John Williams

The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.

Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.

Bunch of irrelevant and reflexive (stock market is up so confidence - in what? manipulated markets? - is higher, so stock market is up so confidence is higher etc) stuff today, as the world central banks prepare to pump another $600-$1000 billion into the consolidated balance sheet and send input costs into the stratosphere. Somehow this is bullish for stocks. Luckily, it will finally break the EURUSD - ES linkage.

You're in a situation now where the rest of the world has increasingly lost confidence in the U.S. Dollar

The surge in the U.S. money supply in recent years has sent gold into a series of new record nominal highs.  Money supply surged again in 2011 sending gold to new record nominal highs. Money supply has grown again, by more than 35% on an annualized basis, and this is contributing to gold’s consolidation and strong gains in January.  The Federal Reserve's latest weekly money supply report from last Thursday shows seasonally adjusted M1 rose $13.2 billion to $2.233 trillion, while M2 rose $4.5 billion to $9.768 trillion.

All you need to read.

All you need to read.

The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game.  Those new rules are both explicit and implicit.  They call for more capital, reduced leverage, lower risk appetites, more thorough supervision, and stronger regulation, at both the systemic and individual institution levels.  In this environment, open dialog is all the more important as we collectively reach a common understanding of how the new rules should work in practice.

When it comes to the name John Williams, there can be only one. The status quo apparatchik who is the new head of the San Fran Fed is a distant second. Alas, it is his words that are more important today, as in a speech to the Community Leaders of Salt Lake City titled The Outlook for The Economy and Monetary Policy, he just made it clear that should the current re-re-recession within a depression accelerate, more QE/LSAPs are coming. To wit: "Looking ahead, we at the Fed will keep a very close eye on incoming data and adjust our policy as needed to work towards our two policy goals. If the recovery stalls and inflation remains low or deflationary pressures reemerge, then we may need to keep our very stimulatory policies in place for quite some time or even increase stimulus." And unlike Lacker earlier who admitted QE 2 had been a failure, Williams is a liltle more polite: "the Federal Reserve doesn’t have a magic wand that will allow the economy to get through a crisis of this magnitude unscathed." Translation: we have been improvising and we have failed although in the process we have made the rich richer, and everyone else as poor as they ever have been. Lastly, Williams appears to be a fan of the Boehner plan: "There is no question that we are currently on an unsustainable long-run path of federal fiscal deficits. It is essential that budget deficits over the next decade be brought under control." Funny that because it was none other than the Chairsatan himself who every time he is trotted before congress, says that stimulus has to come from a fiscal basis, not monetary. While Congress is obviously full of contradicting idiots, it is a little scary if the same can be said of the Fed as well too.

John Williams says: "If you look at the government’s latest statistics - the poverty survey of 2009, which is the most recent release, with average and median household income adjusted for inflation (and they use a really gimmick low inflation rate with that one) - it shows that not only has household income been falling the last year or two, but it’s below its near-term peak before the 2001 recession. Household income has not recovered above that, and if you use the CPI-U (the usual inflation rate to deflate that by instead of the gimmick one) it shows that household income today is below where it was in 1973. Again, the average household has not been able to keep up here. If income growth is not keeping ahead of inflation, very simply you can’t have consumption growing faster than inflation on a sustainable basis." Government statistics guru John Williams believes the most important economic indicators used by our political leaders in their decison-making - the Consumer Price Index, the unemployment rate, the Gross Domestic Product - are deeply flawed in how they're calculated. Whether these flaws result from letting theory trump reality or by machinating politicians, the result is the same: we are fooling ourselves at our peril.

Lately, anywhere we look, there seems to be a pattern emerging: those economic thinkers who actually construct and run their own macro models (not the glorified powerpoint presenter variety) and actually do independent analysis and tracing of the money flow, instead of relying on Wall Street forecasts that have as much credibility as a Moody's home price hockey stick from 2006, almost inevitably end up having a very dire outlook on the economy. One such person is and has pretty much always been Shadowstats' John Williams, whose "shadow" economic recreation puts the BLS data fudging dilettantes to shame. That said any reader of Zero Hedge who has been with us for more than a few weeks, knows all too well our eagerness to ridicule the increasingly more incoherent lies coming out of the US department of truth, so no surprise there. Yet another aspect over which there is much agreement is that no matter how one slices the data, the outcome for the US currency is a very grim one. Which is why Williams over the past several years has become a major fan of the shiny metal. Below we recreate portions of his latest observations on the upcoming currency collapse, courtesy of King World News.

Any interview that starts off with John Williams saying "Eventually it is going to be a hyperinflationary great depression" is sure to be controversial. While not necessarily news to those who subscribe to the Shadowstats.com editor's newsletter, sometime we wish that Blackhawk Ben was among them, because despite his 100% confidence that rates will never do the kind of move that they exhibited in the past two days, they, well, did. To quote Williams, who actually keeps track of the US economy as if it were a GAAP audited corporation: "The annual deficit is running $4-5 trillion a year, that includes the Y/Y change in the NPV of unfunded liabilities... There is no political will to deal with this." The catalyst is well-known: "When you see panic selling of the US dollar, that's when you have to be really careful. But what's already been done with the dollar has spiked oil prices, and other commodity prices." On the question of why Bernanke would not be able to pull off what Volcker did in the early 1980s, Williams' explanation for why this time it is different, mostly focuses on the size of the US trade and budget deficits, which are not even remotely comparable on both an absolute and relative basis. Most specifically what consumers should do in the post-apocalypse world, Williams is not too optimistic. Ironically, he notes that Zimbabwe in its hyperinflation may have been lucky in that it had the dollar to fall back on in the black market, and now every market. However the US does not have that facility, and this "will get very difficult when food starts disappearing from shelves." Having goods for storage and barter would be critical. However, there may be a snag...

Buying U.S. stocks because the Fed says it will proactively debase the U.S. dollar is like sitting on the beach in order to get a great view of an incoming tsunami. Any pleasure so derived should be short-lived, when the terror of underlying reality quickly takes hold. Given the current systemic distortions and extreme irrationality in the equity markets, a severe and violent sell-off in stocks would not be a shock, and it could come with minimal, if any, warning. It also might be coincident with a U.S. dollar-selling panic. - John Williams

John Williams, arguably one of the best trackers of real, unmanipulated government data via his Shadow Stats blog, has just released a note to clients in which he warns that hyperinflation may hit as soon as 6 to 9 months from today. With so many established economists and pundits seeing nothing but deflation as far as the eye can see, and the Fed doing all in its power to halt the deleveraging cycle, both in the open and shadow economies, what is Williams' argument? Read on. Incidentally, even if some fellow bloggers disagree with Mr. Williams' assesment, we believe it is in our readers' best interest to have them make up their own mind on this most critical economic development.

In his latest letter to subscribers, Shadowstats' John Williams dissects recent economic data, and after providing yet more evidence that after the recent period of "bottom-bouncing at a low-level plateau of business activity" the economy has once again entered a double dip. Overall, it has cost the US taxpayers several trillion in debt (which will never be repaid), and a major hit to the value of the paper in their wallets, just to play the game of extend and pretend for a just under 18 months. The positive effects of the sugar high are now gone, leaving just the negative, one of which is the propaganda spin engulfing the entire legacy media complex whose survival depends on the ongoing perpetuation of the Ponzi lie that all is well. And courtesy of Mr. Williams we have prima facie evidence of precisely why formerly reputable channels such as CNBC are in the process destroying their credibility and causing an exodus of viewers, with the few remaining viewers remaining primarily for the opportunity to heckle the openly lying talking heads. To wit from Shadowstats: "Let me recount two personal experiences. Back in late-1989, I contended that the U.S. economy was in or headed into a deep recession. CNBC had me in to discuss my views along with a senior economist for a large New York bank, who was looking for continued economic growth. Before the show, the bank economist and I shared our views in the Green Room. I outlined my case for a major recession, and, to my shock, his response was, "I think that pretty much is the consensus." We got on the air, I gave my recession pitch, and he proclaimed a booming economy for the year ahead. He was a good economist and knew what was happening, but he had to put out the story mandated by his employer, or he would not have had a job. More recently, following an interview on a major cable news network (not CNBC), I was advised off-air by the producer that they were operating under a corporate mandate to give the economic news a positive spin, irrespective of how bad it was." And that is how the free media operates in this now doomed country, programmed from above to lie to its viewers.

Q: "What can we do to avoid hyperinflation? What if we just shut down the Fed or something like that?:

A: "We can't. The actions have already been taken to put us in it. It's beyond control. The government does put out financial statements usually in December using generally accepted accounting principles, where unfunded liabilities like Medicare and Social Security are included in the same way as corporations account for their employee pension liabilities. And in 2008, for example, the one-year deficit was $5.1 trillion dollars. And that's instead of the $450 billion, plus or minus, that was officially reported." - John Williams