RickAckerman's blog

And how did Treasury paper do following Standard & Poor’s bombshell downgrade of U.S. debt?  Why, T-Bonds, Bills and Notes came through unscathed, thank you. Actually, they did much better than that, rallying so sharply yesterday that one might have inferred the U.S. was the last citadel against the panic, confusion and fear that rein elsewhere in the world.

An interesting day, for sure. But a surprise? It shouldn’t have been, since even the Guvvamint’s statisticians and spinmeisters seem to have noticed that The Great Recession is back with a vengeance.

So, it looks like I’m a hyperinflationist after all. Reminds me of the joke about the cowboy who chats up a woman at a bar – a lesbian, as it turns out. She tells him she spends her days thinking about nothing but women. “As soon as I get up in the morning, I think about women,” she says. “When I shower, I think about women. When I watch TV, I think about women. I even think about women when I eat. It seems that everything makes me think of women.” The cowboy goes home that night thinking that maybe he’s a lesbian too.

And now we learn that Standard & Poor’s, the same unprincipled hacks whose grossly inflated triple-A ratings made America’s real estate boom and still-busting bust possible, has downgraded the USA itself. And whose payroll is S&P on, we wonder?

Our recent discussion of whether deflation or hyperinflation will lay waste to the economy elicited hundreds of responses. Two of particular interest are featured below. The first, from blogger Charles Hugh Smith, explains why it may be impossible to know with any certainty which of the two forces will prevail. The second, the thoughts of a Wyoming rancher, suggests that in a crisis, we may discover that our need for protein trumps concerns over gold, silver, Treasury paper and the dollar.

Discussion prompted by my recent commentary on hyperinflation continues to evolve and may yet enlighten us sufficiently to produce some useful conclusions about the banking system's looming endgame. Hyperinflation, or deflation? At this point, I'll concede that it could be either that brings us to economic ruin. But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation.

First, let me say that I’ve long enjoyed reading the rants of over-the-top inflationists like Jim Willie, but also the relatively subdued essays of Gonzalo Lira — even if the latter sometimes comes across as the kind of guy who could wear out a mirror. I feel a comradeship with both because, predictions about the financial endgame aside, I agree with much of what they have said — most particularly about the robust defensive role that bullion seems likely to play no matter what happens. But that is not to say that I agree with all of Lira’s and Jim Willie’s arguments.

I awakened Sunday morning on three hours of sleep, lucid of mind and filled with dread from an essay linked below that I’d read before going to sleep. Amidst the desiccated hell of Colorado’s, and the entire Southwest’s, pine-forest die-off and a disturbingly winterless winter, even my wife still doesn’t get it. She seems to think that because peak real estate valuations have held up so far in our Rock Creek neighborhood, that they will continue to hold or even rise. It’s difficult to say why prices have stayed aloft in here in Superior, Colorado, which lies just south of Boulder, about 20 minute from downtown Denver. Most likely is that it involves a combination of factors.

We’re still not sure whether CNBC was making a joke or simply advertising its ignorance with a recent headline, “Accounting Tweak Could Save Fed from Losses,” This was a tweak about as subtle and ingenuous as Bernie Madoff’s balance sheet. What the central bank did was revise and advantage its own rules so that if some financial catastrophe were to inflict huge losses on the Federal Reserve System, the U.S. Treasury would take the hit, not the Fed itself.

There they go again! No sooner had we finished praising the Wall Street Journal for their blunt assessment of the coming train wreck in municipal bonds than they do a hit-job on gold.

We often disparage the Wall Street Journal for being too spineless to tell it like it is when reporting on the state of the economy, but with last Friday’s lead story, New Hit to Strapped States, they pulled no punches. You can almost pick a paragraph at random and get a sense of how serious the cities’ credit problems are. This paragraph, for instance “Municipalities borrowed $122 billion of variable rate demand debt in 2008, roughly twice the amount of these types of loans borrowed the year before…” How did they get in so deep?

For nearly twenty years, we haven’t flinched from our prediction that the massive debt build-up of the last generation would precipitate out as a deflationary bust. That is what we still expect, although we now believe there is likely to be a hyperinflationary phase at some point as the financial system implodes. But the bottom line is that no matter how things play out, America’s standard of living will fall more steeply than at any other time since the Great Depression.

A young friend asked me yesterday, “What on earth does negative growth mean?” and I had to laugh because it really is a ridiculous term dreamed up by political economists to put a positive spin on really bad news. I had actually never given the term any serious thought until then. “It means,” I said, “economic contraction and recession.” It really is no wonder the kids cannot figure out what is going on with all the nonsense terminology flapping about.

The mirage of economic recovery conjured up by our political leaders and a credulous news media dimmed and flickered in the harsh light of reality on Friday, when grim employment figures for May sent stocks into one of their steepest dives of the year. We would caution bears against becoming overly confident, however, since there are several technical factors coming into alignment that augur a potentially sharp reversal in the broad averages and some important trading vehicles that we track.