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Presenting Bridgewater's Weimar Hyperinflationary Case Study

Tyler Durden's picture





 

Last month, the world's biggest hedge fund, Bridgewater, issued a fascinating analysis of deleveraging case studies through the history of the world, grouped by final outcome (good, bad and ugly). As Dalio's analysts note: "the differences between deleveragings depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots, and 4) debt  monetization. Each one of these four paths reduces debt/income ratios, but they have different effects on inflation and growth. Debt reduction (i.e., defaults and restructurings) and austerity are both deflationary and depressing while debt monetization is inflationary and stimulative. Ugly deleveragings get these out of balance while beautiful ones properly balance them. In other words, the key is in getting the mix right." Of these the most interesting one always has been that of the Weimar republic, as it certainly got the mix wrong.

The reason why Weimar will be critical, is that at the end of the day, Weimar, unlike some of the other successful case studies, is precisely what the global debt situation will require when all is said and done will be the model to imitate. Why? Because as BCG showed last year, the global debt overhang (on a net blended basis) to reduce global Debt to GDP to a "sustainable" 180%, would require the elimination of $21 trillion in debt, one way or another, with the excess debt concentrated primarily in the US ($8.2 trillion) and the Eurozone ($6.1 trillion).

This is in absolute terms, not relative, as permitted under Keynesian methodology, as relative devaluations simply destroy the "last defector" actor in serial fashion (with benefits accruing to the 'first to default'), in the process crucifying globalization and consolidated world trade. Which means that a coordinated inflation driven deleveraging is the only possible outcome.

Which is where Weimar comes in. And specifically the following chart from Bridgewater:

For those who may have avoided economic history books, here is the summary plot line:

The case of Weimar is one of the most extreme inflationary deleveragings ever. At the end of the war, the Reich government was forced to choose between a shortage of cash and economic contraction or printing to stimulate incomes. The government chose to print and devalue to stimulate the economy, beginning with a 50% devaluation at the end of 1919 that brought the economy out of recession. Eventually, a loss of confidence in the currency and an extreme amount of printing led to hyperinflation and left the currency basically worthless. As shown below, the currency fell essentially 100% against gold and printing was exponential. Starting debt of 913% fell to basically zero. Non-reparations government debt of 133% GDP in 1919 was wiped out by inflation. Gold-based reparation of 780% GDP effectively went into default in the summer of 1922 when reparation payments were halted. We summarize this in the table below and then go through the pieces.

Note the shaded red regions.

And this, make no mistake about it, is what is in store.

Continuing from Bridgewater: "The next chart shows the aggregate government obligations owed and its two pieces, the gold-based reparations and other government debt"

Then there is the question of what happens to gold. In Weimar's case, gold-denominated reparations were simply forgiven.

As discussed, the non-reparations government debt was eroded rapidly through inflation. While the reparations were not techincally imposed until 1921, they effectively existed shortly after the war and it was mostly a question of negotiating how big they would be (the official amount was settled at the start of 1921 and then reduced that spring by about 50%, still a huge sum). Because the reparations were denominated in gold, they held their value until Germany ceased payments in 1922. They were then restrutured several times over the next decade until they were effectively wiped out.

Well, as the Greek case study has shown, this time around the gold will first be confiscated. All of it. Only then will the debt be forgiven. In the form of a hyperinflating of trillions in claims, in a coordinated way across all currencies, and relative to a basket of hard assets. 

And going back to the current parallel in which the entire world is now one big Weimar Republic, we return to the BCG study in which the dire conclusion is as follows:

Let’s suppose that the politicians and central bankers acknowledge the hard facts. Agreeing on the starting situation would be a precondition for defining an effective remedy. They might begin by recognizing what many commentators have been pointing out for a long time:

  • Western economies, notably the U.S. and Europe, have to address the significant debt load accumulated in the course of 25 years of credit-financed economic expansion. (See Exhibit 1.) And some must address real estate bubbles as well.
  • The necessary deleveraging would lead to a period of low growth, which could, given historical precedent, last more than a decade and would be amplified by the aging of Western societies.
  • This would have consequences for the emerging markets, with their exportbased growth strategies. Any shift toward more consumption in these countries might not have a substantial stimulatory effect on the economies of the West.
  • Efforts by governments to deal with their debt problems would lead to even lower growth and would increase the risk of social unrest. A recent study shows that as soon as expenditure cuts exceed 3 percent of GDP, the frequency of protests increases significantly. The demonstrations that occurred in some European countries this September should therefore not have come as a surprise.
  • Banks do not have enough equity to weather further write-downs—and governments are running out of ammunition to stabilize banks should a new crisis hit.
  • Central banks may be seen as the last remaining institutions able to stabilize the financial markets and support economic growth. But their efforts are losing effectiveness. In spite of increasing balance sheets by up to 200 percent since the end of 2007, central banks have been unable to ignite sustainable economic growth.2 On the other hand, the monetary overhang could be the basis for significant inflation.
  • The longer governments postpone addressing the fundamental problems of the crisis, the deeper and more prolonged the crisis will become.

But even if all these facts were generally acknowledged, there would be no one size-fits-all solution.

Correct, which is why when push comes to shove, the nuclear option will be used.

 


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Tue, 03/13/2012 - 10:31 | Link to Comment Everybodys All ...
Everybodys All American's picture

I'd love to see how the Fed plans to confiscate the gold in the hands of todays American public. I suppose MFGlobal is the model.

Tue, 03/13/2012 - 10:36 | Link to Comment SheepDog-One
SheepDog-One's picture

We'll see. Gold is probably something youll have to bury under a boulder and forget about when this Shitalanche finaly lets loose.

Tue, 03/13/2012 - 10:40 | Link to Comment FranSix
FranSix's picture

"Its already started, my good friend.  The shit blizzard."

http://youtu.be/Pvm-n6gwPCY

Tue, 03/13/2012 - 10:44 | Link to Comment withnmeans
withnmeans's picture

Here is the latest thing they are watching in a Univerity near you, my son share this with me, not my thing but it sends a message. Maybe this newly educated generation may get it, However I doubt it.

http://www.youtube.com/watch?v=d0nERTFo-Sk

Tue, 03/13/2012 - 11:19 | Link to Comment The Big Ching-aso
The Big Ching-aso's picture

 

 

The Fed has a handle on deflation.    Unfortunately their expectations are inflated.

Tue, 03/13/2012 - 11:25 | Link to Comment trav7777
trav7777's picture

wtf are all these gobbledygook charts?
Look...you can't pay interest in excess of income (growth) in this creditmoney system. Period.

If your interest exceeds growth, you have to print the balance otherwise the system implodes.

Tue, 03/13/2012 - 11:35 | Link to Comment NotApplicable
NotApplicable's picture

Eric Peters has a nice, scary article on the implosion dynamic known as the American Proletariat.

http://epautos.com/2012/03/12/one-of-two-outcomes/

Tue, 03/13/2012 - 12:18 | Link to Comment Manthong
Manthong's picture

"Maybe this newly educated generation may get it"

You are right to be skeptical.. and all the more if that's what has to be done get the message across.

By the time the group that needs to see Hayek rapping gets it, they will already be accomplished and contented dumpster divers. 

Tue, 03/13/2012 - 12:34 | Link to Comment kridkrid
kridkrid's picture

And they are easily distracted... give them a cause like Kony 2012... done and done.

Tue, 03/13/2012 - 13:52 | Link to Comment stacking12321
stacking12321's picture

you wont see hayek rapping, but here's a youtube video about remy rapping about the debt ceiling:

http://tinyurl.com/7mxuchq

Tue, 03/13/2012 - 21:37 | Link to Comment Hedgetard55
Hedgetard55's picture

+55

 

"I got a monetray plan and it involves a lot of toner".

Tue, 03/13/2012 - 11:49 | Link to Comment kridkrid
kridkrid's picture

I assume the downvotes are based on the author, not the message?  Because I would like to hear someone explain why what he has written is wrong.  Hint: you'll fail.

This isn't at all complicated.  Any attempt to make it seem complicated is mental masterbation.

Tue, 03/13/2012 - 14:28 | Link to Comment LowProfile
LowProfile's picture

 

I assume the downvotes are based on the author, not the message?

He goes out of his way to make it easy.

Tue, 03/13/2012 - 12:20 | Link to Comment linrom
linrom's picture

US Debt/GDP is certaily NOT about 275%.

 

$54 trillion/15 trillion = 360%

Tue, 03/13/2012 - 12:43 | Link to Comment IBelieveInMagic
IBelieveInMagic's picture

Shouldn't we combine the balance sheets of the US, Western Europe and Middle East in performing this analysis? I would think surpluses in our Middle Eastern assets would offset some of the deficits that we have run up.

Tue, 03/13/2012 - 12:54 | Link to Comment Thamesford
Thamesford's picture

Where's Professor Mann when we need him. He knows how to "hide the decline"!

Tue, 03/13/2012 - 11:33 | Link to Comment Triggernometry
Triggernometry's picture

I think he mis-spelled nucular.

Tue, 03/13/2012 - 14:12 | Link to Comment EINSILVERGUY
EINSILVERGUY's picture

Fight of the Century Round 2 is even better

http://www.youtube.com/watch?v=GTQnarzmTOc

 

 

 

 

Tue, 03/13/2012 - 15:05 | Link to Comment 4horse
4horse's picture

40yrs later . . .

http://www.youtube.com/watch?v=d0nERTFo-Sk

 

eine kleine not music, the latest thing . . . from another vienna-like circlejerk, of young FrankenWittgensteins, who'll also yet soon enough serve

 

The BrainTrust

 

not torches'n'pitchforks

but, streetcorner bourgeois racemusic here again caught in their mimicry of the minstrelsy

gesunkeines kulturgut . . . ?

seemingly, without rhyme or reason, here's the outcome: the language: making fun, tongue-in-cheek, of what could be funnier. than nurseyrhymes. childish. monkey-see-monkey-do do. the bodylanguage. especially the gestures, in sync with the sunken

brothers.-in-harmony. of another tin pan alley. another brill bldg;geffin goffin ff-in king carolingMo'Money: My Maa ah a ah a ah aaaa me me me me

brilliant

brothers&sisters. sons&daughters, of a merkin revolt gen. of IV. aides-de-camp, of their father-home-land security. truly revolting

http://www.youtube.com/watch?v=vimZj8HW0Kg&feature=related

KO brought to you by virtue of mickeymousearison
WEIMA's favoritecafe society Life is a Car ne val, old chum. Come to The Car ne vale

 

the scum also rises

 

in the 20s. 2000s. cause history repeats. the alliteration. history rhymes. the resonance. the same old song'n'dance men so important that's entertainment while going through the motions, most especially the language

 

ANACREONTIC

 

tock. tic. tocsin
                     toxic
                             clock, in time for yet another american anthem

 

 

Who, finally, can stand for it  .  .  .

 

in allegiance. in extremis. but all in good fun

and in 4part harm

   IVorce

Tue, 03/13/2012 - 11:20 | Link to Comment dmger14
dmger14's picture

That's funny!  Thanks for the laugh!

Tue, 03/13/2012 - 11:59 | Link to Comment buckethead
buckethead's picture

'Nice Shit-analogy".

Tue, 03/13/2012 - 10:41 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Or use it to trade for a helicopter.  That's what I'm going to do.  Then I'm going to fly to the Fed and rain monopoly money from the sky. 

Tue, 03/13/2012 - 11:03 | Link to Comment flacon
flacon's picture

I'm going to drop my 1,000oz bar right on top of Ben Bernanke's head. 

Tue, 03/13/2012 - 11:07 | Link to Comment tmosley
tmosley's picture

I'll go halvsies with you on that, if you like.  You drop it, I'll film it.

Tue, 03/13/2012 - 10:36 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Don't keep your gold in a bank vault, because if you do, it may already be gone.

Tue, 03/13/2012 - 10:58 | Link to Comment scatterbrains
scatterbrains's picture

That reminds me..  what is the metal detecting capabilities of these modern day fly-over drones ?

Tue, 03/13/2012 - 11:19 | Link to Comment oddjob
oddjob's picture

VTEM

Tue, 03/13/2012 - 12:07 | Link to Comment Doña K
Doña K's picture

VTEM can be easily defeated. I will not post that here. A college physics or chemistry major can do it. 

Tue, 03/13/2012 - 12:48 | Link to Comment scatterbrains
scatterbrains's picture

oh come on give it up! We want to know.. is it  burying it in some Arm&Hammer baking soda or something ? Tell us before they ban what ever it is we need.

Tue, 03/13/2012 - 13:05 | Link to Comment oddjob
oddjob's picture

Bury under a junk car.

Wed, 03/14/2012 - 05:24 | Link to Comment Spontaneous Violence
Spontaneous Violence's picture

or Re Hypothecated ...

Tue, 03/13/2012 - 10:37 | Link to Comment gdogus erectus
gdogus erectus's picture

Well, I think Charlton Heston said it best..  Oh wait - that was the other prescious metal.

Tue, 03/13/2012 - 10:58 | Link to Comment semperfi
semperfi's picture

Charlton was wrong on one account:  the cold hands will not be mine, but instead those of the thieves

Tue, 03/13/2012 - 10:37 | Link to Comment Comay Mierda
Comay Mierda's picture

citizen spies.  thats the whole point of the "see something say something" campaign.  throughout history its always been the ignorant class outing the enlightened ones when a dictatorship rises.  be careful who you call "friends"

Tue, 03/13/2012 - 10:43 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea the little brownshirt 'See something, say something' citizen spies all of them getting a welfare check from the gubment. These people are always your worst enemy, theyll defend their gubment masters at any cost. Thats why I have no mercy on the sheeple, everyone else wants to 'inform them' then go ahead theyll turn around and report you.

Tue, 03/13/2012 - 13:02 | Link to Comment viahj
viahj's picture

maybe it's time for a name change then

Tue, 03/13/2012 - 13:03 | Link to Comment Chicago bear
Chicago bear's picture

Community Health Workers is the next group. Saw a software that helps them take care of people door to door in every neighborhood. Soon to be the highest growth career of 2012. Watch. 

Tue, 03/13/2012 - 10:38 | Link to Comment resurger
resurger's picture

my gun says "NO"

Tue, 03/13/2012 - 10:48 | Link to Comment JPM Hater001
JPM Hater001's picture

Yes yes...configate the gold...make my precious silver worth gold...

Tue, 03/13/2012 - 10:50 | Link to Comment francis_sawyer
francis_sawyer's picture

I'd love to see how the Fed plans to confiscate the gold in the hands of todays American public

I think it basically going on as we speak... Every time I walk into the coin shop, I'm the only one buying... There's usually around a 4-1 ratio of people in to SELL their scrap jewelry & junk silver for cash... People are strapped for cash...

As long as they manage to keep the economy bad on the margin, but ENTERTAIN the folks with TV shows & sports, while 'feeding' them with SNAP cards... Gold is coming in to get melted down into bricks...

 

Tue, 03/13/2012 - 11:19 | Link to Comment Everybodys All ...
Everybodys All American's picture

That's normal trade which is to be expected with Obama's new normal. Confiscation is when they just come over and demand it and you may or may not get paid or have a choice.

Tue, 03/13/2012 - 12:10 | Link to Comment BeerBrewer09
BeerBrewer09's picture

Bingo.

Tue, 03/13/2012 - 14:14 | Link to Comment Slewburger
Slewburger's picture

As my least favorite vaginal wall would say, Its a bauble. People are selling away their own wealth protection. I saw 10 (not exaggerating) cash for gold stores on the outskirts of a small town in South Texas.

So when the plebes zig....zag.

Tue, 03/13/2012 - 16:13 | Link to Comment akak
akak's picture

.

As my least favorite vaginal wall would say ...

I have to assume you are referring to Jon Nadler here.

Tue, 03/13/2012 - 11:18 | Link to Comment true brain
true brain's picture

Never underestimate the treachery of those in power to save themselves.

Tue, 03/13/2012 - 11:38 | Link to Comment Ruffcut
Ruffcut's picture

Lose the petrodollar peg and oil zooms, inflation will go accordingly. Oil is the trigger to big greecy gun. If stays level, then no hyperinflation unless all the crops are killed off.

Tue, 03/13/2012 - 11:39 | Link to Comment Sophist Economicus
Sophist Economicus's picture

The FED doesn't have either the desire nor authority to confiscate gold.    Their gold was also confiscated by FDR.   The entity you should fear is the FEDERAL GOVERNMENT

Tue, 03/13/2012 - 11:54 | Link to Comment SheepDog-One
SheepDog-One's picture

Their real problem isnt gold confiscation, its gun confiscation.

Tue, 03/13/2012 - 12:37 | Link to Comment It was not me
It was not me's picture

So Kyle Bass was right after all in these videos: http://www.armadamarkets.com/market-info/videos/

Tue, 03/13/2012 - 13:13 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

Stop spamming and get back to work at the lutefisk factory, Ingmar.

 

Wed, 03/14/2012 - 00:50 | Link to Comment oldman
oldman's picture

@Everybody'sAll

History shows that a lot of the american public will simply obey the law rather than risk: going to prison, paying a large fine, or both. Plus, today, we have a psychotic, fully armed 'security force' that would love to enforce the law----helping themselves to few pieces of gold that fall on the floor.

I think it would be a hard call to say 'no' to a frothing at the mouth madman with his weapon pointed at me---I certainly hope that it does not come to this.

We are no longer the people our grandfathers were. When he died and his safe was opened, my family found that my grandfather had stuffed it full of twenty dollar coins that he had traded gold-backed dollars for and his pistol. Of course in 1956---they just sold the coins and the pistol; the US was a different place in those days.

we grandchildren did not each get even a single coin as a keepsake                      om

Tue, 03/13/2012 - 10:34 | Link to Comment Conrad Murray
Conrad Murray's picture

Someone needs to take over Bieber's twitter and FB accounts and post, "I have lost confidence in the USD. Thanks Ben Shalom Bernanke #EndTheFed".

Tue, 03/13/2012 - 10:47 | Link to Comment tekhneek
tekhneek's picture

98% of people would just reply asking "who's the Fed?" and "what's a shalom?" probably even a few "who's usd and what did he do?"

Tue, 03/13/2012 - 10:50 | Link to Comment JPM Hater001
JPM Hater001's picture

"I shot the sheriff but I did not shoot the deputy." - usd

Tue, 03/13/2012 - 11:05 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

The inflation tax enforcer:

"what's a shalom?"

Tue, 03/13/2012 - 10:34 | Link to Comment AL_SWEARENGEN
AL_SWEARENGEN's picture

Spend that cocksucker currency while it still spends!

Tue, 03/13/2012 - 10:34 | Link to Comment battle axe
battle axe's picture

Watch out for Austrian artist/paperhangers, with funny mustaches..

Tue, 03/13/2012 - 10:36 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'Well, as the Greek case study has shown, this time around the gold will first be confiscated. All of it. Only then will the debt be forgiven. In the form of a hyperinflating of trillions in claims, in a coordinated way across all currencies, and relative to a basket of hard assets.'

That's not really debt forgiveness then is it? If I take the things you own and then say you owe me nothing, that's theft not forgiveness.

Tue, 03/13/2012 - 10:38 | Link to Comment SheepDog-One
SheepDog-One's picture

LMAO!

Alright everyone listen up! On the floor! Slide over your wallets and empty the vault in this bag! This here is an armed DEBT FORGIVENESS, see?

Tue, 03/13/2012 - 10:52 | Link to Comment masterinchancery
masterinchancery's picture

It is a bankruptcy liquidation, with gold being the only portable and valuable thing available to seize.

Tue, 03/13/2012 - 11:03 | Link to Comment espirit
espirit's picture

Finding Greek gold will be a problem.  They're used to hiding things or losing them in a "boating accident".

Tue, 03/13/2012 - 11:58 | Link to Comment HurricaneSeason
HurricaneSeason's picture

While they're looking or it, they'll go ahead and sell it. There'll be a handwritten note in one of the gold etf vaults. It'll say "This here piece of paper represents 100 ton of Greek gold that has gone temporarily missing from the federal reserve vault in New York and will soon be delivered to this very spot".

Tue, 03/13/2012 - 13:31 | Link to Comment Crack-up Boom
Crack-up Boom's picture

If the value of the gold exceeds the amount of debt, yes.  What I want to know is who is going to confiscate the US and EU member state's gold.  China?   

Tue, 03/13/2012 - 10:36 | Link to Comment Cursive
Cursive's picture

Thinking that the Fed or anyone could get the right "mix" here is beyond hubris. You'd have better luck brokering peace in the Mid East.

Tue, 03/13/2012 - 10:46 | Link to Comment dwdollar
dwdollar's picture

All the US has seen so far is extend and pretend.

Tue, 03/13/2012 - 10:47 | Link to Comment SheepDog-One
SheepDog-One's picture

Theyre still trying to get their alchemy right to unleash the Keynesian 'animal spirits' bullshit that Erin Burnett was such an expert on. People are broke, and dont have jobs, thats all.

Tue, 03/13/2012 - 10:51 | Link to Comment JPM Hater001
JPM Hater001's picture

Oh, that's not a problem...they are way past hubris.

Tue, 03/13/2012 - 10:38 | Link to Comment prains
prains's picture

Isn't this what Bass calls an airbag?

Tue, 03/13/2012 - 10:38 | Link to Comment ffart
ffart's picture

So mass defaults by debt monetization lead to "the deflation", I guess the Keynesians got another one right.

Tue, 03/13/2012 - 10:44 | Link to Comment fonzannoon
fonzannoon's picture

"Let’s suppose that the politicians and central bankers acknowledge the hard facts."

Yeah....

Tue, 03/13/2012 - 10:55 | Link to Comment JPM Hater001
JPM Hater001's picture

"Let’s suppose that central bankers and then politicians acknowledge the hard facts."

Fixed- See - because the politicians cant make up their mind until ...Never mind if I have to explain it.

Tue, 03/13/2012 - 11:15 | Link to Comment EmileLargo
EmileLargo's picture

Let's assume we have a box of can openers................

Tue, 03/13/2012 - 11:56 | Link to Comment Gunga
Gunga's picture

Let's assume we are a bank and we can borrow unlimited funds from the Federal Reserve at 0% interest and reinvest them in US treasurys at no cost for 2% interest . I'd be a F%#*'in billionaire too.

Tue, 03/13/2012 - 13:07 | Link to Comment viahj
viahj's picture

it's bonus time, blast fax kudos all around

Tue, 03/13/2012 - 10:44 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So it's the debt that causes hyperinflation, and now that the State that runs the reserve currency is a buck o' five debt/gdp, well, let's just say the shit could hit the fan at any time.  I guess we can all plan on giving ourselves a years vacation to blog about it though.

Tue, 03/13/2012 - 11:02 | Link to Comment riphowardkatz
riphowardkatz's picture

money printing causes the debt then the debt begits more money printing then eventually hyperinflation ensues.

Tue, 03/13/2012 - 10:45 | Link to Comment Northeaster
Northeaster's picture

 "Eventually, a loss of confidence in the currency and an extreme amount of printing"

We only have one of those criteria met, you need both.

Tue, 03/13/2012 - 10:48 | Link to Comment SheepDog-One
SheepDog-One's picture

Which one is missing??

Tue, 03/13/2012 - 11:11 | Link to Comment Bullwinkle Moose
Bullwinkle Moose's picture

The amount of printing is increasing, and the amount of confidence is decreasing. The gap between the two is getting far and wide.

Tue, 03/13/2012 - 11:21 | Link to Comment rufusbird
rufusbird's picture

Speaking of gaps, when do we get the downside breakaway gap on the 30 year...? Whan happens when we break 135?

http://finviz.com/futures_charts.ashx?t=ZB&p=h1

Tue, 03/13/2012 - 11:38 | Link to Comment FlyoverCountryS...
FlyoverCountrySchmuck's picture

But, but, Bloomberg just told me that there is "new" confidence in the economy!

HOW CAN THIS BE???

Tue, 03/13/2012 - 11:34 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea there are buyers, the Treasury/FED itself! I mean, DUH!

Tue, 03/13/2012 - 14:46 | Link to Comment i_fly_me
i_fly_me's picture

No sir, the former causes the latter.  The printing only causes regular ol' inflation which slowly erodes confidence until a tiping point where prices begin to raise due to more than the amount of currency in the system.  Sellers start proactively raising prices based on a lack of faith in the length of time the currency is able to hold value.  A positive feedback loop develops where more currency is demanded to keep higher priced commerce flowing which further lessens confidence which forces sellers to raise prices ... lather, rinse, repeat.   That's hyper-inflation, driven by the lack of confidence part, and it is a very different animal than regular ol' inflation.

Tue, 03/13/2012 - 10:46 | Link to Comment Nage42
Nage42's picture

What gold in the hands of the public?  I think the number being banddied about is less than 2% have any exposure to gold at all, and of those, that exposure is via paper ETF or in best case gold-miner equity.  But brass-tacks, holding Au in tangible form I would back-of-napkin scrible that less than 1% of all Americans hold any gold, and those that do hold substantially less than 5% of their net wealth (let's say compared to it's current "market value" of ~1,800/toz).

It certainly will get ugly if Swizz gold gets pulled from US back to their on-shore, cause that'll prolly tap out their "only actually holding 10% and loaned out the rest, never to be returned" exposure.

 

Tue, 03/13/2012 - 10:57 | Link to Comment SheepDog-One
SheepDog-One's picture

Who cares about the net% of the general population that owns gold? Irrelevant to anything at all. 98% of the people probably own no gold, the other couple % are all I care about. And most of them have way more than 5% of their 'net wealth' in PM's I know I went in with most all the cash I had in '08 when I saw the Great Monetization Plan go into effect, at around $450 gold avg and $9 silver. 

So whoever else does or doesnt own PM's or whatever amount they own means nothing to me.

Tue, 03/13/2012 - 11:22 | Link to Comment HoofHearted
HoofHearted's picture

And the shiny is in strong hands, even if they are ever so clumsy on boat trips. Most of the people who own gold and silver also have some lead, copper, and delivery devices. They also have bugout bags, hiding places, and survival skills.

Tue, 03/13/2012 - 10:48 | Link to Comment fonzannoon
fonzannoon's picture

Markets rallying in concert with a strong dollar. This is a steamroller.

Tue, 03/13/2012 - 10:51 | Link to Comment SheepDog-One
SheepDog-One's picture

'Strong dollar' to whom? China, Russia, Inda all dumping the dollar for trade. Dollar 'strong' standing next to the other decrepit crackhead Euro? Big deal.

Tue, 03/13/2012 - 10:55 | Link to Comment fonzannoon
fonzannoon's picture

fair point.....

Tue, 03/13/2012 - 11:53 | Link to Comment Max Hunter
Max Hunter's picture

Dollar weakness seen in Commoditites and PM's.. Strong Dollar??  Really?

Tue, 03/13/2012 - 10:56 | Link to Comment Dr. Engali
Dr. Engali's picture

Strong dollar? Don't you mean a dollar not quite as shitty as the rest.?

Tue, 03/13/2012 - 10:51 | Link to Comment Dr. Engali
Dr. Engali's picture

It looks like they got the right mix in Greece. Impoverish the citizens and transfer the wealth to the bankers. A nice small test incubator for the rest of the world. The people of Greece displayed that they have been successfully neutered and welcomed their new overlords. I expext the same from the rest of the western world.

Tue, 03/13/2012 - 11:17 | Link to Comment eddiebe
eddiebe's picture

Agreed. It looks like they took the gold and gave Greece worthless paper debt, which as an asset in any case went right back to the banks and not to the greek people where it might actually do some good. Too bad people don't see where value truly is. I assume of course that the Greek leadership was and is completely complicit and are profiting along with the banksters. Truly a greek tragedy.

Tue, 03/13/2012 - 12:27 | Link to Comment margaris
margaris's picture

greece is boiling right now.

That fact that no MSM is reporting the greek rage, doesnt mean that the last word has been spoken or that the greek public has capitulated.

The greeks like to hold a grudge for a loooooong time...

Tue, 03/13/2012 - 13:33 | Link to Comment SillySalesmanQu...
SillySalesmanQuestion's picture

If Greece is boiling, then why are there no dead frogs?

Tue, 03/13/2012 - 10:52 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Good to see bridgewater still believes in the infinite growth model.  Good luck with that.  All their models are based on the past economic data with significantly more isolated economies.  Good luck boys, I'll take the other side of that trade just the same.

Tue, 03/13/2012 - 10:54 | Link to Comment Johnny Texas
Johnny Texas's picture

I am just wondering which CB in which Currency system that was fiat got the proper balance and good mix right that is still around today... Answer none- all fiats as we know eventually die a brutal death.. Man's attempt to steal wealth from others via currency manipulation never works.. Ancient Rome, Ancient Greece, the Franc, The British Sterling, and the soon to be dollar. Buy Gold, and if you can't buy Silver which will do much better percentage wise anyways- watch Mike Maloney's gold 20,000 you tube video- it's genius and tells everything

Tue, 03/13/2012 - 10:56 | Link to Comment LawsofPhysics
LawsofPhysics's picture

There you go.  All fiats are dead men walking.  Hedge accordingly.

Tue, 03/13/2012 - 11:11 | Link to Comment scatterbrains
scatterbrains's picture

but should'nt the fed try at least once before the crack up boom gets out of control, try to take everything down demonstrating that they have a handle on the situation ? Granted I expect it will fail and make the acceleration even worse but I still tend to think they will try to put the brakes on run away inflation one more time...  and dead ahead before all control is lost. 

Tue, 03/13/2012 - 10:57 | Link to Comment Scalaris
Scalaris's picture

Just rename debt as "progress expense" and play dead. 

Mainly play dead though.

Tue, 03/13/2012 - 11:00 | Link to Comment sschu
sschu's picture

Although many here disagree, there is a growing number of people who have had enough of Bennie, Bam and these Keynesian shenanigans.  Is that enough to change the path we are presently on?  Not sure.  But the idea that the federal government borrowing $1.5T/year and the Fed printing money to bailout bankers is not sustainable, and more folks know it. 

What does this mean?  I fear that the country lacks the necessary fortitude to do what it takes to fix the problems and there are too many voters right now whose livelihood is completely dependent on the freebies from Uncle Sam.  This implies we will just muddle along. 

So look at Japan as it is now, massive debt, poor demographics, stagnate economy and now toss in the Fuku and trade deficit issues and you have our future.  Our demise (our Fuku) will take a different form, but in the end some global political event will be mismanaged (hard to imagine they could be any more mismanaged than now) we will overextend our resources and this will lead to our demise.    

It is all so sad and unnecessary.  This could have been fixed in 2008/09 and we would have been miles ahead by now.  Not sure the resources and the perseverance are available today to make it so.

sschu

Tue, 03/13/2012 - 11:20 | Link to Comment Vince Clortho
Vince Clortho's picture

Sadly, I think you have a point.  After the bailouts of the TBTF, the housing apocalypse, the Greek Default, and the unprecedented counterfeit printing operation, there is barely a ripple in the streets.

The money masters have become quite brazen.  Their confidence speaks to a complete lack of respect for the common man, who is nothing but a laborer and a debt slave in their carefully crafted scheme.

Apparently the masses are either happy with their situation, or too ignorant to figure out what is going on.

Tue, 03/13/2012 - 13:19 | Link to Comment viahj
viahj's picture

ever try to herd ants with just a stick?  doesn't work, it takes a flood to redirect the ants.  same with the masses.

Tue, 03/13/2012 - 11:03 | Link to Comment Zero Debt
Zero Debt's picture

I still like John Williams (Shadowstast) hyperinflation report better:

http://www.shadowstats.com/article/no-414-hyperinflation-special-report-...

Tue, 03/13/2012 - 11:16 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

+1 I especially enjoyed this part:

'Has the Euro Been Used as a Foil Against the Dollar?

As the U.S. dollar came under heavy selling pressure in September 2011, the global markets suddenly shifted their focus to the euro-area solvency crises, selling euros against dollars.  That event has happened so frequently in recent years, and it appears so counterintuitive, that I suspect the euro has been used on more than occasion as a foil, distracting global currency trading from the perils of the U.S. dollar, since the United States remains the elephant in the bathtub of sovereign solvency problems.'

The idea to discredit all other fiat is now as obvious as a strategy as it is desperate.

 

Tue, 03/13/2012 - 11:04 | Link to Comment adr
adr's picture

Um, a lot more than $21 trillion needs to be defaulted away. The charts here only go until 2009. Since then I bet another $20 tillion has been added to that number, maybe more. You are talking about a number of almost $50 trillion that needs to vaporize.

Also, how the fuck is a debt level 180% of global GDP sustainable? The world would still need to "borrow" 80% more than it produces. Doesn't that come right out and say that even at that level 80% of world GDP is fake??? If you borrow $80 every year while making $100, it only takes a little over two years to end up owing more than the borrowed money plus your income. In two years you will owe $160 while bringing in $180. In the third year you will owe $240 while bringing in $180. Even if you say $10 of income every year went towards paying down debt, you still owe $210 while bringing in $180. The only way to pay off the debt is to either figure out a way to triple your income, or exponentially borrow more money every year. But as the simple math shows, it will never be possible to pay back the debt. Default is inevitable.

It really looks like world GDP from developed countries is actually negative minus borrowed money. Somehow that is sustainable?

The only solution is to end the borrowing of money.

Tue, 03/13/2012 - 11:08 | Link to Comment EmileLargo
EmileLargo's picture

Global Credit Market Debt has gone from $80 Trillion in 2002 to $210 Trillion today. Yes a lot more than $21 Trillion needs to be wiped out.

Tue, 03/13/2012 - 12:33 | Link to Comment Big Slick
Big Slick's picture

The 1.8 x borrowing to GDP # seems to have been a sustainable level for many many years (though I think the number was closer to 1.6), despite your rationale (parts of which I see as rational).  Our problem is a credit spike in the past 10-20 years to 3.6 debt/GDP which IS unsustainable.  Even the 1.8 ratio would SEEM unsustainable, except that we had consistant growth over those years.  Chris Martenson has some really good points regarding the falacy of exponential debt-funded growth as a continual status quo.

 

But using your argument, no one should ever borrow more than even a penny more than they made even if only "for one or two years" because of the increasing debt load.  I'm not sure that's right.  The other side of that argument is the evidence that reasonable debt-funded growth is workable in a normal, healthy capitalists system.  However, this is obviously NOT what we have today.

Only 3 solutions to getting out from debt:

1 - pay the debt (yeah right)

2 - default (okay for Greece (maybe - lets see how the CDS story plays out... even for little old Greece), default DEFINITELY NOT okay for US, Germany, and the like)

3 - Print and inflate (Fed/US cabal demonstrates no hesitation to do this - the problem will be the resistance of buyers to buy further debt under such conditions)

This is why I think the PM-hawks on this site are pretty dead-on.  THE ONLY QUESTION IS TIMING!!!!!  WHO HAS AN ANSWER BASED ON EMPIRICAL EVIDENCE AND HISTORIC DATA - RATHER THAN THE EXTREMELY CONSTRUCTIVE [sarc.] INSIGHTS LIKE: "GOLD, BITCHEZ!!!

 

Tue, 03/13/2012 - 11:11 | Link to Comment riphowardkatz
riphowardkatz's picture

the following from the article is the real cause of the problems we  have which is a philosophy of pragmatism or the absence of principle. They assume there is some magic formula that if we get it right then we can have a good outcome. We need principled decisions based on what is both practical and moral not this rearview looking method of elites tuning the dials and then claiming it would of could of been worse. Down with pragmatism. It is both immoral and impractical to bail out bankers or homeowners. It is both moral and practical for homeowners and bankers to that are bankrupt to be forced into liquidation. It is immoral and impractical for governements to steal wealth through money printing to monetize debt. It is both moral and practical for governments to default and go through austerity so that expenses match income. There are no conflicts when principles rational decisions are made. Pragmatism leads to thousands of conflicts and unintended consquences that begit more measures to counteract and more unintended consequences and so on.

"the differences between deleveragings depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots, and 4) debt  monetization. Each one of these four paths reduces debt/income ratios, but they have different effects on inflation and growth. Debt reduction (i.e., defaults and restructurings) and austerity are both deflationary and depressing while debt monetization is inflationary and stimulative. Ugly deleveragings get these out of balance while beautiful ones properly balance them. In other words, the key is in getting the mix right." 

Tue, 03/13/2012 - 11:34 | Link to Comment eddiebe
eddiebe's picture

Moral hazzard has gone viral.

Tue, 03/13/2012 - 11:06 | Link to Comment EmileLargo
EmileLargo's picture

Í am not sure gold will be openly confiscated. The FDR gold confiscation was due to the dollar's peg to gold. To devalue the peg, this was essential. Today, they don't need to devalue any peg because the dollar isn't pegged.

A worse possibility is capital controls. You could end up with foreign exchange controls in the US. People think this is absurd but that only shows how little history they know. Forex controls were the norm only a few decades ago.

I think there will be massive political pressure to confiscate things like offshore wealth. Unlike most people here, I expect the top 1 percent to find most of their wealth confiscated. The counter argument is that there will be corruption so that some among the top 1 percent won't lose their shirts because they will be insiders (think Soros, Buffett). It will become like a Latin American country (the population is already half way there to being Latin American).  

Tue, 03/13/2012 - 11:11 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Capital controls are already in place in many cases.  I agree with your thinking.  This is exactly where we are heading and don't forget price fixing.  This will make things much worse for the average Joe but will slow the death of fiats in exchange for excellerating trade wars and potentially real wars.  Want to see the future of the U.S. look no further than Latin America or most of India.  Wnat to run a cable or pipline across my property?  Pay the fucking bribes or deal with the local thugs

Tue, 03/13/2012 - 12:22 | Link to Comment toadold
toadold's picture

The IRS and State Department is already trying to claw back money from overseas wages, investments, and etc. from foreign bank accounts.  All they are doing is creating an opourtunity for some country with weapons of mass destruction to offer a safe haven.    Shudder, I just imagined the prospectus from the KGB bank and trust. "Listen Boychick yes we have a reputation of being corrupt but things are relative. We have a 10% corporation tax and thats it.  We sanitize your investments through London and if  Your IRS tries to get your money from our bank we tell them to pound sand with splintery two by four. You want gold, we got gold make you good deal."

Tue, 03/13/2012 - 11:21 | Link to Comment Silveramada
Silveramada's picture

there are really only 2 choices: default or printing, and printing is also a form of default, de facto, raising the debt ceiling every 6 months is another form of default...

Ben and the criminal FED already destroyed 95+% of the purchasing power of the US dollar, what's left will soon go in a hyperinflationary depression, rising energy and food cost, falling real estate price(yes some more) and gold & silver will go to the moon... keynesian scenario is playing out and we can't stop it, but we can buy silver and survive the shit these criminals have planned for us

 

sure you need food water shelter guns and faith in God...

Tue, 03/13/2012 - 11:23 | Link to Comment Cone of Uncertainty
Cone of Uncertainty's picture

There will be no gold confiscation.

But what they will do is mandate that gold transactions must occur using lawful gold, that is gold that is stamped with the Federal Reserve seal.

Any other gold will be useless, since it will not be honored to pay for debts etc., because the dealers/gold buyers etc. will not be able to convert that gold into the new currency.

So basically, any gold in the public domain will be nullified by law.

Tue, 03/13/2012 - 13:08 | Link to Comment Amish Hacker
Amish Hacker's picture

This is one of the silliest claims I have ever heard on ZH. What part of "fungible" don't you understand?

Tue, 03/13/2012 - 14:03 | Link to Comment prole
prole's picture

Impossible to do.

I mean they can do it, they can write any law they want, but gold retains its value over and above any official proclamation. "Laws" and fiat currencies rise and fall through the centuries but gold remains. 

And gold is already "Not be honored to pay for debts etc" but its value remains, nothing can nullify that.

Thu, 03/15/2012 - 01:23 | Link to Comment Tompooz
Tompooz's picture

Agree, no gold confiscation. But the people are going to have to pay a VAT on everything, including all gold and silver transactions.

This also means something that the Eurozone taxman has already enjoyed for many years:   a national monitoring system of all transactions. 

Tue, 03/13/2012 - 11:24 | Link to Comment Disenchanted
Disenchanted's picture

Coming soon to a village near you...brought to you by hyperinflation.

 

The (real) Hunger Games

 

as for the movie coming out...more foreshadowing?

Tue, 03/13/2012 - 11:26 | Link to Comment web bot
web bot's picture

Make no mistake about it... the first shots of WW III will not be fired from behind barbed wire somewhere in the Middle East, or from a missile silo pointed at China. Rather... it will be done from a corner office in the Marriner Eccles building.

Tue, 03/13/2012 - 11:27 | Link to Comment Gromit
Gromit's picture

Dalio seems to make the argument for World Government, otherwise cooperation (G20!?) is unlikely as each nation acts to protect the domestic economy and World trade quickly dries up. With results that diminish the real GDP of nearly all.

Tue, 03/13/2012 - 11:29 | Link to Comment eddiebe
eddiebe's picture

All this inflating would be all right if the resources were actually spent to bring society actual value and not just plastic junk and built in planned obsolescence consumer goods. What we have now is finance for the sake of financial institutions that then make financing available to crony capitalist ventures wether they add to any kind of improvement of societal conditions or not. Quite to the contrary. A race to the bottom is encouraged and supported because it keeps the power structure intact. 

 With that model no matter wether we have inflation or deflation the end is the same. 

Tue, 03/13/2012 - 11:31 | Link to Comment Shizzmoney
Shizzmoney's picture

Wait, inflation booms in a rent seekers economy?!? You don't say!

Notice that the value of PMs goes up in such an economy as well.  Evitability, as Agent Smith said, against not letting people live their lives and crate their OWN wealth as they see fit.

Some say one man's junk is another man's treasure.  I would add that wealth to one man is not the same as another. 

I don't need all the money in the world.  Just enough to buy my freedom; read that again.  That's all money making ability of people is today in the rent-seekers economy: making enough to be free, and not have some corporate overlord run your life 40+ hours a week.

Really good article by Rushkoff on why a "Peer-2-Peer" economy is the way out of this debt mess ,and why the bigwig monopolizers will do anythign to stop P2P business:

http://t.co/BPDo85CI

Tue, 03/13/2012 - 11:38 | Link to Comment tabasco71
tabasco71's picture

If you fill the basket of goods with items which obsolesce at a rapid rate, don't you knock the inflation problem on the head?

As we have recently done in the good old UK, adding ipads into the 'basket of essential everyday items' that we use to observe inflation.

A simple model

2012: Ipad £300 Bread £2

2013: Ipad £100 Bread £50

Looks like inflation is under control to me... sweet, sweet!

Tue, 03/13/2012 - 13:32 | Link to Comment viahj
viahj's picture

until you get hungry

Tue, 03/13/2012 - 11:42 | Link to Comment derryb
derryb's picture

Taking possesion of your gold in a confiscation enviornment is not necessary. The simple passing of confiscation legislation will drive "private hands" gold underground (literally) thus removing it from the economic equation - MISSION ACCOMPLISHED. Hiding it does no good as it will have to remain hidden.

Tue, 03/13/2012 - 11:48 | Link to Comment SheepDog-One
SheepDog-One's picture

It can be used still in a black market though, which is whats growing big time now. 1/10th oz gold coins good for that.

Tue, 03/13/2012 - 11:49 | Link to Comment SheepDog-One
SheepDog-One's picture

Little turbulence around DOW 13,000 for a few weeks? No problem, just fall back a bit and regroup, and charge past 13,000 no problem at all. Good times.

Tue, 03/13/2012 - 11:53 | Link to Comment Shizzmoney
Shizzmoney's picture

[x] what happens when you let Jews run your economy

Tue, 03/13/2012 - 12:09 | Link to Comment tmosley
tmosley's picture

Bankers will steal from you no matter their nationality.

Pretty sure the BoJ isn't run by Jews, for example.

I don't think we need any more genocidal tragedies caused by oversimplification of situations that aren't really that complex to start with.

Tue, 03/13/2012 - 17:02 | Link to Comment akak
akak's picture

.

I don't think we need any more genocidal tragedies caused by oversimplification of situation ...

One man's tragedies are another man's dreams --- just as long as those tragidies/dreams happen to those damned wheel-less, water-system-less, low IQ darkies in Africa (thinking of Trav here).

Tue, 03/13/2012 - 11:56 | Link to Comment Sandmann
Sandmann's picture

The analysis is very interesting but what do you do when the decision-makers stay in Denial Mode and simplyy heap more wood onto the fire ?  There is a major disconnect. Economics posits Rationality but we live with highly Irrational Decision-makers

Tue, 03/13/2012 - 12:00 | Link to Comment Elocutionist
Elocutionist's picture

Gold-denominated reparations weren't forgiven. Germany just finished paying WWI reparations a few years ago as the latest restructuring allowed for repayment after Germany and East Germany were reunited. Of course, it didn't hurt that repayment happened to be accommodated throughout the period in which gold prices were scraping bottom in dollar-denominated terms.

Tue, 03/13/2012 - 12:07 | Link to Comment wtlf555
wtlf555's picture

I may be wrong on this but I don't believe the Fed or Government has a means to print money and foist it on the public. They can buy existing debt or they can issue money to primary dealer (MB) but hyperinflation - as in the Weimar Republic - is always started by demand for money not the govt printing money. First the public wants ALL of their money in hand - as they perceive the death of a fractional reserve banking system. Then they want all their money converted to goods as they perceive the death of the currency.

 

It may be semantics but I don't believe a govt ever causes inflation by printing money. A government prints money because the public demands it. I say this because a number of people seem to believe that increasing the monetary base is "printing" money. It is NOT. And in fact there is little correlation with our current surge in MB and M1 which per capita hasn't surged

Tue, 03/13/2012 - 12:11 | Link to Comment web bot
web bot's picture

You raise a very good point - we are not seeing an increase in the velocity of money, which is ultimately a monetary effect.

So the question is - what would cause an increase in the velocity of money? What events would need to occur to cause a leakage of this massive stimulus into the money supply? This is the question that this excellent piece of work is missing.

Tue, 03/13/2012 - 12:31 | Link to Comment hairball48
hairball48's picture

So the question is - what would cause an increase in the velocity of money?

And event that would cause a massive loss of confidence by the sheeple. Maybe a combination of one or more.... acceleration of municipal bond failures, bank failures, labor strikes, gasoline and food price spikes. Once the sheeple panic and begin spending and buying in earnest, the crackup-boom will be on.

Tue, 03/13/2012 - 12:41 | Link to Comment jimmyjames
jimmyjames's picture

Once the sheeple panic and begin spending and buying in earnest, the crackup-boom will be on.

****************

Spending and buying with what?

All they spent and bought with in the past was credit-"house ATM" and those days are long gone-

Tue, 03/13/2012 - 12:38 | Link to Comment jimmyjames
jimmyjames's picture

So the question is - what would cause an increase in the velocity of money? What events would need to occur to cause a leakage of this massive stimulus into the money supply? This is the question that this excellent piece of work is missing.

*************

Exactly-printing money and giving it to banks who hold it in reserves and wont lend it out is not inflationary-

http://research.stlouisfed.org/fred2/series/WRESBAL

To your question of how to increase velocity-

Lending must come first and that isn't happening and it wont happen because most borrowers are already in debt/bankrupt and the ones that aren't have no reason to borrow-

Comparing Wiemar to today is ridiculous-

Germany "un-pegged" the mark to gold and printed against gold-

Where or what is the peg today in a floating competing currency regime?

How can one currency hyper-inflate against another when every country wants the weakest currency?

What will stop the Euros or Japan or any other country from devaluing in sync with the US or vice-verso-

Tue, 03/13/2012 - 13:47 | Link to Comment web bot
web bot's picture

I like you.

Tue, 03/13/2012 - 14:51 | Link to Comment MachoMan
MachoMan's picture

Expansion of the money supply greater than demand, in and of itself, causes inflationary risk...  potential energy if you will.  The question of inflationary impact is determined by the velocity.  If the money supply contracts prior to velocity gaining steam, then inflation may largely be contained.  However, the problem with this theory is two fold:

1.  THERE IS NEVER ANY MATERIAL CONTRACTION OF THE MONEY SUPPLY; and

2.  THE INTERCONNECTED NATURE OF THE ECONOMIC SYSTEM ENSURES THAT NOT ALL OF THE PRINTING CAN BE CONTAINED.

As a result, the pump is always primed so to speak and the entire currency is always teetering on the ledge.  Moreover, there is a built in timer for how long the charade can last, in that there is a leak that eventually erodes the concrete and drains the reservoir of cumulative printing.

Tue, 03/13/2012 - 17:30 | Link to Comment jimmyjames
jimmyjames's picture

1.  THERE IS NEVER ANY MATERIAL CONTRACTION OF THE MONEY SUPPLY; and

2.  THE INTERCONNECTED NATURE OF THE ECONOMIC SYSTEM ENSURES THAT NOT ALL OF THE PRINTING CAN BE CONTAINED.

As a result, the pump is always primed so to speak and the entire currency is always teetering on the ledge.  Moreover, there is a built in timer for how long the charade can last, in that there is a leak that eventually erodes the concrete and drains the reservoir of cumulative printing.

****************

I agree there is no contraction of the money supply if you only look at currency but as Mises proved--credit is just as much money supply as is currency and it can and is contracting-

As far as money leaking out-the economy will have to recover before velocity can pick up--as in--people being employed and receiving paychecks with wages increasing and assets appreciating-

I think the biggest risk way down the road-will be when the Fed tries to unwind its balance sheet that's loaded with T-bills and garbage-

Unless they can find a way to get consumers working/borrowing and spending-i see little chance of real inflation-

Hyper-inflation will be a political choice by Congress who will have to decide if they want to blow the dollar up by trying to pay off debt by printing-i doubt they will-they like money too much to destroy themselves and their banker buddies-

Tue, 03/13/2012 - 17:43 | Link to Comment akak
akak's picture

I agree there is no contraction of the money supply if you only look at currency but as Mises proved--credit is just as much money supply as is currency and it can and is contracting-

Bullshit --- Mises said no such thing, and in fact pointedly affirmed that credit is most specifically NOT equivalent to money, stating that it is only "near money" at best, and even that only in the short term.  This is where the wildly deluded (and historically ignorant) latter-day deflationists constantly go astray.

 

Wed, 03/14/2012 - 00:49 | Link to Comment jimmyjames
jimmyjames's picture

Bullshit --- Mises said no such thing, and in fact pointedly affirmed that credit is most specifically NOT equivalent to money, stating that it is only "near money" at best, and even that only in the short term.  This is where the wildly deluded (and historically ignorant) latter-day deflationists constantly go astray.

**************

You are a particularly dense-half studied-loud Krugman parroting Keynesian  huh?

NOT equivalent to money, stating that it is only "near money" at best, and even that only in the short term.

***************

The dean of the Austrian School of economics, Ludwig von Mises, in his classic Theory of Money and Credit laid out the framework:

Money supply = standard money + money substitutes

http://mises.org/multimedia/mp3/interviews/Shostak_09-30-2008.mp3

Fractional reserve banking allows the creation of "money substitutes" (fiduciary media) from thin air.

 

*********************

Do you remember this post that was on ZH awhile ago?

http://www.zerohedge.com/news/guest-post-inflation-expansion-counterfeit...

************************

Read this below--3 times at least--maybe 9 for you-

It is important to keep in mind though that this credit creation process – while generating loan assets on the asset side of a bank's balance sheet, also creates liabilities that are in fact money in the broader sense (i.e., they are  not standard money, but an immediately available and transferrable claim to standard money and can be used for final payment). In short, inflationary credit adds to the money supply.

http://www.acting-man.com/?p=13115

 

 

 

Thu, 03/15/2012 - 16:33 | Link to Comment mkkby
mkkby's picture

Look, we are not going to see hyperinflation in the US until a few big things happen:

1 - Europe goes "Greek" one country at a time.  Plus Japan and the UK.  Until all those dominos fall, scared money comes to the US.

2 - Bank/soverign deleveraging ends.  The CBs are printing like mad, but so far they are just filling in a huge hole.  It's not getting out into the velocity because there aren't enough credit worthy borrowers.

If you're worried about it, here's what to do.  Hold all your non-liquid savings in PMs.  When the above 2 things happen, borrow as much as you can.  Take out a huge mortgage, load up credit cards, etc.  When the hyper hits the fan, you either pay it off or just declare bankruptcy.  You can find those PMs in the lake, correct?

Tue, 03/13/2012 - 12:45 | Link to Comment Quinvarius
Quinvarius's picture

A few points you are totally missing. 

You are listening to the lie on money supply.  There is no way our government spends 16 trillion, our banks loan out countless trillions more, and it just disappears.  Even if the money supply numbers were right, they only count the money in the US banking system.  Unfortunately, we export all of our dollars.

During the Hyperinflation in Weimar, the rainforest savages in Brazil were dirt poor and had no money.  The velocity of Marks in the jungle was zero.  Yet, the hyperinflation still happened.  So it really doesn't matter how much money YOU have or YOU spend.  It doesn't even matter how much money your whole tribe spends.  There are other processes and plumbing at work to make hyperinflation happen which are not explained by an ambigous math formula with no defined quantities or your personal experience.

Tue, 03/13/2012 - 12:15 | Link to Comment Spigot
Spigot's picture

I have been arguing for 6 years that hyperinflation is the only course they can take in order to reduce the Debt to GDP ratios. They have tried the easy approach, now its the cattle-prod up the butt hole approach.

Tue, 03/13/2012 - 12:25 | Link to Comment Angus195
Angus195's picture

It is amazing.  The very thieves (central bankers and politicians) who have always stood for the supposition that the yellow metal is useless and of no value, making a mad dash for it when they melt down their own bogus system.  A system they have exclusively profited from for the last 100 years - at the expense of the the rest of us.  It is an oxymoron that will scarcely be understood by the average dumb ass.  It pisses me off to be on the Titanic with a bunch of riddlin and prozac numbed zombies who are still unaware were going down, but who will demand a seat in a life boat they had no hand in constructing.  Make no mistake the dumb asses that don't understand the fraud of fiat money or fractional reserve banking (and they are the majority) will be easily manipulated into believing that what is about to happen is all the fault of 'gold hoarders.'  This article made my day.  FUCKEN GREAT!!!!

Tue, 03/13/2012 - 12:26 | Link to Comment hampsterwheel
hampsterwheel's picture

As the financial problem deepens this is how I see it playing out:

1) A Law will be passed (Financial security and saftey act) that will deem underground transactions - transactions not done through the banking system where there is an electronic footprint - will be deemed illegal and a threat to the nation (Terrorism)

2) Hidden deep in that law will be a requirment that all coin dealers and wholesalers must provide customer lists to the IRS

3) IRS will send out nice letters letting you know they know what you have -

4) PM holders will be able to sell their gold and silver but only through the banking cartel - "certified dealers" so they can track it and tax the s**t out of it.

5) They will make it illegal and a felony to sell gold and silver outside of this banking cartel - then sprinkle the country with undercover TSA "buyers" to catch people and make examples of them - Gitmo for you you damn terrorist...sovereign

6) So you will be able to "own it" no police will crash your door down - but you won't be able to sell it or convert it and you'll be too afraid to list it on craigs list or ebay or meet someone in a public place...

7) You'll have to get it out of the country - and past TSA - which transporting it will by then have been made illegal (see point 1) -

You can't fight the fed.... they are not going to let people take a few ounces of gold and convert that the a dying fiat so as to pay off dollar denominated debts -

Tue, 03/13/2012 - 12:38 | Link to Comment hairball48
hairball48's picture

Maybe Tide will be the new "currency" in the coming black market?

http://www.foxnews.com/us/2012/03/12/police-take-on-rising-wave-tide-det...

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