to stabilize German fiscal and monetary policy, even when
an opportunity presented itself in the middle of 1920.
A common
calculation among Germany’s financial elites was that runaway currency
depreciation would force the Allied powers into revision the reparations
settlement, since the effect would be to cheapen German exports.
What the Germans overlooked was that the
inflation induced boom of 1920-22, at a time when the US and UK economies were
in the depths of a post-war recession, caused an even bigger surge in imports,
thus negating the economic pressure they had hoped to exert. At the heart of the German hyperinflation
was a miscalculation.
The
similarities between the US today and Weimar pre-hyperinflation are striking.
As in Weimar, US fiscal authorities are not taking any steps to rein in their
loose money policies. Similarly, the US Fed, like Germany’s financial elites
believes that currency depreciation is a good thing.
Thus we have
a rather frightening set-up for hyperinflation in the US: the largest emerging
market players are moving away from using the US Dollar at the same time that
US monetary authorities are engaging in disastrous policies similar to those
employed by the men who brought hyperinflation to Weimar Germany.
I firmly
believe the US will see serious (‘70s style inflation) if not hyperinflation
within the next 2-3 years. It could come sooner depending on how the Fed’s
policies play out.
On that
note, if you’ve yet to take steps to prepare your portfolio for the coming
inflationary disaster, our FREE Special Report, The Inflationary Holocaust explains not only why inflation is here
now, why the Fed is powerless to stop it, and three investments that absolutely
EXPLODE as a result of this.
All in all
its 14 pages contain a literal treasure trove of information on how to take
steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up
your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
Good
Investing!
Graham
Summers.
PS. We also
offer a FREE Special Report specifying exactly how to prepare for the coming
collapse in the US stock market (inflation will NOT be positive for stocks for
much longer).
I call it The
Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a
wealth of information about portfolio protection, which investments to own and
how to take out Catastrophe Insurance on the stock market (this “insurance”
paid out triple digit gains in the Autumn of 2008).
Again, this
is all 100% FREE. To pick up your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
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Yup. Years ago, I was camping and built a nice large fire with some yummy sizzling food on the grill.
The sun went down, the darkness slowly came in, and the racoons showed up...en masse. There were about ten of them, and they literally chased me and my wife away from the fire into our car! We watched in amazement as they fought like feral pigs over the food. All that loud grunting and wrestling going on...sounded like one of those bankster prostitute parties.
Our dog once, late at night, had a racoon cornerd in the carport. I went down to see what was up, and when our dog would approach and bark at the racoon, he made devil sounds like I have never heard before. The racoon sounded like the most vicious animal on earth. Oddly, the dog wasn't scared at all, he was having fun.
Hyperinflation is preposterous
Mish Shedlock
From what I've seen, Mish gets everything right EXCEPT for his views on inflation/deflation. He just published a blog on the National Inflation Association's newest documentary, "College Conspiracy," which predicts that the staggering amount of college debt will soon implode. He laughed at the assumed irony in an inflation association producing a documentary about a deflationary event.
What Mish has yet to grasp is what the Fed will do when that bubble pops. The ONLY thing it knows is to inflate the money supply like there's no tomorrow. This, of course, will trigger an inflationary event, and most likely, a hyper-inflationary one. For whatever reason, Mish fails to use the past 2.5 years as any metric for guessing the Fed's future behaviors.
Fed money printing simply reflates the global economy. Those USD end up replacing other currencies.
Mish Shedlock is preposterous, like his countrymen back in the bogs.
Mish is a smart guy who made a bad mistake; early on he committed himself vociferously to the proposition that debt implosions must be deflationary, and now he feels compelled to defend that position no matter what.
If he weren't wedded to the idea that "Debt has to be paid by either the borrower or the lender" he could consider that Bernanke has already said "we conclude that a determined central bank can induce positive price inflation", so now the Nankster has to prove it.
And prove it he will. We'll have our very own crack-up boom with Bennie's fingerprints all over it. Instead of the debt being paid by the borrower or the lender, it will be paid by destroying the purchasing power of everyone who participates in the fiat dollar system. And that will really suck.
Mish Shedlock is preposterous
Hyperinflation
Mish Shedlock, and his historically unknown fiat currency deflationary scenario, is preposterous.
Sincerely,
Hyperinflation
(been there, done that)
PS: Anytime Mish and Karl D decide to go hunting the unicorn of deflation under a fiat currency regime, I suggest ducking and taking cover --- their aims are as atrocious as Dick Cheney's.
In a way Mish is right, it is deflation against real money, everythings deflating against gold.
obviously not in Fiatscos, ever..
Yeah, thanks, welcome back. I just dig the quote although it's getting hackneyed. Mish's site is losing visitors. He just dissects the unemployment statistice with an electron microscope these days and recommends that old ladies hoard meat because of the deflation.
I went to the fortune teller, to get my fortune read, I didn't know what to tell her, I had a dizzy feeling in my head. (Neville)
Mish might be a hard core deflationist, but he comes up with some pretty good shit from time to time. His commentary is usually quite insightful.
I know, Ancona, which is what makes his stubborn clinging to the absurd fiat currency deflationary scenario so painful to behold. It denies ALL of monetary history, although it must be said that history of any kind is usually dismissed by almost all Americans, even the supposedly 'educated' ones, as a mere trifle, if not totally irrelevant. The irony is that history itself will prove them wrong.
There are many currencies in the world. One by one they will fall due to central bank money printing. The strongest currency will inflate at the lowest rate. I expect the USD will end up the only currency worth having as at present, the USD is backstopping the EU, IMF, China's export trade, World Bank, etc. The USD controls/expands world credit.
If you think the USD will be affected by hyperinflation, what will replace it? The replacement act is what causes hyperinflation. Once trust is lost, the paper is dumped.
Gold and other precious metals won't replace the USD as they are not useable in today's electronic finance system. Besides, there isn't enough PM to go around. Who will win, those holding the gold? How do they protect themselves from those who don't hold gold? Do they expect the dollar will disappear and yet the social infrastructure will remain? Do they expect Walmart will simply take gold at the till?
Firstly, and correct me if I am wrong, but you seem to be implying the same false dichotomous argument that Mish, Denninger and most of the other clueless deflationists love to make: that we will see either deflation OR hyperinflation, and NO other possible outcome. I happen to think that we will not, in the USA anyway, see hyperinflation a la Weimer Germany ---- but I am guessing that we will see a currency crisis at some point, and will certainly see a significant if not catastrophic devaluation in the US dollar of between 50% and 90% over the next five years. For a good example of what I expect to see in the USA in terms of financial and monetary upheaval sometime over the next few years, just look up what happened in Argentina in 2001-2002
Secondly, again with the specious "There's not enough gold to back our money" argument! Do we really have to drive a stake through the heart of this nonsensical and disingenuous argument again? Canucklehead, there is ALWAYS enough gold to go around, just as there always has been, and always will be --- it is merely a question of at what price? If gold is revalued at $10,000 an ounce, would that not make the existing gold stockpile "enough"? No? What about at a price of $1,000,000 an ounce? Not, of course, that it need or will be anything even remotely that high, but the point is made.
Thirdly, today's electronic fianancial system is largely a fraud, and needs to be radically reformed or abolished --- but the market, if nothing else, will eventually take care of that. I would personally LOVE to carry ONLY precious metal coins for ALL of my monetary transactions (and note that virtually NONE of the current financial and monetary problems facing the world today would have been possible under a 100% hard money regime --- but people are too stupid and lazy to use coins, or to care about fraud and theft), but the use of credit cards and other electronic means of payment are utterly irrelevant to the use of sound money, and the backing of a currency by gold --- indeed, many, such as James Turk, have made the argument that such electronic means of payment make the use of a gold-backed currency even EASIER than it would otherwise be.
You don't seem to understand the societal change that is required to cause gold to be accepted as the primary currency in everyone's lives. If you want to invest in something of value that replaces the USD, that something is "community".
If the USD goes, so does social cohesion. That said, the only saviour you will have is the community you belong to. Bringing a bunch of gold to a bartering community and expecting to assume your vaunted lifestyle is naive in the extreme. If you can't provide skills of value to the community, you are "dead" weight.
Go ahead and place your net worth in gold. Hope that it isn't confiscated (like government pensions) before the USD goes belly up.
Instead, join some community groups that help people. You will learn from that volunteer effort of yours. That would be a valuable investment.
I don't think economics "advice" will cut it in barter communities. You may end up standing guard in areas no one else wants to...
You seem to assume that the world is going to end if the dollar goes the way of the dodo --- and that is exactly the propaganda line that our sociopathic masters would have the sheeple believe, to extend their financial and monetary reign of terror over us. I do not buy it for a second, though --- yes, there will be pain if and when the inhuman fraud and crime of fiat currency is finally laid to rest, but civilization will go on. I find your "No dollars = Mad Max" scenario laughably simplistic and erroneous, and intellectually and historically insulting.
... Here's your sign...
http://fofoa.blogspot.com/2009/11/freegold.html
This is an excellent article.
+100
Dude, you can't trade, no one listens to you anymore.
Dude, you need to sober up and lose the goggles. No one cares about you drunken opinions.
DaddyO