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Inflationary Deflation: Creating A New Bubble In Money

Tyler Durden's picture


Excessive monetary stimulus and low interest rates create financial bubbles.

Seymour Pierce's Thunder Road report notes that:

Central banks are creating the ultimate bubble in money itself, as they fight the downward leg in this Long Wave cycle. This is the biggest debt bubble in history. Each time deflationary forces re-assert themselves, offsetting inflationary forces (monetary stimulus in some form) have to be correspondingly more aggressive to keep systemic failure at bay. The avoidance of a typical deflationary resolution of this Long Wave is incubating a coming wave of inflation. This will not be the conventional “demand pull” inflation understood by most economists. The end game is an inflationary/currency crisis, dislocation across credit and derivative markets, and the transition to a new monetary system , with a new reserve currency replacing the dollar. This makes gold and silver the “go-to” assets for capital preservation.


Strategically, we are far more bullish on equities versus bonds. Tactically, equities face a volatile period - buffeted by alternating cycles of deflationary and re-flationary forces until they overcome bonds as the inflationary endgame unfolds. In that scenario, equity investments should (over time) be aligned with the growing share of real disposable income directed towards essential expenditures, including energy, food/agriculture, personal & household care, mobile telephony and defense (for governments).


The “Inflationary Deflation” paradox refers to the rise in price of almost everything in conventional money and simultaneous fall in terms of gold.

Full report below...

Thunder Road - December


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Mon, 12/10/2012 - 12:19 | 3048718 idea_hamster
idea_hamster's picture

"Inflationary Deflation," "Bi-flation," etc. -- all basic failures to understand the differenc between inflation and changes in relative prices.

Relative prices change all the time, and can coincide with inflation.  Doesn't make them the same.

(Haters gonna junk -- sorry to bear bad news.)

Mon, 12/10/2012 - 12:28 | 3048731 Landotfree
Landotfree's picture

I have no idea what they are talking about in that paper.  The paper is one more of looking at the symptoms instead of the problem.   There is some truth to the K-winter based on the equation used for the system ie interest... basically 60-80 years... or a generation.

1.)  the system is credit, which is used as money but is not money 2.) the credit system ie what is being used as money is barely going up at all 3.) the system is lacking almost $20T worth of credit that should be there 4.) there is not much else the Fed can do as they were not created to stop the collapse, they are just there to prolong the period of collapse as long as possible... as it is impossible to keep a ponzi scheme going long-term due to Math

What is next...

1.) next peak, then result collapse

2.) unable to stop or contain... collapse continues

3.) hit max potential on the way down

4.) liquidaiton of the non-performing liabilities

My guess 1-2 billion non-performing liabilities will have to be taken off the books.  Rinse and repeat the same system just like the prior 5,000 years.  If nukes are used 7+ billion could be taken off the books.

Mon, 12/10/2012 - 12:43 | 3048794 Seer
Seer's picture

Yeah, it really isn't hard to figure out, is it?

"it is impossible to keep a ponzi scheme going long-term due to Math"

Exponential growth, that's what Ponzis are based on.

Sadly, people don't get it that the issue is MUCH worse than this being just some sort of "money" problem.  Money rides on top of physical resources.  People WANT it to be a "money" problem, as they don't want to contemplate what "lack of resources" will mean.

Slinky down the staircase.  This time, however, we won't be coming out of it riding on the back of growth (with 7+ billion people it ain't happening).

Mon, 12/10/2012 - 12:53 | 3048821 Landotfree
Landotfree's picture

Exactly, the problem is very simple, people have an incentive to ignore it.   

You have to have exponential growth forever to avoid huge collapse, and that can be on the supply or demand side, it need not matter. At least as long as you attach interest to your medium of exchange.

7 billion will have to be cut down drastically, I would not be surprised if my 1-2 billion call is not off by 1-2 more.  Without large population growth it's a pipedream, even with it you are coming to the end of this cycle.

Nice post!


Mon, 12/10/2012 - 12:59 | 3048848 catacl1sm
catacl1sm's picture

Georgia Guidestones recommend 500 million.

Mon, 12/10/2012 - 13:06 | 3048869 Landotfree
Landotfree's picture

It's a guess on my part not a wish.   I had never heard of that before just looking it up.   :)

All 7+ billion won't make it once the credit system goes.  

Mon, 12/10/2012 - 13:55 | 3049035 redpill
redpill's picture

Negative savings rate = lack of ability to buy gold and hedge against the crisis.  This is why most of the western world is fucked.

Mon, 12/10/2012 - 14:15 | 3049103 JKearney3153
JKearney3153's picture

Negative savings rate? What savings? The Proletariat are living paycheck to paycheck on two part time jobs. $10 American eagle gold coin or 6 months of groceries???

Mon, 12/10/2012 - 14:47 | 3049182 MachoMan
MachoMan's picture

Right, but this hasn't always been the situation...  it's only the situation after decades of apathy.  Now, when the bill comes due and there is a desire to squirrel away nuts for the winter, it's too late.

At this point, I would scrap the PM idea (if you cannot afford to purchase them) and simply focus on learning useful skills (presently employable helps; and yes, there are still jobs out there).

Mon, 12/10/2012 - 17:33 | 3049822 Panafrican Funk...
Panafrican Funktron Robot's picture

Buying up shooters (of the small bottle of alcohol variety) is a relatively inexpensive way to obtain some "savings" in a relatively fungible barter product.  

Mon, 12/10/2012 - 14:20 | 3049115 Landotfree
Landotfree's picture

Savings rate has nothing to do with why the system is going to collapse.   The credit system must expand exponentially or collapse or on the edge of collapse.

It's a one way system with a limited length in time till it goes off... usually 60-80 years or a generation on the max side.

Although saving what you harvest for the winter is a good idea, this does not coorespond to a system based on interest... the system must be supplied exponential growth.  

Mon, 12/10/2012 - 14:32 | 3049143 redpill
redpill's picture

Not entirely true, but regardless I did not bring up the negative savings rate as a cause for collapse, I brought it up as a reason why people in the western world are fucked because they will not have any resources to help them during the collapse.

Mon, 12/10/2012 - 15:06 | 3049237 Ookspay
Ookspay's picture

500 million? Who's gonna run all of the cool tourist spots and stuff?

Mon, 12/10/2012 - 15:00 | 3049221 eclectic syncretist
eclectic syncretist's picture

The recent collapse in trading volume, which is in much evidence again today, seems indicative of a collective loss of confidence in market function.  It's as if everyone is just sitting around waiting for the collapse to happen, but it still hasn't happened yet because the Fed has broken the markets in order to prevent it.  WTF kind of crazy mess is this?

Mon, 12/10/2012 - 12:25 | 3048740 Bay of Pigs
Bay of Pigs's picture

Call it whatever you want. Currency debasement works too.


Mon, 12/10/2012 - 12:30 | 3048760 Ham-bone
Ham-bone's picture

Currency in da basement?  I prefer the shiny stuff in da basement.

Mon, 12/10/2012 - 14:12 | 3049089 max2205
max2205's picture

LOng cigs and lighters...buba

Mon, 12/10/2012 - 14:10 | 3049080 daxtonbrown
daxtonbrown's picture

Bernanke has created a Biflationary depression, the logical outcome of money debasement. Debasement causes upward pressure on things you need, but collapses money velocity leading to collapses in wages and assets. The worst of all worlds, inflation AND deflation.


Mon, 12/10/2012 - 12:39 | 3048784 Ookspay
Ookspay's picture

Hamster, So you have adopted the liberal progressive line that anyone who disagrees with you is a hater?  One of my pet peeves is people who play that card in a weak attempt to stifle dissent. Come up with a new more robust way to defend your views and opinions. BTW I didn't junk...

Mon, 12/10/2012 - 13:00 | 3048845 idea_hamster
idea_hamster's picture

The substance of your comment is probably correct -- in hindsight, my statement may have served a chilling function, so was likely a poor choice.  I'd edit it out, but can't any longer.

You should probably have junked, and then just said, "I junked, but because I disapprove of your rhetorical style" -- that'd be fine.  In fact, you can still do so.  Thanks for the perspective.

However, as for the idea that "liberal progressives" have a monopoly on closed-minded group think?  Color me highly skeptical -- I would suggest that knee-jerk denial of sentiments contrary to one's own is a much more pan-human reaction than most people think.  Which is to say, it's an equal opportunity character flaw that runs the political spectrum.  I try to do my best to guard against it in myself, and likely fail more often than I'd like.

(BTW, I'm going to + your post.)

Mon, 12/10/2012 - 13:28 | 3048937 Ookspay
Ookspay's picture

Hamster, Normally I enjoy and agree with many of your posts, Your inflation relativity thingy I just don't quite get. Perhaps I fried too many brain cells this weekend.

As far as the hater comment, I never said that lib progressives have a monopoly on group think. But I do believe that they try to manipulate and control speech and thought by trying to put people on the defensive by labeling them haters, racists, bigots and the like when they disagree, it is a standard tactic of cowards and wimps. You are not a coward or a wimp, try to avoid that is all I was saying.

Cheers - Ookspay

Mon, 12/10/2012 - 13:51 | 3049024 idea_hamster
idea_hamster's picture

So inflation is an over-all rise in the price level of all goods and services in the economy.  Changes in relative prices are just that -- one price goes up, and another down.

Certain commodities, like oil, are an input in so many products and at so many stages of (what Austrian economists call) round-about processes, that a rise in oil prices often feels like inflationary pressure beacuse so many actors simulataneously try to pass on input price increases.

But it's not.

If the money supply were stable, the rise in oil prices would work its way through the economy, with the outcome being (for instance) a partial retreat in the oil price, a retreat in prices of some non-oil intermediary goods, and a rise in others.  The overall price level would not change, although the relative prices of goods and services would likely be different.  

When people talk about "bi-flation," the idea of inflation in certain items and deflation in others (most common combo seems to be food/energy rising and housing falling), the rising prices are not (necessarily) inflation.

Inflation is when overall, all prices rise.  This is only possible when the balance of money vs. goods/services changes, most commonly through government money printing.  However, inflation can also occur when the money stock is stable and the goods/services contract, as in a city under seige.

Mon, 12/10/2012 - 14:06 | 3049067 crusty curmudgeon
crusty curmudgeon's picture

Yes, yes..all established long ago (by Coase, I believe?) and well known by Austrians. But meaningless in today's environment.  This time, you even identified the relevant premise:

"If the money supply were stable..."

That's a good one.  You were saying?

Mon, 12/10/2012 - 15:03 | 3049230 idea_hamster
idea_hamster's picture

Not suggesting the money supply is/was/will be stable -- in fact, it changes all the time.  My point was that things that are often characterized as "inflation" are not necessarily so.

Using a ceterus paribus arguement has somehow gotten a bad name in econ, but it's the basis of all our conversations on cause and effect.  As Jeff Hummel once noted, if I asked you what would happen if you turn the volume knob up on the TV, your answer of "it gets louder" implicitly assumes that I'm not pulling the plug out of the wall.

Just because we're talking about a partial derivative doesn't make the arguement invalid.

Look up Jeff Hummel -- easily the smartest guy in the room. Seriously.

Mon, 12/10/2012 - 14:09 | 3049082 Ookspay
Ookspay's picture

Thanks for the further explanation, I needed that... Some of this stuff here on ZH is way over my head, I think I'm in about the third grade, But I'm getting there. The whole idea of a central bank trying to control inflation and behavior by extension through interest rate manipulation kind of pisses me off. Perhaps when I better understand it it will not seem so insidious, or maybe more so. We're all good Ham!

Mon, 12/10/2012 - 14:24 | 3049129 FreeMktFisherMN
FreeMktFisherMN's picture

Inflation is the increase in the money supply. That is what the old Webster's dictionary used to say. Rising prices are a result of the inflation. But like in the 'Roaring 20s', despite all the productivity gains, prices remained stable. This is where inflation created by the Fed kicked in again, as prices should have fallen commensurate with the increased (valuable) supply, but instead stayed too high. Then the bubble burst and of course Hoover made it even worse via protectionism and socialism. 


Inflation is rampant right now. Its effect of skyrocketing prices is just waiting to be unleashed, even further beyond the current high rate of price levels going up as measured by Williams at Shadowstats. 

Mon, 12/10/2012 - 14:47 | 3049181 Ookspay
Ookspay's picture

Thanks, Keep the tutorials coming ZH'rs.

Mon, 12/10/2012 - 15:08 | 3049244 MachoMan
MachoMan's picture

Changes in prices of goods and services do not necessarily have anything to do with changes in the money supply...  correlation is not causation. 

Trying to find some aggregate or average of price increases as a definition for inflation or deflation is a complete misnomer...  just focus on the money supply and be done with it.  [think why CPI is completely worthless]

Mon, 12/10/2012 - 16:08 | 3049494 NidStyles
NidStyles's picture

If all goods and services are counted then yes it does. If you are referring to CPI as counting all goods and services then the error lies there rather than in whether or not you should count the pricing of goods and services.


I do a base calc of taking the estimated money supply and dividing it by the populace of it's potential holder's. So you figure about so many Trillion divided by about 400 Million at any one time. Then toss in the regression of the GEOMETRIC exponential function for every dollar with a given spread of time. Then you get an accurate idea of what the real rate of inflation is. It's not 2%, it's a bit higher lol!

Mon, 12/10/2012 - 16:38 | 3049588 MachoMan
MachoMan's picture

CPI does not measure all goods and services...  it's merely a shitty composite and manipulated to hell...  we all know this...

However, as to your other thesis...  Even if you take into account the price changes of all goods and services, you're still left with, at the very least, latent inflation or potential inflation energy.  In other words, where is that money sitting in bank reserves going to end up?  You could say that it's not inflation, but I think that would be disingenuous...

The other issue, presuming you are claiming that when there is an increase in the prices of all goods and services, there must be inflation...  I'll posit that this is not even measurable...  not only for the world, but even a single country...  hell, even a state, county, or city.  Hence MIT's billion price project, et al...  which is anecdotal at best.

Price changes are simply a possible effect...  not a cause...  and really not anything worthy of focus...  the focus should be the supply itself (which is also incredibly difficult to measure when credit is money and everyone is hell bent on obfuscating virtually every economic metric, but it's easier to determine than the price of all goods and services in the economy as well as their historical counterparts). 

Mon, 12/10/2012 - 17:58 | 3049896 Panafrican Funk...
Panafrican Funktron Robot's picture

Along those lines, for the period 1/1/1952 - 9/1/2012:

Population has increased x 2.01.

The money supply has increased x 74.79.

Inflation, bitchez. 

Mon, 12/10/2012 - 18:01 | 3049905 Panafrican Funk...
Panafrican Funktron Robot's picture

More fun with math:

From 9/1/2008 - 9/1/2012, the population has increased 3.07%.  The money supply has increasd 279%.  LOL.

Mon, 12/10/2012 - 15:01 | 3049225 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Thx FreeMarketFisherMN (and ZH braintrust)

Is it because the USD is a reserve currency therefore held around the world in large amounts that we have not seen the actual money supply growth come home to roost and therefore some price suppression has been maintained, ‘while the clown keeps the plates spinning’ ?

I mean we have seen healthcare costs increase YoY @15%+ as well as food stuffs +50%

Mon, 12/10/2012 - 15:40 | 3049320 MachoMan
MachoMan's picture

take your observations and form your own thesis.

You have quite a few reasons for the mitigated price increases (note: not necessarily inflation) that are all interconnected: (1) money multiplier/money sitting in deposits; (2) outsourcing of manufacturing/trade deficit; (3) deleveraging (albeit virtually entirely forced after default); (4) stagnant wages (although somewhat still mitigated by availability of credit); (5) cost of local food production relative to wages; and (6) demographics (aging population, etc.).

If you track the cycle of those reserve notes, then I think you'll likely find plenty of american (and canadian) farm land/RE and businesses being purchased, which increases the price... 

[PS, I'll posit all of this is simply cost push inflation...  not bi-flation, not any other flation...  this is why the "rising tide" is so peculiar about the ships it rises...  it's an increase in the money supply without any demand for the increased "money"].

Mon, 12/10/2012 - 15:31 | 3049329 FreeMktFisherMN
FreeMktFisherMN's picture

I'm just clarifying the view I believe is true of inflation--also held by Austrian school--that the increase in the money supply is inflation. QE and frac-reserve banking, for instance. 


Certainly the USD world reserve currency has tons of inertia, but this won't last. China will either not put up with the debasement of their holdings and refuse to buy our debt, or their citizens will uprise as they deserve to enjoy the fruits of their labors instead of exporting it and importing inflation. Contracts are being secured for oil bourses that do not need the petrodollar intermediary. I just wrote a paper on all this for my int'l relations class about China's ascent. 


There simply is not enough production in this country. 'Growth' that is valuable cannot be deduced from 'GDP.' GDP is bogus. Same goes for China with its notorious ghost cities, but they are producing, and they are producing what the world wants as shown by their trade surpluses. They're not doing that for nothing, either. They will continue to gain more power, and I think ultimately they'll go with the BRICS and form trade networks where there are better opportunities. 

Mon, 12/10/2012 - 15:47 | 3049383 MachoMan
MachoMan's picture

I'm just clarifying the view I believe is true of inflation--also held by Austrian school--that the increase in the money supply is inflation.

This is the only view.  Every other has been completely proven ridiculous at this point.  Changing what the measurement metrics incorporate as price increases does not actually mitigate increases in the money supply...  Further, solely focusing on price changes ignores other supply/demand functions that may be playing a more important (total) role in those price changes.

Mon, 12/10/2012 - 16:11 | 3049503 NidStyles
NidStyles's picture

As I replied to you above sir. It's you measuring stick that is broken not the methodology behind measuring.

Mon, 12/10/2012 - 15:13 | 3049263 idea_hamster
idea_hamster's picture

Few points:

Inflation is the loss of purchasing power, i.e., the rise in prices.  The money supply can grow concurrent with a rise, fall or no change in the price level.

In the 20s, the population of the US was growing, which is, in fact, deflationary.  This was offset by the growing money supply as the Fed monetized gold inflows from US exports, which kept the price level stable.  

The "bubble burst" is a modern term that's thrown about a bit too freely, IMHO.  What happened was that the Fed decided to stop monetizing the inflows of gold from US exports.  That led to sharp deflation.

Hoover did make it worst through protectionism.  Socialism?  I'm not so sure.

IMHO, inflation isn't rampant right now, but is likely understated in official figures.  The reason is that the growing Fed money supply is offsetting the falling shadow banking industry.  ZH does a good graph on this elsewhere.

Mon, 12/10/2012 - 13:54 | 3049031 Snidley Whipsnae
Snidley Whipsnae's picture

I Hamster... " Which is to say, it's an equal opportunity character flaw that runs the political spectrum. "

I believe what you are referring to in this sentence is human nature and it definitely is pan human. In addition, it has no time constraints and is therefore an excellent constant to keep in mind when reading 'history'. If a 'historical record' does not pass the human nature smell test it is usually revisionism.

btw... I didn't have a problem with your original post.

Mon, 12/10/2012 - 21:39 | 3050514 StychoKiller
StychoKiller's picture

EVERYONE has a vested interest in perpetuating the status quo, something as simple as hot water, indoor plumbing or electricity, for examples.

Mon, 12/10/2012 - 13:38 | 3048970 WhiteNight123129
WhiteNight123129's picture

The traditional view is that CPI and wages correspond typically, but not during money printing. Fullarton 1844 explains the money printing is like bringing more Gold cargo for spain or conventional money (fiat).
Relative price structure can go up while economy crumbles in real terms, there are many many many examples of that. While prices of everything was going up in prices during hte Assigants period, the wages were stagnant (White 1875).

The CPI because of hte substitution effect actually measures wages not inflation. If the consumer is contrained with his budget he will switch evidently, not by choice but out of necessity. So replacing steak by hamburger is due to the fact that the consumer will squeeze whatever he can afford to purchase, he will not be able to afford the old item but will switch to the new. This is the basic lie of CPI substitution, which ends measuring wages instead of measuring prices....

So if your definition of inflation is increase in wages, you are correct there is no inflation. But if you definition of inflation are prices then you are at a loss, and you have to understand the mechanics of money printing on prices.

Finally you could measure the Dollar denominated in Tobacco since processed tobacco is the least variable commodity, the volatility is minuscule outside the trend. The demand is very stable and supply is very stable, so the USD has plunged 25% against processed Tobacco in the last 3 years. That is interesting given that the total production of electricity per inhabitant in the US is lower than its April 2009 level.

Processed Tobacco was very stable between 1950 and 1971, actually 2% increase during the whole period. But then it is a continuous upward slope very well fitting M1. In the 1990s, processed tobacco was flat for a while.

So the CPI measures wage inflation and typically there can not be price increases without wages increases. However that happened many times during money printing. A situation of real economy plunging stagnant wages yet higher prices. I know it is puzzling, but you should read White from 1875, it talks about Qe1 QE 2.... QE4, dead-ceiling debate and the fact that the French though impossible to repeat the mistake of hte Mississipi hyperinflation because they were a new smart nation and not an absolute monarchy and as such it would not happen.

Also they talk about the resistance to QE1 but then easier and easier and more people calling for stimulus. It fits very well the US of today even in the GINI index rising, the extravagant and large wealth created for speculators while the rest of the country starves, the need to send people to war as a way to deflect attention, the interest of the bankers. Money printing has always and always the same characteristics.

I guess people in 1791 in France looking at stagnant wages would ahve claimed that there were no inflation and that the price rise of everything was due to change of relative price. And they were right, the relative price is that the currency plunges, the increase of price has nothing to with higher wages and excitement of trade, (Fullarton 1844). As Dalio points out, the multiplier is bogus, ex post data. That is why people can not understand how a commodity with dismal change in demand and supply keeps rising since 1970. Actually between 1950 and 1970 tobacco increase in demand was much more robust yet prices were flat. This is the mechanics of conventional (fiat money) or constantly increasing Inca Gold supplies.... Nothing to do with excitement of the trade.

I do not bother me if the relative price of the dollar is lower, I do not hate, so far I benefit from it, but it should bother the ones  holding those dollars.

For now we have monetary debasement, next we might have finally wage increases in the US which would fit your definition of inflation. Now if at the same time terms of trade get better you can have both inflation and a currency strengthening. If you think it is impossible you should check the level of inflation, FX and terms of trade for Brazil between 2009 and end 2011.





Mon, 12/10/2012 - 14:36 | 3049157 Roosting Chicken
Roosting Chicken's picture

Translation:  After the government screws you, have a cigarette.

Mon, 12/10/2012 - 14:08 | 3049071 Stoploss
Stoploss's picture

What no one realizes is that when the inflation hits, it will be so violent, and fast, it will cause an inverse reaction reinforcing the deflationary forces, because the cost of anything will be out of everyone's reach, which results in everyone having nothing.

Deflation results in everyone having nothing..

Massive global hyperinflation results in everyone having nothing.


Are any lights coming on yet???

Mon, 12/10/2012 - 14:15 | 3049084 cranky-old-geezer
cranky-old-geezer's picture



"Inflationary Deflation," "Bi-flation," etc. -- all basic failures to understand the differenc between inflation and changes in relative prices.


Inflation and deflation are monetary terms, not economic terms, not price terms.

You can't have inflation and deflation at the same time.  Inflation means the currency is losing value.   Deflation means the currency is gaining value.   You can't have both at the same time.  No, there's no such thing as "biflation" nor "inflationary deflation". 

So their fancy looking report is just more bullshit, like many fancy looking reports these days.  They don't even understand basic monetary terminology. 

Mon, 12/10/2012 - 14:16 | 3049109 fonzannoon
fonzannoon's picture

Paging caviar emptor....please pick up the white courtesy biflation phone....

Mon, 12/10/2012 - 14:54 | 3049190 Caviar Emptor
Caviar Emptor's picture

ok ok, don't rush me.

Yes, Virginia, there is biflation. It's the long-term outcome of an accumulation of short term fixes and ploys, all of which were aimed at creating inflation "fixes" or buffers over the course of the last 40 years: Petrodollar, transnational outsourcing (aka "opening up China" and "free trade"), supply-side stimulus, shadow banking etc etc...

Now the chickens come home to roost into a perfect storm: the reserve currency is toilet paper just at a time when 7billion mouths are screaming to be fed. It was used to create chronic, massive overcapacity. But it's buying power for critical resources and inputs is dropping daily.

Mon, 12/10/2012 - 15:53 | 3049416 MachoMan
MachoMan's picture

Why can't all of this simply be explained through cost-push inflation?  [aside from the inherent notion that bi-flation is impossible given the money supply can't expand and contract at the same time]

Mon, 12/10/2012 - 17:44 | 3049858 cranky-old-geezer
cranky-old-geezer's picture



Interesting.  Pushing your "biflation" bullshit with purely anectdotal evidence ...cause there's no way to support it with real evidence.

Currency can't gain value and lose value at the same time. 

Mon, 12/10/2012 - 19:28 | 3050119 Oquities
Oquities's picture

the US dollar lost value against gold while simultaneously gaining value against residential real estate.  it likewise lost value against oil while simultaneously gaining value against natural gas. 

Mon, 12/10/2012 - 21:57 | 3050546 StychoKiller
StychoKiller's picture

In Flatland, there was much consternation when a 3-dimensional object intersected with the Flatland plane.  Consider that the amount of currency in circulation is only ONE dimension of a multi-dimensional problem...

Mon, 12/10/2012 - 12:18 | 3048721 Glass Seagull
Glass Seagull's picture

"Economic longwaves!!?!  HA!!  No such thing!!" exclaimed Bernanke as his eyes nervously darted to the area on his bookshelf dedicated to longwave theory.

Mon, 12/10/2012 - 12:21 | 3048732 TheSilverJournal
TheSilverJournal's picture



"The “Inflationary Deflation” paradox refers to the rise in price of almost everything in conventional money and simultaneous fall in terms of gold."

This has been going on for 80 years. Of course the counterfeits are going to be worth less than the real thing.

Mon, 12/10/2012 - 12:46 | 3048809 narnia
narnia's picture

Gold & silver go down with every defaltionary collapse, as they will with the next one- before the deposit insurance motivated recpaitalization.

Theres collateral value x and credit pledged on that collateral of 30x.  What you should mean to say is that gold to beer will stay constant irrespective of what happens to the collapse of this leverage.

Mon, 12/10/2012 - 14:30 | 3049140 TheSilverJournal
TheSilverJournal's picture

Gold to beer will way up, at least by six times when currency collapses. There will be a rush into gold as life long savers try to salvage something and try to keep from being completely wiped out in the carnage.

Silver, on the other hand, is set to rise at least 30X from here.

FDIC recapilization? The FDIC has didly with respect to the amount that amount of recapitalization that is needed. Deflationary collapse? At this point, any deflation will cause the banks to go bankrupt and now it's if the inflation doesn't increase, the banks will go bankrupt.

Mon, 12/10/2012 - 17:31 | 3049813 narnia
narnia's picture

the only thing that will change the relationship of gold & silver to beer is a central bank going to a gold and/or silver standard & applying an arbitrary value greater than a market value & people accepting that bullshit.  central banks have a lot of gold & they expect people to fall for it & allow them to keep control of the currency.

the banks will go bankrupt no matter what the Fed does.  look at Japan for God's sake.  

the cascade will be fast.  people with quickly appreciating cash may "panic into gold & silver" on the great credit implosion.  the problem with your scenario is, there isn't enough actual cash to provide the result you expect.  you can't initiate a transaction during a bank holiday & what self-respecting silver seller is going to take a check in that scenario?



Mon, 12/10/2012 - 19:10 | 3050069 TheSilverJournal
TheSilverJournal's picture

Something will be "quickly appreciating" and it surely won't the fiat currency of a country that's printing printing like a madman and well over the bankruptcy cliff and is about to look down. The mad "dash-to-cahs" scenario already happened in 2008 and the destructive acts taken since then make it impossible for a 2008 PART II to occur. It will be like...well it won't be like anything because worldwide fiat collapse has never before occured.

Beer has been going up in price since the creat of the Federal Reserve. All throughout that part, if we were on a gold standard, beer should have been going down in price due to advancements in technology leading to increased productivity of making beer. When fiat collapses, those gains in technology will be realized and beer will be cheaper than it was in 1913...measured in terms of gold.

Remember, back then, $1 was literally 1/20 of an oz of gold. Now $1 is 1/$1700 of an oz of gold. Everything has been getting cheaper in terms of gold and will do so at a much faster pace now that fiat is in it's final moths or years.

Mon, 12/10/2012 - 12:24 | 3048737 Silver Garbage Man
Silver Garbage Man's picture

Lets get this overwith already. I'm all in and prepared my family for this reset and I'm getting tired of all these games to prop up a dying fiat system.

Mon, 12/10/2012 - 12:36 | 3048776 Ham-bone
Ham-bone's picture

patience...patience - Rome wasn't destroyed in a single day either.

Mon, 12/10/2012 - 12:26 | 3048742 LawsofPhysics
LawsofPhysics's picture

What utter horseshit.  Food and energy costs do fucking matter as you need these to actually do anything.  Purchasing power and wages also matter.  The whole "flation" debate is pointless, but somehow paper-pushers still get paid to release worthless fucking reports of no real value.  Same as it ever was (at least until the supply lines break).

Mon, 12/10/2012 - 12:30 | 3048757 1835jackson
1835jackson's picture

“With a new reserve currency replacing the dollar” HAHAHAHAHAHAHA yeah right. The elite's will kill us all before that will ever happen unless of course it's their reserve currency.



Mon, 12/10/2012 - 13:11 | 3048766 LawsofPhysics
LawsofPhysics's picture

correct.  Unless of course the new currency is backed by gold, and in order to do that in realistic terms of those who actually hold physical money (gold) and the available goods and services, they would have to either kill a significant number of us or get the vast majority of the world's population to accept debt slavery.  Very clear to me that they are working on both.

Let me say it again - go long black markets and anything of physical value that cannot be devalued by the central banks.

Mon, 12/10/2012 - 13:37 | 3048968 MachoMan
MachoMan's picture

Let me say it again - go long black markets and anything of physical value that cannot be devalued by the central banks.

Our monetary policy has already done this for the prudent...  the entire concept is to get people to purchase things given a devalued dollar...  and, in the FED's defense, most things we buy are largely worthless/quickly depreciating.  However, not all of the meat finds its way into the grinder...  for those people who are prudent, they've been converting the ethereal currency into real goods and services, e.g. those with utility and that will provide use regardless of the underlying conditions in a future economy (or lack thereof).  In other words, you can lose 10%/year to inflation or you can buy something that can sustain you and offer you a way to earn a living in the future or, alternatively, something that will be valuable to others (these things are going up in price, which would suggest like minded people behaving similarly).

Definitely sound advice LoP.

Mon, 12/10/2012 - 14:03 | 3049062 Snidley Whipsnae
Snidley Whipsnae's picture

LOPhysics... In addition there is the question of the dollar's ability to continue to purchase Mid East oil and cause other soverigns to seek dollars to settle oil trade.

This decision may rest on SArabia's decision regarding who will provide ongoing protection to the elite of SA and prop up the House of Saud.

It seems that Turkey is proving that oil settlement can be carried out in real money... gold.

Interesting times.

Mon, 12/10/2012 - 14:12 | 3049087 LawsofPhysics
LawsofPhysics's picture

Yes, many "generational contracts" are about to get re-negotiated.   Interesting times indeed.  The spread of world wide civil war when the credit system collapses is not an unrealistic prospect.

Mon, 12/10/2012 - 14:20 | 3049117 Shell Game
Shell Game's picture

The main quandry ahead for the credit-elite is the global exodus to PMs.  If the US has been net sellers of gold for the past two decades, which I believe they have been, they will confiscate foreign gold held in NYC vaults (e.g. Jim Rikards' warning).  Unless Ft. Knox is full to the brim... (lol!)  Oh, the nasty times ahead..

Mon, 12/10/2012 - 14:42 | 3049170 cranky-old-geezer
cranky-old-geezer's picture



They really have painted themselves into a corner. 

Without gold & silver backing USD will keep losing value, losing reserve status eventually. 

If they announce gold & sliver backing it would be astronomical, like $70,000/oz for gold. 

Anything less would pull all the hidden dollars out of the shadows and we'd find out there's really $50 trillion out there, not $10 trillion. 

Mon, 12/10/2012 - 14:41 | 3049172 Roosting Chicken
Roosting Chicken's picture

IMF currency.  That's the point of crashing the dollar in the first place.  They know what they do.

Mon, 12/10/2012 - 12:33 | 3048763 earleflorida
earleflorida's picture

quite analogous to the 'cdc'-flesh-eating-virus-phenomenum [created in u.s. bio-terrorist chem lab's], where the virus mutates faster than the antibiotics can catch up, thus eating its victim alive.

were fuck'd!

Mon, 12/10/2012 - 12:40 | 3048789 BrettFavre
BrettFavre's picture

what a colossal waste of time - i want my 5mins back that i wasted browsing through this report..

Mon, 12/10/2012 - 16:19 | 3049534 NidStyles
NidStyles's picture

Eat your losses. You deserve them.

Mon, 12/10/2012 - 12:46 | 3048804 Mr. Hudson
Mr. Hudson's picture

Throughtout history, governments have created "deflation" to prevent hyper-inflation, but to no avail. This is the beginning. We will see wage and price controls, and deflation only on non-essetial goods, and continued inflation on essential goods.

Mon, 12/10/2012 - 12:49 | 3048817 LostAtSea
LostAtSea's picture

Zimbabwe coming soon to a US Treasury near you:   Serious consideration given to the idea of a Trillion Dollar Coin:

Mon, 12/10/2012 - 13:24 | 3048924 IridiumRebel
IridiumRebel's picture

I'll take 16 please! 

Mon, 12/10/2012 - 13:26 | 3048928 Beam Me Up Scotty
Beam Me Up Scotty's picture

Talk about VooDoo Economics!!

Mon, 12/10/2012 - 12:52 | 3048823 BalanceOrBust
BalanceOrBust's picture

So, if prices are falling because of lack of demand, but rising because of currency debasement, does that make everything okay?

(This is a trick question.  The answer is no.)

Mon, 12/10/2012 - 14:56 | 3049134 cranky-old-geezer
cranky-old-geezer's picture



"inflationary depression" is the answer.

"inflationary" is the monetary part, currency losing value, pushing prices up.

"depression" is the economic part, demand dropping off from declining real wages, pulling prices down.

It can result in stable prices if the two opposing forces are in equilibrium. 

And tack "hyper" on the front if it really gets out of hand it might.

Mon, 12/10/2012 - 13:04 | 3048859 game theory
game theory's picture

Meh...lots of biggish words and elaborate writing just to sell client services.  So many people think the printing now results in inflation that is to be...but its mainly for the inflation that was here and is now exported over there. Metals/houses/stocks...all stuck; farmers/fortune-telling...up; GS stock...always up (god loves fraud).  Everyone wants to predict the end of the feds counterfeiting...and it's going to be a long long time for I prefer predictive research to be in the form of a picture. 

Mon, 12/10/2012 - 13:24 | 3048918 IridiumRebel
IridiumRebel's picture

I'll go get us another set of dice. 

Mon, 12/10/2012 - 13:05 | 3048870 Jumbotron
Jumbotron's picture

Pertinent video to this story.....


Overdose....The Next Financial Crisis


43:33....." The governments can save the banks....but who will save the governments ? "

Mon, 12/10/2012 - 13:10 | 3048881 Quaderratic Probing
Quaderratic Probing's picture

90% Tax on gold silver profits to protect USD...check mate

Mon, 12/10/2012 - 13:31 | 3048948 MachoMan
MachoMan's picture

Kind of...  huge estates of coin collections go to cash buyers without any paperwork every day (at a discount)...  these then get piecemealed out to collectors/individuals for retail pricing.  Alternatively, these get bartered, bypassing any tax on any gain.  The types of people who hold gold and silver are, coincidentally, the same types of people who have an interest in barter and the means to hire professionals to ensure tax liabilities are minimized, if necessary.  Further, the type of asset it is, a good, is easily subject to toiling away in a safe, bunker, car, sofa cushion, or any other storage place until such time as any tax is lifted...   

Mon, 12/10/2012 - 14:09 | 3049077 fonzannoon
fonzannoon's picture

I wonder if a 90% tax rate on gold etc. would be the spark that separates paper prices from phyz. Everyone owning paper just got creamed and the black market phyz price blows sky high. Just a thought....

Mon, 12/10/2012 - 16:24 | 3049551 MachoMan
MachoMan's picture

Which is also why I put it at a long shot for ever happening...

Mon, 12/10/2012 - 14:14 | 3049095 Snidley Whipsnae
Snidley Whipsnae's picture

MMan... In addition, as the family that purchased the PMs passes on and leaves the PMs to children, in physical form and avoiding probate, where is the paper trail that would be needed to tax the PMs now parcelled out to the children/grandchildren? There is none and as you pointed out the children can do as they please with the PMs in various markets.

One more reason that bankers/govs hate physical PMs.

PMs are terrific but they do not think for the individuals that own them. Thinking is mandatory for surviving in this economy... and some of the choices confronting individuals are not for the faint of heart.


Mon, 12/10/2012 - 13:11 | 3048888 Clesthenes
Clesthenes's picture

Yes, we are heading into the END GAME; but who understands the full significance of that term?

There are a number of factors that hardly anyone is factoring into the equation: for example, CASH POSITIONS of companies (worldwide basis); the IMPOSSIBILITY of saving the American system; the siege of America by the ALLIANCE among 1) Mexican and 2) Columbian drug cartels, 3) Chinese Triads, and 4) the Chinese Communist Party (revealed by testimony before a congressional committee), among others.

The problem with companies’ CASH POSITIONS is related to government guarantees (worldwide basis) on bank deposits.  According to this policy, if a bank goes bust and is seized by the FDIC, deposit amounts over $250,000 are lost.  There are a lot of individuals and companies with cash positions larger than $250,000.  How do/did they protect them?  The banking system invented a so-called zero balance account: with these, any positive balance at the end of banking hours would be swept into US Treasuries overnight, and would be available to pay checks the following day (if necessary).  Soon, there weren’t enough Treasuries to meet demand.  This is where Mortgage Backed Securities (MBS) came on the world stage.  These CASH POSITIONS (that is, MBS) are ultimately collateralized with gold.

IMPOSSIBILITY, too many people fail to ask the right question: instead of asking, ‘How do we save the system?’ it should be, ‘Does the system deserve to be saved?’  America (and most other countries) has spent the last hundred years following a policy that necessitates financial cannibalization of following generations thru the mechanism of governmental debt: there is enough on the books now to cannibalize following generations to the end of time.  To successfully carry out a policy of cannibalizing children, it must be completed before power slips from the hands of the first generation.  It is, in other words, too late.   The system (on a worldwide basis) is factually and constitutionally IMPOSSIBLE to save, and it doesn’t deserve to survive.

The ALLIANCE (above) was cobbled together by the Chinese Communist Party shortly after the American Congress gave Red China the Panama Canal as collateral for US Treasuries China was accumulating.  China now owns over $1 trillion of US treasuries; this stash is collateralized by gold, or a number of American homes (thru MBS).

You ever wonder why the NDAA appears to do nothing but blunder?  There’s a reason, it’s intended to be another secret police organization (such as NKVD, KGB et cetera).  But don’t worry, you won’t see its terrorist activities until Congress turns it over to the ALLIANCE.

When you put these together (as well as a few other factors), we’re looking at an unprecedented global disaster.  Now what… another Dark Age?  Or, should we learn lessons of American Founders?  Trouble is, there’s not a lawyer, judge or law professor that will, or can, tell you such lessons.  But I will: here’s a short account of how English rebels (1620-50) brought down judges and tax collectors, bishops and kings who thought they could impose taxes against the consent of those taxed, among other grievances; the same English rebels who, 150 years later, guided American rebels.

Mon, 12/10/2012 - 13:53 | 3049025 Fix It Again Timmy
Fix It Again Timmy's picture

I don't really have time to read lengthy articles replete with graphs;  all I know is that any government that debases the currency used by its citizens is corrupt and criminal - it is literally robbing its citizens of the fruits of their labor.  Our founding fathers did not play around; in the Coin Act of April 2, 1792 they stated, "Section 19.  And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony,  and shall suffer death."

We are being led by vile criminals who should be put to death for their crimes - that's all folks.....

Mon, 12/10/2012 - 13:56 | 3049040 q99x2
q99x2's picture

Gold and Silver take a long time to make a person wealthy. I want it now M'Fer.

Mon, 12/10/2012 - 14:47 | 3049184 pods
pods's picture

I heard that FB stock will make you rich!

(if you are an insider sellling it)


Mon, 12/10/2012 - 15:18 | 3049286 akak
akak's picture

Return to watching television (preferably CNBC/CNN/FOX/MSNBC), eating processed food, and obsessing over your latest i-gadget, and all will be well.

Mon, 12/10/2012 - 14:05 | 3049066 inevitablecollapse
inevitablecollapse's picture

“That’s just like, your opinion, man”

Mon, 12/10/2012 - 14:22 | 3049123 Michelle
Michelle's picture

What's the timing of the End Game? My uncle warned of such back in the 70's and died never seeing it happen and may not happen in mine or my childrens' lifetimes, either.

Mon, 12/10/2012 - 14:22 | 3049127 Bansters-in-my-...
Bansters-in-my- feces's picture

Central banks are Terrorist with the blessing of the goverments leaders.

Un fucking real...

Mon, 12/10/2012 - 14:44 | 3049177 wagthetails
wagthetails's picture

as noted earlier shadow banking just met traditional banking.  we probably still have another two years of decreasing shadow banking...but once that decrease slows, then we'll rocket off.  so i guess the only good news is you may have more time to load up on inflation protection assets. 

Mon, 12/10/2012 - 14:44 | 3049179 pods
pods's picture

I have gotten inside the inflation/deflation/bi-flation/stagflation debate many times.

Now I merely look at it as several possible outcomes at the end of the life of a fractionally reserved, debt backed currency.

It's fucking debt money.  Banker's money, and we get to pay them when they create it for us to use it.

And our government specifies that we the people shall use this banker's debt money to pay our tithe to them.

Hell with it, I am going to go buy me some Freedom Fries with my FRNs.


Mon, 12/10/2012 - 14:51 | 3049194 BrigstockBoy
BrigstockBoy's picture


“My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed.

This is where all these deflationists get their direction. Not seeing that

hyperinflation is the process of saving debt at all costs, even buying it outright

for cash. Deflation is impossible in today's dollar terms because policy will allow

the printing of cash, if necessary, to cover every last bit of debt and dumping it

on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar

terms!" - FOA


Mon, 12/10/2012 - 14:54 | 3049199 yrbmegr
yrbmegr's picture

To me, the real question is what he would say were he Chinese.

Mon, 12/10/2012 - 15:18 | 3049287 dadichris
dadichris's picture

So the death of the Dollar has been written and only the time-frame is up for debate. We should preempt this event by voluntarily moving to a new monetary system.  What if everyone started insisting that businesses and institutions accept physical gold as legal tender or not get paid?

Mon, 12/10/2012 - 22:54 | 3050722 StychoKiller
StychoKiller's picture

Meh, I'll continue to pay with FRNs, until such time as the Ignorati realize that they're being conned.  Bring on The Great Implosion™!

Mon, 12/10/2012 - 15:35 | 3049327 mogul rider
mogul rider's picture

The stupids haven't de-leveraged at all so slowing down the collapse is probably not a bad thing by printing toilet paper.

Of course the final outcome will be duckinhg fugly but by then we will have all sold out into cash and the odd bar of shiny origin. Having the stupids buried in Call of Duty is probably the greatest strategy they have.

When the stupids come out of the basement on New Year's Eve to witness the collapse then the project will haev been successful

But to say to do nothing was the right strategy in 2009 is plain idiotic since no one really knows what would have happened. Hell even the gold pumpers could have been taken to woodshed if Bernanke hadn;t turned ont he spigot.

I would have liked to see that. The gold pumpers would have been wiped out around here so maybe the Bernake saved your collective asses and you should bow to him...

So here come da pumpers galloping to tell us all about 2900 gold! Which was supposed to have happened 18 months ago when they bought at 1910 but those sleazy manipulators attacked it.

One small point, you have said from 2006 when you bought in that gold was manipulated. Umm it 210 in 2000 and is now 1700. Tell me how it was manipulated.......

I own a shitload of gold so don;t bother telling me I am anti gold becuase I'm not.

I'm anti pumper. BTW when is armageddon again?//

I'm waiting....

Mon, 12/10/2012 - 16:31 | 3049579 NidStyles
NidStyles's picture

If you were capable of typing a coherent argument rather than nonsense some one might have offered an accurate reply to you.

Do NOT follow this link or you will be banned from the site!