John Taylor Warns Of A "Highly Disastrous, Totally Uncontrollable Inflationary Conflagration"

Tyler Durden's picture

A must read from FX Concept's John Taylor for anyone who has been following the global central bank's exponential balance sheet expansion over the past several months.

Forest Fires
March 1, 2012
By John R. Taylor, Jr.
Chief Investment Officer

During the past few years, the activist strain of central banking has spread around the world like wildfire, but the impact of this change on the future course of the global economy is very unclear. The number of countries involved now covers the developed world, the multitude of interventions in the financial market has expanded dramatically, and the amounts involved are exponentially higher than they were in 1979 when the Chrysler bailout began the process. Back then, the US Treasury guaranteed a $1.5 billion loan to the automaker, but the government demanded and received $2 billion in concessions from labor, the company, and other stakeholders. The star-crossed team of Treasury Secretary G. William Miller and President Jimmy Carter fell to Lee Iacocca’s political pressure 15 months before the 1980 election. This outcome differed dramatically from that of the Penn Central collapse, nine years before, as Congress had turned down its bailout request. By the mid-1980’s, the Chrysler rescue was seen as a great success, while everyone knew that the Penn Central refusal ended as a black hole, with many billions poured into Conrail and Amtrak just to keep the trains running.

With the arrival of Alan Greenspan activism took a big step forward, as he reversed the stock market crash of 1987, rescued Mexico with Bob Rubin in 1995, South East Asia in 1997, and then the global banking system, as it got in too deep with Long Term Capital (LTCM) in 1998. There were some failures, most notably Russia in 1998, but these interventions led directly to a feeling of complacency among investors as moral hazard, the Greenspan ‘put,’ and the President’s Working Group on Financial Markets became a widely perceived reality. Buy risk, you were safe, was the only way to go. Still, the monetary base, heart of the fractional reserve system, was largely untouched. Now, 14 years after LTCM, we know that the previous quarter century was just child’s play. The central banks have to pay a lot more for optimism today. Loans aren’t enough; now they must give the money away. Printing presses are running flat out (I know this is different than Zimbabwe, but…) and the developed world monetary base is almost three times higher than it was at the start of 2008.

All this money sloshing around is nothing but kindling. This is enough to start one hell of a large inflationary fire, but probably not until we have a deflationary panic first – which will add even more kindling to the pile. The progression from the $1.5 billion Chrysler rescue to the current multi-trillion dollar worldwide financial support operations seems to parallel the march from the first US forestry service attempts to limit forest fires about a century ago to the far more sophisticated efforts possible today. Although the forestry service is successful limiting small fires, the longer they suppress them, the higher the probability of a highly disastrous, totally uncontrollable conflagration. Studies have shown that the onset of that catastrophe is almost totally unpredictable. By suppressing small fires, the forests approach an unstable state where the dead wood, resulting from the natural cycle of birth and death in the wild, is piled high, ready to explode into flames if the conditions are right. The central banks and other governmental authorities have piled the money so high that bubbles are popping up everywhere. This might be different than the explosion in the cost of a can of beans in Zimbabwe, but it is an inflation nevertheless and it impoverishes those who do not own these inflating assets. Furthermore, as those assets are in a bubble, a sharp reversal in price could appear at any time, just like the fire might begin in the forest. With so many bubbles and so much kindling, volatility in price is a sure thing. As research has shown that the timing of these dramatic breakdowns, whether a forest fire, an earthquake, or a market crash cannot predicted, or mitigated as it runs its course, the time to control these crises is way before they start. The US Forestry Service knows that, please tell Bernanke!

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maxmad's picture

Inflationary Conflagaration, bitchez!

economics1996's picture

Last time I checked with the reserves parked at the Fed if they were loaned out the money supply would increase $15 trillion.  You might say that is a inflationary problem, Houston.

economics1996's picture

All that "liquidity" Ben has been pumping into the economy.

Pladizow's picture

"The US Forestry Service knows that, please tell Bernanke!"

WTF - Bernanke is the gasoline!

clones2's picture

Sounds like this guy is going to be right whether we have Deflation or Inflation...  Nice work taking both sides of the argument...

Clowns on Acid's picture on comprehension skills....taylor said first deflation...then...hyperinflation. Clearly not taking both sides.


Harlequin001's picture

If he is saying a deflationay event being collapsing bond prices due to liquidity issues followed by rampant inflation then he is correct. That is precisely what happened at Weimar. If he is saying his deflationary event is a general fall in prices before rising inflation then he is dead wrong...

rlouis's picture

Bernanke is enjoying his lies so much now he isn't worth listening to.

Sudden Debt's picture

He can say whatever he wants about inflation.


There is one thing that he can't hide. And that are the signs of hyperinflation.
And how do you see when hyperinflation is comming?
Simple: when the printing or coinage of the money costs more than the amount written on the currency.

In this case for example, euro is still safe. There a 2 euro coin costs about 30 cents to produce

In the US... A 5 cent coin costs 7 cents in metal prices alone....

Harlequin001's picture

A hyperinflationary collapse was well underway until Greece impoloded. Foreigners were already selling US T's. Funny how the crisis in Europe resulted in higher demand for US T's just when they needed buyers to counter collapsing demand. The market can now persist for a maximum of as long as it takes for Europe not to recover, but to not get any worse. Then it ends for the US, badly.

Funny how a crisis in European banking suppresses precious metals, but that's manipulation for you...

peekcrackers's picture


Smokey the bear says, 'Only You Can Prevent Wildfires!'

The Big Ching-aso's picture



Wanna see a current amazing exchange of hubris, chutzpah, and panache?.........................

kill switch's picture

Fucking thieves and con men, NICE SUIT THOUGH!

walküre's picture

Herr Klaus Masuch, ich würde gerne mit ihnen unter vier Augen sprechen

Mr. Klaus Masuch, I would like to speak with you in private please.



vast-dom's picture

you mean he's the unstable state more at destabilizer conflagator for the dead wood zombie pyre!

JPM Hater001's picture

First I've heard there's a problem.

Do we have any corroborating evidence?


ShankyS's picture

"Conflagration" sounds like something that would come out of my backside after burrito night. 

Red Raspberry's picture

They are hoping and you will be left with nothing but change.

American34's picture

That is all you ever say. Do you have any imagination?

achmachat's picture

some imagination, yes! he changed conflagration to conflagaration. That should count for something!

The Big Ching-aso's picture



The stock market has old Ben-wa Balls by the short and curlies.  It yanks and Ben sez thanks.

john39's picture

nah, all part of the plan.  create a crisis, propose the solution....    is this case it will be a new currency of some sort, with greater centralization of power...

eddiebe's picture

I don't believe it for a minute. The Bernank with his unlimited amounts of money is jerking the market around any way he wishes.

joq's picture

Bernanke says John Taylor is totally off and wrong. Seems we should trust Dr Bernanke on this one.

pemdas's picture

Nice one joq! Worthy of MDB.

viahj's picture

nah, it need more anti-libertarian rant

RossE9's picture

my classmate's mother makes $84 an hour on the internet. She has been fired from work for nine months but last month her pay was $19551 just working on the internet for a few hours. Read more on this web site .....

Blue Horshoe Loves Annacott Steel's picture

His classmate's mother works for the Plunge Protection Team?

non_anon's picture

For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies.

And the kings of the earth, who have committed fornication and lived deliciously with her, shall bewail her, and lament for her, when they shall see the smoke of her burning,

And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:


JPM Hater001's picture

Isn't there suppose to be something about smooting in there?

gaoptimize's picture

I think this is interesting.  Who do you think "her" is about in the current context (in a allegorical sense, of course)?  Fiat money?  Credit?  Statist socialism and dependency?  Or since these things are mutually enabling, all of the above? 

non_anon's picture

Standing afar off for the fear of her torment, saying, Alas, alas, that great city Babylon, that mighty city! for in one hour is thy judgment come

And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:

The merchants of these things, which were made rich by her, shall stand afar off for the fear of her torment, weeping and wailing,

And cried when they saw the smoke of her burning, saying, What [city is] like unto this great city!

gaoptimize's picture


It goes on sounding like a recitation from the Book of Armaments by Brother Maynard from Monte Python's "Holy Grail"

"12:The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble,

13: And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses,..."

Skip a bit brother.

Caviar Emptor's picture

Biflation will make sure that inflation looks tame. But it ain't. Just like the ground can look high when you're standing in quick sand. 


Keep in mind this: TPTB in other countries manufacture inflationary conflagrations when they want to undermine the political system. Time honored tradition. They can blame whoever's in power and destroy everybody else's wealth

Hugo Chavez's picture

It annoys the hell out of me to hear the term biflation.

You dont need to reinvent the wheel.

There is already a word for what we are going thru.

Hulk's picture

Bye Flatulation then, just so we don't piss off ole Hugo...

Caviar Emptor's picture

@Hugo: Let me just extend the annoyance a minute longer. 

The reason for a new term is it's a new circumstance that hasn't been described before and which, CLEARLY, even the venerable economists at the Federal Reserve have been unsuccessful in dealing with. 

Some of the classic disasters in history have occurred when people refused to accept that the old paradigm no longer applies to a new situation. Wars have been lost, famous ocean liners have sunk, and empires have collapsed with this. 

Unlike with stagflation, a term which was new in the 1970s because that situation was new, there is no wage inflation, no housing inflation, low demand and overcapcity. There is also a global economic dimension which didn't exist at that time. Finally there have been 40years of unfettered monetary expansion and experimentation since that time. The more we try to solve today's problems with yesterday's tools, the more danger we're creating

centerline's picture

Is for sure the frog in boiling water analogy.  The problem is that water is heating up too fast.  This sort of disaster would take generations to unwind (err... crush the masses and change social behaviors).  That sort of time isn't possible; hence, something is going to break sooner rather than later.  We probably won't even know when the first domino falls.  The friggin connections are so many and so complex.  Chances are when it let's go, it will happen fast.

FoodStampPrez's picture

We have:

Deflation in things we want (electronics, etc.)

Inflation in things we NEED (oil, medical, food, etc.)


Mercury's picture

Awesome.  I've been using the dry-brush-buildup-in-the-forest analogy for a while too when people have asked me about the market/economy.  It may have been in a ZH post from last week too.

Anyway, now I have a link.

fonzannoon's picture

There is a dry bush joke in there somewhere.