Why The Downside To The Fed's "All In" Attempt To Spike Shadow Monetary Velocity Is A $4.5 Trillion Drop In GDP (And The "Upside" Is Hyperinflation)

Tyler Durden's picture

It appears that the one topic pundits have the most problems grasping is the spread between the segregation of traditional and shadow monetary aggregates, overall economic deleveraging and aggregate monetary velocity, and how all that impacts GDP. A summary which confirms just how prevalent the confusion is, is this terrific post by the Calafia Beach Pundit, terrific not because it is even remotely correct (the post is so blatantly wrong - one wonders if Western Asset Management even expects its current and former asset managers to count beyond 2... M2 that is), but because it demonstrates how self-professed "pundits", whether of the beach variety or not, don't have the faintest grasp of more than merely trivial monetary topics.

The basis for the above-mentioned post's argument is that since M2 is growing (which it is for 16 weeks in a row now as we have been pointing out repeatedly), and since M2 velocity has performed a dead cat bounce off its 30 year lows following the complete collapse in M2 velocity after the bankruptcy of Lehman, that GDP has to grow. Period. This argument is so flawed and so one-sided, that its refutation and subsequent elaboration as to what reality truly is, is what this post was at first all about. Yet in refuting the simplistic conclusion of a mainstream pundit's myopic perspective, we uncover something far more troubling: namely that should the Fed fail in stoking consolidated aggregate monetary velocity very quickly, as the shadow liability collapse accelerates, US GDP has the potential to drop by up to $4.5 trillion over the next 3 years.

First, looking at M2, it is indeed the case that M2 has been growing. As the chart below shows, since the beginning of 2010, M2 has grown by $288.7 billion from $8485 to $8773 billion.

The problem, as Zero Hedge readers know all too well, is that M2 is merely a small subcomponent of all practical monetary aggregates, including those derived from the shadow credit system. As the beach pundit certainly should be aware, a far more important aggregate is M3, which the Fed has conveniently decided to eliminate, just so those of the permabullish persuasion can spin factless arguments using the far more easily manipulable M2 as a proxy for money demand. And looking beyond M2 is precisely where the entire argument falls flat on its face.

Since the bulk of credit and monetary growth over the past 30 years has occurred not at the observable M2 level, but at the level of shadow banking liabilities (from $620 billion in 1980 to $21.4 trillion at the peak in Q1 2008), and their monetary representation (be it M3, or our broader custom aggregation), a far more indicative view of GDP as a product of monetary aggregate velocity is that of GDP not to M2, but of GDP to M2 and Shadow Banking, which includes in addition to the generic M2 components such as M1 (currency, demand deposits), and retail money funds, savings deposits, and a variety of other deposits, also such shadow components as money market mutual funds, GSE capital, ABS issuers, repo money, open market paper, and agency and mortgage pools. The combination of all that is the most definitive and comprehensive representation of money demand available for the US economy.

The chart below shows just how much more of a factor the shadow economy has become of the past 30 years. While in 1980 the ratio of M2 to Shadow banking monetary aggregates was 135%, the resultant surge in shadow debt, and thus shadow money, as a result of 30 years of declining interest rates, led to a M2/Shadow ratio of under 50% in 2008 (black line in chart below).

A complete and valid representation of aggregate monetary velocity has to take all these excess components: anything else is an insult to the intelligence of one's, in this case, readers. Which is where a far more different picture than that presented by some pundit or another emerges.

Note that in the chart below, as credit has become easier to procure, and increasingly cheaper since the arrival of the Maestro, and as cheap credit-derived money flooded the system, the overall broad money velocity (M2 and Shadow Banking monetary equivalents) has collapsed, even as GDP has been growing. In other words, as more and more credit has gotten added to the system over the past three decades, such new credit has had a progressively smaller impact on true economic growth. And here is the key point that makes a mockery out of the abovementioned "analysis" - even as M2 has grown by under $300 billion, courtesy of QE 1 and QE Lite, shadow banking liabilities and appropriate aggregates have plunged by $2.1 trillion in just the first six months of 2010! Let's see: +$300 billion compared to -$2.1 trillion. Hmmm.

Let's recall that the prevailing theme of the ongoing depression is deleveraging: at the consumer and at the corporate level (courtesy of sovereign leveraging, and $13.7 trillion in federal debt compared to under $9 trillion three years ago, which makes the cost of deleveraging next to nothing), the current collapse in Shadow liabilities, and associated monetary aggregates will persist for a long, long time. Keep in mind the Fed has little control over this, and this is what most pundits (no matter how self-proclaimed) get teribly confused by. All that the Fed can do is hope to increase the velocity of the corresponding circulation of M2, and beyond, money.

Which is where things get really ugly.

Contrary to the beach pundit's conclusion that the growth in M2 most certainly portends a pick up in GDP, we present the completely opposite case: namely that the collapse of shadow credit, and the resultant elimination of shadow money, could result in a plunge in US GDP as high as $4.5 trillion over the next 3 years. And what most don't understand (but Blackhawk Ben most certainly does) is that what M2 does over this period is completely irrelevant as shadow deleveraing will be the far more dominant force vis-a-vis GDP.

And what the Fed is trying to do, more so than anything, is to return the M2+Shadow Banking velocity back to traditional levels, far higher from the current 58%. That the Fed has succeeded in raising it by 8% from its all time low 2 years ago, is purely a function of Quantitative Easing. The real question is whether QE2 will have the same success in stoking at least some consolidated velocity and its resultant GDP pick up.

As the chart below demonstrates very vividly, the upside-downside case for the Fed is blatantly obvious: either the Fed will succeed in spurring velocity to surge to over 80% over the next 3 years, in which case GDP will merely stay flat over the next three years due to the ongoing collapse in consolidated shadow liabilities, or it will fail. Should the latter case materialize, and should velocity be stuck in the current range in the upper 50 percentile, GDP will plunge by nealy 30%, or $4.5 trillion to $10.3 trillion by the end of 2013! Furthermore, if velocity once again begins to contract, which in the context of ZIRP is a distinctly possible outcome, the impact on GDP will be even more dire.

So now you know pretty much everything there is to know about the curve of economic growth over the next several years, and why the Fed is gambling virtually everything on succeeding in increasing money velocity with wave after wave of QE. Since Bernanke is unable to stop the deleveraging onslaught, and indeed via what will be an endless case of ZIRP (at least until the Fed is ended) is encouraging it, all he can do is to attempt to accelerate the velocity of money. Yet as many claim, where QE1 succeeded as it was a program to restore liquidity in a liquidity-strapped system, and thus managed to boost velocity marginally, the fatal flaw of QE2 is that it is the wrong prescription for the symptom ailing the economy. Namely, adding more liquidity to a system which no longer needs a liquidity injection but instead is in dire need of a fundamental restoration in the belief of the job creators (small and medium businesses) that the economy is if not sound, then at least without further threat of central planning interventions by the very same Fed which is now playing Doctor Nick to the US economy, and prescribing nothing less than a terminal poison to what is ailing the US.

The problem is that by adding virtually infinite liquidity to the system, the Fed has doomed a favorable systemic outcome from the very onset: at this point there are two real outcomes: either velocity dips again and GDP plunges by almost $5 trillion, or velocity explodes and hyperinflation arrives, resulting in a debasement of the dollar, and leading to a complete collapse in the system, as GDP becomes irrelevant (how many economists study the GDP over the many months of Weimar Republic hyperinflation?).

So the next time someone points out the growth in M2 and uses it as a flawed validation for a growth in GDP, inform them that until M2 annual growth is $4 trillion and at least offsets the annual deleveraging in the shadow system, and the resulting monetary extraction, that they should look for greater fools elsewhere.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
hamurobby's picture

Straddle trades everywhere! oh the humanity!

More Critical Thinking Wanted's picture


Why The Downside To The Fed's "All In" Attempt To Spike Shadow Monetary Velocity Is A $4.5 Trillion Drop In GDP (And The "Upside" Is Hyperinflation)

Tyler, you got it the wrong way around, again.

The downside is deflation, and it is already happening. A drop in nominal GDP (and the resulting crippling increase in the effect of existing debt) is just the natural effect of deflation. Could you please start using the d-word?

The upside is not hyperinflation but just inflation. We'd all be off much better if there was any 'hyper' side to it - but unfortunately there is not.

The thing is, even a junior economist fresh out of college can whip up sufficient measures to effectively fight any 'hyper' inflation in the matter of a few minutes, should it happen. Even the chinese are able to do it, so the US should be able too, right? It's really that easy.

Deflation on the other hand is much more crippling - as Japan and the Great Depression has shown it to us. Soaring unemployment, soaring suicide rate, a whole generation of youth with few prospects - a collective contraction and the resulting psychosis. You might want to live in such a society - most others dont.

To characterise it in military terms, deflation is the a-bomb from hell, while hyperinflation is a water pistol.

taraxias's picture

We'll be paying $100 for a loaf of bread and f@cktards like you and Mish would still be telling us that we're having deflation.......yeah,yeah, I know, contraction in credit and all that but commodities skying should be your clue that you missed something here.

Let me keep it simple for you: deflation is a myth

What you are witnessing is deleveraging, not deflation. Big f@cking difference. One of this days, you and Mish will understand.

Dismal Scientist's picture

I doubt it. They seem to be more comfortable in the classroom than observing real world effects. There's always a 'definition' issue with the deflationists, which allows them to excuse sharply rising commodity prices as something other than 'true inflation'.

Have said before here, I care nothing for the theoreticians and their semantics. I do care if it costs more to live than previously in a no wage growth environment. Its called biflation and its what is happening today.

More Critical Thinking Wanted's picture

Have said before here, I care nothing for the theoreticians and their semantics. I do care if it costs more to live than previously in a no wage growth environment. Its called biflation and its what is happening today.

FYI, no need to define your own economic term for it - it's the textbook definition of stagflation.

rocker's picture

Sorry to insert here, but, some live on Clould 9 and have no clue what inflation means to those who actually spend money to buy food and services. And to say, Japan has no inflation is and is not right either. Tell the room service maids in Japan there is no inflation. For her it cost more to eat but she is paid less. So this is the reality. You will be paid less in America for actually making something, but you will pay more for Food, Fuel, Energy and Taxes. Taxes which pay for public servants. The ones who want to lock you up because your pissed off that some fool is telling you there is no inflation and your loosing everything because you do not make enough money to pay for deflation. Hmmmm. By the way, hotel rooms and food cost more in Japan now than they did ten years ago. Deflation ???  Hmmmm. 


unununium's picture

Candy bars in the nearest vending machine just went from $0.75 to $0.85.

That's a 13% price hike.

More Critical Thinking Wanted's picture

We'll be paying $100 for a loaf of bread

Yet you are paying around 1.50-2.00 dollars for an average loaf of bread today.

Let me keep it simple for you: deflation is a myth

Only if you call a clear downtrend in inflation (closely matching Japan's inflation curve in the 90s as it headed into crippling deflation) a 'myth'.

blindfaith's picture

what crappy worthless bread are you buying, pal?  Or does your maid do the shopping, and you remember what bread cost when you were a little Boy?

Bread is $3.69 a pound average whole wheat.  Maybe some worthless white is $2.50 but I don't see anyone who reads english buying it or else it is the NEW 12 ounce pound I see all over the grocery store.

Blindweb's picture

Good point.  The quality of our food has gone down dramatically since WWII masking even more price increases.  Is there any middle class or up person who doesn't filter their water?

grunion's picture

I don't.

I grew up swimming in Buffalo Bayou in Houston. Doctor tells me I am immune to damn near anything.

Not everyone middle class and above is an effete snob!

cowdiddly's picture

That'a what I was thinking. Were does this Mofo shop to get bread at 1.50

Mine here runs about 2.99-3.59 a loaf(I like homepride brand)plain wheat bread and I live in a low cost of living area. He is either going to a bakery thrift store, buying some dryed out super generic or else his wife does the shopping.Standing in his wife beater T shirt," Here honey, take this $20 dollar bill and buy us groceries for the week. And don't come home with less the 5 bags Bitch"

linrom's picture

I can buy all the bread that I want for $0.99.

Eternal Student's picture

I don't know about the OP, but I'm paying about $1.25 a loaf for bread that is far, far better than what you can get.

Of course, I buy my own wheat berries in bulk, mill them myself, and bake my own bread. It's far superior to any store bought bread. All of this is really quite easy, once you start doing it. Even if I weren't concerned about today's environment, I'd still do this. It's quite rewarding.

And I bought the wheat berries a while ago, when things were cheaper. Even at today's prices, it's still cheaper. Plus, if TSHTF, I'm good as far as food goes.

Screw gold. Buy wheat. Ok, Ok, buy gold after you've got your wheat.

CitizenPete's picture

Hey bread boy: no issue here with the wheat storage or the Betty Crocker philosophy, but unless your baking with solar heat it's gonna cost you more in the future if your using electric or Gas.  Gas is cheap at the moment but that won't last.  As for electric -- just look at coal prices (delivered).  Fuel is 70-80% of the total cost of power production at a plant.


So I hope your using a wood burning stove to bake your tasty bread muffins. 



Katharotes's picture

yeah, what he said. (edit) I agree with the poster about bread being much more expensive than "$1.50 to $2.00" Even the cheap white stuff is only $1.79 on sale. Same goes for most things on the grocery/drygoods store shelves. I get sticker shock at least once a week.

linrom's picture

Deflation is a myth? LOL. All you pundits are betting on the least likely outcome.

Snidley Whipsnae's picture

"To characterise it in military terms, deflation is the a-bomb from hell, while hyperinflation is a water pistol."

If you believe that hyperinflation can be quelled by a water pistol you don't understand the difference between inflation and hyperinflation.

Hyperinflation is a general loss of confidence in the currency by the citizens of a soverign. Once it has begun, no water pistol, nor interest rate hikes (a la Volker), will stop it.

"Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes." Ludwig von Mises

More Critical Thinking Wanted's picture


Hyperinflation is a general loss of confidence in the currency by the citizens of a soverign. Once it has begun, no water pistol, nor interest rate hikes (a la Volker), will stop it.

Yet there have been been numerous high inflation or even hyperinflationary episodes in democracies in the past 100 years, all quelled quickly within a few years, with no global effects. Tell me a single hyperinflationary democracy that lasted as long as Japan's deflation, or that lasted as long as the Great Depression. There's not a single example, and exactly for the reason I mentioned: compared to deflation hyperinflation is a wash.

equity_momo's picture

Have you been to Japan in the last 20 years? Have you spoken to anybody that has been to Zimbabwe or lived through Germany in the 1920s? if not , you really should stop espousing which is the lesser of 2 evils.

You analogy with Japan is wrong anyway : the Japanese HAVENT ALLOWED TRUE PRICE DISCOVERY or liquidated their bad loans. They are stuck in sinking mud which is drawing out their process of bankruptcy.  The US are following a similiar strategy although one false move and Bernanke will get escape velocity to inflation but it will be uncontrollable.

jeff montanye's picture

not sure which way i feel vs. your debate here but looking for hyperinflation of years duration seems irrelevant: if one gets a couple years (months?) of weimar style inflation it's done its evil work: all assets denominated in currency (money market, checking, savings accounts, bonds, etc.) are worthless.  what does it matter if the hyperinflation ends or continues to those impoverished?

High Plains Drifter's picture

Mr. Critical T,


Never, ever underestimate the cleverness and the power of the Rothschild Banking Cartel. Believe me, they can do tricks, tricks you and I have never seen. Can they however, continue to cheat, the physical laws of finance?  Probably not. Sooner or later, the system will collapse. They know this. They are planning it and planning for it. It is all by plan. The one world government, the thing that they have longed for and wanted for generations is within their grasp.

FredHayden's picture

I love the Ludwig von Mises quote.  Which book is it from?

"Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes." Ludwig von Mises

ThreeTrees's picture

I do believe it's from Human Action.  Could be from his Theory of Money and Credit as well though.  Two closely related treatises.

equity_momo's picture

Oh dear , where to start with your completely backwards view of deflation and hyperinflation Mr More Critical ....

There is no putting the pieces back together after hyperinflation strikes as it happens due to a LOSS OF FAITH in the paper money used to keep the system spinning. Rates can go to 100%, 200% , 300% , it will not be enough to prevent the death spiral of said currency.

On the other hand , deflation is a natural process that needs to be allowed to penalise those that took out excessive debt and leverage and malinvested. Through default and liquidation , said deflation creates a natural clearing of the system , like a forest fire. Once the market is allowed to find true PRICE DISCOVERY , the winners and losers will be easily identifiable and onwards we go.

I will take your water pistol and trump it with the thermo-nuclear bomb of Weimer Republic and Zimbabwe , not to forget , the recurring problems in the 80s , 90s and finally turn of the 21st century Argentina - the only thing that stopped them printing money was a lack of ink and paper in the print works , i kid you not.  Alas we have no such luck these days with Bernankes IBM.

twotraps's picture

Finally a sane explanation...'not being able to put the pieces back together' is a great way to put it.  Also, where is all this first hand experience with inflation and deflation coming from?  Weimer is one thing and Zimbabwe is another but it is pure speculation what can happen when 100 Bazillion dollars can move with a few key strokes.....the sick part is that the HFT Gang will have tried to move 9.5 Gazillion Bazillion before all you'all can reach over the click your mouse once!   My question to everyone is layered on top of the current argument......why would the Fed risk a blow-up situation that would do more damage to their ultimate ability to exert influence over money and banking??  Can we read their moves as a guage of their actual fear of further loss of control rather than some well thought out economic thinking?

equity_momo's picture

Precisely - deciding how to invest or protect ones wealth now is almost impossible due to the nature of the men pulling the strings : what is it they want ?

I would assume their own survival but that doesnt necessarily mean the survival of the financial system in its current form , or even the survival of the Fed.  Bernanke isnt and never has been calling the shots.  The owners of the Fed are calling the shots. When the Tea Party cry out "End The Fed" they are in reality saying "End the System"

Capital markets are now a political minefield.  It is futile trying to study any company's or even country's balance sheet to make an informed investment decision - you need to be a political strategist or psychologist to understand where we are going from here or have Rothshilds cell number and be on first name terms.

Given the tail risk , the only investment advice i feel able to give friends is

1) be debt free

2) split savings 3 ways : 50% in physical PM outside the system ; 25% in cash outside the system ; 25% in cash INSIDE the system (assuming that 25% isn't well in excess of any FDIC gaurantee limit - even then i wouldnt feel comfortable holding much - as someone mentioned earlier , COUNTERPARTY risk is going to take over moral hazard as the new buzzword)


Deviating from no1 and no2 have an unquantifiable amount of risk , and i like to sleep at night. If you're flush , buy land , preferably land that can be cultivated. DEBT FREE.


Those still trading these markets, best of luck to you - as 90% of you will be fleeced and bled dry till you have nothing. Its the nature of the game , especially in turbulent times , no matter how well youre doing now or how smart you think you are. Bagholders for the beast.

blindfaith's picture

I no longer feel alone in my thinking! As if you read my mind, read over my shoulder.


Bendromeda Strain's picture

the men pulling the strings : what is it they want ?

...Bagholders for the beast.

It took a couple paragraphs but there it is - your question, asked and answered internally. Now capitalize Beast and ruminate on that.

Oquities's picture

what is it they want?  as always, to transfer wealth at the most opportune time, from intangible to real wealth.  we'll all be buying tulips, at the top, in hell.

tsx500's picture

insane to have anywhere near 50% of your wealth  in one asset class (PM). 

merehuman's picture

twotraps, consider that the USA, bernanke and the dollar were tools for the PTB, now those tools will be discarded as our final dismemberment begins. I believe they are done with the dollar and us. To their point of view we are useless eaters and they will come back to harvest us again in a few years.

grunion's picture

I'm curious. Loss of control of what exactly?

trav7777's picture

the banksters have mindfucked you if you believe this.

Deflation in a monetary system where the money itself carries a compound interest component places the entire system into default on behalf of the bankers.

You really need to read history between the lines to understand why banking clans have been run out of countries or executed en masse over the centuries.  The system itself is a fraud.

The principal is created, but the interest is not - the system itself is in default as of its inception.  The terms of the loan "contract" then makes the real property available to the bankers as collateral.

Going into default via deflation and letting the fucking BANKS come collect all the real property and productive assets on account of their SCAM would be grotesquely unjust.

You bankster drones don't seem to understand why hyperinflation and printing happens and why austerity a la IMF follows:  it's because the nations inflating are trying to AVOID the inherent implosion in debt-based money!

Debt-based money is a TIMEBOMB that will inevitably go off...when it does, at the end, the foreign interests and banks swoop in and end up owning the land under your feet.

We do not "need" to just let this crime "run its course" and clear out the "deadwood."

SWRichmond's picture

...the system itself is in default as of its inception.

This is a really hard concept for people to accept, but it is of course true.  As I read this post (skimmed it, actually; when anyone starts talking about how the monetary aggregates mean anything at all I just tune out, it's too stupid to bother with) and the comment stream following it I am struck by the depth of the embedding of the paradigm that is fiat money and interest banking.  People just can't believe that an entire economic system is premised upon a lie, and that a lie-based system can appear to be "working" for one's entire adult lifetime.  People also seem to need to believe there is a board of wise men who are competent and honest enough to manage an economy made up of 300 million souls.  The concept is absolutely ludicrous on its face, yet people hope and pray that it's true.  Amazing.

Sean7k's picture

++++ Textbook deflation in a market economy has a purpose within the boom bust cycle. As you have pointed out- we are in a fiat credit creation system. It changes the parameters and most fail to include it in their analysis. Well said.

Bohica's picture

" . . . deflation is a natural process . . . [which] creates a natural clearing of the system . . ."

It sounds so innocuous, so antiseptic, desirable even; at least so long as one imagines the process will affect everything but one's own income and assets.

The process of deflation is certainly different than hyperinflation, but I suspect the final outcomes of each would be awfully similar.



Quinvarius's picture

Really?  A junior economist can whip up a cure for hyper inflation?  China is doing it now?  Dude, you are ignorant.  You don't understand what hyper inflation is.  You might as well try to tell people that a junior economist can somehow convince the public that dirt from their backyard is valuable money.

tmosley's picture

Oh, and tell us, oh wise one, EXACTLY which steps our Junior Economist-in-Chief can take to simply and easily stem hyperinflation?

There are none, except to change the currency.  If they just reissue it, there will be more hyperinflation within a few years, as there isn't any faith in that currency either (witness Zimbabwe's constant re-issuance of currency).  If it wee that easy, it would never happen, yet it has happened DOZENS of times over the last hundred years.  What simple measures has your "mighty" brain discovered in your college economics class that can stem hyperinflation in minutes.  I'm sure central banks around the world would LOVE to know.

What people like you fail to understand is that you can, in fact, have deflation and hyperinflation at the same time.  Sound crazy?  When you think about it it isn't.  Deflation means contraction in the money supply.  You are right, credit money is contracting, but if you look back over the course of history, credit contraction has ALWAYS preceded hyperinflation.  Yes, this is a money supply issue.  Hyperinflation, however, is a PRICE issue.  What happens is that people start losing faith in the currency, so the velocity of money picks up as people try to get rid of it.  Once the money loses its ability to store value, because no-one wants to hold it, all is lost.  There is NOTHING that can be done to restore that confidence.  What follows is a series of desperation measures by the central bank fueled by politics.  With the velocity of money going out of control, prices of vital necessities (and non-dilutable money) skyrocket while non-vital goods fall precipitously.  Eventually, it gets so bad that people can no longer afford to EAT on their salaries.  In order to prevent mass starvation, the political authorities FORCE the central banks to print larger and larger denominations of currency in order to pay off the people so they can eat.  Wheelbarrows full of money don't cause hyperinflation, they are an effect of it!  Of course, the printing of money to serve such ends does nothing to restore confidence in the currency.  Quite the opposite.

If the political authorities avoided printing money, there would be Revolution within three days.  They print to stop, or at least delay that, and it is pretty effective.  In most cases of hyperinflation, the government persists.  

And another thing--your military analogy is completely ass-backwards.  Deflation lasts a long, long time, and is not a jarring attack.  It is more like an embargo.  It's tough, but survivable.  Hyperinflation is like nuclear war, it's short, and there is not a 100% likelihood that the government will survive.

mark mchugh's picture

You're right, of course, but won't it be cool when we're all Trillionaires?

Sean7k's picture

And we must remember the death blow- scarcity as people whom have goods refuse to sell them at any price. At this point, no number on the bill matters anymore. You must bring in a new currency that restores confidence- in Zimbabwe, that was the dollar. Ironic, no?

ElvisDog's picture

The most consistently prosperous time for England in the late 18th and early-to-mid 19th centuries occurred during persistent mild deflation. Same for the US in the later part of the 19th century. For anyone who is prudent and saves a little money and doesn't have debt deflation is good. I say "bring it on".



RockTime's picture

I am not going to get into a pissing match about the "d-word", but to say "we'd all be off much better if there was any 'hyper' side to it" is by far the dumbest thing I have read in the comments on this blog so far. 

You obviously have no clue what "hyperinflation" means, I'd suggest you educate yourself and fast, this will help you make the right decisions about your assets, once we start seeing the signs of it coming (which one could argue we are, based on food and commodities, and the USD decline). Otherwise, I expect you will be rummaging through the trash piles looking for food for your family 2-3 years down the road.

Vampyroteuthis infernalis's picture

More, you got it right! For rest of you, deflation bitchez!!

CitizenPete's picture

To characterise it in military terms, deflation is the a-bomb from hell, while hyperinflation is a water pistol.


I think the more appropriate analogy would be: Deflation is like a long drawn out never ending battle with horrible suffering, while hyper-inflation is a neutron bomb - devastating everything in the blink of an eye, leaving the survivors to sweep up the dust.

Yits and the Yimrum's picture

superb analysis Tyler!

this is why I don't give rat's ass anymore about who will be right on the inflation or deflation debate; its down to a craps game and the only winners are those with secret bunkers in far away mountain villages loaded to the gills with the goods.


but on that cheery note, this article is very important in that we can navigate the best we can through the smoke screen the bankters are lighting and those that implement austerity on a personal level might have a fighting chance

this information may have been a threat to the squid 30 years ago, but no worries, it's NFL sunday for the masses.


frankTHE COIN's picture

Kalafia is a Bull in this environment, And i want my steak Well Done !