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Guest Post: Where To From Here?

Tyler Durden's picture


Originally posted by Gerardo Coco at The Cobden Centre,

We face one of the deepest crises in history. A prognosis for the economic future requires a deepening of the concepts of inflation and deflation. Without understanding their dynamic relationship and their implications is difficult to predict how things might unfold. The economic future depends on the interplay of both these forces. From the point of view of their final effects, inflation and deflation are, respectively, the devaluation and revaluation of the currency unit. The quantity theory of money developed in 1912 by the American economist Irving Fisher asserts that an increase in the money supply, all other things been equal, results in a proportional increase in the price level [1]. If the circulation of money signifies the aggregate amount of its transfers against goods, its increase must result in a price increase of all the goods. The theory must be viewed through the lens of the law of supply and demand: if money is abundant and goods are scarce, their prices increase and currency depreciates. Inflation rises when the monetary aggregate expands faster than goods. Conversely, if money is scarce, prices fall and the opposite, deflation, occurs. In this case the monetary aggregate shrinks faster than goods and as prices decrease money appreciates.

Inflation is a political phenomenon because monetary aggregates are not determined by market forces but are planned by central banks in agreement with governments. It is in fact connected with the monetary expansion to fund their deficits. Inflation raises the demand for goods and decreases the demand for money; it increases aggregate spending and money velocity as the ratio between GDP and the amount of money in circulation which expresses the rapidity with which the monetary unit is spent and respent until it remains in existence.

There is no such things as demand-pull inflation or cost-push inflation. Provided that the quantity of money does not increase, if cost or demand for some goods changes, demand for other goods must necessarily adjust, leaving unchanged the amount of spending and the money aggregate in the economic system. If some people spend more, others have to spend less, thus leaving the purchasing power unaltered. The cause of inflation is nothing but money manipulation.

Inflation is a tax affecting all real incomes. While this is obvious for the fixed ones, it is less so for the variables ones such as business income. Inflation, in fact, overstates profits by making final sale prices to rise as compared to historical sale costs. When the moment arrives that businesses renew their capital assets, the higher price they will pay for them due to inflation will absorb the extra nominal profits. Since taxes are calculated on them, real profits will be insufficient to either replace or increase capital. Hence by decumulating capital, inflation penalizes economic growth and innovation.

As an economic stimulus, inflation sets the stage for deflation. By increasing the nominal taxable economy, it reduces the real one.

Likewise, subsidies and bailouts produce the same inflationary effects because most of them are financed through monetary expansion: a money supply growing faster than the productivity of capital and labor impairs both.

If inflation accelerates and becomes extreme, hyperinflation sets in: the demand for money tends to zero and because everyone hurries to spend it to avoid the loss of purchasing power, its velocity accelerates rapidly. The monetary aggregate and prices tend to infinity and the value of money to zero. Money loses the character of a medium of exchange and the credit-debit system collapses. Because money is the prerequisite of the division of labour, its destruction implies the destruction of the latter. To avoid barter the monetary system must be redesigned. In this catastrophic state of affairs it is small comfort to acknowledge that the overall debt of a nation is repudiated.

Inflation is a precondition of extreme deflation: depression.

Deflation in itself, however, is an economic phenomenon. Economic progress has a natural tendency to lead to falling prices. By increasing production and productivity, prices decrease, signaling that the economy grows faster than the money aggregate, which means that with the same volume of expenditure more things can be bought – i.e. money has a higher purchasing power.

Because depression usually is accompanied by deflation, central banks interpret any incipient downturn in prices as a sign of crisis and try to prevent it with monetary stimulus. But a depression occurs not because the price level falls but because real output, expenditure and all incomes on which aggregate expenditure is based fall. Regardless of the causes and confusing them with the effects, central banks always inflate, opening the door to evil that they claim to cure.

True and false money

There are many definitions of monetary aggregate. Strictly speaking it is the aggregate in the narrow sense which reveals inflation because it includes only the effective means of payment  excluding short term redeemable financial assets. In fact, by definition, something that must be converted into money is not itself money. No one pays necessities with short term securities. Money is only the stock or base money needed to buy goods and services. If the public holds 50 in his pocket and banks 1000 in their reserves, the monetary base equals 1050. It’s called “base” because is the foundation upon which the banking system builds a pyramid of money and credit. Whenever central banks purchase government securities either directly from governments or from banks they increase bank reserves and the monetary base setting the pace for credit expansion.

More aggregate expenditure  follows, making nominal GDP grow. Because new credit corresponds to new debt, credit expansion by inducing more debt lowers the ratio between liquid assets and liabilities in the entire economy. When a deficit of liquidity follows to a credit crunch, debts repayment can only be made by deleveraging balance sheets and asset prices across the board sharply fall. Moreover part of the overall debt is cancelled by insolvencies and the combined effect of prices and debt reduction shrinks the monetary and spending aggregates triggering deflation in the form of recession. On the other hand the overall debt does not decrease because governments do not liquidate it as the private sector does. Quite to the contrary they increase debt to pay the outstanding so as to avoid default. As a matter of fact they must increase their debt to make up for debt deflation in the private sector.

Should in fact the overall debt collapse, there would be an extreme deflation or depression because the money aggregate would contract dramatically. In fact the money equivalent to the defaulted debt would literally vanish. It is for this reason that central banks monetize new debt at a lower interest rates, raising its value. Because lower interests raise also the values of all assets, the entire economy looks healthier. But debt monetization gives only the illusion of wealth. It produces inflation growing faster than GDP with the effect of diluting wealth. Real incomes fall not only because of money debasement but because by raising their nominal value, inflation pushes them into higher tax brackets. In this context only the financial sector thrives because in a context of ever growing uncertainty and unpredictability, instruments for averting risks proliferate.

All the financial bubbles and the mass of derivatives are just the consequence of debt monetization. By keeping interest rates extremely low, monetary expansion finances speculation at low cost, allowing it to shift huge amounts of money and earn risk-free profits by capturing price differentials between different markets, which, is the only way to gain returns and preserve purchasing power when interests are kept low or even negative. Because new money is dissipated through the process it must continually be recreated. Debt monetization result in a never ending process of creation and destruction of money. It discourages productive activities leaving the economic future at the mercy of speculation.

All this destabilizing process is the consequence of the creation of money out of the debt. Debt monetization is the exchange of new money for a promise to pay it in the future. Now, if money is a function of the debt it is impossible that we can settle debt permanently. Legal currencies are false money because they depend on the debt expanding and contracting accordingly. Real money cannot be a liability or a promise to pay unlimited debt of third parties subject to default.

The role of money can be discharged only by an economic good that is always in demand, preserves its value and is immune from the failure of third parties. The money with these characteristics is gold, the only financial asset which is not dependent on anybody’s promises and is not subject to debasement or default. As long as this truth is not fully recognised  no structural reform whatsoever can overcome a crisis which is systemic precisely because it is immanent to an economic and financial system based on debt. Without sound money on the scene of the economic drama, inflation and deflation will continue to play their conflict until the final outcome: the monetary breakdown.

The currency cliff

In a context of false money, fiscal and monetary instruments are not only ineffective, but harmful. The first, trying to reduce the debt by increasing the tax burden results in draining resources when they are most needed. The second by refinancing the debt and boosting the monetary aggregate to prevent its collapse produces inflation. Hence debt cannot be tamed. Only hyperinflation or default can annihilate it. But the first would destroy the money system, the second would trigger a deep depression.

How will this all end? In history, debt monetization has always produced hyperinflation. As long as countries are enjoying credit, fiscal deficits through inflation work. But when they incur new debt to repay the outstanding they reach the point of no return because it becomes clear that they cannot repaid it. Thence hyperinflation has always been the consequence of the inability to service the debt. Investors start to lose confidence in the country and its currency and so citizens. At this point, monetary policy can no longer defend it and a collapse ensues.

In Western countries, despite the exponential debt a runaway inflation has not yet occurred. Monetary policy has only inflated the financial sector, starving the private one, which is showing a bias towards a deflationary depression: here the demand for money increases, the velocity and prices fall but the monetary aggregate holds as long as debt monetization works. According to the quantity theory it is the money actually spent on goods and services that causes inflation. As long as liquidity is parked in the bank reserves or finances speculation it does not flow into the real economy and inflation progresses slowly. If money were suddenly released it would have the same destructive impact of a dam breaking and overthrowing water downstream. Central banks in fact control the quantity of money but not  its velocity, which depends on social forces.

At the present fiscal and monetary policies try to preserve a precarious status quo, balancing inflation and deflation, a state of affairs which allows the debt perpetuation. But this balance can not be maintained for long because sooner or later inflation will be translated from the financial into the real economy via the general currency debasement taking place worldwide. It must not be forgotten that not only are currencies depreciated by debt monetization and fiscal deficits. Governments debase their currencies, destabilizing their trading relationships too by correcting trade deficits to boost exports. Hence a currency downtrend might eventually trigger a systemic collapse, because speculation causes further debasement through currency short-selling .

Ultimately the combined action of low interest rates and currency depreciation would drive investors away either from financial securities or currencies on behalf of tangible assets, notably commodities, whose prices would escalate. Demand for money would fall and so velocity and aggregate expenditure. At this point the market value of the debt securities would fall, bringing the interest rate to astronomical levels. The value of the whole debt would collapse while the price increases of critical commodities would hit the entire economy, pushing up the consumer prices dramatically.

All this process is not linear but oscillatory: massive flows of money would alternatively inflate and deflate financial and real sectors, causing vibrations in the economy that superimpose, eventually reaching a magnitude sufficient to bring down the whole economic structure. It is impossible to predict whether defaults would occur through hyperinflation or depression and where they would start first. Probably the first countries to be affected would be the ones with the weakest currency and the most fragile political setting. The outcome will also depend on the geopolitical situation. The prospect of the extension of a war would certainly make for hyperinflation. Floating currencies would disappear as suddenly as they appeared a little more the forty years ago. It is very hard to imagine the social cataclysm that it would ensue.

Managing deflation

If all the disruptive effects of inflation were understood it would be prevented. The fact is that its effects are confused with real economic growth while inflation is pure and simple currency debasement via increasing currency supply destroying money gradually and systematically. Inflation cannot be controlled. Once the currency loses value it is lost forever. Deflation, by contrast, can be controlled – avoiding its deepening into depression. The latter is like a purge whereby the economic organism expels the poisons accumulated previously with inflation. A gradual deflation induces the recovery because it realigns values with the economic reality, reducing the inflated money stock at level that makes the debt sustainable and repayable. The currency appreciation which ensues is just the antidote to depression itself. In fact, when the quantity of money tends to be measured in terms of absolute purchasing power, it corresponds to more money and therefore to more liquidity.

Note, here, the difference between the true and the false money: defaults make money disappear, while gold, the real money, never does: once in circulation it will remain – it cannot be eliminated by default. The criticism that gold causes depression is unfounded; on the contrary avoids it.

Inflation and its effects can be contended by managing deflation, and this is a political task.

First, to avoid a systemic collapse reciprocal debts have to be either renegotiated or condoned. It must be recognized that their current dimension makes it impossible to repay them, opening the way to uncontrolled defaults.

Second, government spending must be reduced as well as taxes. At the same time, all banks’ bad debts recorded in the accounts as sound credits should be written down. Without this adjustment banks will never be able to operate normally, resuming their credit activity and financing the economy, neither will they be able to attract new capital. The recognition of their losses is the prerequisite for their financial reconstruction. In order to be able to provide new credit banks must first receive it. No investor is willing to lend them funds with the fear of covering losses disguised as gains.

All this restructuring would last a few years and would give a positive signal to markets that facing true values can restore the lost confidence in the economy. Currencies would appreciate again and money would start to flow again without inflating. However, problems would not be solved and crisis would recur with a debt based money. Hence a process of readjustment must contemplate the return of the real money, gold. Since 2010 central banks have become net importers of gold. Why keep it in their coffers? It has to be used immediately to recapitalize banks, and remonetized straight after.

Unfortunately governments and banks will go for more inflation. It is well known that both usually make not only the wrong choices but the exact opposite of the right choices. As history teaches, besides money the freedom of citizens can also be the victim.


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Fri, 12/07/2012 - 18:21 | 3044119 fonzannoon
fonzannoon's picture

Calm down. Once we emilinate the debt ceiling we can start to get the debt under control. Yup. That's how it works.

Fri, 12/07/2012 - 18:28 | 3044134 AldousHuxley
AldousHuxley's picture

as long as fed buys USTreasuries, debt ceiling doesn't matter as congress will just print and borrow.




Fri, 12/07/2012 - 18:37 | 3044157 negative rates
negative rates's picture

But the real question is how in the heck fire, did the Fed aviod the psychiatrist?! If you can follow the money, you can just as eaisly follow the corruption.

Fri, 12/07/2012 - 20:58 | 3044520 AldousHuxley
AldousHuxley's picture

what's there to follow.

the power buck stops in congress. including power to appoint dovish fed chairman.

Sat, 12/08/2012 - 01:03 | 3045015 EscapingProgress
EscapingProgress's picture

I predict strong economic headwinds caused by enormous financial shit blizzards.

"You feel that ... the way the shit clings to the air?"

Sat, 12/08/2012 - 01:31 | 3045041 economics9698
economics9698's picture

September 2013.

Sat, 12/08/2012 - 07:42 | 3045172 Supernova Born
Supernova Born's picture

Food inflation internally destabilizes a nuclear power, then a second or more. Then a nuke or 50 go off and a shit ton of people die.

Then, ???

Baseless fiat would never have lasted this long without the fear of nuclear catastrophe.

The nuclear catastrophe will come anyway.

Sat, 12/08/2012 - 08:10 | 3045244 Radical Marijuana
Radical Marijuana's picture

Yes, Supernova Born, that is my view too:

Baseless fiat would never have lasted this long without the fear of nuclear catastrophe.

This article about "Where to from here?" was quite a GOOD ARTICLE:

All this process is not linear but oscillatory: ...

The prospect of the extension of a war ...

It is very hard to imagine the social cataclysm that it would ensue ...

The conclusion of this article appears to me to be that those who gained the power to make money out of nothing, as debts, by corrupting the government, and thereby forcing everyone else to accept that runaway fraud, will CONTINUE TO RUNAWAY: "Unfortunately governments and banks will go for more inflation."

For all practical purposes, the banks control the governments, although theoretically, it is the other way around, and from some perspectives it appears that We the People, and our governments control the banks, and indeed, own the vast majority of the shares in the banks, the actual operations of the system are due to the history of lies backed by violence, with the best organized gangs of criminals able to form a shadow government, of puppet masters, that pull the strings of the puppet politicians, who are the best professional liars, to continue to fool enough of the people, within the context of the puppet shows put on by the mass media, which are in debt to the banks, in similar ways to which the governments are in debt to the banks.

The inherent structure of the basic system is fraud, backed by force, through the processes whereby the biggest gangsters, the banksters, were able to take control over the money supply, and gained the power to legally counterfeit the money that all others were forced to use, since all other alternatives were systematically destroyed during those processes. That system of huge lies, backed by lots of violence, is oscillating wilder and wilder, and shaking itself apart. However, those who made and maintained the system have no other ends or means than to continue to enable themselves to make more and more money out of nothing, as debts, as the thing that benefits them, and therefore, as the thing that they regard as the solution to the problems created by that system. The ways that that privatized fiat money-as-debt system are operated automatically drives social polarization, where a smaller and smaller minority, closer to the source of the money supply, constantly benefit to greater degrees from that fundamental financial fraud, while those further away from the source of that fiat money suffer worse and worse.

However, the solution can not be return to commodity based money, like a gold standard. That is way too old-fashioned and silly to the point of being stupid. A gold standard relatively works because it is closed to the laws of nature, i.e., the conservation of matter. However, the conservation of matter is itself a special case of the conservation of energy.

THE PRIMARY POINT IS MATTER IS A FORM OF ENERGY. (Your handle, Supernova Born, indicates to me that you appreciate that.) A better monetary system should be based on a better understanding of the laws of nature, which laws now go far, far beyond the old-fashioned ideas about the conservation of matter, into ideas about the conservation of energy, through systems.

While that is theoretically not too difficult, it is practically impossible, because following that kind of innate radical truth, it becomes clear that the entire established system is based on frauds backed by force, and that developed to become a global electronic fiat money fraud, backed by weapons of mass destruction. That whole system has looped around and around itself, getting tangled into a bigger and bigger knot.  Bit by bit, stage by stage, the best organized gangs of criminals were able to make and maintain governments where the most important public powers are effectively privatized, and used to benefit tiny elites, while screwing everyone else worse and worse. Instead of the money being a public utility, the money supply has ended up being the supreme privilege enjoyed by the most wealthy and powerful people, who are thereby able to totally dominate the political processes, to keep their systems going.

Thus, more and more money made out of nothing as debts is the thing that they have been doing, and will continue to do. As you correctly stated, Supernova Born, the only thing that has made it possible for that system to grow to its current globalized astronomically amplified size is that it IS backed by weapons of mass destruction, and therefore, when its wilder and wilder oscillations finally shakes itself apart, then there will be genocidal wars, and democidal martial law, which will NOT make things get any better ... But nevertheless, there does not appear to be any way to avoid eventually going through those social storms.

Indeed, the ONLY theoretical solutions must still be based upon systematic energy laws. That means that the money supply that was and is backed by murder will continue to be. The problems we face are the runaway triumph of militarism creating a monetary system which is fraud backed by force, amplified many orders of magnitude by progress in science and technology, BUT, the basic social and political sciences are all still based on the past triumph of the biggest bullies, the banksters, becoming triumphant, and brainwashing, and enforcing, everyone else to believe, or accept due to lack of any alternatives, the runaway systems that the banksters have built.

Therefore, nice little logical articles like this one do a great job, up to the point where they fantasize about the old-fashioned solutions to the runaway postmodernizing problems. The inescapable realities are that the debt controls depend on the death controls. There will never be any surviving future for human beings where those expressions of systematic energy transformations are no longer the case.  What exists is a combined money/murder system, and that system has become global electronic fiat money frauds, backed by the force of weapons of mass destruction.

Since the vast majority of people do not want to understand that, and those who are the most wealthy and powerful people do not want to understand that, and do not want anybody else to understand that, we are being driven faster and faster through to psychotic breakdowns of those systems, but that means war and martial law, with weapons of mass destruction there to make everything become orders of magnitude more insane than we can possibly imagine!

The only theoretical solutions require revolutions in the money system, with changes over the source of the money supply. However, that political economy revolution is not possible without embracing a greater human ecology revolution, (which also means now an even greater industrial ecology revolution too.)  The REAL system is a combined money/murder system, and any new system MUST be a new combined money/murder system.

The problem, obviously, is that the current systems are oscillating wilder and wilder, and those who control those systems will not consider doing anything else than them continuing to exercise and enjoy their privilege to make the public supply of money out of nothing, in ways that benefit those who are already the most wealthy and powerful, and who already almost totally dominate those established systems. Thus, the established systems will continue to oscillate in wilder and wilder ways, until they collapse into chaos, with the result being genocidal wars, and democidal martial laws, as they collapse into chaos, which, in turn will drive even greater wilder oscillations, beyond our imagination, as civilization goes through some series of psychotic breakdowns.

The ONLY genuine solutions MUST be a more regularized and rational set of death controls, or a murder system, which stabilizes a saner economy, that fits rationally within overall ecologies which make sense as systematic energy flows. However, the ACTUAL solutions are for the established social systems of fraud backed by force to become crazier and crazier, until they shake themselves apart, until the threats of force that actually back up the runaway triumphant frauds attempt to actually continue to do that, which means that weapons of mass destruction finally get used, and thereafter, those events blow the entire frame of reference away!

It is nice to imagine that that will be limited enough, so that enough people survive, and thereafter, appreciate more radical truth,  enough to develop better human and industrial ecologies, within the natural ecology. However, at the present time, there is not the slightest sign that that is possible. Instead, the insanity of runaway triumphant financial frauds, driving themselves through the madness of increasing oscillations, until they destroy themselves, and almost everyone else at the same time, appear to be the most probable future ... although we cannot say exactly when and how ...

Personally, I am getting more and more desperate thinking about the ways we are headed towards insane social storms, and the ways that there is nothing whatsoever that I can imagine which can be done about those events to prevent nor prepare for them, that appear to be practical and realistic and worth while. After spending most of my life learning about these kinds of problems, I am now reduced to being ~100% objectively depressed about what I believe is going to happen, especially since there seems to be nothing whatsoever that makes sense which can actually be done about that. These problems have been amplified to such an ASTRONOMICAL SIZE that nobody can understand them anymore, at least not in any effective ways that enough other people would also agree with.

Sat, 12/08/2012 - 08:25 | 3045255 Disenchanted
Disenchanted's picture



“For we are opposed around the world by a monolithic and ruthless conspiracy that relies
primarily on covert means for expanding its sphere of influence, on infiltration instead of
invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas
by night instead of armies by day. It is a system which has conscripted vast human and material
resources into the building of a tightly knit, highly efficient machine that combines military,
diplomatic, intelligence, economic, scientific and political operations. Its preparations are
concealed, not published. Its mistakes are buried, not headlined. Its dissenters are silenced, not
praised. No expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the
Cold War, in short, with a war-time discipline no democracy would ever hope or wish to match.” ~
John F. Kennedy, President of the United States.

Sat, 12/08/2012 - 11:11 | 3045380 Roosting Chicken
Roosting Chicken's picture

I think I'm following you (and that is some radical marijuana).  When the country was first founded the energy was with the people and continued through the industrial revolution.  Now that the people have been deindustrialized the energy has moved to the TPTB.  It has not been destroyed because it can't be, following the first law of thermodynamics.  You say that this can only move in one direction and that is further away from the people to the point of nuclear destruction.  While you have a firm grasp on the first law of thermodynamics you may be forgetting the second law.  If you think of the people as one system and TPTB as another system that have become more and more isolated, eventually some of the energy has to move back to the people until we are in equilibrium.  That is, the energy will not keep moving away from the people as long as the two systems are in contact and interdependant.  The only question then, is how that happens and how long that takes to happen.  I suppose it could happen through nuclear war but I don't see how this is necessary for it to happen, it could happen through revolution (HA, right).  It could happen through enlightenment after many years of post-apocalyptic depressions.  Like you say, it is not linear, it is cyclical, because entropy must be achieved.  It's the law.  But I'm guessing it takes hundreds if not thousands of years.  Go short on reindustrialization of the people. 

Sat, 12/08/2012 - 11:11 | 3045381 Roosting Chicken
Roosting Chicken's picture

I think I'm following you (and that is some radical marijuana).  When the country was first founded the energy was with the people and continued through the industrial revolution.  Now that the people have been deindustrialized the energy has moved to the TPTB.  It has not been destroyed because it can't be, following the first law of thermodynamics.  You say that this can only move in one direction and that is further away from the people to the point of nuclear destruction.  While you have a firm grasp on the first law of thermodynamics you may be forgetting the second law.  If you think of the people as one system and TPTB as another system that have become more and more isolated, eventually some of the energy has to move back to the people until we are in equilibrium.  That is, the energy will not keep moving away from the people as long as the two systems are in contact and interdependant.  The only question then, is how that happens and how long that takes to happen.  I suppose it could happen through nuclear war but I don't see how this is necessary for it to happen, it could happen through revolution (HA, right).  It could happen through enlightenment after many years of post-apocalyptic depressions.  Like you say, it is not linear, it is cyclical, because entropy must be achieved.  It's the law.  But I'm guessing it takes hundreds if not thousands of years.  Go short on reindustrialization of the people. 

Fri, 12/07/2012 - 22:30 | 3044746 rbg81
rbg81's picture

Want to know the real way to starve the Beast?  Create an Occupy-like movement that will demand that Banks pay HIGHER interest rates on savings.  A lot of people are pissed that their getting zilch on their savings--tap into that Populist Anger.  If Banks had to pay higher rates to assuage the Public, their US Treasury would too.  That would make Bernake and Obama shit their pants.  If the Government had to pay higher interest rates, then the Charade would start to unravel and the whirlwind would begin.

Fri, 12/07/2012 - 23:37 | 3044880 OneTinSoldier66
OneTinSoldier66's picture

I proudly wear my END THE FED T-Shirt. Try it, you might find that you like it!

Sat, 12/08/2012 - 05:21 | 3045167 cynicalskeptic
cynicalskeptic's picture

If banks weren't getting all that 0%  money  from the Fed they'd HAVE to pay higher interest to get funds into their bank to build up their reserves.  But NOOOOOOO government 'lends' them a ton of money for free so the banks won't be declared insolvent and as a bonus pays them interest on it when it's held as a reserve.

All that money that's EARNED through your labor is grossly devalued by the tons of created out of thin air free money provided by government.  Money that represents labor and value created is competing with 'counterfeit ' money created out of thin air that represents neither labor or value.

Long gone are the days when banks wanted and needed YOUR money.  All the money earned by all the workers in the US is nothing copmpared to the TRILLIONS created out of thin air by government.   Of course the side effect is a DISINCENTIVE to save and a lack of any appreciable earning power for savings.  You're cheated out of the interest your hard earned money SHOULD earn and your savings for retirement can't earn any appreciable interest either.

Worse the excess money created by government causes inflation whoch makes the money you DO have worth even LESS.  So you're robbed by not being paid the interest your money should cpmmand but your money loses purchasing power because of the inflation caused by all this excess money creation. 

Sat, 12/08/2012 - 09:00 | 3045271 rbg81
rbg81's picture

Cynicalskeptic:  Excellent summary of how the current situation impacts the average American.  Unfortunately the Status Quo will never be fixed because most people are too preoccupied or, in most cases. unsophisticated to understand the underlying problem.   Most people have know that they're losing ground, but its so gradual that they are not spurred into action.  Also, there is no law or tax they can point to that provides a clear understanding of why things are going wrong.  Its like dealing with the weather--it just is and there appears to be no one to blame.

But, of course, much of this money IS going somewhere.  Its going to fund Government entitlements, both individual and corporate.  The #1 receipient of this cheap $$ is the Government.  Without it, the deficit would explode and the Entitlement state would collapse.  Its the perfect stealth tax.

Sat, 12/08/2012 - 13:28 | 3045451 rufusbird
rufusbird's picture

It does work...

" People are stashing more money in locally owned banks and credit unions in the central San Joaquin Valley, while one of the nation's largest banks has seen deposits nose-dive at its branches in the region.

No one's quite sure why, although the trend coincides with the rise of public sentiment against big banks in the depths of the recession.

About three years ago, political pundit Arianna Huffington and her Huffington Post website launched Move Your Money, an effort to encourage people and businesses to shift their money away from the largest national banks -- largely perceived as the main contributors to the economic crash -- and into smaller community banks.

Since that time, deposits in 11 community banks headquartered in Fresno and Tulare counties grew about 10%, rising by about $346 million between mid-2009 and mid-2012.

During the same period, deposits at Bank of America's 34 branches across Fresno, Kings, Madera and Tulare counties tumbled by more than $640 million, a 19% drop."

Read more here:
Fri, 12/07/2012 - 19:20 | 3044264 Zap Powerz
Zap Powerz's picture

Obama said in 2006:

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said on March 16, 2006. “Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership . Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”

Now he wants the debt limit raised to infinity.  Does that mean his leadership is an infinite failure?

Fri, 12/07/2012 - 20:06 | 3044389 francis_sawyer
francis_sawyer's picture

Leadership?... No ~ it simply means he's a goddamned ignorant lying son of a bitch programmed puppet ass fuckwad... Feel free to clarify at will...

Fri, 12/07/2012 - 22:13 | 3044680 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

I'll play.

He's a feckless, sophomoric, incompetent, narcissistic, perpetually lying, believing-in-gubmint-as-the-solution boob pushing a counterproductive failed ideology destined to result in disaster that will harm most Americans and all of their descendants.  He thinks he knows what he is doing.  He thinks his henchmen - Biden, Bernanke, Geithner, Axelrod, Jarrett, Reid, Pelosi, Cabinet, czars, and the rest know what they are doing.  They do not.  We will all one day bid him good riddance as he claims his well-deserved throne atop the scrap heap of history next to the remains of the likes of FDR, Stalin, Mao.

Sat, 12/08/2012 - 01:38 | 3045049 Anusocracy
Anusocracy's picture

Come on you guys, you know you're holding it back.


Sat, 12/08/2012 - 03:07 | 3045122 SanOvaBeach
SanOvaBeach's picture

And of course, your a fucking genius that shits ice cream.  Since your so smart you ass-wipe, why not run for office and set us all straight!

Sat, 12/08/2012 - 06:55 | 3045206 StychoKiller
StychoKiller's picture

Careful what you wish for...

Sat, 12/08/2012 - 06:55 | 3045207 StychoKiller
StychoKiller's picture

Careful what you wish for...

Daid gummit!

Sat, 12/08/2012 - 12:00 | 3045444 imapopulistnow
imapopulistnow's picture

Bobby Bowden for Prez?

Sat, 12/08/2012 - 17:34 | 3045931 SanOvaBeach
SanOvaBeach's picture

7minus ass-wipes!  It is east to click a minus, but really hard to type out a solution.  Fuck you, the -7 ass-wipes..............

Sat, 12/08/2012 - 22:54 | 3046299 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Why do I "not run for office and set us all straight?"


I would not initiate a run for POTUS for precisely the same reason Obama should not have in 2007 - because I am not prepared for the job.  I would be doing the country a horrific disservice, just as Obama did/has.

However, at least with me, you'd not get the failed ideology, the gross narcissism, the race baiting, the divisiveness, the bowing, and the nasty First Lady. 

I'd suck as POTUS, just not nearly as bad as Obama.  I'd also:

1) Invite you to the White House to inspect my hardcopy birth cert

2) Not lie about having registered with selective service

3) Show you a social security card not fraudulently obtained

4) Move my lips on occasion whilst not lying

5) Tell you, straight up, who my actual biological father is

6) Not have two bio's written about myself, filled with fantastic shit

7) Show you my hardcopy college and grad school transcripts

8) Write my own shit - no prompter.  If it sucks, it sucks.

9) Be happy to tell you how I financed my education at State U

10) Turn the WH into a bunker, and proceed to prosecute 'em

Sun, 12/09/2012 - 12:54 | 3046939 LawsofPhysics
LawsofPhysics's picture

You are an absolute moron if you really think anything but local elections really matter.  The Corporation for the United States of America has owners.  This is the very real truth of the situation in the America.  What happens in the boardrooms of the elite (who all went to the same schools and belong to the same "clubs") is what really matters.  Wake the fuck up!!!!  There is no longer any accountability and hasn't been since America closed the silver/gold window.  Recognize that once a realitive few control the money supply and can print to infinity, they can buy anything including your "representation and then do whatever the fuck they want.  Nothing will change until everyone at all levels of society is held accountable for the actions and are made to suffer real consequences for bad behavior.  If there were real consequences, then the owners, management and shareholders would be forced to pay back creditors with their own private wealth when they bankrupt a company.  Instead these fuckers get a motherfucking bailout and everyone else pays while they keep their beaches houses and extravogant lifestyles. 

Wake the fuck up you ignorant fucking sheep.

Sat, 12/08/2012 - 12:56 | 3045146 AmCockerSpaniel
AmCockerSpaniel's picture

FDR does not belong on the same line as Stalin & Mao. For one thing we would never had banks that were TBTF, and their CEO's getting 30 billion dollar bonuses (2008, 2009, 2010, 2011) while the people are being lied to. We would still have Glass–Steagall, and no free trade, plus jobs (real jobs that pay real wages). We would never have a supreme court ruling that a corporation was equal to a person like "we the people". Our votes would really count. Oh; And we would have SS & Medicare too, and not some for profit company taking our money, and doing what ever to keep from spending it on us.

Fri, 12/07/2012 - 23:55 | 3044915 rbg81
rbg81's picture

God forbid someone in the Media should call the Ass Clown in Chief on his stupendous hypocrisy.  They never will though 'cause they might lose their place in line to give him fellatio.

Sat, 12/08/2012 - 12:26 | 3045474 buckethead
buckethead's picture

The talking points going "FORWARD" will be like this; "President Obama sought to raise taxes on the wealthy, who incidentally, can afford it, but the Obstructionists in the House thwarted his efforts through procedural terrorism."

I'm thinking you guys knew at the onset we would be hearing "Bush and the Republicans did far more damage to the economy than we knew initially".

Not necessarily untrue, but more partisan blathering.


Well... that said, the main post (article?) stated that a deflationary environment would make government debt more easily sustained/managed. I fail to see how this is so, as the debt is already incurred, and it is nominal. If there is deflation, those debt dollars would become more costly to raise, would they not?

Sat, 12/08/2012 - 09:09 | 3045279 WarriorClass
WarriorClass's picture

The America we grew up in no longer exists.  It has been taken over by an illegitimate government that arbitrarily enforces laws against one group, us, and not another, the oligarchy (i.e. Corzine), wants to force us to pay for the murder of unborn children and support sodomite marriage and unconstitutional wars, while violating every part of the constitution at will.


To pay taxes to this anti-Christ government is to be complicit with it, and suffer it's fate in hell.  This is deadly serious.


If you pay taxes, you are guilty.

Sat, 12/08/2012 - 09:38 | 3045298 overmedicatedun...
overmedicatedundersexed's picture


Fri, 12/07/2012 - 18:23 | 3044123 francis_sawyer
francis_sawyer's picture

Alan Parsons bitchez!... [The Remix]...


Fri, 12/07/2012 - 20:40 | 3044475 Dick Fitz
Dick Fitz's picture

Really like that remix.

Fri, 12/07/2012 - 21:54 | 3044645 francis_sawyer
francis_sawyer's picture

Fucking ROCKS dude... I don't usually like remixes... But this one was def...

Fri, 12/07/2012 - 23:04 | 3044805 obejoyful
obejoyful's picture

Awesome, thanks dude, great song and memories.

Sat, 12/08/2012 - 06:55 | 3045202 Disenchanted
Disenchanted's picture



+1 on the APP


"Where do we go from here now that all of the children are grown up"

circa 2012 addition: and living back here at home


edit... Probably my favorite APP tune: Old and Wise


Fri, 12/07/2012 - 18:29 | 3044127 Yen Cross
Yen Cross's picture

 Does anyone REALLY believe in the popular VOTE?   " Get a job Amerika"...  Quit thinking about just 'your-selves'/

   Tell Mike Bloomturd that you consume 32OZ corn syrup drinks, because his policies have consumed "rational food prices"...

 Tell FEMA they belong in the basement like GOA "VEGAS Jacuzzi BOYZ"...

Fri, 12/07/2012 - 18:33 | 3044144 El Oregonian
El Oregonian's picture


Fri, 12/07/2012 - 18:36 | 3044137 Landotfree
Landotfree's picture

Another stupid ZH article. 

"to avoid a systemic collapse reciprocal debts have to be either renegotiated or condoned"

There is no way to avoid a systemic collapse.   You have built a system which is either system is expanding or is collapsing or about to collapse.   The article is so stupid I don't even know where to start.

"Unfortunately governments and banks will go for more inflation. "

Sorry you idiot, the government and banks do not have unlimited power to expand the system, the Romans were down to chipping the edges off their silver coins.   The government and the banks are crying for inflation but it's nowhere to be found... the system expanded from $455B in 1944 to $51T in 2007 at roughly 7% annually rate of increase.  Unfortunately or fortunately it's over... the system is now unable to expand no matter how hard they try... 5 years of their so called QE and they have produced around $1T of new credit to the system.... the system is at $52T, it should be north of $70T.   Inflation is dead and has been for 5 years, it will be dead for 3-7 more decades is my guess.   Liquidation of the unfunded liabilities will have to start at some point, my guess 1-2 billion unfunded will have to go.


Fri, 12/07/2012 - 18:55 | 3044185 MrTouchdown
MrTouchdown's picture

Depending on who you ask, it's between $84T and $144T. $52T is the dream number. If inflation were really dead, then the gov't wouldn't keep changing how they measure it. Don't believe the goal-post moving bastards, heh. The whole point of the article is that they will TRY to inflate until such time that the whole currency becomes unusable as a currency and everything collapses - just like what ended up happening with your Roman coin example. There are ways to avoid the collapse, but none are policially viable.

Fri, 12/07/2012 - 19:26 | 3044206 Landotfree
Landotfree's picture

It has nothing to do with what is asked.  The exact figures are published quarterly, see Federal Reserve Z1 report.  The US credit system is around $53T of the worldwide system of about $200T.

You are correct it is like the Roman empire but you are pointing to the symptom instead of the problem.  The Roman empire was not able to expand the system, which is a requirement if you attach interest to your medium of exchange.   The system is unable to expand, eventually it will start to go at a negative rate like in 2008-2009.   Yes, the credit system was going negative at an annualized rate.

Banks and government and everyone else wants inflation, inflation is dead.   Total credit debt of the system has gone nowhere even after everything that has been tried.

You can get the raw data if you want.

If banks and government could cause infinite inflation you would be speaking Italian.  Fortunately, humans do not have unlimited power and all of their financial systems come to an end.  

"If inflation were really dead, then the gov't wouldn't keep changing how they measure it."

You are talking about price inflation, not inflation.  Inflation is the increase of the money supply, credit is used as money, the money supply is borderline collapsing, definitely not expanding at a great rate and not really able to pay the interest on the previous interest owed.

Fri, 12/07/2012 - 18:56 | 3044189 JLee2027
JLee2027's picture

There is no way to avoid a systemic collapse....inflation is dead.

Very strange comment, but thought provoking. How does it collapse w/o inflation? If massive liquidation are forced no one will want dollars so that will make them worthless, aka, hyperinflation. Am I wrong?

Fri, 12/07/2012 - 19:20 | 3044215 Landotfree
Landotfree's picture

What comes after hyperinflation, more inflation? No.  As the system has to expand exponentially.  Every system ends in deflation ie death.   Is the Roman Empire finanical system still inflating?  Maybe that will help. 

The system has barely expanded since 2007 and just to keep it afloat they have had to pull out all the tricks, now you have to pull out the tricks at an exponential rate.   The system is lacking about $20T and that amount is going up daily.   Attaching interest to your medium of exchange and it will end the same way every time.   Last time 100-120 million got liquidated this time, my guess 1-2 billion.   

Humans have no ability to expand exponentially forever... that would require unlimited power.   If the system were inflating properly, it would be well north of $75T right now and adding at a $5-6T rate.

How does it collapse w/o inflation?"

Inflation means expanding or increasing.

Collapse means deflating or decreasing.   

The system is not expanding at all, it started to collapse in late 2007-2008, it took through the baby out the window to stop it, next time it will take much more, why?  The system requires exponential growth.   The equation always wins the war as the only way you can win long term is to have unlimited troops.


Fri, 12/07/2012 - 21:05 | 3044533 myptofvu
myptofvu's picture

I don't follow you on how the money supply is not increasing. The Treasury sells bills that the Fed buys and places in the asset collumn then gives the money to the banks who lend it to institutions who place carry trades or buy anything that has a yield and anything left over gets fractional reserved to death. So I'm not following how the money supply is not growing. 

Fri, 12/07/2012 - 23:36 | 3044878 centerline
centerline's picture

Find some old articles around here.  The shadow banking system is collapsing.  The hole is being filled.  The money supply is "shifting."  Everyday people are the fuel for the economic engine.  That engine is built on perpetual growth.  When the people can no longer absorb further debt, expand, or otherwise provide more yield it is game over.  And, like a business, the system can operate for quite some time on cash flow alone even if there is no growth.  When cash flow finally dries up though... lights out.

Sat, 12/08/2012 - 05:58 | 3045169 Element
Element's picture

The article and comments sound like a repost from 2009/2010.

Just add in some Trav, Mako and B9K9.

Sat, 12/08/2012 - 10:31 | 3045341 centerline
centerline's picture

Good link.  Thanks.

Yeah, nothing has really changed over the last couple of years except confirmation that the world is locked on course - heading right into something downright nasty.  The big question for me is simply whether or not we are heading for a disorderly or orderly liquidation.


Sat, 12/08/2012 - 09:17 | 3045282 Landotfree
Landotfree's picture


"I don't follow you on how the money supply is not increasing."

The credit system which is used as money but is not money is barely increasing and actually started eating itself in 2008-2009 for the lack of expansion, the system demands increasing amounts as you have attached interest to the medium of exchange.  

In 2011-2012, the credit system has increased ie dead cat bounce but it is barely increasing, certainly not enough to keep the system working normally, this is after all the tricks have been pulled.   The credit system should have nearly $75T in it on the US side, yet it is struggling to even get to $55T.   

There is no defeating the equation long-term unless you have unlimited power, exponential growth, I have seen no evidence that Man has unlimited power.   If governments and banks have unlimited ability to inflate than you would be writting in Italian and be a part of the Roman Global Empire, fortunately Man has no ability to grow or provide exponential growth for long... usually about a generation.   This ponzi scheme will fall apart just like all the prior ones... unable to expand at an exponential rate.   Nothing different than the Madoff scheme, it's just been going on for 6+ decades where Madoff could only get his to about 2 decades.

If the money supply was growing at such a great rate then I would imagine nobody or very few would have a problem paying their mortgage.  No?   The global credit market ponzi scheme popped in late 2007, in 2010-2012 you are getting a dead cat bounce, of course it has taken a great deal of effort to even get that.... the power needed tomorrow to sustain the system will be more than today... and so on and so on.  

Fri, 12/07/2012 - 21:37 | 3044599 chubbyjjfong
chubbyjjfong's picture

"If the system were inflating properly, it would be well north of $75T right now and adding at a $5-6T rate."


Well guess what, the system isn't inflating properly because the system is Fucked!  That is why we are experienceing deflation like a kick in the guts.  The layman (99% of us) are tapped out, WE DON'T GOT NO MONEY AND WE CAN'T BORROW ANY MORE!  When the 1% that holds all the wealth deleverages, what do you think they will do with it? Burry it in a hole?  No.  They will buy anything and everything sending inflation on its path to Never Never land. Game well and truely over.  I really don't understand your angle at all i'm afraid.

Fri, 12/07/2012 - 23:10 | 3044816 Doña K
Doña K's picture

<<<They will buy anything and everything sending inflation on its path to Never Never land>>>

So then what you're saying is "BUY GOLD"


Sat, 12/08/2012 - 09:19 | 3045287 Landotfree
Landotfree's picture

Inflation then deflation, hyperinflation then hyperdeflation.   If things just inflated forever you would be speaking Italian and would probably be a member of the Roman Empire.  Fortunately humans have no ability to inflate or hyperinflate long-term.   

Sat, 12/08/2012 - 10:49 | 3045361 chubbar
chubbar's picture

Hyperinflation ends in a worthless currency, not a hyperdeflation where the currency is scarce and still useful for exchange or am I missing something?

Sat, 12/08/2012 - 11:54 | 3045431 Landotfree
Landotfree's picture

Printing dollars is not inflating the credit system, it would just mean the destruction of the system.   Either way the system will deflate or hyperdeflate.   After inflation or hyperinflation comes deflation or hyperdeflation.   The world has just experienced the greatest and largest expansion of the system in the history of Man.... going on 7 decades.... eventually it will collapse.   A collapse is always deflationary.... you would not be collapsing if it were still inflating.  The Roman Empire inflated to max potential, eventually the silver mines production were not able to expand at the rate needed... ie interest on the prior...eventually the Roman Empire deflated to zero.  Population of Rome went from 1-2 million to less than 50,000. 

Man nor government nor bank can inflate the system indefinitely... usually around a generation or 60-80 years.   Even if you had a computer that was producing zeroes... eventually it would not be able to produce zeros fast enough as the system must expand exponentially... unlimited power is a lot.  :)



Fri, 12/07/2012 - 23:27 | 3044846 centerline
centerline's picture

Just to chime in because I think you are not getting enough credit for bringing real thought to this site...

I have long been in the camp that the fuel for hyperinflation already exists.  The reaction to this will determine whether or not we realize a hyperinflation for real - or a hyperdeflation - or an extended period (decades) of biflationary pain.  Of course, in the grand scheme this is all an exercise in timing because deflation is the end result.  The problem I think is that people start confusing financial behavior, market behavior, etc. and we wind up talking in circles.


Sat, 12/08/2012 - 15:23 | 3045757 AllWorkedUp
AllWorkedUp's picture

You can call it whatever you want, the prices of the stuff we need to sustain our lives are going up, not down. If you want to call it "price" inflation fine. Regardless of what the money supply is doing we are experiencing the prices of goods going higher or maybe the purchasing power of our fiat money decreasing, take your pick. When most people use the term inflation they are not looking at the expansion of the money supply.

ZH is one of the best sites on the web.


Fri, 12/07/2012 - 23:18 | 3044699 cranky-old-geezer
cranky-old-geezer's picture



I agree it's a stupid article full of nonsensical theories, but it's no more stupid than your comment.

Sorry you idiot, the government and banks do not have unlimited power to expand the system, the Romans were down to chipping the edges off their silver coins. 

Tell me about Wiemar Germany and Zimbabwe.  They printed so much currency to pay debt, the currency eventually lost all value.

There's no limit on Fed's ability to create currency ("print currency") and there's no limit on the federal govt's ability to borrow.  So yes, they have unlimited power to expand debt and money supply. 

Roman empire didn't have paper currency nor computers nor checking accounts.  They couldn't expand the money supply by printing more currency nor adding "deposits" to someone's checking account punching keys on a computer.

They were limited to physical coins, where America started out, physical gold & silver coins, so they had to rob metal from coins and make more coins (debasing the coinage) to expand the money supply, just like our govt would have had to.  Or start making coins from other metals like copper, zinc, etc.  Even then they would have been limited by the amount of metal available. 

But when you can print currency on a printing press, the only limit is paper and ink. 

When you have computers and checking accounts, there's no limit at all. You can add 50 trillion dollars to someone's checking account just as easy as adding 5 dollars, punching a few keys on a computer.

Say what?  They must have something to put on the asset side to keep the books in balance?  

No problem, write up a promissory note for 50 trillion dollars, they sign it, put it on the asset side.  That's all it takes, books are in balance.

And no, writing off that 50 trillion debt does NOT make that 50 trillion in their checking account vanish.  It's still there, they can still write checks on it.

The debit side of that writeoff accounting entry does NOT go against their checking account, it goes to writeoff expense on the P&L, eventually reducing bank profit ...bankrupting the bank in this case

...unless they get a 50 trillion bailout from the Fed ...also just a "deposit" in their reserve account at the Fed, done with a few computer keystrokes, accompanied by Fed taking possession of 50 trillion of some (worthless) "securities" the bank has

...or "rehypothecating" (worthless) securities the bank already has pledged as collateral somewhere else ...or pledged as collateral over and over again many times.

Now the money supply has been expanded 100 trillion dollars, 50 trillion by the bank, 50 trillion by the Fed.

Where do we go from here?  Hemorrhaging govt debt funded by hemorrhaging currency printing, continually expanding the money supply far faster than GDP (which is actually shrinking). 

Where do we go from here?  Hyperinflation then currency collapse, just like Wiemar Germany, just like Zimbabwe.

Why do I call it a looting spree, as I have in many comments on many articles of this type?

Becuase the Fed is looting all the wealth out of the economy, from the people, to keep the govt and big banks going.

That's what you can do when you issue the currency and have a printing press.  You can loot a nation dry, steal all the wealth from the people, giving it to whomever you want, the govt and big banks in this case.

Fri, 12/07/2012 - 23:53 | 3044912 OneTinSoldier66
OneTinSoldier66's picture



Will The Fed's greed finally be satiated once it has all the assets of the entire country on it's balance sheet?

Sat, 12/08/2012 - 09:48 | 3045297 Landotfree
Landotfree's picture

Complete collapse as there will be no higher bid.  Once the highest bid is in that's it folks.  There really is nothing the Fed or Benny can do other than delay the eventually collapse, the Fed is just there to make the system hit the highest point before collapse... the Fed is not there to stop the collapse forever as that is impossible.

The Architect is the best, straight to the point.

*The responses of the other Ones appear on the monitors: "Others? What others? How many? Answer me!"*

The Architect - The matrix is older than you know. I prefer counting from the emergence of one integral anomaly to the emergence of the next, in which case this is the sixth version.

*Again, the responses of the other Ones appear on the monitors: "Five versions? Three? I've been lied too. This is bull****."*

Neo: There are only two possible explanations: either no one told me, or no one knows.

The Architect - Precisely. As you are undoubtedly gathering, the anomaly's systemic, creating fluctuations in even the most simplistic equations.

Sat, 12/08/2012 - 09:22 | 3045274 Landotfree
Landotfree's picture


"Tell me about Wiemar Germany and Zimbabwe.  They printed so much currency to pay debt, the currency eventually lost all value."

And when it no longer worked the credit system deflated to nearly zero.   The equation always wins the war, although it may lose countless battles.   If you were correct they would still be using the old Weimar Republic marks.   

All of those credit systems collapsed... they were able to carry on just like Japan as the rest of the world was able to supply them with new credit, this time like in 1929-1944 the whole system will go.

Sorry but printing of Wiemar marks went to zero and then negative creation at some point, probably not too many of them around now.  No?   

All one has to do is look at Japan, doesn't matter what they do they are stuck.   The only thing that has saved Japan from complete collapse is the production of credit and demand abroad for the last 20 years.   Eventually the rest of the world will not be able to demand, the US credit will continue it's collapse it started in 2007, Japan will go down with it including every other country just like last time.

Sat, 12/08/2012 - 10:58 | 3045367 chubbar
chubbar's picture

I don't understand your reply to cranky old geezer? He said that weimar currency lost all value and then your replied that if he were correct that they would still be using that currency? What are you trying to say? The printing of the currency went to zero because they were burning those bills to keep warm, not to purchase goods with. It was no longer a currency at all, Germany created a whole new currency to replace the defunct one. That isn't deflation or hyper deflation. That is a currency failure that happens when a currency no longer works as a currency. Can you clarify your point?

Sat, 12/08/2012 - 12:16 | 3045370 cranky-old-geezer
cranky-old-geezer's picture



And when it no longer worked the credit system deflated to nearly zero.  

There was no deflation.  Deflation means the currency gained value, and that didn't happen.  It lost value.  It lost all value, became worthless.

On the way to becoming worthless, they went thru a period of hyperinflation where the currency lost value rapidly, every day, then every hour.

The credit system didn't deflate, it collapsed along with the currency.  That's not deflation.  It's total collapse.  The end. 

The economic depression part isn't deflation either.  Deflation is a monetary term, not an economic term.

Sorry but printing of Wiemar marks went to zero and then negative creation at some point, probably not too many of them around now.  No?

No, they just went to zero and stopped. It didn't "go negative" either.  It went to zero and just ended when they abandoned that currency completely, as Zimbabwe has done now ...after trying twice to revalue the currency, which failed both times after people lost all confidence it.

The credit system built on that currency ends too.  It's why the debt goes worthless along with the currency (as well as being denominated in a now worthless currency).

"lost all confidence in it" is highly important.  The value of an unbacked floating fiat currency (like our US dollar ...ok, FRN technically) rests solely on public confidence in it.  Wild printing like the Fed is doing now ($250 billion a month thereabouts ...that we know about) destroys public confidence in it, and the value drops.

It's just a game, a fantasy in people's minds.  What are "dollars" in your checking account?  You can't touch 'em, you can't see 'em.  It's just numbers in a computer.  A belief, nothing more.

That's a fantasy.  Nothing exists in the real world you can see nor touch. 

Paper currency isn't much better.  You can see it and touch it at least.  But what is it worth?  What someone else believes it's worth and will trade for it.  It's still just belief, perception, and Bernake can't control people's belief and perception and confidence ...and that's the Achille's heel of USD and any other unbacked floating fiat currency.

The only thing that has saved Japan from complete collapse is the production of credit and demand abroad for the last 20 years. 

Japan has been able to keep their game going because (a) their culture is one of supporting the govt, in this case buying govt bonds where we would buy stocks, and (b) their trade surplus steadily bringing Yen back into the country, keeping supply on world markets in check, not flooding the world with Yen like we're flooding the world with US dollars because we don't have that trade surplus, we export dollars and debt mostly.

Japan is losing that trade surplus now, thanks in part to Fukushima, along with China's increasing inroads into long time Japanese markets, machine tools for example, as Chinese quality improves.

So Japan's currency game is weakening now, as shrinking trade surplus leaves more Yen out there on world markets and supply/demand laws come into play knocking the value down.

Fri, 12/07/2012 - 22:16 | 3044710 Pareto
Pareto's picture


I'm kinda thinking the writer below asks the right question.  I think falling prices are symptoms of a healthy correction - even a depression - lower prices are always the silver lining as assets transfer from dumb asses to not so dumbasses.  In other words, there is still confidence in the fiat despite the trillions sitting in digits and currency in bank vaults and so on.  But, IMO, I believe there is a TSN turning point where confidence is lost, and hyper (price) inflation ensues along with an unbelievable transfer of real assets (property, commodities, etc.).  The FED or all central banks cannot keep papering over existing debt with cheaper debt without rates rising because sooner or later it makes no sense to hold those bonds, even at 20%.

Ultimately, the public sector (all of it), loses credibility, bonds sell off, but, instead of hoarding cash from the sale, there would be, I expect a massive rush to the door for tangible goods, PMs, electric fence, and so on......something to preserve one's wealth.  I agree with your price deflation argument, as debt (household or government) kills demand for shit you don't need, but, the demand for things you do need will go batshit crazy and all at once.  I think the paper ponzi can continue for another 20 years frankly, but, as we see the price of things that we need rise relative to the price of shit we don't need, and that because input costs for these things are rising at a great pace than the labor costs for shit we dont need, then at some elasticity, you get a breaking point where the currency is abandoned.  Prices for necessities sky rocket and a shitload of unproductive people (government) lose their jobs.

I think anybody who has a skill that can provide assistance providing this, that, or the other thing, will actually make out ok.  Because we are used to doing without, relatively speaking.  Its the massive public sector (designed to take from others to give to somebody else) that will have a difficult adjustment to make.  I suspect some sort of reset will occur (a voluntary one) and a new medium of exchange emerges, and we move on.  I say this haphazardly because of what we saw in 2008.

In 2008 and early 2009 all you could hear was that the world was coming to an end.  Yet, you could look out your window and see, people still driving cars, still buying groceries and the farmers and makers of stuff that drives subsistence production, still went on.  Life went on for anybody involved in the process of providing goods and services for others.  I see noreason why that would ever change.  EVER.

However, we have debt ridden governments.  That houshold debt is high, it has come down, and people are deleveraging.  But its government that is the elephant in the room.  And my thinking is that it will be these fuckers you'll want to worry about.  In other words, if we (private sector) can just get past the idea that we need government to provide for our welfare, and instead say "fuck it", and throw them out, then the $50T, $60T in money and debt or whatever you quoted (does anybody really know by the way?), doesn't mean shit at the end of the day.  You can call Ron paul a nut job, but he's right, just scratch that entrey off the balance sheet and poof, its gone, just like Iceland did.

For sure, things will be chaotic and fucked up for a bit, but, in the absence of government, we would figure shit out.  I think the bigger scare are the various militaries creating false freak shows, enough to scare the beejeezuss out of everybody, its these fuckers who have access to tools of force we ought to be worried about - who can manipulate markets - who can confiscate your property - who can detain you and shoot you on sight and pay no never mind - the public sector turning into public sector warriors.  Thats the shit you can't control, and in my mind, constitutes the biggest threat.  Currency debasement, debotchment, whatever.  The private sector knows how to look after one another, because there is a market for looking after one another.  Its the entitlement group backed by force I'm concerned about.

And by the way man, nobody who writes on ZH, who has posted something beyond "BTFD bitchez" (even though I laugh every time i see this!) is stupid.  Nobody.  If nothing else, ZH and its contributors makes me think and get passed the endless stream of bullshit I hear everywhere else and it almost always offers clarity, which is infinitely more valuable to those of us just trying to figure shit out than somebody offering up the assertion that somebody is stupid or is an idiot.  cheers

Sat, 12/08/2012 - 09:30 | 3045293 Landotfree
Landotfree's picture

"However, we have debt ridden governments.  That houshold debt is high, it has come down, and people are deleveraging."

There is no way to delever in the system you have in place, that is the system can't delever, that is called a collapse.   The system is tapped out, max potential.    Dead cat bounce with the government taking more on it's balance sheet in a desperate move to save the system.   The ATMs would have stopped working in 2008 if not, of course, they are going to stop working at some point anyway as Man does not have unlimited power to supply the equation ie interest ie exponential growth.   

Individuals can deleverage their balance sheet if someone else is leveraging up to produce the amount new credit to fund the prior.   The total amount of credit going down is a collapse or the starting of a collapse which started to happen in 2007-2009.   There is no paying off the $55T of the credit market system as the interest amount has never been created only the principle.  As long as more people are requesting more from the system at an exponential rate everything is find.... however humans have no ability to do that long-term.... a generation or so.    Madoff could only get his system going for 20 years.

Sun, 12/09/2012 - 02:20 | 3046531 Alexandre Stavisky
Alexandre Stavisky's picture

Remember the entire global central bank franchises will backstop all the systemic risks.  All financial instruments will be made whole by printing, and indexes will be supported by printing.  Derivatives and CDS and IR Swaps are all written by the banking syndicate with insurance to counterbalance risk written just by a differing arm.  No defaults will ever be declared and any event which trivially threaten the system will be met with money creation.

Banks have been recapitalized by money creation.  Sovereign bonds have been retired by money creation.  New bonds have been floated at historical lows by money creation.  All federal excess expenditure is funded by money creation.  All entitlements, gov't pensions, military, and gov't employment which exceed receipts will be paid via money creation.  US Dollar will be defended as global reserve currency as another support mechanism.

Hugely inefficient paradigms of gov't sponsored employment and entitlement in the welfare/warfare matrix allow distribution of newly created money.  Insurance companies also distribute through payouts via collection on investments in Ponzi bond market and equity shares in public markets propped with printed money.

Thus huge swathes of compromised paper can be removed from public markets to be sequestered by central bank franchises, interest rates can manipulate to simulate favorable borrowing terms, derivatives will always be backstopped in order that no destabilizing events occur. Etc.,etc.,etc.

In other words, true wealth creation is in serious contraction, but money creation masks the effects.  Multinationals and franchise directed leviathan companies continue to crank out consumer goods as they are equipped to operate in this environment.  Small business, dead.  Independent small professionals, dead.

So the path to hyperinflation is not only possible, it is the ONLY possibility.  Any part of the economy not well connected to the franchise system will atrophy and die taking their goods and services with them.  But money creation and distribution (irrespective of merit) will expand and explode.

System dies with universal access to large sums of money because the creators of the desired goods are exterminated.

We'll see in this ship of state,

Water, water, everywhere,
Tho' all the boards may shrink;
Water, water, everywhere,
Nor any drop to drink.


With throats unslaked, with black lips baked,
Agape we heard the call:
Paper! we for joy did grin,
And all at once our breath drew in,
As they were drinking all.

See! see! (I cried) the ship, she tacks no more!
Hither to work us weal;
Without true breeze, without a tide,
She steadies with upright keel!

The many men, so beautiful!
And they all dead did lie;
And a thousand thousand slimy things
Lived on; and so shall I.

Through collapse, until

We'll go like those that hath been stunned,
And are of sense forlorn:
Much sadder and wiser men
To rise ev'ry zombie morn.



Fri, 12/07/2012 - 18:41 | 3044138 ZerOhead
ZerOhead's picture

 Where to from here?

Nowhere happy... I can tell you that much.

Fri, 12/07/2012 - 18:56 | 3044192 Yen Cross
Yen Cross's picture

 When you get hungry, "you get creative"... 

Some of Histories best inventions were created in the darkest hours of Humanity/

Fri, 12/07/2012 - 19:19 | 3044259 imbrbing
imbrbing's picture

like bullets?

Fri, 12/07/2012 - 19:21 | 3044270 Yen Cross
Yen Cross's picture

 It's a shame the art of negotiation has been lost. Kill em all is too easy/ ;-)

Sat, 12/08/2012 - 07:06 | 3045210 StychoKiller
StychoKiller's picture

Like salad greens -- think about it.

Fri, 12/07/2012 - 19:25 | 3044281 Zap Powerz
Zap Powerz's picture

"Necessity is the Motherhood of invention."

Fri, 12/07/2012 - 18:35 | 3044148 negative rates
negative rates's picture

Man you just tried to juggle a dozen balls with only one hand. Can you ride a unicycle too?

Fri, 12/07/2012 - 18:36 | 3044151 Westcoastliberal
Westcoastliberal's picture

Please let me be the first...Fuck you Bernanke!

Fri, 12/07/2012 - 18:37 | 3044155 tawse57
tawse57's picture

This stock market crash is not coming is it - they just pump it up every single time. The market is allowed to go higher but not go lower.



Fri, 12/07/2012 - 18:37 | 3044156 lynnybee
lynnybee's picture

god help us all.   help each other.  i understand what happened & what's coming & wish i was still stupid; the waiting is killing me.   all i do is pace the floor & stockpile; friends & family members ridicule me .   

Fri, 12/07/2012 - 18:48 | 3044179 El Oregonian
El Oregonian's picture

You'll have to learn to harden your heart when those "Friends and Family members" who ridiculed you, come back begging for sustenence when the SHTF.

If you haven't learned that then keep on storing for the unintiated family members...

Fri, 12/07/2012 - 19:12 | 3044237 The Gooch
The Gooch's picture

No. NO!

Hardening your heart is the plan. I'm guilty of this mis-direction. 

Constraining your mind to that mindset is the plan.

Perpetuating their greed (against your own blood and heart) is the plan.

The S will HTF, undoubtedly.(!) And that right soon.

Stooping to their level will insure it's (nefarious) success.

Prepare to defend yourself and those you cherish.

Prepare to sustain at all levels of your abiiity.

Prepare to help the misguided (family, friends and neighbors) as they will come to understand and be your allies against a common enemy. Not everyone is as smart as you. That does not mean they don't deserve to breathe with dignity. My bet is they care their loved ones just the same.

Prepare them to help sustain what you've provided, and help to cultivate what's next.

Prepare to lay down your life for the betterment of your progeny and theirs or kindly fuck off. Liberty tree and what-not.

We are at turning point's door.

Yours in Ranting,

THe Gooch.




Fri, 12/07/2012 - 19:50 | 3044353 El Oregonian
El Oregonian's picture


You can tell them to prepare but you can't force them. I do not want anyone to perish, especially the vulnerable, but as time permits is who can be "helped".

Remember, Noah was mocked and ridiculed before the Great Flood came. When the first rains fell he locked out the rest. It doesn't mean that you do not feel for the one's who are about to drown but when the last opportunity was ignored they sealed their own fate. Besides, you can't force others onto your boat. A wise man said: "Teach a man to fish, and he shall never go hungry again", this also applies to family, friends, and others. If they refuse to learn how to string on the bait then it can not be your fault when they starve to death...

I will pray for them... The rest is up to them.

Fri, 12/07/2012 - 20:32 | 3044450 The Gooch
The Gooch's picture

Normally I could give a fuck, nut I would really like to hear the
Downticker's retort. Bring it.

Sat, 12/08/2012 - 00:21 | 3044965 Lord Koos
Lord Koos's picture

"Not everyone is as smart as you."


Some might even be smarter.

Fri, 12/07/2012 - 19:22 | 3044273 lynnybee
lynnybee's picture

'You'll have to learn to harden your heart when those "Friends and Family members" who ridiculed you, come back begging for sustenence when the SHTF.'   so, i'm faced with the choice of slamming the door in my loved ones faces or helping & sharing.   i'm going to chose helping & sharing, it's the only way to be.

Fri, 12/07/2012 - 20:33 | 3044399 francis_sawyer
francis_sawyer's picture


Tough to say... But your choice is the CORRECT choice... People are IDIOTS [but it's not your decision to condemn them to the farthest reaches of hell for being idiots]... Do your best to fold in those closest to you & that's the best you can do... Let a higher power determine the rest...

Best of luck to you...



Fri, 12/07/2012 - 21:17 | 3044561 Winston Churchill
Winston Churchill's picture

You have to take care of yourself and you immediate family first.

Only then can you help others.

Its a matter of survival, not ethics..

Fri, 12/07/2012 - 21:44 | 3044616 The Gooch
The Gooch's picture

Survival without the framewotk of family Or community is a despearte act of a nomad. There's nothin wrong with that if you 're the singular
Type. Some of us don't have that option.
Bottom line is this is "last call" for the pols, pundits and useful idiots
to divide snd conquer. They are aiming for the core. Not the periphery.

Fri, 12/07/2012 - 21:59 | 3044660 francis_sawyer
francis_sawyer's picture

Very well said Gooch & WC...

Fri, 12/07/2012 - 22:27 | 3044729 The Gooch
The Gooch's picture

My points are the same , but apprently my drinking has fucked up my typing. Happt Friday ZH'ers. Cheers.

P.S. Francis Sawyer, I enjoy your posts.

Sat, 12/08/2012 - 00:49 | 3044996 decon
decon's picture

Do what you feel you must but the cutting edge of natural selection will have no mercy.

Fri, 12/07/2012 - 19:28 | 3044286 imbrbing
imbrbing's picture

I just went through an excersize with 2 of my son-in-laws where I bought 10 ounces of silver for them and my daughters/grandkids. I promised they could get another 20 if they bought another 10 on their own. I have yet to hear back from one of them. I asked them to tell me why it would be a good idea for them to get 30 ounces of free silver if they bought 10. I never heard back from one of them, the other replied back with well....lets say "the wrong answer". I try to get them to understand but to no avail. Except they are married to my daughters and are suppose to take care of my grandkids. Looks like I am stuck with that future job and I am getting to old for this crap. Even tryin to kick start them with free money doesnt work.


Fri, 12/07/2012 - 20:18 | 3044414 Yen Cross
Yen Cross's picture

 NO Comment/

Fri, 12/07/2012 - 20:43 | 3044484 Esso
Esso's picture

40oz of Ag for the price of 10?

NO WAY MAN! I'd rather have the Latest & Greatest iDooDad!


Fri, 12/07/2012 - 22:13 | 3044702 imbrbing
imbrbing's picture

Not quit that bad with these guys, but you do have the general idea :)

Fri, 12/07/2012 - 20:46 | 3044491 Dick Fitz
Dick Fitz's picture

Sad. If someone gave me $700, and told me they would give me more if listened to them, I'd listen. Maybe they'll leave the bastards and take the kids when TSHTF.

Fri, 12/07/2012 - 22:28 | 3044739 imbrbing
imbrbing's picture

That sounds dumb, I dont think you get what I said. So tell me how do I get them to listen? That was my last try of 1000.

Fri, 12/07/2012 - 23:30 | 3044857 cranky-old-geezer
cranky-old-geezer's picture



If your sons-in-law wana be sheep, nothing you can do about it.

It's up to your daughters.  Will they let themselves be dragged under by their sheep husbands? 

Hard times ahead will destroy many marriages when one is not a sheep but the other is.  

Many will cut the sheep lose to save themselves.

Fri, 12/07/2012 - 23:34 | 3044876 imbrbing
imbrbing's picture

You sound cranky :) But I hear what you are saying. My daughters know who their protector is in this world. It may just come to what you have stated.

Sat, 12/08/2012 - 07:12 | 3045216 StychoKiller
StychoKiller's picture

Steer them towards googling (or whatever) the phrase:  "Mandrake mechanism."

Sat, 12/08/2012 - 06:09 | 3045181 Diogenes
Diogenes's picture

Show up for Christmas dinner in a brand new Cadillac (rented). Tell them you bought it with the profits you made off your gold and silver investments. See if they don't look up the charts on gold and silver.

PS maybe they don't have any money to invest, what with trying to support their families in a time of stagnant wages and high inflation. Maybe they feel you are just rubbing it in with all your talk about buying silver when they aren't sure they can pay the heat and electric bills this winter, and give the kids a decent Christmas.

Sat, 12/08/2012 - 07:14 | 3045217 StychoKiller
StychoKiller's picture

Au/Ag is NOT an investment, they're wealth insurance!

Fri, 12/07/2012 - 22:20 | 3044716 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

When the friends and family ridicule you, secretly set your iPhone on record.  Then, during halftime of the Cowboys/Lions game one Thanksgiving one/two/three? years from now, turn down the volume and play their greatest recorded hits!

Fri, 12/07/2012 - 18:46 | 3044165 AUD
AUD's picture

Inflation......decreases the demand for money

No it doesn't, the demand for money approaches the infinite, that's what money is, the commodity with almost infinite utility.

Inflation does decrease the demand for credit issued by banks though. Inflation is bank credit losing its 'moneyness', because it's junk.

Fri, 12/07/2012 - 18:59 | 3044196 Yen Cross
Yen Cross's picture

 Not when you have Federal Reserve Board of Governers spending $80 Billion a month on monetizing " DARK POOLS" of private equity/

Fri, 12/07/2012 - 20:42 | 3044480 AUD
AUD's picture

That's what I said, it's junk.

Fri, 12/07/2012 - 19:06 | 3044211 Bohm Squad
Bohm Squad's picture

Actually, supply approaches infinite because demand is so low.

Fri, 12/07/2012 - 20:49 | 3044487 AUD
AUD's picture

It's the low demand that is the issue though. If demand approaches zero, any supply will seem infinite.

The demand for money approaches the infinite. If demand doesn't approach the infinite then it's no longer money, like bank credit losing its 'moneyness'.

Bank credit includes central bank credit ie. the $, something which escapes most people, even here on ZH.

Fri, 12/07/2012 - 18:45 | 3044168 liszt
liszt's picture

Unfortunatly you don't have a clue : There will never be an hyper-inflation, because wages won't transmit the demand. Wages won't increase, and they ARE the demand, and NOTHING ELSE !

You don't have a clue, as someone who links to a Van Mises site, which is one of the most fascist economist over all. And Ron Paul is a full idiot by the way. 

This is not one of the deepest crisis in history, this is the last one.

I'm too tired of you to read your too long posts.





Fri, 12/07/2012 - 19:19 | 3044255 El Oregonian
El Oregonian's picture

Move along Dummy, condescending idiots just waste internet space and unfortunately, bore us with inane dribble foaming from their pea-sized liberal brains.

Just move along... say, maybe to the mentally-challenged forums of the MSNBC/Bob Costas crowd...

Sat, 12/08/2012 - 18:05 | 3045961 Errol
Errol's picture


Rather than resort to ad hominems, please enlighten us as to how we will have severe inflation in the US as long as global wage arbitrage continues.

I was an adult during the fairly brisk inflation in the US during the late 70s-early 80s; my pay went up frequently and substantially.  That was prior to a flood of foreign car imports, China being admitted to the WTO, and the internet revolution making clericals redundant and service centers being moved to India.  Current situation: I have had the same employer for 25 years now; my most recent earings development is that I "enjoy" two weeks of unpaid "furlough" annually.  I don't see how we can have any brisk inflation in the US if the majority of Americans have static or declining wages.  Even if an extended oil disruption shuts down world trade, it would take a good long while (if EVER) for the US to resume the activities that were discontinued locally due to globalization.

Fri, 12/07/2012 - 19:21 | 3044271 Bohm Squad
Bohm Squad's picture

Who's Van Mises?

Fri, 12/07/2012 - 20:49 | 3044501 Esso
Esso's picture

Eddie Van Mises. I think he was in one of them dadgum rock & roll bands.

Sat, 12/08/2012 - 00:17 | 3044957 oddball
oddball's picture

Didn't he sing the song, "Brown eyed girl"?

Sat, 12/08/2012 - 07:16 | 3045220 StychoKiller
StychoKiller's picture

"Two Tickets to Paradise" (oh wait, that was Eddie Munny!) :>D

Fri, 12/07/2012 - 18:45 | 3044171 Yen Cross
Yen Cross's picture

 These cnbs traders are holding usd/jpy trades over the weekend are mental! If the Middle East goes "apex thermal" they are screwed/ Never hold trades over W/E/ That guy got stuck next to his stop, and will get stop hunted on Sunday.

Fri, 12/07/2012 - 19:11 | 3044173 michael_engineer
michael_engineer's picture

I couldn't find any reference to how resource inputs factor into this economic analysis. So its basis, assumptions, and conclusions don't seem to be closely tied to the real economy at all. So a lot of this article is just supposition. All I saw was a "drive by" hand waving use of the word "real" with no structural underpinning or support.

Here's an article that considers resource inputs :

Sat, 12/08/2012 - 18:31 | 3045999 Errol
Errol's picture

Michael, very good article!

My analysis has led to the same conclusions as yours: a slow decline in production of the master resource of our system, oil, mandates a slow contraction of all economies - worldwide.  This slow contraction means that debt with compounding interest CAN NEVER BE REPAID.  This slow destruction of the value of debt assets means the evaporation of hallucinated wealth.  The industrialized world's central banks are fighting this evaporation of money equivalent for all they are worth; so far they are roughly matching the rate of evaporation of money equivalents with their creation of new money.  With luck they can keep up this balancing trick for decades (see Japan), but it only cushions the effects of the global economic contraction that is relentless and unstoppable.  The Fomerly Middle Class population can AT BEST expect biflation: a slow increase in the real cost of things they can't live without (food especially) and a slow decrease in the real value of things they can live without (house in suburbia, icrap).

Fri, 12/07/2012 - 18:47 | 3044177 reader2010
reader2010's picture

As long as the root money is created out of debt itself, there is NO FREEDOM. Freedom is Slavery.

Fri, 12/07/2012 - 23:35 | 3044830 my wag
my wag's picture



Agree. Money from debt is tied to bankers...who are the ultimate rent seekers.

MMT is the way and the financiers know this. That's why they expected the bailout.

The heads I win/tails you lose accounting has to be stopped.

the stock market has become:

  • a mathmatical battleground with algorithmic trading.
  • a much more sophisticated game of chance due to the increase in the speed and volumne of communication
  • a companies true value is harder to gauge 

The first reality test of a strong MMT system will be the ability to rein in the speculators and manipulators by increasing their cost. Vultures who profit off the swing of prices are another level of rent seekers. Skimming is not creating value.

Fri, 12/07/2012 - 18:48 | 3044180 Fantasy Planet
Fantasy Planet's picture

We'll go where we always go - shopping!!

Fri, 12/07/2012 - 18:53 | 3044182 davidsmith
davidsmith's picture

All this restructuring would last a few years and would give a positive signal to markets that facing true values can restore the lost confidence in the economy.


This is so ridiculous.  The American homeowning class is a political construct and has been one since the end of WWII.  Everyone who bought into it,bought into it with their eyes wide open.  There was never any "confidence"--there was only a confidence game.  Now the American housing plant is history's biggest white elephant.  But people warned about that for DECADES.  Who listened?


The essay is typical of ZH postings: they all begin with the assumption that once there was Arcadia and, damn!, if we could ONLY get back there.  It's an adolescent fantasy.  Grow up.

Fri, 12/07/2012 - 18:59 | 3044194 GeorgeHayduke
GeorgeHayduke's picture

"The essay is typical of ZH postings: they all begin with the assumption that once there was Arcadia and, damn!, if we could ONLY get back there.  It's an adolescent fantasy.  Grow up."

That concept is not just here at ZH, but it has been the basis of modern conservatism since at least Reagan. 

Fri, 12/07/2012 - 19:29 | 3044265 falak pema
falak pema's picture

RR = Elmer Gantry.

Preached one thing and built up  his congregation on that theme; then sold "it"  : freedom, down the drain to the supply side Oligarchs; the Mr BIGs who run tilted table capitalism, made unfettered thanks to ...RR/MT!!!

Those very PAragons of virtue and "freedom"...and entrepreneurial virtue. Land of Schumpeter dreams became land of CDO/CDS toxic cake! 

What a cook, I mean crook! 

ZH still believes in the Schumpeterian dream, John Galt and Ayn any good Rand. Annie Oakley of big bang free enterprise!

I'll buy it provided there is some balance between innovation game and social agenda. balance, balance, balance and separation of powers and rule of law. 

Sat, 12/08/2012 - 00:02 | 3044932 WillyGroper
WillyGroper's picture

I like your perspective, repeatedly.

Fri, 12/07/2012 - 19:28 | 3044289 Roosting Chicken
Roosting Chicken's picture

“Those mob fools want you gone. So they can get back to the way things were. But I know the truth, there’s no going back. You’ve changed things…forever.”

Fri, 12/07/2012 - 19:01 | 3044190 grunk
grunk's picture

"The theory must be viewed through the lens of the law of supply and demand: if money is abundant and goods are scarce, their prices increase and currency depreciates."

Aren't you trying to balance/allocate the effects of two inversely-related variables? If the currency doesn't depreciate (at least ostensibly) the prices of goods increase by a greater amount. You can allow prices to rise to maintain a stable currency.

Given that the Dollar is the reserve currency (for now) the currency depreciation can be controlled. Prices go up but the value of the currency remains the same. Still a de facto depreciation. 

Once you lose control of the currency, prices and currency can come into balance.

Or at least come into reality, which itself may not be a good thing if the reserve status was abused. 

Fri, 12/07/2012 - 19:29 | 3044290 Bohm Squad
Bohm Squad's picture

A colleague of mine calls it "Depressflation".

Fri, 12/07/2012 - 23:38 | 3044883 cranky-old-geezer
cranky-old-geezer's picture



Correct term is inflationary depression. 

Tack "hyper" on the front if it really gets out of hand it will.

Fri, 12/07/2012 - 19:04 | 3044203 steve from virginia
steve from virginia's picture



More hyper-inflationary clap-trap from Zero Hedge ... it just never ends, it is always wrong.


There are multiply causes for inflation and hyperinflation, almost as many different causes as there have been inflation episodes.


The US exited a hyper-inflationary period in 2008 ... w/ residential real estate assets increading in price at the same time supply outstripped demand by millions of units per year across the country. The inflation was confined to the mortage security asset class and did not effect currency. The cause of the inflation was systemic fraud on the part of mortgage finance originators, rating agencies and field underwriters.


If this blog is going to publish economic commentaries the editors should make an effort to put up articles by individuals who know what the fuck they're writing about!



Fri, 12/07/2012 - 22:01 | 3044665 drbill
drbill's picture

Inflation - An increase in money (+ credit) supply, is caused by one thing only. Namely, increasing the supply of money and credit. The cure is simple. Stop inflating the supply! A general rise in prices is simply one of the symptoms of inflation.

Statists, socialists, etc. try to confuse the issue by monkeying with the definition of inflation. Once the people have been sufficiently dumbed down, and no longer even understand inflation, naturally they won't know how to solve the problem and will call for the state to solve the problem. How ironic since it was the state that caused the problem in the first place!

Of all the economic problems, inflation is the simplest to cure. The cure for inflation is to simply stop inflating!

That being said, this cure has never, and probably will never be used. It's simply not in the best interest of those in power.

Fri, 12/07/2012 - 19:08 | 3044220 falak pema
falak pema's picture


FMI: le "mur budgétaire" menace la suprématie des Etats-Unis, selon Lagarde

Pax Americana supremacy now deeply threatened by fiscal cliff non resolution. Markets will start DOWNGRADING the US economy if this carries on!

Caramba, a leading proponet of America's official line in the world, now tells her bosses in DC "time is running out and you will LOSE bigtime if you don't ACT fast..."

Fri, 12/07/2012 - 19:08 | 3044224 JR
JR's picture

Unfortunately, the concepts of inflation and deflation are being trumped by a full scale attack on representative government keyed to banker control but being exercised throughout the country by a Marxist-inspired voter mob.

The “Tax the Rich” cartoon video for the California Federation of Teachers union narrated by Ed Asner is, as everyone knows, all over the internet.

It’s crude, it’s amateurish, it’s untruthful and it transforms the Mary Tyler Moore image of an actor into a bathroom wall joke -- with white rich guys urinating on a diverse population of color.

But no commentary yet has come closer than it has to describing what happened to this nation last November 6, for it pulls back the curtain to reveal the Marxist expectations that the mob has for stealing the private property of the producers.

The “rich” are the target but the mob knows that the really wealthy won’t pay higher taxes, nor would it be enough anyway to satisfy the vast cravings of the public sector unions, of the Third World welfare tsunami, of the endless socialist projects, and of a Leviathan government.

No, the real target for this “rich” label is America’s true middle class—the backbone of her economy---the small businessman, homeowners, retirees with savings, engineers and other professionals.

That’s where the real property transfer can take place and with the mob’s plunderman, Obama, at the free throw line, and with the bankers’ plundererman, Ben Bernanke tapping the U.S. Treasury and transferring wealth via booms and busts, the mob and mobsters see themselves climbing the golden staircase.

Videos like “Tax the Rich,” fortunately, will alert, sicken and shock the true middle class and stop thieves like the union of California teachers from their Marxist mission. In the meantime, these classroom profiteers who have championed open borders and bilingual education and revisionist history above love of country, are molding a generation of future Democrats – youth they’ve set on the road to serfdom.

All have contributed to the Marxist quest to destroy America’s symbol of greatness—the hearth---and the culture that created and protected it.

Fri, 12/07/2012 - 19:51 | 3044360 granolageek
granolageek's picture


I am a 59 year old engineer. Newly graduated colleagues make a CPI adjusted half of what I got in 1976.

Their benefits are a sick joke compared to the 1970s.

This is because the profit of American enterprise has been shifted from actual working employees and stockholders, not to government, but to upper management and banksters.

Fri, 12/07/2012 - 21:17 | 3044562 JR
JR's picture

Obama, for plundering purposes, classifies as “rich” anyone who makes $150,000 or above – even in areas such as San Jose, California, where the overall cost of living is 55 percent higher; where the average engineer's salary is a miserly $115,000 with many work days 18 hours long without overtime.

As to benefits? You’re right; engineers in the private sector have no benefits. Most engineers I know will be working till they die. A company for which I consult is insisting I go full time.  Retirement benefits? Zero!

Yet, unionized Registered Nurse salaries in the San Jose-Sunnyvale-Santa Clara, CA are $110,080; fringe benefits vary depending on business size and other factors.  A typical employment benefits package is worth over $20,000 per year.

FYI, an article entitled Debate Over the Definition of Rich says that when Obama was asked the dividing line between middle class and rich during the presidential campaign in 2008, he replied that it was $150,000, a figure about three times the median family income – a sad limit to the American Dream.

Sat, 12/08/2012 - 00:08 | 3044943 WillyGroper
WillyGroper's picture

So get another job. You want the nurse tending you unable to speak english? Get ready buddy cuz it's here. The contracting for cheaper labor. Ooops, you don't need insulin, quick eat this chocolate. 

Sat, 12/08/2012 - 12:33 | 3045482 JR
JR's picture

I’m not discussing my job in this instance.  But I am referring to the general trend because of outsourcing, immigration, etc., to the movement of American innovative technology to the back of the room. A major center of that technology is Silicon Valley.  Because of my job, I am a witness to this tragedy.

 Destroy America’s engineers and you destroy the American Dream.

Nurses, doctors and care providers would have nothing to provide if not for the continued innovation in medical equipment and procedures and  manufacture of products through chemical processes designed by engineers.

Norm Augustine, retired chairman and CEO of  Lockheed Martin, explains it:

Danger: America Is Losing Its Edge In Innovation | Forbes | 1/20/2011


Norm Augustine: We're falling behind.

I’ve visited more than 100 countries in the past several years, meeting people from all walks of life, from impoverished children in India to heads of state. Almost every adult I’ve talked with in these countries shares a belief that the path to success is paved with science and engineering.

In fact, scientists and engineers are celebrities in most countries. They’re not seen as geeks or misfits, as they too often are in the U.S., but rather as society’s leaders and innovators. In China, eight of the top nine political posts are held by engineers. In the U.S., almost no engineers or scientists are engaged in high-level politics, and there is a virtual absence of engineers in our public policy debates.

Why does this matter? Because if American students have a negative impression – or no impression at all – of science and engineering, then they’re hardly likely to choose them as professions. Already, 70% of engineers with PhD’s who graduate from U.S. universities are foreign-born. Increasingly, these talented individuals are not staying in the U.S – instead, they’re returning home, where they find greater opportunities.

Part of the problem is the lack of priority U.S. parents place on core education. But there are also problems inherent in our public education system. We simply don’t have enough qualified math and science teachers. Many of those teaching math and science have never taken a university-level course in those subjects.

I’ve always wanted to be a teacher; in fact, I took early retirement from my job in the aerospace industry to pursue a career in education. But I was deemed unqualified to teach 8th-grade math in any school in my state. Ironically, I was welcomed to the faculty at Princeton University, where the student newspaper ranked my course as one of 10 that every undergraduate should take.

In a global, knowledge-driven economy there is a direct correlation between engineering education and innovation. Our success or failure as a nation will be measured by how well we do with the innovation agenda, and by how well we can advance medical research, create game-changing devices and improve the world.

I continue to be active in organizations like the IEEE to help raise the profile of the engineering community and ensure that our voice is heard in key public policy decisions. That’s also why I am passionate about the way engineering should be taught as a profession – not as a collection of technical knowledge, but as a diverse educational experience that produces broad thinkers who appreciate the critical links between technology and society.

Here we are in a flattening world, where innovation is the key to success, and we are failing to give our young people the tools they need to compete. Many countries are doing a much better job. Ireland, despite a devastated economy, just announced it will increase spending on basic research. Russia is building an “innovation city” outside of Moscow. Saudi Arabia has a new university for science and engineering with a staggering $10 billion endowment. (It took MIT 142 years to reach that level.) China is creating new technology universities literally by the dozens.

These nations and many others have rightly concluded that the way to win in the world economy is by doing a better job of educating and innovating. And America? We’re losing our edge. Innovation is something we’ve always been good at. Until now, we’ve been the undisputed leaders when it comes to finding new ideas through basic research, translating those ideas into products through world-class engineering, and getting to market first through aggressive entrepreneurship.

That’s how we rose to prominence. And that’s where we’re falling behind now. The statistics tell the story.

  • U.S. consumers spend significantly more on potato chips than the U.S. government devotes to energy R&D.
  • In 2009, for the first time, over half of U.S. patents were awarded to non-U.S. companies. (In 1997, a study of the inventors honored in the National Inventors Hall of Fame in Akron, Ohio, revealed that 91% of the world’s greatest inventors worked in America and only 9% in other countries.) 
  • China has replaced the U.S. as the world’s number one high-technology exporter.
  • Between 1996 and 1999, 157 new drugs were approved in the U.S.  Ten years later, that number had dropped to 74.
  • The World Economic Forum ranks the U.S. #48 in quality of math and science education.

Innovation is the key to survival in an increasingly global economy. Today we’re living off the investments we made over the past 25 years. We’ve been eating our seed corn. And we’re seeing an accelerating erosion of our ability to compete. Charles Darwin observed that it is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change…

Norm Augustine is an IEEE Life Fellow and retired chairman and CEO of  Lockheed Martin.

Sat, 12/08/2012 - 10:45 | 3045358 shovelhead
shovelhead's picture


I suppose the expansion of the labor force and the contraction of job availability have nothing to do with the situation?

The cause of depressed wages is always that ebil-doer business owner sucking on the lifeblood of the proletariat?

Seems odd to me, as a former start up business owner who was prudently counting pennies as self financed , that when I offered a job at a less than competitive rate that I would get no employees and when I increased that rate I had no problem with staffing. The increase in wages meant that I earned no personal income at all but that, I assumed, was paying the cost to be the boss.

Over time, with increases in efficiency and improved sourcing, I managed to eke out an income comparable to my lowest paid employee.

Lucky me.

It took years of growth to finally see a return on my investment as prior to this point, it seemed as if my employees were more like dependents than income producing partners in a symbiotic relationship.

I can't deny that large corporations will extract more labor for less pay in times of scarce profits while claiming larger shares of the pie but the the small enterprises who employ most of America's workforce are guys just like you who are willing to take the risk in time and capital to build something that didn't exist before and try their hardest to provide superior value to their customers. This requires a reliable, competent and properly compensated workforce.

It's the only way they can survive.

This is where new jobs come from so I wouldn't paint business owners with such a broad and slanderous brush because no matter how popular the 'common wisdom' of the evil bloodsucking employer meme is these days, the reality is far different.

Getting a job may be hard but creating a job is much harder and far riskier.

Go hug your boss. He'll appreciate it.

Fri, 12/07/2012 - 19:09 | 3044227 Yen Cross
Yen Cross's picture

  Brilliant people you are.  We aren't talking about the " cause/action" of Fiat... Fiat is like any other tradeable object.

   It's all about probability of replacement/ You can print Fiat and hedge it against (gold-xau)  You can build cities and hedge them against -(currencies of trade)...

  I'm putting the cart in front of the DONKEY,[historically speaking], but you get my jist/

Fri, 12/07/2012 - 19:28 | 3044288 Stares straight...
Stares straight ahead's picture

You say this as if 51% of voters care about the facts!

Fri, 12/07/2012 - 19:36 | 3044310 Yen Cross
Yen Cross's picture

  Back to work/ Foreward North Koreans> New ballistic "KITE" to launch>

  When you get done watching "Fire Cracker", you get in car and go back to work!

Fri, 12/07/2012 - 19:47 | 3044342 are we there yet
are we there yet's picture

Gerardo Coco's article is cogent and correct. The big unanswered question is what the trigger event is and when for currency failure.  My best guess is Commidity based stocks with dividends like EXXON for some, gold silver coin for others (me), food producing assets like active farm land or food producing, retail equities. or australian, or new zealand comodity producing equities. Gold/ Silver is best insurance for quick liquidity in appropriate denominations.

One comment. Historically when a currency begains to fall, it is like a run on the bank. Patience is not a virtue in converting fiat to other assets. I am looking for the early warning sign form the Euro unraveling and the resultant short temporary rise of the dollar to convert. I am also watching for unexpected sudden triggers like false flags, black swawns, or simple revolutions as possible triggers to convert.

Just my thoughts.

Sat, 12/08/2012 - 00:13 | 3044951 WillyGroper
WillyGroper's picture

If ur commodity producing assets like farmland are at hand, you better have them in a place other than the bread basket because the worst drought in 50 yrs. still has a very tight grip. 
Couple that with phosphorus scarcity & just tell me what can you grow? 

Fri, 12/07/2012 - 20:04 | 3044387 shortus cynicus
shortus cynicus's picture

Default eliminates fiat money only if commercial bank is honoring its obligations and is forced to "suck it in and cope" - all created money should be collected back and destroyed by the named bank on its own cost.

But are the doing that? Only for small amounts probably, but once the bank is under water it doesn't care any more and cook books. Cash-Deposits are never lost, they are guarated by government having access to printing press (even in EU).

What gets busted is ilusion of wealth - after default, greedy delusional IOU holders are so scared, that they stop buying flat TVs, witch brings money velocity down, feeling like deflation. That why I find MISH's deflation definition the best I can find.


Fri, 12/07/2012 - 20:20 | 3044424 Yen Cross
Yen Cross's picture

 Relative Strength, does Not define a trend...

Fri, 12/07/2012 - 20:52 | 3044509 alfbell
alfbell's picture

The fact that so many continually argue about inflation versus hyper-inflation versus deflation versus stagflation shows that most don't have any sense of economic basics or the real history of economics. Otherwise there wouldn't be any arguments people would just know what is coming. (I don't claim to know what is coming.)

I recall one economist's answer to the question and I believe it was the most erudite of all answers.

Q: Do you think we'll have inflation or deflation or stagflation?

A: Yes. And a whole lot more.

Fri, 12/07/2012 - 21:08 | 3044528 alfbell
alfbell's picture

I guess it is pretty obvious that the currency will continue to lose its purchasing power as we continue down this path. (Altho, if a massive deflationary phase occurred, it would make cash king... for awhile.)

There may be a black market and barter going on but the only currency that will be workable and general is whatever the government accepts for taxes (and it won't be gold, silver, chickens or beans). They will keep the USD in force until it becomes worth less than toilet paper.

I guess the best thing to do now (so that one can sleep a bit easier, knowing they have some semblance of security) is to buy and own outright a little farmette (that has room for more dwellings so that you can have renters, thus, a little community to support and protect each other... as well as some sort of rental income). If you can grow vegetables and fruits and have chickens for eggs and meat, you can feed yourselves and use the surplus to barter for other necessities. Would be good to have some gold and silver too but not as important as the farmette. (Add to the farmette: a good well; green houses; solar power; guns and ammo; tools.)

Gold and silver could be useless or hard to use if the government confiscates it or messes with it (FDR did and it will happen again in a crisis).

This gold thing could be a trap. True wealth is water, food, shelter, clothes, energy and tools. You can't drink, eat, live in or wear gold. That says a lot.

Sat, 12/08/2012 - 00:15 | 3044955 WillyGroper
WillyGroper's picture

Makes logical sense to me.

Sat, 12/08/2012 - 09:37 | 3045299 jemlyn
jemlyn's picture

Good luck collecting rent from your renters.

Sat, 12/08/2012 - 11:06 | 3045374 shovelhead
shovelhead's picture

No rents silly.

Sharecroppers. Congratulations.

You just reinvented feudalism. Arm a certain segment of your tenants and they become knights to enforce the lords edicts and defend the realm from intruders.

This requires the tenants to provide a larger share of their produce and the grumbling begins.

Keep your eye on the knights because they tend to plot ways of removing you from your position and taking over the realm.

Welcome to the game of thrones. Same as it ever was.

Hot tip: Let the serfs feel as if they have a choice in choosing who the knights are. Keeps em quiet and docile.

Fri, 12/07/2012 - 21:02 | 3044529 blindman
blindman's picture

Richard Wolf On The Crisis In Capitalism
06 December 2012
Darkness Over the Earth
“How far that little candle throws his beams!
So shines a good deed in a weary world.”

William Shakespeare .. jca
Austerity missiles launched from Dail Eireann. Who gains?

Posted on December 7, 2012 by Eileen Dublin

Sat, 12/08/2012 - 05:10 | 3045161 JLee2027
JLee2027's picture

Richard Wolff is a Marxist. Blaming capitalism for current problems, calls it a very unstable system. Just another left wing idiot nutjob who hates America.

Sat, 12/08/2012 - 10:34 | 3045344 blindman
blindman's picture

no. if only it were that simple ...
or maybe the truth is simpler than all that?
| 3016249 Aquarius said ...
" ..All this validates the observation that the West is devolving through natural cyclical evolution where Entropy, the engine of change and evolving consciousness, appears in the form of quantitative complexity in the dynamic state of:

simplicity --> complexity --> qualitative simplicity, and so forth. Or, similarly parallel to the dynamic cyclic progression of:

intellect --> intelligence --> higher intellect.

Yes the engine is the 2nd. Law but it is not linear but cyclic and tuned to music theory in the Golden State of -

quantitative disorder --> chaos --> emergent qualitative order; Chaos is the state of the changing of the guard.

Medium substituted with Money

Take into consideration that all phenomena function in a medium - even in outer space, where we have neutrinos as the medium for Plasma in which electricity runs it's course, sustaining itself with the creation of magnetic fields perpendicular to its path, and thusly feeding energy (electricity is not energy) spontaneously to 'all' within the confined Universe (a leaky capacitor), albeit in 3 modes of intensity expressed in gradients. Yes, the Universe and all within it is electrical; electricity is the blood of the Universe which carries the energy to all entities of the body to be taken as within the human body, to the unique demands and needs of all elements. From ancient texts written by the Races of the defined zodiacally consciousnesses that have preceded this current devolving Race, it is written as "giving to receive so as to receive so as to give" and "As above, so below".


Fiat currency or more precisely, in today's vernacular, "money", has been substituted for the BLOOD of human diaspora; or, the whole of humanity. As such, "money" defines the state of humanity as nothing more than "Waiting to Die" where each individual of the materialistic non spiritual mode, no longer exists, except as the living dead, or Zombies, while imposing upon humanity the need to become of the "collective" in order to survive; feudal insanities, where the collectives feed upon themselves. (See first paragraph)
" ...
wolf is mainly calling for the participation of individuals in the formulation of the structure and
function of their productive lives. if that is an ism
then it needs to be considered because that participation
of the individual in some sort of "production" is in
decay and with it goes the entire civilization and culture. (people). the false notions of money and
finance we have failed to perceive are at the core,
near the core, of the problem.
here another link.
Catherine Austin Fitts-They’re Going to Depopulate or Bankrupt the Rest of Us
( these nut jobs have two wings, one left, one right )
the point she makes is that we accept the existence and
idea that there is a class of people, or group of
people among us who can kill with impunity and then
there is the rest of us. and we accept that without
a thought , a protest or objection. if we accept
that what will we not accept? we have a values
problem and marx didn't do it.

Fri, 12/07/2012 - 21:42 | 3044607 Tom Green Swedish
Tom Green Swedish's picture

Here is a chart of average tax per household since the 70's. Look familiar? Yes its almost the exact same pattern of the S&P 500

Here's a chart of USA Federal Spending as percent of GDP since 1900. Notice is has been rising dramatically since 1900

Here's a chart of average tax revenues as percentage of GDP since 1950. Something Strange? Yes the average tax revenue per GDP doesn't deviate from 18 percent, yet government spending is now over 40 percent of GDP. Take a look at the projected tax incomes per GDP now and projected. We are at a WW2 post war low, yet spending is almost 3 times as much.

Here's a chart of the USA tax revenue collected as percentage of GDP. It says the USA collects 24 percent of GDP which contradicts the other chart but we still collect much less than other developed nations.

PHD Thesis for Dummies:

When income tax collected as a percentage of GDP peak or rise substantially, expect the market to tank. Expect higher taxes in the coming years, so expect the market to tank when the tax revenue goes down after it has risen sharply. Furthermore income tax rates although as a percentage of GDP have not historically risen or dropped below between 15 - 20 percent we are still taxed more per household, which is causing the market to fluctuate and go nowhere. The government is spending too much money and taking too much money for us to grow, which is not quite fair for generation x. I could use the extra 4000 dollars a year myself personally and I'm sure every other working person could too, so lets go back to the 1970 rate. To do this we must cut spending by 50 percent. Thank you for your time.

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