Hyperinflation

The 2008 crisis never ended as issues of excess credit and economic imbalances were never resolved. Turkey is the latest installment in the rolling crisis.

A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt. This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government. We are now in a situation that looks like a dead end for the paper money system.

The Forex market is dead and dying, in parallel with the US economy; which is fitting, considering the US is still the world reserve currency.  

Significant harbingers that have changed the Forex market forever:

 This doesn’t mean hyperinflation HAS to occur, but it is unlikely this situation will end well.

Often “a picture paints a thousand words” and the seven key gold charts below should make gold bears nervous. As the charts show, such sentiment, price action and oversold conditions tend to coincide with major lows in gold and silver prices and multi month price gains.  

Hyperinflation leads to the complete breakdown in the demand for a currency, which means simply that no one wishes to hold it. Everyone wants to get rid of that kind of money as fast as possible. Prices, denominated in the hyper-inflated currency, suddenly and dramatically go through the roof. The most famous examples, although there are many others, are Germany in the early 1920s and Zimbabwe just a few years ago. German Reichsmarks and Zim dollars were printed in million and even trillion unit denominations. We may scoff at such insanity and assume that America could never suffer from such an event. We are modern. We know too much. Our monetary leaders are wise and have unprecedented power to prevent such an awful outcome. Think again. Like previous hyperinflations throughout time, the actions that produce an American hyperinflation will be seen as necessary, proper, patriotic, and ethical; just as they were seen by the monetary authorities in Weimar Germany and modern Zimbabwe.

Perhaps the most amusing and curious aspect of this entertaining summary of the Mississippi Bubble of 1720, the resulting European debt crisis (the first of many), how bubble frenzies are as old as paper money, the man behind both - convicted murderer and millionaire gambler, John Law, what happens when paper money's linkage to gold is broken, and how everyone loses their wealth and hyperinflation breaks out, is who the source is. The New York Fed. Perhaps the Fed-employed authors fail to grasp just what their institution does, or have a truly demonic sense of humor. In either case, the following "crisis chronicle" highlighting how banking worked then, how it works now, and how it will always "work", is a must read by all.

Even if you don’t buy that QE and ZIRP will lead to a dollar collapse, you do have to admit that these Fed policies have severely brainwashed investors. The Federal Reserve is the boiler room operation that has pumped up the equities market by way of QE and ZIRP. You are investing in a pump-and-dump scam. And like in all such scams, you will lose. Clear enough for ya?

Having just missed out of +500% returns in the Caracas stock market last year, the reality of a hyperinflating world continue to cause chaos in the real world of Venezuela. As Bloomberg reports, the bolivar’s 73% decline against the dollar on the black market in 2013 is fueling contraband and worsening shortages of food and consumer goods in a country with the world’s biggest oil reserves, adding pressure on President Nicolas Maduro’s government to devalue. Smuggling to Colombia has exploded as "professional shoppers" traffic in wheat flour, corn flour and milk leaving more than one in five basic goods out of stock at any given time. Regulated foods are just too cheap to stay on the shelves, "you can't get anything in the shops here... it is taken to Colombia like a locust plague."

As usual, in 2013, sticking to facts was a mistake in a world fueled by misinformation, propaganda, delusion and wishful thinking. Those in power have successfully held off the unavoidable collapse which will be brought about by their ravenous unbridled greed, and blatant disregard for the rule of law, the U.S. Constitution and rights and liberties of the American people.

"There is no disputing the facts. The economic situation is deteriorating for the average American, the mood of the country is darkening, and the world is awash in debt and turmoil. Every country is attempting to print their way to renewed prosperity. No one wins a race to the bottom. The oligarchs have chosen a path of currency debasement, propping up insolvent banks, propaganda and impoverishing the masses as their preferred course. They attempt to keep the masses distracted with political theater, gun control vitriol, reality TV and iGadgets. What can be said about a society where 10% of the population follows Justin Bieber and Lady Gaga on Twitter and where 50% think the National Debt is a monument in Washington D.C. The country is controlled by evil sycophants, intellectually dishonest toadies and blood sucking leeches. Their lies and deception have held sway for the last four years, but they have only delayed the final collapse of a boom brought about by credit expansion. They will not reverse course and believe their intellectual superiority will allow them to retain their control after the collapse.”

The world has depended on Chinese and American stimulus for years, and, as Caixin's Andy Xie notes, one implication of their tightening is a slowing global economy in 2014.

With the world watching mouth open at the 30% gains in the US equity market (and 57% gains in Japan), the Venezuelans are cock-a-hoop at their wealth-generation this year... a sprinkling of totalitarianism, nationalization, toilet-paper shortages, and hyperinflation and, drum roll please... the Caracas Stock Index is up a disappointed-not-to-make-it-to-500%, 480% in 2013... (time to greatly rotate and chase that momentum)...

Patrick Byrne, the embattled CEO of Overstock.com, had plenty to say in a recent Fortune interview. The outspoken CEO, whose company recently became the first US retailer to accept Bitcoin (beginning later next year) aligns his beliefs with Ron Paul, holds enough gold that if "zombies walked the Earth," he'd be taken care of. Byrne believes "the long-run value of all fiat money is zero," adding that,"we're not going to get rid of the Federal Reserve any time soon, so bitcoin is a step in the right direction."

Bitcoin is rapidly becoming part of the everyday lexicon. Following David Woo's investigation, National Australia Bank's Emma Lawson looks at its creation, use, and quality as "currency," and find that Bitcoin meets most, but not all the conditions required to be a currency. Lawson concludes Bitcoin may not be the most efficient monetary system, given the costs to create, and that the supply set-up can be seen as both an advantage (hyperinflation is not possible) but also a disadvantage (there are conditions which may create deflation). But, if enough people believe in it, and use it, it may be here to stay as a payment system. Simply put, its success (or failure) will depend on establishing trust and adoption.

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." - Carroll Quigley, member of the Council on Foreign Relations