MarketNeutral
23rd April 2010, 10:01 AM
There is an interesting article in Canada’s Globe & Mail about the lack of growth in the US money supply. Ignoring for the moment that the quantity of dollars in circulation is significantly underreported, it observes:
“The money supply in the United States is doing something that almost never happens: it’s shrinking, after taking into account inflation. Similar episodes in the past have usually been scary times for investors. Declines in the amount of money in circulation have coincided with recessions, and some analysts looking at the current trend say it is a harbinger of trouble. Despite signs that the U.S. is in recovery, they worry that the money supply numbers indicate the economy remains vulnerable to the feared double-dip downturn, or is close to experiencing deflation.â€
I agree with the first half of this proposition about a renewed economic downturn, but not the second. In fact, rather than deflation, the dollar is moving ever closer to hyperinflation.
How is deflation possible when crude oil prices have more than doubled since their post-Lehman crash low? Or more broadly, how can there be deflation when the price index of 19 commodities compiled by the Commodity Research Bureau rose 47% during this same period? It cannot of course, which means there is no deflation.
The ongoing decline in the purchasing power of the dollar has been masked by wealth destruction as over-priced assets like houses fall back to realistic levels. There is also the problem that the mainstream media broadcasts only the government calculated CPI, which is an inaccurate measure of the dollar’s eroding purchasing power.
As John Williams of www.shadowstats.com notes: “Over the decades, the BLS [Bureau of Labor Statistics] has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept.†John reports that his “SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to about 9.5%†in March from a year ago.
So the Globe & Mail article is wrong about deflation, but I am not drawing attention to it just because I agree that “the economy remains vulnerable to the feared double-dip downturnâ€. Instead, this article unintentionally offers compelling evidence that the dollar is approaching hyperinflation.
The so-called “shrinking†money supply that arises when adjusting for the loss of purchasing power from inflation is a characteristic portending imminent hyperinflation. Let’s call it a ‘Havenstein moment’, named after the ill-fated president of the Reichsbank who presided over the destructive hyperinflation that devastated Weimar Germany.
http://www.fgmr.com/hyperinflation-looms-dollar-arrives-at-its-havenstein-moment.html
“The money supply in the United States is doing something that almost never happens: it’s shrinking, after taking into account inflation. Similar episodes in the past have usually been scary times for investors. Declines in the amount of money in circulation have coincided with recessions, and some analysts looking at the current trend say it is a harbinger of trouble. Despite signs that the U.S. is in recovery, they worry that the money supply numbers indicate the economy remains vulnerable to the feared double-dip downturn, or is close to experiencing deflation.â€
I agree with the first half of this proposition about a renewed economic downturn, but not the second. In fact, rather than deflation, the dollar is moving ever closer to hyperinflation.
How is deflation possible when crude oil prices have more than doubled since their post-Lehman crash low? Or more broadly, how can there be deflation when the price index of 19 commodities compiled by the Commodity Research Bureau rose 47% during this same period? It cannot of course, which means there is no deflation.
The ongoing decline in the purchasing power of the dollar has been masked by wealth destruction as over-priced assets like houses fall back to realistic levels. There is also the problem that the mainstream media broadcasts only the government calculated CPI, which is an inaccurate measure of the dollar’s eroding purchasing power.
As John Williams of www.shadowstats.com notes: “Over the decades, the BLS [Bureau of Labor Statistics] has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept.†John reports that his “SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to about 9.5%†in March from a year ago.
So the Globe & Mail article is wrong about deflation, but I am not drawing attention to it just because I agree that “the economy remains vulnerable to the feared double-dip downturnâ€. Instead, this article unintentionally offers compelling evidence that the dollar is approaching hyperinflation.
The so-called “shrinking†money supply that arises when adjusting for the loss of purchasing power from inflation is a characteristic portending imminent hyperinflation. Let’s call it a ‘Havenstein moment’, named after the ill-fated president of the Reichsbank who presided over the destructive hyperinflation that devastated Weimar Germany.
http://www.fgmr.com/hyperinflation-looms-dollar-arrives-at-its-havenstein-moment.html