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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)

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Sat, 10/30/2010 - 23:27 | 688615 hamurobby
hamurobby's picture

Straddle trades everywhere! oh the humanity!

Sun, 10/31/2010 - 00:20 | 688653 tpberg7
tpberg7's picture

Shinola, Bitchez!

Sun, 10/31/2010 - 02:50 | 688733 More Critical T...
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.

Sun, 10/31/2010 - 05:06 | 688752 taraxias
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.

Sun, 10/31/2010 - 05:15 | 688755 Dismal Scientist
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.

Sun, 10/31/2010 - 05:22 | 688758 More Critical T...
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.

Sun, 10/31/2010 - 12:53 | 688977 rocker
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. 


Sun, 10/31/2010 - 14:54 | 689201 unununium
unununium's picture

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

That's a 13% price hike.

Sun, 10/31/2010 - 05:17 | 688757 More Critical T...
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'.

Sun, 10/31/2010 - 07:59 | 688791 blindfaith
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.

Sun, 10/31/2010 - 09:33 | 688818 Blindweb
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?

Sun, 10/31/2010 - 13:28 | 689038 grunion
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!

Sun, 10/31/2010 - 09:58 | 688827 cowdiddly
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"

Sun, 10/31/2010 - 14:16 | 689123 linrom
linrom's picture

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

Sun, 10/31/2010 - 15:20 | 689234 Eternal Student
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.

Sun, 10/31/2010 - 21:31 | 689723 CitizenPete
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. 



Sun, 10/31/2010 - 21:58 | 689763 Katharotes
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.

Sun, 10/31/2010 - 12:24 | 688930 Yits and the Yimrum
Yits and the Yimrum's picture


Sun, 10/31/2010 - 14:55 | 689135 linrom
linrom's picture

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

Sun, 10/31/2010 - 05:15 | 688754 Snidley Whipsnae
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

Sun, 10/31/2010 - 05:40 | 688760 More Critical T...
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.

Sun, 10/31/2010 - 05:55 | 688765 equity_momo
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.

Sun, 10/31/2010 - 06:28 | 688770 jeff montanye
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?

Sun, 10/31/2010 - 14:05 | 689107 High Plains Drifter
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.

Sun, 10/31/2010 - 16:44 | 689326 FredHayden
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

Sun, 10/31/2010 - 21:10 | 689679 ThreeTrees
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.

Sun, 10/31/2010 - 05:52 | 688764 equity_momo
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.

Sun, 10/31/2010 - 06:24 | 688769 twotraps
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?

Sun, 10/31/2010 - 07:03 | 688775 equity_momo
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.

Sun, 10/31/2010 - 08:08 | 688795 blindfaith
blindfaith's picture

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


Sun, 10/31/2010 - 09:03 | 688812 Bendromeda Strain
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.

Sun, 10/31/2010 - 13:54 | 689087 Oquities
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.

Wed, 11/03/2010 - 18:09 | 697332 tsx500
tsx500's picture

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

Sun, 10/31/2010 - 12:24 | 688932 merehuman
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.

Sun, 10/31/2010 - 13:33 | 689047 grunion
grunion's picture

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

Sun, 10/31/2010 - 09:45 | 688822 Charlie Bravo
Charlie Bravo's picture

Well said.

Charlie Bravo

Sun, 10/31/2010 - 11:23 | 688885 trav7777
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."

Sun, 10/31/2010 - 11:47 | 688899 SWRichmond
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.

Sun, 10/31/2010 - 12:32 | 688944 Sean7k
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.

Sun, 10/31/2010 - 19:35 | 689499 Bohica
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.



Sun, 10/31/2010 - 09:38 | 688821 Quinvarius
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.

Sun, 10/31/2010 - 10:11 | 688833 tmosley
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.

Sun, 10/31/2010 - 10:32 | 688848 mark mchugh
mark mchugh's picture

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

Sun, 10/31/2010 - 12:44 | 688961 Sean7k
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?

Sun, 10/31/2010 - 12:44 | 688962 ElvisDog
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".



Sun, 10/31/2010 - 13:42 | 689070 RockTime
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.

Sun, 10/31/2010 - 20:55 | 689638 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

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

Sun, 10/31/2010 - 21:39 | 689733 CitizenPete
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.

Sun, 10/31/2010 - 12:20 | 688928 Yits and the Yimrum
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.


Sat, 10/30/2010 - 23:39 | 688618 frankTHE COIN
frankTHE COIN's picture

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

Do NOT follow this link or you will be banned from the site!