How Hyperinflation Will Happen

[Large Sarge]

Guest Post: How Hyperinflation Will Happen

Submitted by Tyler Durden on 08/23/2010 10:56 -0500




Submitted by Gonzalo Lira

How Hyperinflation Will Happen

Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.

To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.

But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending.

For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”.

The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.

But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.

Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”.

Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?

Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

Most people dismiss the very notion of hyperinflation occurring in the United States as something only tin-foil hatters, gold-bugs, and Right-wing survivalists drool about. In fact, most sensible people don’t even bother arguing the issue at all—everyone knows that only fools bother arguing with a bigger fool.

A minority, though—and God bless ’em—actually do go ahead and go through the motions of talking to the crazies ranting about hyperinflation. These amiable souls diligently point out that in a deflationary environment—where commodity prices are more or less stable, there are downward pressures on wages, asset prices are falling, and credit markets are shrinking—inflation is impossible. Therefore, hyperinflation is even more impossible.

This outlook seems sensible—if we fall for the trap of thinking that hyperinflation is an extention of inflation. If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.

This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.

This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.

It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.

The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.

However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.

The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.

So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.

Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.

Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.

So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”

[Large Sarge]

Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.

Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.

The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?

Commodities.

By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?

Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.

It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)

Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.

If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?

So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.

If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.

When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.

So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will.

This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.

This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.

Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).

Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?

Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.

Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?

In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .

(BTW, I actually think that this last option is something the Federal government might be foolish enough to try. Some moron like Palin or Biden might well advocate this idea of helter-skelter money-printing so as to “help all hard-working Americans”. And if they carried it out, this would bring us American-made images of people using bundles of dollars to feed their chimneys. I actually don’t think that politicians are so stupid as to actually start printing money to “fight rising prices”—but hey, when it comes to stupidity, you never know how far they can go.)

In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change the underlying problem, which will be hyperinflation.

“This is all bloody ridiculous,” I can practically hear the hyperinflation skeptics fume. “We’re just going through what the Japanese experienced: Just like the U.S., they went into massive government stimulus—hell, they invented quantitative easing—and look what’s happened to them: Stagnation, yes—hyperinflation, no.”

That’s right: The parallels with Japan are remarkably similar—except for one key difference. Japanese sovereign debt is infinitely more stable than America’s, because in Japan, the people are savers—they own the Japanese debt. In America, the people are broke, and the Nervous Nelly banks own the debt. That’s why Japanese sovereign debt is solid, whereas American Treasuries are soap-bubble-fragile.

That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011.

The question for us now—ad portas to this hyperinflationary event—is, what to do?

Neanderthal survivalists spend all their time thinking about post-Apocalypse America. The real trick, however, is to prepare for after the end of the Apocalypse.

The first thing to realize, of course, is that hyperinflation might well happen—but it will end. It won’t be a never-ending situation—America won’t end up like in some post-Apocalyptic, Mad Max: Beyond Thuderdome industrial wasteland/playground. Admittedly, that would be cool, but it’s not gonna happen—that’s just survivalist daydreams.

Instead, after a spell of hyperinflation, America will end up pretty much like it is today—only with a bad hangover. Actually, a hyperinflationist spell might be a good thing: It would finally clean out all the bad debts in the economy, the crap that the Fed and the Federal government refused to clean out when they had the chance in 2007–’09. It would break down and reset asset prices to more realistic levels—no more $12 million one-bedroom co-ops on the UES. And all in all, a hyperinflationist catastrophe might in the long run be better for the health of the U.S. economy and the morale of the American people, as opposed to a long drawn-out stagnation. Ask the Japanese if they would have preferred a couple-three really bad years, instead of Two Lost Decades, and the answer won’t be surprising. But I digress.

Like Rothschild said, “Buy when there’s blood on the streets.” The thing to do to prepare for hyperinflation would be to invest in a diversified hard-metal basket before the event—no equities, no ETF’s, no derivatives. If and when hyperinflation happens, and things get bad (and I mean really bad), take that hard-metal basket and—right in the teeth of the crisis—buy residential property, as well as equities in long-lasting industries; mining, pharma and chemicals especially, but no value-added companies, like tech, aerospace or industrials. The reason is, at the peak of hyperinflation, the most valuable assets will be dirt-cheap—especially equities—especially real estate.

I have no idea what will happen after we reach the point where $100 is no longer enough to buy a cup of coffee—but I do know that, after such a hyperinflationist period, there’ll be a “new dollar” or some such, with a few zeroes knocked off the old dollar, and things will slowly get back to a new normal. I have no idea the shape of that new normal. I wouldn’t be surprised if that new normal has a quasi or de facto dictatorship, and certainly some form of wage-and-price controls—I’d say it’s likely, but for now that’s not relevant.

What is relevant is, the current situation cannot long continue. The Global Depression we are in is being exacerbated by the very measures being used to fix it—stimulus is putting pressure on Treasuries, which are being shored up by the Fed. This obviously cannot have a happy ending. Therefore, the smart money prepares for what it believes is going to happen next.

I think we’re going to have hyperinflation. I hope I have managed to explain why.

[Gknowmx]

Two thoughts,

First, nobody has to sell Treasuries to make this system collapse. All they have to do is stop buying them! So, when a series expires, they simply stop rolling it over into a new instrument. It is the logarithmic expansion that people just don't get. The stopage of buying will precede any "flash" selling.

Second, it won't be American or Euro fund managers because the US DOES have a way to stop the selloff of Treasuries-- "flash" sellers will be arrested on some trumphed up charge of treason or terror or fraud. No one will want to be within the reach of the US law enforcement.

I agree about the commodities going to the moon. This will wreck our just-in-time inventory systems. They are not wired for warehousing huge inventory, or hugh inventory swings. Automated systems will fail.

[Neuro]

Basically hyperinflation is the bankruptcy and liquidation of the central bank and the government. It always was. The Weimar republic, Yugoslavia and Zimbabwe didn't get hyperinflation because people wanted to consume more and wanted more money for it. They got hyperinflation because the government/central bank was bankrupt, and no-one wanted to hold government promises any longer.

I wouldn't count out the Chinese as the trigger of hyperinflation though...

[Sparky]

No hyperinflation.

First, has there ever been a hyperinflation in an empire nation that controls the world's reserve currency? No. This can't be overlooked.

Second, who will buy the Treasuries? The Fed/Gov will. Look, there's about $9T in Treasuries. Our M3 money supply is $15T. If the Fed, or the government, purchased EVERY existing Treasury, it would only result in 60% inflation of the money supply. That's not hyperinflation.

Third, how will there be this huge panic conversion from cash to commodities in such a cash-poor nation? Remember, the cash in this country is held by the Top 1%. They're not going to panic into anything.

This scenario will play out like all the other crumbling empires that controlled the world's reserve currency, most recently England from a hundred years ago. A long period of moderate to high inflation. There may be short bursts where it will look to be worse, but it won't get to hyperinflation.

[keehah]

I agree. Many of us tin-foil hatters, gold-bugs, and Right-wing survivalists have been saying this for years.

Too bad she adds a few paragraphs to slander the sites that have discussed for years her idea. Of course much may be due to the fact she has not completely left the left-right livestock pens.

And perhaps she needed to pimp her ego and insult others to repress the knowledge that the idea was not initially hers and deflect her guilt.

Otherwise good rehash of what I expect to be the main inflationary force independent of direct government and banker control.

[Ares]

Damn good read.

[Sparky]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.

[Spectrism]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.


Exactly. If the Chinese and Japanese stop buying the Treasuries, the fed steps in and takes the paper until they decide to crash the fiat currency. I have to wonder how much treasury paper the Chinese still hold now. Isn't it possible that they have already sold off much of it?


Hyperinflation is like a runaway freight train. What the writer described was a train going off a cliff. There is no energy to stoke the engine of the freight train. Hyperinflation is a day-by-day or weekly injection of excess currency. A cliff event is minutes to shutdown.

Deflation is happening with an increasig gravity pulling the spiral in. No money velocity is making an escape from the pull impossible. If the fed just dumps free money onto the banks and gov, instead of stoking any healthy engines, the money will fly overseas and into the hands of the thieves. It just delays what has to happen.

[Sparky]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.


Exactly. If the Chinese and Japanese stop buying the Treasuries, the fed steps in and takes the paper until they decide to crash the fiat currency. I have to wonder how much treasury paper the Chinese still hold now. Isn't it possible that they have already sold off much of it?
...


No. That isn't possible.

http://www.ustreas.gov/tic/mfh.txt

[BabushkaLady]

I'm no economist, but I don't see the Fed being able to buy *all* the treasuries without future ramifications. The other countries have more to lose then just dodging the initial bullet.

I also think the sheeple losing confidence/trust in the system will be a bigger problem that pushes the banksters over the edge.

[Sparky]

OK, now I found this interesting. From October 2009 to June 2010, the amount of U.S. Treasuries held by foreign holders increased by $433.1B. Below is the rank order of net change in holdings. Why haven't we heard more stories about the UK coming to our rescue?

Country Change ($B)

United Kingdom 254.1
Japan 60.7
Carib Bnkng Ctrs 50.8
Canada 49.2
Thailand 21.3
Luxembourg 18.0
Egypt 15.1
Switzerland 14.8
Singapore 14.2
Oil Exporters 14.0
Taiwan 13.0
Norway 8.8
Mexico 6.5
France 6.1
Ireland 5.7
Germany 5.6
Denmark 5.3
Israel 3.9
Hong Kong 3.2
Philippines 2.9
Australia 1.7
Poland 1.3
Sweden 1.2
India 0.6
Belgium 0.3
Chile -0.2
Malaysia -0.6
Colombia -1.3
Italy -1.5
Netherlands -3.2
Korea, South -4.6
Turkey -4.8
All Other -5.2
Brazil -6.5
Russia -22.5
China, Mainland -94.6

Grand Total 433.1

[Sparky]

I'm no economist, but I don't see the Fed being able to buy *all* the treasuries without future ramifications. The other countries have more to lose then just dodging the initial bullet.


Yes, but the question is if the ramification is hyperinflation. The math says it isn't.

The other countries do have more to lose, but that doesn't matter in a "rush to the exit" scenario.

Again, the most likely scenario is an organized decrease in Treasury holdings by the big holders, with the Fed stepping in as necessary to keep order. I think this supports the inflation scenario, but not the hyperinflation scenario.

[Neuro]

Sparky, a reply to your question has there ever been hyperinflation in an empire controlling the worlds reserve currency...

The only one I can think of fullfilling this particular criteria in post antique time is Great Britain and the Pound Sterling. And you are right, no hyperinflation, but the value of the currency was devalued quite a lot. However it was a unique event in terms of empire failings. They sort of peacefully handed over the empire role to the US, and the US dampened the blow to the UK. Interesting now how UK has bought up half the foreign bought debt the last year, even though they are as bankrupt as the US.

Anyway who is going to step in and dampen the fall of the US? The only one imaginable is China. They are quite pragmatic, but still I find it doubtfull. They hate you and the British...

Apart from the empires holding the world reserve currency, I would say almost all, if not all went down with hyperinflation. That's how empires traditionally fall....

[wildcard]

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

[Phoenix]

I used to believe hyperinflation was probable. Now I realize they're going to take the "money" away, which will be as bad for the common folk. You can't have what you can't buy. M3 continues to contract. US Government expenditures are NOT counterbalancing the massive contraction of consumer and corporate credit. And credit is how all "money" is created.

http://www.shadowstats.com/imgs/sgs-m3.gif?hl=ad&t=1281899832

[EE_]

Let's see...the Fed/government changed M3 reporting just before they started digital printing of money.

They changed lending and credit card rules just before the defaults started piling in.

They recently made it possible to pull the plug on the internet at a moments notice.

So how does a bond collapse and hyperinflationary event play out with the internet completely shut down, all financial transactions stopped, Wall Street and banks closed, and the only news you receive is from the government sponsored TV programming telling you what to do?
Let's not forget the quick implementation of martial law they are more then prepared for.

[Book]

I used to believe hyperinflation was probable. Now I realize they're going to take the "money" away, which will be as bad for the common folk.



DOOMFLATION: Prices rise on stuff we need like food and fuel...prices drop for stuff we don't need or want.

:o

[Sparky]

I used to believe hyperinflation was probable. Now I realize they're going to take the "money" away, which will be as bad for the common folk. You can't have what you can't buy. M3 continues to contract. US Government expenditures are NOT counterbalancing the massive contraction of consumer and corporate credit. And credit is how all "money" is created.

http://www.shadowstats.com/imgs/sgs-m3.gif?hl=ad&t=1281899832


FYI, beware of charts showing "change" rather than absolute value, especially if it doesn't indicate units. Particularly confusing is monthly annual change, in percent, which I think is what this chart is. A monthly chart of the actual M3 money supply is more useful, but harder to find on the internet.

I'll bet most people can't look at that chart and tell me the month that the money supply began to contract.

To your point, I have never considered hyperinflation as plausible. At some point, the M3 money supply will expand again, and lead to moderate-high inflation, probably in the 2012-2016 time frame.

[Ponce]

This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.
================================================== =================

Interesting that this is what I said a while back, in a way it was a joke but........here you have it.

[Joe King]

I used to believe hyperinflation was probable. Now I realize they're going to take the "money" away, which will be as bad for the common folk. You can't have what you can't buy. M3 continues to contract. US Government expenditures are NOT counterbalancing the massive contraction of consumer and corporate credit. And credit is how all "money" is created.

http://www.shadowstats.com/imgs/sgs-m3.gif?hl=ad&t=1281899832


"They" are not "taking the money away".

Rather, there are fewer loans being made to replace the "money" being extinguished by good people still trying to make their payments.

The economy is sorta like a big swimming pool with a leak in it that gets bigger over time,

As long as enough people borrow enough water to bring with them to the pool, it stays full and everyone gets to splash around and have fun.

But when people quit borrowing water at the rate they used to, while still trying to payback at the same rate they used to, you end up with a bunch of {unemployed} people standing around in the shallow end who can no longer get their feet wet because too much has leaked out the hole in the pool called loan re-payment.

That's when the gov steps in and borrows water in all our names in an attempt to refill the pool.

Problem is, the hole in the bottom has gotten bigger than our collective ability to borrow water.

[Sparky]

This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.
================================================== =================

Interesting that this is what I said a while back, in a way it was a joke but........here you have it.



This doesn't make any sense. In what sense would this even be considered hyperinflation? He's right, I don't grasp it, and he didn't do a very good job explaining it.

Any argument that includes the logic "...in a hyperinflationist episode, a house is worthless..." can't be right. How could a house be worthless, by any valuation system? What exactly does that mean? I can't go buy rice with it, so it's worthless? That's ridiculous.

[Fullpower]

In answer to Sparky's question:
The value of a house is essentially the same as any dry place to sleep for the night.
The value of a HOUSE during economic crisis can be less than each of the following:
The fuel to heat the house.
The Property taxes due on the house.
The materials and labor to repair a leaky roof.
any one or combination of these things can create negative value to the sufficiently impoverished owner of said house.
In sum, the value of a thing is zero if you CAN'T keep it.

[Joe King]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.
Because that's the point at which 100% of the population will recognize the monopoly money for what it really is.

If it's going to continue to work, there can't be anywhere close to that many people who see it for what it truly is.

[Gknowmx]

These points are profoundly simple, true, and hard to grasp for the average person... Just like the concept of money and monetary systems.





In answer to Sparky's question:
The value of a house is essentially the same as any dry place to sleep for the night.
The value of a HOUSE during economic crisis can be less than each of the following:
The fuel to heat the house.
The Property taxes due on the house.
The materials and labor to repair a leaky roof.
any one or combination of these things can create negative value to the sufficiently impoverished owner of said house.
In sum, the value of a thing is zero if you CAN'T keep it.

[Gknowmx]

thanks Joe, It looks like it is time to step back and walk through the fundamentals really slowly here. Charging compound interest on fiat currency in a fractional reserve system is the trifecia in a recipe for the impending monetary system collapse. It is cooked into the system. The whole deflation/hyperinflation debate is a false dichotomy that distracts most people from checking the premises of our monetary system to begin with.






I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.
Because that's the point at which 100% of the population will recognize the monopoly money for what it really is.

If it's going to continue to work, there can't be anywhere close to that many people who see it for what it truly is.

[Sparky]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.
Because that's the point at which 100% of the population will recognize the monopoly money for what it really is.

If it's going to continue to work, there can't be anywhere close to that many people who see it for what it truly is.


Joe, they've reduced the value of the dollar by 98% over the last century, and most people haven't caught on. In the 1970's, they reduced it by 50% in one decade, and most people didn't catch on. What makes you think people will see this for what it truly is? More importantly, what alternative will they have?

[Sparky]

These points are profoundly simple, true, and hard to grasp for the average person... Just like the concept of money and monetary systems.





In answer to Sparky's question:
The value of a house is essentially the same as any dry place to sleep for the night.
The value of a HOUSE during economic crisis can be less than each of the following:
The fuel to heat the house.
The Property taxes due on the house.
The materials and labor to repair a leaky roof.
any one or combination of these things can create negative value to the sufficiently impoverished owner of said house.
In sum, the value of a thing is zero if you CAN'T keep it.



I'd classify them mostly as utter nonsense. While one could argue that those items are factors in determining the value of a house, they don't come close to reducing the value to zero.

And the idea that a house is equivalent to any dry place to sleep is preposterous, and demonstrably false. If that were the case, a house and a cardboard box would fetch the same amount of silver. We know that they don't.

[vacuum]

In answer to Sparky's question:
The value of a house is essentially the same as any dry place to sleep for the night.
The value of a HOUSE during economic crisis can be less than each of the following:
The fuel to heat the house.
The Property taxes due on the house.
The materials and labor to repair a leaky roof.
any one or combination of these things can create negative value to the sufficiently impoverished owner of said house.
In sum, the value of a thing is zero if you CAN'T keep it.

Very good response. Here is a real-world example. Recently in my neighborhood there was a 5 bedroom house with a barn on 7 acres, and had a 4 car port with shop. There was another house just down the road with 3 bedrooms and a shop only on 5 acres. Both were the same price, but the smaller house was the better deal for the average person because you'd have to have the capital to fix the roof of the large house, remodel the inside, do a bunch of landscaping, fix the barn, etc.

If you had the cash, the larger house would be better because it would be worth more than the money spent to repair it, but not if you don't already have the money.

Its also similar to the prices of used fuel efficient cars during the inflation of gas prices a few years ago compared to superior, newer, gas-hungry cars. In certain circumstances, if you could choose between either a new Ford Escort or new Hummer, you may choose the Escort.

[Joe King]

These points are profoundly simple, true, and hard to grasp for the average person... Just like the concept of money and monetary systems.





In answer to Sparky's question:
The value of a house is essentially the same as any dry place to sleep for the night.
The value of a HOUSE during economic crisis can be less than each of the following:
The fuel to heat the house.
The Property taxes due on the house.
The materials and labor to repair a leaky roof.
any one or combination of these things can create negative value to the sufficiently impoverished owner of said house.
In sum, the value of a thing is zero if you CAN'T keep it.



I'd classify them mostly as utter nonsense. While one could argue that those items are factors in determining the value of a house, they don't come close to reducing the value to zero.

And the idea that a house is equivalent to any dry place to sleep is preposterous, and demonstrably false. If that were the case, a house and a cardboard box would fetch the same amount of silver. We know that they don't.

It's all relative.
What about those houses in and around Detroit that they can't hardly give away?
Supposedly for under a thousand dollars you can get a house there that no one wants.

So what's it really worth?
How many of them would you want to buy? Don't forget, they're all at the corner of Crack Street and Gangland Drive.

[vacuum]

OK, now I found this interesting. From October 2009 to June 2010, the amount of U.S. Treasuries held by foreign holders increased by $433.1B. Below is the rank order of net change in holdings. Why haven't we heard more stories about the UK coming to our rescue?

Country Change ($B)

United Kingdom 254.1
Japan 60.7
Carib Bnkng Ctrs 50.8
Canada 49.2
Thailand 21.3
Luxembourg 18.0
Egypt 15.1
Switzerland 14.8
Singapore 14.2
Oil Exporters 14.0
Taiwan 13.0
Norway 8.8
Mexico 6.5
France 6.1
Ireland 5.7
Germany 5.6
Denmark 5.3
Israel 3.9
Hong Kong 3.2
Philippines 2.9
Australia 1.7
Poland 1.3
Sweden 1.2
India 0.6
Belgium 0.3
Chile -0.2
Malaysia -0.6
Colombia -1.3
Italy -1.5
Netherlands -3.2
Korea, South -4.6
Turkey -4.8
All Other -5.2
Brazil -6.5
Russia -22.5
China, Mainland -94.6

Grand Total 433.1


I'd like to see a similar table for UK debt holder changes over the same time period. Two bankrupt countries buying each other's debt means both are trying to save themselves.

[Book]

It's all relative.



http://www.youtube.com/watch?v=JgpOPJ6RwFw

$150 Million

:oo-->

[Joe King]

I don't see where it explains why the Fed can't just keep buying Treasuries until it owns all of them.
Because that's the point at which 100% of the population will recognize the monopoly money for what it really is.

If it's going to continue to work, there can't be anywhere close to that many people who see it for what it truly is.


Joe, they've reduced the value of the dollar by 98% over the last century, and most people haven't caught on. In the 1970's, they reduced it by 50% in one decade, and most people didn't catch on. What makes you think people will see this for what it truly is? More importantly, what alternative will they have?
I think most people realize simply because of rising prices over the years, but they don't understand the true reason for it. They just think that prices naturally go up because that's all they've ever known.
i.e. they already have half of the equation.

So if they have the monetary inflation side of it explained to them in easy to understand ways, most people are smart enough to see the "why" of the dollar having 98% of its value stripped away.
They just have not had full-disclosure on the subject yet.
...and in this economy, it's pretty easy to help them get that disclosure, as people seem to be much more interested now as opposed to years past when everyone was just too busy "making money" to care how it all came into being.


As far as alternatives go, there really aren't any. Even if you were to live a cash existence you still deal in debt. Just someone elses.
And anytime there's any threat of a competing currency system, they shut it down.
So we're all kinda "forced" to play the game, it's just that we're not really supposed to know it's a rigged game.

[Neuro]

Hyperinflation is not only increase of the monetary supply, it is also a decrease in the value thereof. I read that in Nov 1923 you could buy the entire German money supply for less than 1000 ounces of gold. The ultimate determination of the value of a currency, is the faith of the people holding it. In a country where the government monetizes all it's debt, because no-one else wants to buy it. The faith in the currency will be very low.

This is very simple. The federal reserve bank understands it, that is why they don't tell anyone openly about the monetization they are doing together with Bank of England, and on it's own from the pirates of the carribean. They will continue to lie, and the lies are so big no one dares to point them out. Just like the emperor with no clothes. If people dared to open their eyes to this fraud, we would have hyperinflation long ago...

[Large Sarge]

a lot of inflation is tied to velocity, money switching hands

very few folks cover that

i.e. the Fed gave garngantuan amounts of money to the banks (reserves, etc), but the banks just sat on it, so the inflation was really limited (velocity was low)

the main factor I have seen/ heard with velocity is confidence, as people lose confidence in the currency, the velocity increases.

there is no trick I have ever heard (raising interest rates, monetization, etc) that can control velocity

[DBCooper]

It might,manymany years down the road.

There is too much DEBT,that debt will be paid by land or blood one way or another.

[DBCooper]

Even if lets say you cant pay a debt,you will work something out.

Til the next guys has to deal with the interest (Thats the polotical world)

Reality is ,is those Debts get called your fucked.

[Joe King]

It's all relative.



http:// www.youtube.com/watch?v=JgpOPJ6RwFw

$150 Million

:oo-->

Yea, it is all relative.

Relative to both you and your location, as well as the house in question.

Just because they're asking 150m, doesn't mean they'll get it.
Who knows, she may settle for a measly 100m. Or might just burn it to the ground. Who knows.

But personally? Even if I had Bill Gates kind of "money", I'd never want a house like that no matter the price. Even if it were for free.
Looks to me like it should be a hotel or a museum or something.
Whatever it is, it's certainly not what I'd call a "home".

More of a gratuitous use of surplus credit that currently serves no real function.

[Joe King]

Even if lets say you cant pay a debt,you will work something out.

Til the next guys has to deal with the interest (Thats the polotical world)

Reality is ,is those Debts get called your f*cked.

Can't call everyone at once.

Sorry4,.... no dialtone, ....please try your call again later.....this a recording....bzzzz........bzzzzz.....etc etc etc
...and considering our ample nuculear weapon arsenol, lets just see some of those creditor nations try coming to collect.


Edited to add:

I'm kinda thinking that oil exporting nations will likely get exceptionally f'ed over in the deal as aren't they ultimatly the final resting place for most of the inflated dollars that we export to other Nations?
I mean, as long as they keep selling oil for dollars, isn't that why the rest of the World is ok with the deal? That they need our dollars to purchase oil with?

After a crash, we'll be like,.."hey guys, thanks for the oil, it's been real fun, hope you all enjoy your fancy paper. cya! woun't wanna be-ya!" http://img291.imageshack.us/img291/4948/wavingsmiley.gif

Yea? No? Maybe?

Or in an attempt to cut their loses, will the rest of the World gang up and drop us all at once in an attempt to beat us to the punch?

Because if you really think about it, we've actually had a good deal goin' with the rest of the World.
We create something based upon our own future earning potential and then trade it for everything we need.
Pretty sweet deal, until the assumption in our future earning potential shows itself to have not been correct. DoH!

[Sparky]

After a crash, we'll be like,.."hey guys, thanks for the oil, it's been real fun, hope you all enjoy your fancy paper. cya! woun't wanna be-ya!" http://img291.imageshack.us/img291/4948/wavingsmiley.gif

Yea? No? Maybe?
...


But then from where would we get our oil?

You're right though. We've had a sweet deal for a long time.

[Neuro]

Yes a sweet deal for many years buying oil and Chinese crap for nothing but dollars. I just have a feeling that it will end in hyperinflation. If you have a central bank that buys the debt of the government that spends 2 dollars for every dollar it manage to take from the people, in a country that can't produce what it consumes.

I could be wrong though.

[Spectrism]

Won't we all be surprised to find out that there is essentially a limitless amount of oil for FREE in the ground... just gotta pay the cost of SAFELY piping it out and refining it.