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UBS Issues Hyperinflation Warning For US And UK, Calls It Purely "A Fiscal Phenomenon"

Tyler Durden's picture




 

Supposedly warnings about the latent inflationary threat posed by simply ridiculous non-financial debt levels (as presented most recently here yesterday), not to mention financial debt (which as MF Global's rehypothecated implosion demonstrated so vividly can be any number between minus and plus infinity, thank you London "regulators") from the blogosphere can be ignored ($15 trillion melting ice cube that is shadow banking which also doubles as the best inflationary buffer known to man, notwithstanding). After all, what does the blogosphere know: remember, Libor has been repeatedly proven to not be manipulated, as the mainstream media so strenly claimed year after year after year until it had no choice but to do a 180 and pretend its advertiser paid for lies in the past 3 years never existed. But when these same warnings emanate from the "very serious people" at UBS, economists with a Ph.D. at that, it may be a little more difficult to dismiss them. So here it is: "Hyperinflation Revisited" from Caesar Lack, PhD, economist.

From UBS, highlights ours.

Global Risk Watch: Hyperinflation Revisited

Hyperinflation: Paper money only has a value because of the confidence that the money can be exchanged for a certain quantity of goods or services in the future. If this confidence is eroded, hyperinflation becomes a threat. If holders of cash start to question the future purchasing power of the currency and switch into real assets, asset prices start to rise and the purchasing power of money starts to fall. Other cash holders may realize the falling purchasing power of their money and join the exit from paper into real assets. When this self-reinforcing cycle turns into a panic, we have hyperinflation. The classic examples of hyperinflation are Germany in the 1920s, Hungary after the Second World War, and Zimbabwe, where hyperinflation ended in 2009. Indeed, hyperinflation is not that rare at all. Economist Peter Bernholz has identified no fewer than 28 cases of hyperinflation in the 20th century.

Our monthly global inflation barometer tracks the risks to our global inflation outlook as part of our “Global risk watch” series. Apart from deflation and high inflation, we identify hyperinflation as a third risk to our view of moderate global inflation rates. We currently see it as very unlikely that any of these three risk scenarios will materialize over the next 12 months, i.e. we estimate their probability at below 10%. However, given the devastating effects hyperinflation would have, we want to explore the risk of hyperinflation in more detail.

Hyperinflation has little to do with "normal" price inflation. In particular, hyperinflation is not an escalation of "normal" inflation. "Normal" inflation denotes a steady and continuous decline in the purchasing power of money, which is ultimately attributable to an increase in the money supply.

Hyperinflation, on the other hand, is a collapse of confidence in money, which results in an accelerating flight out of money into real assets and goods, and thus an accelerating loss of the purchasing power of money.

Hyperinflation is a fiscal phenomenon

Ultimately, hyperinflation is a fiscal phenomenon; that is, hyperinflation results from unsustainable fiscal deficits. Peter Bernholz notes that historically, cases of hyperinflation have been preceded by the central bank monetizing a significant proportion of the government deficit.  After investigating 29 hyperinflationary episodes, 28 of which happened in the 20th century, Bernholz writes: "We draw the conclusion that the creation of money to finance a public budget deficit has been the reason for hyperinflation."

When government deficits become unsustainable, austerity is often the first reaction. Austerity is deflationary, recessionary, and painful. If the austerity necessary to balance the budget is deemed to be too painful, a government can either choose to default or to inflate the currency.

If the country concerned has its own currency, it will usually choose to inflate it. If government finances do not improve sufficiently, confidence in the currency may evaporate at some point and hyperinflation may arise. Hyperinflation is more closely related to deflation than to "normal" high inflation, as hyperinflation can be viewed as the result of a failed attempt at printing money to avoid the deflation that would be caused by austerity.

In our view, there is some risk that hyperinflation could arise in one or more large currencies. As a consequence of the burst credit bubble, we are seeing unsustainable government deficits in many large countries. Deleveraging and austerity are deflationary and recessionary. Central banks around the world are fighting these deflationary and recessionary tendencies by massively easing monetary policy. Having exhausted the interest rate instrument, global central banks are increasingly turning to the alternative measures of quantitative and qualitative easing (see Box). While direct government debt monetization by central banks is still the exception, the elaborate toolbox of central banks allows for indirect debt monetization, for example, by accepting government bonds as collateral in temporary but repeated operations. In the two following sections, we illustrate the current unsustainable developments in global fiscal and monetary policy.
Government debt rising at an unsustainable speed In the wake of the financial crisis of 2008, government deficits increased massively around the world. However, despite widespread commitments to austerity, government deficits are still at unsustainable levels (see Fig. 1).

According to International Monetary Fund (IMF) estimates, the combined government net borrowing of the world's 10 largest deficit countries will amount to USD 2.657 trn (or 5.9% of GDP on average) in 2012, half of which is due to the US alone. The 2012 deficits are only slightly lower than the deficits in the three previous post-crisis years. Before the financial crisis (1990–2007), average net borrowing of the Top 10 deficit countries amounted to 3.7% of GDP; from 2009–2012, net borrowing climbed to 7.4% on average. Average annual nominal GDP growth since 1990 has amounted to 5% in these countries. In order to be sustainable, i.e. in order for a country's government debt/GDP ratio to decline, its deficit must fall below the nominal growth rate of GDP. Given the current low growth and inflation environment, the deficits would actually have to fall significantly below the 5% mark in order to stabilize the debt/GDP ratio. Note that the 2012 IMF forecast of a net borrowing of 5.9% for the 10 high-deficit countries could well turn out to be too optimistic, as the recent negative economic news has worsened the fiscal outlook.

Global monetary policy expansion accelerated

Fig. 2 illustrates the accelerating expansion of monetary policy after the financial crisis of 2008. In the years leading up to the collapse of Lehman (2002–2008), the global monetary base grew at an average annual rate of 10.5% (in local currencies, weighted by GDP). Since the Lehman collapse, the average annual growth of the global monetary base has more than doubled to 21.6%. Currently, the global monetary base amounts to USD 14.1 trn and is up 20.4% on the previous year.

Fig. 3 shows the global monetary policy expansion and the combined net borrowing of the Top 10 deficit countries. In fact, in 2011, the global central bank balance sheet and the global monetary base expansion were about equal to the deficit countries' combined net borrowing. Although central banks do not directly monetize government deficits (with some exceptions), one can argue that central banks are at least accommodating the current excessive governments deficits.

Neither the government deficits of many large countries nor the speed of the current global monetary policy expansion are sustainable. If government finances do not improve and the global monetary policy expansion is not halted in time, hyperinflation could set in. However, it is not clear how much fiscal and monetary policy can expand before a loss of confidence in paper money sets in.

Countries at risk

Bernholz notes that preceding a case of hyperinflation, government deficits usually amount to more than 20% of government expenditures, and that deficits amounting to 40% or more of government expenditures clearly cannot be maintained.

Of the Top 10 deficit countries, India, the US, Japan, Spain and the UK all exhibit government net borrowing above 20% of government  expenditures (Table 1). However, Spain does not have its own currency and therefore cannot trigger hyperinflation on its own. The government net borrowing of the Eurozone as a whole amounts to only 11% of total government expenditures.

The euro is therefore not a prime candidate for hyperinflation, as long as the core countries do not leave the currency union. Although India is one of the Top 10 deficit countries, an outbreak of hyperinflation there would be of relatively minor concern to the global investor. Unlike the US and the UK, Japan is a creditor nation and not a debtor nation. In fact, Japan has the world's largest net international investment position (see Fig. 4), while the US is the world's largest net debtor. We think that a creditor nation is less at risk of hyperinflation than a debtor nation, as a debtor nation relies not only on the confidence of domestic creditors, but also of foreign creditors. We therefore think that the hyperinflation risk to global investors is largest in the US and the UK.

Indicators to watch

The more the fiscal situation deteriorates and the more central banks debase their currencies, the higher the risk of a loss of confidence in the future purchasing power of money. Indicators to watch in order to determine the risk of hyperinflation therefore pertain to the fiscal situation and monetary policy stance in high-deficit countries. Note that current government deficits and the current size of central bank balance sheets are not sufficient to indicate the sustainability of the fiscal or monetary policy stance and thus, the risk of hyperinflation. The fiscal situation can worsen without affecting the current fiscal deficit, for example when governments assume contingent liabilities of the banking system or when the economic outlook worsens unexpectedly. Similarly, the monetary policy stance can expand without affecting the size of the central bank balance sheet. This happens for example when central banks lower collateral requirements or monetary policy rates, in particular the interest rate paid on reserves deposited with the central bank. A significant deterioration of the fiscal situation or a significant expansion of the monetary policy stance in the large-deficit countries could lead us to increase the probability we assign to the risk of hyperinflation.

Gold – the canary in the coalmine

Due to its long standing as the foremost, non-inflatable, liquid alternative currency, gold is the first destination for wealth fleeing from paper  money into real assets. Gold can be considered a hyperinflation hedge, and its price can be considered an indicator for the probability of hyperinflation. A sudden rise in the price of gold would be a warning sign that the risk of hyperinflation is increasing, in particular if it went along with a worsening of the fiscal situation in the deficit countries and an easing of monetary policy. Not only gold, but also other commodities, as well as the stock market, would profit from investors fleeing from money and from government debt. Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation. We will continue to monitor global inflation developments and change our risk assessment in the global inflation monitor according to current events.

 

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Wed, 07/18/2012 - 14:25 | 2629249 sdmjake
sdmjake's picture

"In a social democracy with a fiat currency all roads lead to inflation"   - Bill Fleckenstein

Wed, 07/18/2012 - 14:26 | 2629258 sunaJ
sunaJ's picture

So easy, a caveman can understand it.  Thanks, UBS, for your "expertise."

Wed, 07/18/2012 - 14:36 | 2629304 SheepRevolution
SheepRevolution's picture

<------ 5000 USD for 1 oz of Silver!

<------ 50 USD for 1 oz of Silver!

Wed, 07/18/2012 - 14:50 | 2629393 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

King Dollar!

Wed, 07/18/2012 - 14:59 | 2629443 The Monkey
The Monkey's picture

Hyperinflation with a 2% inflation target... They better hurry up and get some more headroom on that target.

Wed, 07/18/2012 - 15:01 | 2629452 Pladizow
Pladizow's picture

"Mo Money, Mo Problems" - Sean Puff Diddy Daddy Puffy Combs.

Insightful without a Clue!

Wed, 07/18/2012 - 15:09 | 2629482 JPM Hater001
JPM Hater001's picture

Looks like I picked the wrong week to go to the Bohemian Grove.

Wed, 07/18/2012 - 15:25 | 2629544 Race Car Driver
Race Car Driver's picture

I'd love to join ya, but I gotta galt.

Wed, 07/18/2012 - 16:08 | 2629721 FreeSlave
FreeSlave's picture

sorry for this post, but just wanted to spread the news:

Handcuffed man shot twice by San Francisco police - witness reports

http://rt.com/usa/news/man-shot-police-witness-517/ 

https://www.youtube.com/watch?v=Xx24DAkryNQ&feature=youtu.be

https://www.youtube.com/watch?v=5v0zYmE46V8&feature=plcp

Wed, 07/18/2012 - 16:15 | 2629742 Temporalist
Temporalist's picture

This is my snippet of the report that I think cuts to the point:

"Bernholz writes: "We draw the conclusion that the creation of money to finance a public budget deficit has been the reason for hyperinflation."

When government deficits become unsustainable, austerity is often the first reaction. Austerity is deflationary, recessionary, and painful. If the austerity necessary to balance the budget is deemed to be too painful, a government can either choose to default or to inflate the currency.

If the country concerned has its own currency, it will usually choose to inflate it. If government finances do not improve sufficiently, confidence in the currency may evaporate at some point and hyperinflation may arise. Hyperinflation is more closely related to deflation than to "normal" high inflation, as hyperinflation can be viewed as the result of a failed attempt at printing money to avoid the deflation that would be caused by austerity."

Wed, 07/18/2012 - 18:14 | 2629752 Pinto Currency
Pinto Currency's picture

 

So the central banks blow a debt bubble over two decades that has reached total debt (Federal, state, municipal, corporate, consumer, etc) approaching 400% of GDP for each of Europe, the US and Japan. 

Now UBS points out that the problem is purely a fiscal problem.  It is not.  The collapsing debt bubble would still exist if all of the governments drastically cut their spending.

We still face collapse and hyperinflation because of the collapsing debt bubble no matter what government does with its spending.  The Keynesian approach of <control> <p> hides the symptoms and allows blame switching by the guilty parties (central banks and the bullion bank gold price riggers - is UBS a bullion bank?).

Wed, 07/18/2012 - 18:17 | 2629995 MrSteve
MrSteve's picture

Your points are valid but they are hedged against your assertions: note, they said " " could signal the approach of hyperinflation. " " The conditional subjunctive, "could" is their escape clause. Reality may not be so finely sliced as they would like it to be.

This is a small point that only points to the corporate CYA mentality of the original author. Everyone at ZH knows the road to hyperI runs through precious metals.

 

 

Wed, 07/18/2012 - 20:07 | 2630197 Pinto Currency
Pinto Currency's picture

 

The quote was:

"Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation. We will continue to monitor global inflation developments and change our risk assessment in the global inflation monitor according to current events."

These words do not indicate that in fact this UBS sudden realization does not reflect anything that UBS have not known about for more than a decade.  It is just now that the public gets to read about it.

Wed, 07/18/2012 - 20:45 | 2630312 engineertheeconomy
engineertheeconomy's picture

If you plot the cost of a box of Corn Flakes or a gallon of gas  on a chart you will see a steep kyperinflationary hyperbolic curve that even your four wheel drive couldn't climb

Wed, 07/18/2012 - 22:22 | 2630557 Joseph Jones
Joseph Jones's picture

About ten years ago an SFFD Lieutenant, of his own volition, not ordered to do it, tackled a guy on a roof threatening suicide.  The guy fell off the roof and died.  I kid you not.  Brings new meaning to the fireman term "risking your life," in this case, "your" is the citizen the fire man is supposed to "serve," not the fireman.   

Wed, 07/18/2012 - 16:13 | 2629737 JPM Hater001
JPM Hater001's picture

Talk about inflation you should see what a 14 year ofl boy is going for this year.

 

I hear we aren't even using a real baby for the sacrifice this year.

Fucking cutbacks.

Wed, 07/18/2012 - 18:21 | 2630006 ThreeWishes
ThreeWishes's picture

Where all F$$k'd

Wed, 07/18/2012 - 16:03 | 2629698 Pool Shark
Pool Shark's picture

 

 

Now we know what UBS stands for:

Utter BullShit

 

Wed, 07/18/2012 - 17:25 | 2629908 kito
kito's picture

next time you cite my work or im coming after you............

Wed, 07/18/2012 - 15:08 | 2629479 I am more equal...
I am more equal than others's picture

You say Hyper I say Hydra-inflation.  Let the 8 headed beast out. Bernake has complete his second of twelve tasks to destroy the earth. 

So it is written, so let it be done.

Wed, 07/18/2012 - 15:41 | 2629590 RockyRacoon
RockyRacoon's picture

Nobody gets anywhere on this argument until all parties are using the same vocabulary and agree on definitions. Even those defining the word can't agree amongst themselves:

Inflation Rate
Inflation refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. Mainstream economist views can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities. Related concepts include: deflation, a general falling level of prices; disinflation, the reduction of the rate of inflation; hyper-inflation, an out-of-control inflationary spiral; stagflation, a combination of inflation and poor economic growth; and reflation, which is an attempt to raise prices to counteract deflationary pressures.
Wed, 07/18/2012 - 16:27 | 2629778 Divine Wind
Divine Wind's picture

Nice post. Thank you for this.

 

Wed, 07/18/2012 - 19:10 | 2630078 Shigure
Shigure's picture

This is what the FEASTA report "Trade-Off -
Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse" said about the definitions of inflation and deflation:

"In discussing this we need to be clear about the definitions of inflation
and deflation. Often, inflation and deflation are defined in terms of rising and falling
prices. These are secondary effects. One can have rising prices in a deflationary
environment. In this study, inflation and deflation are a rise or fall in money + credit
relative to GDP. Debt deflation, even without rising food and energy prices, leads to
reduced discretionary spending as was discussed earlier. Rising food and energy prices,
because they are at the heart of non-discretionary expenditure, lead to further squeezes on
discretionary spending, credit issuance, and the ability to service debt."

http://www.zerohedge.com/news/trade-study-global-systemic-collapse

Wed, 07/18/2012 - 15:32 | 2629567 Muppet of the U...
Muppet of the Universe's picture

Full disclosure:  long dollar at time of writing

Wed, 07/18/2012 - 17:05 | 2629875 Spitzer
Spitzer's picture

The government net borrowing of the Eurozone as a whole amounts to only 11% of total government expenditures.

King EURO MOFO's

Thu, 07/19/2012 - 02:51 | 2630904 Ghordius
Ghordius's picture

Spitzer, 11% net borrowing vs total government expenditures is still an horrific number. It's roughly the equivalent of 25% if you have the global reserve currency status/privilege. Having said that, I agree with the article, a 10% hyperinflation chance for the USD is a good estimate.

Gonzalo Lira made the point a few years ago that the pre-Volker inflation was actually an incipient (albeit stopped) hyperinflation - an interesting theory.

Money/Currency is a social phenomenon, too. Trust is the real currency of banks and governments.

Wed, 07/18/2012 - 17:31 | 2629920 negative rates
negative rates's picture

Ditto, find me the MONEY!

Wed, 07/18/2012 - 14:51 | 2629404 Yohimbo
Yohimbo's picture

<------ 5000 USD for 1 loaf of bread!

<------ Inflation adjusted $5000 / per hour labor wages!

Wed, 07/18/2012 - 16:22 | 2629760 Mitch Comestein
Mitch Comestein's picture

$5000 for one silver ounce.  Please no.  I would be murdered just trying to sell one ounce.   My neighbors would eat my dog.  I don't want to live in that world.

Wed, 07/18/2012 - 16:33 | 2629793 ATM
ATM's picture

Would your neighbors murder you know for one ounce of silver?

If not what difference does it make? If silver is $5g an ounce that only means the $5g ain't worth shit because one ounce of silver ain't worth shit today.

Wed, 07/18/2012 - 17:57 | 2629954 JamesBond
JamesBond's picture

people are mugged and murdered for far less amounts in their pockets than an ounce of silver

go to harlem, stand on a box and yell you have silver coins in your pocket....

jb

Wed, 07/18/2012 - 20:43 | 2630297 dynomutt
dynomutt's picture

Yeah, the answer to that would be:

 

That's nice, got an iphone?

 

Anyone in Harlem young enough to be a hoodlum thug could give two shits about a silver coin.  I'd also point out that I think that you have an entirely ill-conceived idea of what Harlem is like.

Thu, 07/19/2012 - 09:18 | 2631436 Lord Koos
Lord Koos's picture

+1

Thu, 07/19/2012 - 03:37 | 2630927 SAT 800
SAT 800's picture

The world is not going to respond to what you "want".

Wed, 07/18/2012 - 14:46 | 2629366 CosmicDebris
CosmicDebris's picture

J.H.C.

I remember learning basics like this in High School years ago, and understanding them.  And I am still only a fledgeling when it comes to economics, but this shit is elementary. 

One thing is for sure, when the 'experts' words start to appear on the more 'expert' media outlets...well you probably already know.  Fuckin' nuts.  Just a matter of when now.

Wed, 07/18/2012 - 14:57 | 2629434 Unprepared
Unprepared's picture

"When this self-reinforcing cycle turns into a panic, we have hyperinflation"

 

So Basically, hyperinflation is a a Central Bank run?

Thu, 07/19/2012 - 03:49 | 2630934 SAT 800
SAT 800's picture

No, it's not a central bank run. They tried to explain to you; which is the single most striking and most remarkable fact you will learn from arduous study of financial history, that it is a mass psychology phenomenon. The "product" the masters of the universe have to sell is "full faith and credit"; ie. credibility. When that is gone, it's over. Perhaps 1.5% of the entities than have disposable capital own Silver now as a consciously determined alternative to paper; when this number reaches 5%; you will understand everything. "it will all become clear later".

Wed, 07/18/2012 - 15:02 | 2629457 Silver Bug
Silver Bug's picture

Hold tight your gold and silver. Hyperinflation is guarenteed, because QE to infinity is guarenteed.

 

http://goldisking.blogspot.ca/

Wed, 07/18/2012 - 15:36 | 2629578 Rich Bagg
Rich Bagg's picture

You're in the same boat as Cramer and CNBC bull monkeys.  LMFAO!!!

 

 

Wed, 07/18/2012 - 19:55 | 2630161 Jungle Jim
Jungle Jim's picture

Hold tight for how long? Guaranteed when?

I, and I alone, know where more than a kilo of gold, and almost fifty kilos of silver, are buried deep. I have no job and no other income from any source whatever. I have rent and many bills to pay, including about $5,700 a month, every month, to a nursing home for my father's room and board there alone. (Not counting his pharmacy bills and his doctor's bills.) I have only $16,000 left in FRNs. That will very soon be gone. Then there are only the PMs.

When will their buying power increase? I don't have decades, or years, or months. I have weeks.

Jim

Wed, 07/18/2012 - 20:55 | 2630335 engineertheeconomy
engineertheeconomy's picture

Hold out as long as you can. Around or after the election the Metals will most likely be back up to high tide. Hope you're not overweight in real estate, it's continuing to sink faster than the Titanic 

Wed, 07/18/2012 - 21:55 | 2630486 Jungle Jim
Jungle Jim's picture

I have no real estate of my own. Just my Dad's old house, which I am responsible for, but which is still in his name. It is fully paid for, but has been in unlivable condition since before he went into the nursing home four years ago. Which is why I have not moved back in there to live rent-free these past four years.

I reckon it's worth about $67,000 on the market. I have paid to keep all the utilities turned on in it, and I have paid for all the maintenance and general upkeep, and repairs, and city and county property taxes, and insurance premiums, for four years now. For a place I can't live in. Where nobody could live, except maybe some hobo squatters.

I'd gladly sell the place, IF there was some better place in which to safely store its contents, which are worth more (at least to me) than the building itself.

Jim

Thu, 07/19/2012 - 02:44 | 2630897 cranky-old-geezer
cranky-old-geezer's picture

 

 

Turn your dad's care over to the state.  They'll take the house and other assets and cover his nursing home and medical going forward.

This is not legal advice.  Discuss these things with an attorney, accountant, etc.

 

Wed, 07/18/2012 - 15:13 | 2629494 Carl Spackler
Carl Spackler's picture

"Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation."    - UBS Economist

It appears the UBS Economist didn't think the matter through.  This is a total sheeple quote.

Hyperinflation is not "approaching" when gold, commodities, real property rise while financial assets (currencey and debt) simultaneously fall, it is already there!  The data are retrospective in nature (i.e., showinf things that already happened), so hyperinflation is there, and it is too late to do anything about it... sheeple.

Wed, 07/18/2012 - 16:25 | 2629768 donsluck
donsluck's picture

I am forced to disagree. The majority of price increase for, say, gold, occured while goods prices were only going up slowly. The commodities arena is predictive indeed, sometimes way ahead of the actual hyper-inflation.

Wed, 07/18/2012 - 14:29 | 2629268 Cognitive Dissonance
Cognitive Dissonance's picture

"Paper money only has a value because of the confidence that the money can be exchanged for a certain quantity of goods or services in the future."

Faith and Belief. In the end it's the ONLY (cognitive) currency that really matters.

Wed, 07/18/2012 - 14:34 | 2629295 Buckaroo Banzai
Buckaroo Banzai's picture

Actually, all money-- including precious metals money-- only has value because of the confidence that the money can be exchanged for a certain quantity of goods or services.

It's simply much easier to have confidence in precious metals money, due to the extreme difficulty associated with actually producing it.

Wed, 07/18/2012 - 14:42 | 2629333 Cognitive Dissonance
Cognitive Dissonance's picture

I agree. That's why I did not identify PMs as being the only currency that matters, but rather faith and belief.

Wed, 07/18/2012 - 14:41 | 2629332 MillionDollarBoner_
MillionDollarBoner_'s picture

Faith and Belief.

Hope. Change you can believe in ;o)

Wed, 07/18/2012 - 15:48 | 2629630 roadhazard
roadhazard's picture

Hope & Change ... time for a change...blah blah blah, it must be an election year.

Wed, 07/18/2012 - 15:58 | 2629668 Babushka
Babushka's picture

Hopium is very cheap and fully legal this days you can get a bag full of it for some spare change...

Wed, 07/18/2012 - 17:56 | 2629950 ozzzo
ozzzo's picture

Of course I believe in change! How could I not, when it is jingling in my pocket?

Wed, 07/18/2012 - 14:40 | 2629331 graneros
graneros's picture

Man Jake you've got to change that avatar.  I like to read what you have to say but it's hard (no pun intended) with that avatar staring at me.

Wed, 07/18/2012 - 17:06 | 2629879 Agent P
Agent P's picture

Don't listen to him, Jake!  Please, for the love of God, don't listen to him!

Wed, 07/18/2012 - 14:42 | 2629344 battle axe
battle axe's picture

PRINT

Wed, 07/18/2012 - 14:59 | 2629445 Drag Racer
Drag Racer's picture

Cntrl-Alt-BOMB...

Wed, 07/18/2012 - 14:52 | 2629409 Jake88
Jake88's picture

how you doin?

Wed, 07/18/2012 - 15:05 | 2629469 spankthebernank
spankthebernank's picture

Doesn't there have to be money available to the spenders i.e. the middle class for inflation to take root?  It seems to me that the spenders, the ones that comprise 70% of GDP, DON'T HAVE ANY MONEY TO CHASE GOODS!  This article should make sense technically, but currently intuitively, it does not.

Wed, 07/18/2012 - 15:13 | 2629495 CrockettAlmanac.com
CrockettAlmanac.com's picture

Half of the US population receives a check of one kind or another from the government. That will be the conduit.

Wed, 07/18/2012 - 16:28 | 2629782 donsluck
donsluck's picture

Dissed you for your black and white thinking. "Don't have any money" is incorrect. Very few have NO money.

Thu, 07/19/2012 - 03:57 | 2630938 SAT 800
SAT 800's picture

In the process of studying financial history you will have a revelation. they didn't even mention chasing goods. When people don't want to hold the "money"; the deal goes down. There is nothing but faith; attitude, opinion. belief. nothing. nothing else. It's a very radical insight.

Wed, 07/18/2012 - 14:26 | 2629251 ACP
ACP's picture

Fiscally, all the crap that is worth nothing will actually be able to buy nothing.

Wed, 07/18/2012 - 14:26 | 2629252 runlevel
runlevel's picture

let the games begin! <heidonism bot> 

Wed, 07/18/2012 - 14:26 | 2629257 Cognitive Dissonance
Cognitive Dissonance's picture

And of course Gold and Silver are still trolling along down on major support. When PMs lift off it's going to be spectacular.

I just wonder how many people will still be holding when they do.

Wed, 07/18/2012 - 14:29 | 2629272 Long-John-Silver
Long-John-Silver's picture

I wonder how many will discover they are holding worthless paper Gold and Silver.

Wed, 07/18/2012 - 14:32 | 2629281 Cognitive Dissonance
Cognitive Dissonance's picture

I suspect at least 10 times more than are holding the physical. At least.

I bet they'll be even more pissed off than those GM bond holders were.

Wed, 07/18/2012 - 14:46 | 2629371 DaveyJones
DaveyJones's picture

I'll see your ten and mutiply it by ten

Here's a funny article: Why Paper Gold is Better

 http://articles.economictimes.indiatimes.com/2012-04-23/news/31386962_1_paper-gold-gold-etf-units-physical-gold

Wed, 07/18/2012 - 15:51 | 2629643 Hulk
Hulk's picture

Yes, the real ratio lies between 40 nad 80...

Wed, 07/18/2012 - 14:47 | 2629377 graneros
graneros's picture

My guess is those that are holding paper have the where with all to do so and are hoping for a HUGE payday.  I'll bet they have a shitload of physical in their home safes though.

Wed, 07/18/2012 - 14:58 | 2629437 TrumpXVI
TrumpXVI's picture

Yup.

They have both.

It's the best way to go if you need a short term play, a medium term play and a long term hedge.

Wed, 07/18/2012 - 15:01 | 2629442 Cognitive Dissonance
Cognitive Dissonance's picture

I am sure you are correct in some cases, though not as much as you might think. In my experience many of those who hold paper Gold really do think they are holding something "as good as Gold" and have very little, if any, home in the safe.

Not that you said this, but in my book anyone holding physical PMs in order to make a "killing" are holding for the wrong reasons. Wealth retention, not potential growth, is why we should be holding. That doesn't mean the potential for explosive growth is not there. But if our intent is solid and we are centered and settled with our decision to own PMs, then no matter what happens (even if the current paper currency continues on for another 5-10 years) we will be OK with it.

Wed, 07/18/2012 - 15:29 | 2629557 DaveyJones
DaveyJones's picture

Agree. Think a lot of regular folks think their holding anything but paper. This very thing happened to my mother in law who finally bought gold through her broker. I asked her if it was physical gold and she said oh I'm sure it is. After checking, voila

Wed, 07/18/2012 - 15:41 | 2629596 Winston Churchill
Winston Churchill's picture

Gold is for the other side of hell.

Paper in hell,hell no.

Wed, 07/18/2012 - 15:37 | 2629582 terryfuckwit
terryfuckwit's picture

I would love to believe in a fund like sprotts but not until there is some closure on the current fiat system. the odds at the moment are greater than 50% on any IOU you are dealing with a lying bastard. 

this is confirmed in fuckwits remarkeable and frank thesis on "lieocratic bastardry in banking"

Wed, 07/18/2012 - 14:33 | 2629292 AC_Doctor
AC_Doctor's picture

We could wake up one sunny day in September and find out that all available gold and silver has been spoken for, while the price quadruples overnight and the public is left buying Minelab metal detectors and going through $500 boxes of rolled half dollars to get a bit of AU!

Wed, 07/18/2012 - 15:19 | 2629520 CrockettAlmanac.com
CrockettAlmanac.com's picture

Some Sunny Day:

 

http://www.youtube.com/watch?v=s4VlruVG81w

 

(Does anybody here remember Vera Lynn?)

Wed, 07/18/2012 - 15:44 | 2629615 terryfuckwit
terryfuckwit's picture

tommy coopers epic version

pure and utter class!!

http://www.youtube.com/watch?v=rGKPI8ygsDw

Wed, 07/18/2012 - 16:12 | 2629732 Piranhanoia
Piranhanoia's picture

"You're going to show him the big board?"

Wed, 07/18/2012 - 16:19 | 2629755 Bam_Man
Bam_Man's picture

"Gentlemen! You can't fight in here - this is the War Room!"

Wed, 07/18/2012 - 15:44 | 2629614 Winston Churchill
Winston Churchill's picture

Exactly what will happen when the music stops.

Have you got a day in September in mind ?

Wed, 07/18/2012 - 15:51 | 2629644 Cognitive Dissonance
Cognitive Dissonance's picture

9/11

Just because.........well, cus they've used that day before.

Wed, 07/18/2012 - 23:40 | 2630723 Bansters-in-my-...
Bansters-in-my- feces's picture

I hope Blythe and  Benny B SHIT THIER PANTS AND PUKE WHEN THE METALS TAKE OFF.

Thu, 07/19/2012 - 03:58 | 2630939 SAT 800
SAT 800's picture

Obviously, if price increases in PM's occur, it will be because of more "holders" not less. Logic has failed you, again.

Wed, 07/18/2012 - 14:28 | 2629269 buzzsaw99
buzzsaw99's picture

They could have shortened that report into just two words: GOLD BITCHEZ!

Wed, 07/18/2012 - 14:29 | 2629273 BlackGoldTexasTea
BlackGoldTexasTea's picture

DEFCON 1 will distract people from the hyperinflation.

Wed, 07/18/2012 - 14:39 | 2629321 BlackGoldTexasTea
BlackGoldTexasTea's picture

Oh, and the fiscal deficits are only possible because of monetary policy.

Actual free-market interest rates and actual floating, competing currencies would have forced fiscal discipline a very long time ago.  But, that's not nearly as much fun.  The whole point of life is figuring out how to get a free lunch with free wine and dessert.

Wed, 07/18/2012 - 14:56 | 2629428 Jake88
Jake88's picture

after the election. no joke.

Wed, 07/18/2012 - 15:10 | 2629474 BlackGoldTexasTea
BlackGoldTexasTea's picture

Closing the gold window gave us an epic free lunch and allowed the US to kick the fiscal can (Vietnam, Great Society bills for instance) down the road, allowing us to trade pieces of paper for goods and services for the past fourty years.

The US trade deficit is out of control.  The only reason the world still accepts US paper is the military.

http://www.time.com/time/magazine/article/0,9171,998512,00.html

When the ships stop coming to America, no proclamation from a sociopath in the White House will change anything.  Most Americans have no understanding of this reserve currency system and the petrodollar system.  They will demand war because it will be blamed on someone else.  After all, this is America.  We're rich - just like Bernie Madoff was rich.

Oh, not to mention the fact that it is mathematically impossible for Bernanke to raise interest rates now like Volcker did.  Any significant rise in interest rates would send the US government into insolvency and default and into a Greek-like debt spiral.

Wed, 07/18/2012 - 14:30 | 2629274 Xibalba
Xibalba's picture

"There is no threat of that" T. Geithner

Wed, 07/18/2012 - 14:36 | 2629303 Buckaroo Banzai
Buckaroo Banzai's picture

Well it's not like anybody still believes a word he says. So no harm done.

Wed, 07/18/2012 - 14:45 | 2629360 Xibalba
Xibalba's picture

hahaha...What the hell is he doing speaking at a CNBC conference about Delivering Alpha shit anyways?  Shouldn't he be hard at 'work'? 

Wed, 07/18/2012 - 14:48 | 2629379 DaveyJones
DaveyJones's picture

His lies are like his forehead. They never end

Wed, 07/18/2012 - 15:22 | 2629534 CrockettAlmanac.com
CrockettAlmanac.com's picture

The man has no eyebrows.

Wed, 07/18/2012 - 15:33 | 2629570 DaveyJones
DaveyJones's picture

he misunderstood his mother and thought they were the window to his soul, so he shaved them.

Wed, 07/18/2012 - 19:03 | 2630070 jeezusmurphy
jeezusmurphy's picture

you mean his fivehead.

Wed, 07/18/2012 - 14:57 | 2629433 Jake88
Jake88's picture

And we even laughed then.

Wed, 07/18/2012 - 14:30 | 2629277 ugmug
ugmug's picture

 

We'll need a bigger wheelbarrow –

 

soon it'll be....

Obama - the Wheelbarrow President

 

Wed, 07/18/2012 - 14:43 | 2629354 MillionDollarBoner_
MillionDollarBoner_'s picture

Go long wheelbarrow manufacturers!

Wed, 07/18/2012 - 15:17 | 2629512 Carl Spackler
Carl Spackler's picture

And what will you be compensated in for going long these manfacturers?

Spare parts?!  ...here's your dividend:  some screws, some wooden sticks, and a bunch of tires

 (cause dollars, sterling or euros ain't gonna do the trick, then)

Wed, 07/18/2012 - 14:30 | 2629279 Hype Alert
Hype Alert's picture

Where are the rating agencies!

 

Just Kidding

Wed, 07/18/2012 - 14:31 | 2629282 Sow-puncher
Sow-puncher's picture

Here we go. And by the way, there is NO GOLD AT FORT KNOX! So the US is screwed!

Wed, 07/18/2012 - 14:39 | 2629324 SheepRevolution
SheepRevolution's picture

Considering everything that happened in the years 1971-1975 with regards to gold + the assassination of JFK, you're probably right.

Wed, 07/18/2012 - 14:41 | 2629334 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Hell, they just audited Ft. Knox in 1953!  What could have changed!?

Tuco

Wed, 07/18/2012 - 14:45 | 2629365 Getting Old Sucks
Getting Old Sucks's picture

That's why we have to hide our gold.  When that curtain is eventually opened, they're gonna be looking at making that 8,000 tons magically re-appear.

Wed, 07/18/2012 - 18:40 | 2630035 SmittyinLA
SmittyinLA's picture

doesn't matter, if there is gold there, it isn't owned by Americans

Wed, 07/18/2012 - 14:32 | 2629285 kito
kito's picture

any analysis out of UBS or any other bank analyst is Utter BullShit

Wed, 07/18/2012 - 14:39 | 2629317 oddjob
oddjob's picture

Your ignorance of fleeting USD hegemony is amusing.

Wed, 07/18/2012 - 14:46 | 2629363 kito
kito's picture

i have no doubt about fleeting usd hegemony...none...but ubs will have just made a fortuitous guess..nothing more...throw enough shitty analysis against the wall and something is bound to stick................

Thu, 07/19/2012 - 04:09 | 2630943 SAT 800
SAT 800's picture

What is your alternative analysis; and what are your credentials?

Wed, 07/18/2012 - 14:32 | 2629286 ciscokid
ciscokid's picture

Buy gold and be FREE!!!

Wed, 07/18/2012 - 15:34 | 2629571 Bunga Bunga
Bunga Bunga's picture
POLL

Which will offer greatest return over next 12 months?

http://finance.yahoo.com/

Poll Choice Options

  • S&P 500
  • U.S. Treasuries
  • Corporate Bonds
  • Emerging Market Stocks
  • Gold
  • Oil

Wed, 07/18/2012 - 16:24 | 2629767 ZeroAvatar
ZeroAvatar's picture

Answer:  Oil, hands down.

Wed, 07/18/2012 - 17:01 | 2629858 Temporalist
Temporalist's picture

What's strange about the numbers is 24% presently think gold will give the best return but only 1-2% actually own any.  Even among finance people I'd say it's under 24%.  So who are these other people?  Does the general population believe this and still not own any? 

Thu, 07/19/2012 - 04:13 | 2630946 SAT 800
SAT 800's picture

The general population does not believe this. the general population knows the names of some movie stars; and other "celebrities". The only entities that count are those with disposable capital. The percentage of citizens with savings. When they start to convert; you will know about it.

Wed, 07/18/2012 - 16:25 | 2629771 dark pools of soros
dark pools of soros's picture

depends..  for young women it is fake boobs

Wed, 07/18/2012 - 17:13 | 2629887 The Navigator
The Navigator's picture

<-----Gold

<-----Fake Tits

The other stuff won't fit in my rifle safe - not even sure about the fake tits.

Wed, 07/18/2012 - 17:53 | 2629943 jesusonline
jesusonline's picture

Oil, probably. And then gold maybe - for a short period of time before going negative with the overall deflation.

Fiat looks like it still has some time to last.

Thu, 07/19/2012 - 04:15 | 2630948 SAT 800
SAT 800's picture

Dont't wait too long for the "Deflation" to materialize; you will get a nasty surprise.

Thu, 07/19/2012 - 04:10 | 2630944 SAT 800
SAT 800's picture

Silver.

Wed, 07/18/2012 - 14:35 | 2629302 Vincent Vega
Vincent Vega's picture

Paper money eventually returns to it's intrinsic value, zero. ~Voltaire (1729)

Wed, 07/18/2012 - 14:39 | 2629325 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.

 

The Crack up Boom

Wed, 07/18/2012 - 17:31 | 2629919 ChacoFunFact
ChacoFunFact's picture

According to this blog we need negative interest rates to spur the real economy:

The velocity of money is a badly neglected aspect of monetary theory. It is far more important than people realize and both in past and in the present depression, sluggish circulation played a major and negative role. The most obvious way of increasing the velocity of money is Silvio Gesell's demurrage, a negative interest rate, in effect a tax on holding money. This is not just theory. There is a famous case in which it was implemented. The Wörgl experiment showed truly extraordinary results and is legendary in Interest-Free Economics. http://realcurrencies.wordpress.com/2012/07/02/the-power-of-demurrage-the-worgl-phenomenon/

 

But we know the government needs inflation to artificially enhance its tax receipts.  How does this work?  When you file taxes there is no check box to indicate the proceeds from your asset liquidation is largely phantom, i.e., caused by inflation, so you pay cap gains regardless of whether it has apprecaited in inflation-adjusted terms.  Each household needs to come up with 500k or something like that to plug the debt and all the unfunded liabilities like Medicare & social security.  The only way to get that done is for the government to print print print.  This, combined with BRIC nations (and some Middle East guys) disavowing the USD and the Chinese currency becoming exchangable in 2013 (2015?) will undermine the USD's world currency status.  There could be a sudden spike in us dollars floating around... 

Wed, 07/18/2012 - 19:15 | 2630087 SmittyinLA
SmittyinLA's picture

Don't worry about China, they're "on the team" like Russia.

China loves buying oil in dollars, or anything else for that matter, they get an extra 500B every year in trade surplus from the US.

"America" as a wholly owned subsidiary of China Inc is more lucrative than an airport parking franchise, and they have zero liability, they'll keep that going as long as they can, they drink our milkshake, our military also protects their economic interests-for free, those carriers are expensive.  

America is basically a tool for Chinese foreign policy, just look at all our international activities over the last 30 years.

We vacated white people from Africa- for China (not whites or blacks) , America actually formed a "Western Anti-White Property Ownership Rights Cartel" for Africa, then imposed sanctions, and forced Whites to give up property rights throughout Africa-so China could move in unimpeded.  

Will the Western nations do so again when the locals covet China's African operations?  Will the West force Chinese assset owners to sell to local blacks? No, that policy was for whites only, individuals have no rights. 

China could have shut down own our Middle East Venture anytime they wanted by doing to us what we did to the Russkies in the 70s, and their manpads have vastly improved since our "Mujahudeen operations", in fact some of those Mujahudeen Stingers were sold to the Chinese waaaay back in the early 80s, trust me they've improved on them.  

You may say "ya but we have stealth stuff", but you can't supply an occupational army in a hostile foreign nation (and they all are) by stealth air, (and they probably got that defeated anyway), you need port, road and preferably rail access to supply an army, and for that you need air cover.

Look at all the regional trade treaty consolidations-NAFTA, CAFTA, EU, MIddle East, all those markets were forced open by us (our foreign policy) , primarily for the benefit of China, not American companies. 

No my friend, China is not our enemy, they're more like a co-conspiritor.   

Thu, 07/19/2012 - 04:26 | 2630951 SAT 800
SAT 800's picture

Correct. China is a co-conspirator with American multinationals/ corporations; to destroy you. It's working nicely. China has "most favored nation status"; when I graduated from high school it was illegal to import anything from China; it was a Communist Country, after all. It started with Nixon's snuggling up to China, and continued to Bill Clinton's signing the Most Favored Nation Status legislation. A real long term plan. Revealing the real interests. Just like Obama's protection of the 13 million illegals reveals the real plan. The American worker was getting too big a slice of the pie and the real powers bought the necessary politicians to "solve" this problem. You have been sold down the river.

Wed, 07/18/2012 - 14:45 | 2629329 Shizzmoney
Shizzmoney's picture

When Central Banks are buying up PMs....

.....then I'm bullish on $SHTF

It was this that happened with the Continental currency in America

This was constructed by the first Central Banker, Robert Morris, and his "First Bank of North America". 

In other countries, a man who destroys a currency gets expelled (like John Locke in France).

In National Socalist America, we name a college after him.

Wed, 07/18/2012 - 14:41 | 2629335 Its_the_economy...
Its_the_economy_stupid's picture

I will never be distracted.

Wed, 07/18/2012 - 15:08 | 2629477 NotApplicable
NotApplicable's picture

Wut?

Wed, 07/18/2012 - 14:42 | 2629340 JustObserving
JustObserving's picture

How can they talk about hyperinflation in USA and not talk about unfunded laibilities of $119.8 trillion ($1,050,830 per taxpayer) and increasing at $6.7 trillion a year?  Medicare will be broke in just a handful of years so this is not a theoretical problem.

Wed, 07/18/2012 - 14:57 | 2629432 bagehot99
bagehot99's picture

I believe pointing out such unpleasant realities is grounds for being labelled a 'racist' in the pages of our major 'news' organs.

I love it when everybody just ignores the freight train that is hurtling towards us - putting your hands over your eyes doesn't make it go away. It's still there, it's not going to be derailed, and there is a 100% chance that it will hit us.

If there was such a thing as government malpractice (in reality that would cover about 90%+ of what they do), this is it.

I think we may end up in a civil war, not all that far in the future. When the average Gen Xer realizes that the FICA taxes they have been paying for 20 years have been pissed into a large black hole (together with about $15 trillion in borrowed monies) they might get a little agitated. This colossal Ponzi scheme (which is exactly what SS, Medicare, &c. are), which we know about but still accept (why TF do we do that?) is going to collapse - it cannot do anything but; we've run out of suckers to fleece. Perhaps opening the immigration floodgates isn't that bad an idea after all...

Just sayin'.

 

Wed, 07/18/2012 - 16:03 | 2629700 dapper_dan
dapper_dan's picture

I've often had this thought.  But then I talk to Gen Y and Xers (of which I am one), and so many seem completely out of touch with this reality.  They're so busy paying back their student loans maybe, working 60-70 hour weeks trying to afford to move out of Mom's house.  This is the problem:  the youth are so out of touch, and often liberal (at least where I'm at on the West Coast), they won't or can't accept this reality about government entitlements - especially Medicare for which we get very little real value - killing their future.  

Plus, what would they be able to do about it anyway?  Revolt?  An Uprising?  I'd love that.  But how when they owe $80,000 in student loans and have $20k in credit card debt and can't afford to live on their own, or get married, or whatever.  There needs to be an entire generational "bankrupcy" party - Gen X/Yers refusing to work anymore to pay for their parents and grandparent's entitlements (who largely hold all the assets anyway).

Just thinking outloud, really.  No answers, just brainstorming.  :)

Wed, 07/18/2012 - 16:22 | 2629762 Totentänzerlied
Totentänzerlied's picture

"Gen X/Yers refusing to work"

How 'bout every productive person refusing to work or pay taxes.

Problem is, that leads to a grim trigger scenario - it only works so long as everyone does it, the instant anyone defects it is no longer the optimal strategy and a cascade of defection begins (like what we're seeing in the race to NIRP and currency devaluation - defection from the broken equilibrium becomes the optimal strategy) - and everyone knows this -  so its a no-go until/unless there's no better option. This plays out time and again in revolution after revolution and the consequences are extremely ugly.

Wed, 07/18/2012 - 21:31 | 2630410 poor fella
poor fella's picture

"Gen X/Yers refusing to work anymore to pay for their parents and grandparent's entitlements"

You have to consider, if they can keep their jobs, the parentals and their parentals can't quit either, so they'll be paying their own way. There's no way 201ks will keep up with any inflation, and most people are way underfunded. The only kicker for some will be any kind of inheritance...  or a van down by the river.

Wed, 07/18/2012 - 15:44 | 2629619 blunderdog
blunderdog's picture

Maybe that Medicare-D expansion was intended to destroy it.

It'll all sort itself just fine, anyway.  Most USians are broke.  Can't pay what you don't have, so there's nothing to worry about.

Wed, 07/18/2012 - 19:18 | 2630091 SmittyinLA
SmittyinLA's picture

shhhhhh (don't talk about that) nobody wants to confront reality.

Wed, 07/18/2012 - 14:42 | 2629346 Village Smithy
Village Smithy's picture

Ben always looks smug but particularly so over the past couple of days. He has the "signals of hyperinflation" listed  above under control and it's a Goldilocks world for him. Blythe is helping keep the lid on gold with relentless attacks, slackening demand is keeping money out of commodities, and risk aversion combined with an unlimited supply of free money to Primary Dealers is driving down bond yields. Oh but for how long does that porridge stay "juuust right"?

Wed, 07/18/2012 - 14:42 | 2629347 BurningFuld
BurningFuld's picture

Even "Professional" investors have no clue what the future holds. There is NO WAY they are going to see and be able to predict when inflation will happen. I can guarantee you this...It is  going to surprise everyone!

Wed, 07/18/2012 - 14:51 | 2629394 Shizzmoney
Shizzmoney's picture

Even "Professional" investors have no clue what the future holds.

In the poker world, we also have two classes: "Professionals" and "Amateurs"...just as in investing, we have "Professional" and "Retail" investors.

And the difference between the two is the same; and for the most part, it has nothing to do with skill.

The difference between a "Professional" and an "Amateur" is the amount of credit they can get to speculate with. Nothing more.

Thu, 07/19/2012 - 04:34 | 2630954 SAT 800
SAT 800's picture

This is completely false; and also the classic whinning argument of the loser. "The winner didn't play fair, Mommy!". The difference between success and failure in speculation, (their is no investment), is stop losses; and flexibility.

Wed, 07/18/2012 - 14:44 | 2629357 Jlmadyson
Jlmadyson's picture

While IMF this week says a serious chance of deflation in Euroland by 2014.

I love it.

Wed, 07/18/2012 - 15:23 | 2629538 Carl Spackler
Carl Spackler's picture

...which in combination with marriage to "Social Democracy" is what causes Keynesian hyper-inflation

Wed, 07/18/2012 - 14:45 | 2629358 reload
reload's picture

Inflation IS the policy objective if the BOE. If it turns into Hyperinflation their objectives will be reached all the faster. I am planning for inflation but I see deflation all around me in items where credit was traditionaly used to facilitate purcgase - housing, used luxury cars, other high end toys - boats, aircraft etc etc. Many are simply bidless. There is credit to be had, but a rapidly decreasing number of credit worthy people willing to take it on. The consumables of daily life continue to inflate rapidly.

A lot of seemingly savy people dont understand what a collapse in currency means (and hyperinflation is a collapse in currency credibility) A Ferrari driving friend of mine thinks Hyperinflation will make his debts dissapear, I tried to explain that when petrol is £50 a litre his car will be worth less than the contents of its tank but he did not understand.

 

Wed, 07/18/2012 - 15:07 | 2629475 bagehot99
bagehot99's picture

But when his petrol is $50/liter on tuesday and $7500/liter the following week (if there are any gas stations selling to retail customers), he will understand. Most people with Ferraris didn't do too well in Zimbabwe - the dispossesed tend to start simply taking things when they don't have enough money for bread.

And most people in Zimbabwe weren't armed. With probably 50 million armed Americans (and many like me are increasing their firearms and ammunition holdings), the prospects for the elites once their thievery and mendacity has been laid bare are bleak. I wouldn't waste a single bullet to protect a banksta from an angry mob, and I suspect I'm not alone.

And I'm a 100% red-blooded, free market-loving, anarcho-capitalist pig. It's just this isn't capitalism any longer.

Wed, 07/18/2012 - 16:26 | 2629776 MrNude
MrNude's picture

It'll play out that they'll all fly out to their own private islands or bunkers and let we the animals depopulate ourselves and they come riding in as the 'saviours' in the aftermath or another world war will happen to divert the worlds attention.

People fell for the sleight of hand in WW2, the internet makes it harder for the same trick to play out twice but hey they've already got that sorted out now with the great big 'OFF' switch they voted themselves to have.

Wed, 07/18/2012 - 15:14 | 2629499 Jack Sheet
Jack Sheet's picture

In respect of your comment, you might find this interesting reading

http://fofoa.blogspot.de/2012/05/inflation-or-hyperinflation.html

And this
http://fofoa.blogspot.de/2011/04/deflation-or-hyperinflation.html

apologies for the repetition if you know it already.

Wed, 07/18/2012 - 15:14 | 2629501 Bam_Man
Bam_Man's picture

That's right. Most people fail to realize that in a true hyper-inflation, 99.9% of the population will find themselves in a situation where they are spending 99% of their available income on food and shelter. Mostly food. Wages- and especially government transfer payments - do not adjust upwards nearly as quickly as prices.

Wed, 07/18/2012 - 15:18 | 2629518 eddiebe
eddiebe's picture

Anyone actually working for a living knows about that.

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