John Williams

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

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out.

"The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year." - John Williams, ShadowStats