Signs Hyperinflation Is Arriving
This post is gonna be short and sweet—and scary:
Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.
See, how come I don’t look as cool
when I make my predictions?
Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.
I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.
I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke.
Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar.
A lot of people claimed I was on drugs when I wrote this.
Now? Not so much.
In my initial argument, I was sure that there would come a moment when Treasury bond holders would realize that they are the New & Improved Toxic Asset—as everyone knows, there is no way the U.S. Federal government can pay the outstanding debt it has: It’s simply too big.
So I assumed that, when the market collectively realized this, there would be a panic in Treasuries. This panic, of course, would lead to the spike in commodities.
However, I am no longer certain if there will ever be such a panic in Treasuries. Backstop Benny has been so adroit at propping up Treasuries and keeping their yields low, the Stealth Monetization has been so effective, the TBTF banks’ arbitrage trade between the Fed’s liquidity windows and Treasury bond yields has been so lucrative, and the bond market itself is so aware that Bernanke will do anything to protect and backstop Treasuries, that I no longer think that there will necessarily be such a panic.
But that doesn’t mean that the second part of my thesis—commodities rising, which will trigger inflation, which will devolve into hyperinflation—will not occur.
In fact, it is occurring.
The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here.
Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-‘11 winter in the northern hemisphere is approaching.
A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, “We sometimes forget that the commodity markets aren’t solely speculative. Most futures contracts are bought by companies who use those commodities in their products, and are thus hedging their costs to produce those products.”
Very true: But SB also pointed out that, hedged or not, the lag time between agricultural commodities and the markets is about six-to-nine months, on average. So he thought that the rise in grains, which really took off in June–July, would hit the supermarket shelves in January–March.
He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can’t get more customers, then you’re just gonna have to charge more from the ones you got.
Coupled to these price increases is the ongoing Currency War: The U.S.—contrary to Secretary Timothy Geithner’s statements—is trying to debase the dollar, so as to make U.S. exports more attractive to foreign consumers. This has created strains with China, Europe and the emerging markets.
A beggar-thy-neighbor monetary policy works for small countries getting out of a hole of their own making: It doesn’t work for the world’s largest single economy with the world’s reserve currency, in the middle of a Global Depression.
On the contrary, it creates a backlash; the ongoing tiff over rare-earth minerals with China is just the beginning. This could easily be exacerbated by clumsy politicking, and turn into a full-on trade war.
What’s so bad with a trade war, you ask? Why nothing, not a thing—if you want to pay through the nose for imported goods. If you enjoy paying 10, 20, 30% more for imported goods—then hey, let’s just stick it to them China-men! They’re still Commies, after all!
Furthermore, as regards the Federal Reserve policy, the upcoming Quantitative Easing 2, and the actions of its chairman, Ben Bernanke: There is an increasing sense in the financial markets that Backstop Benny and his Lollipop Gang don’t have the foggiest clue about what they’re doing.
Consider:
Bruce Krasting just yesterday wrote a very on-the-money précis of the trial balloons the Fed is floating, as regards to QE2: Basically, Bernanke through his WSJ mouthpiece said that the Fed was going to go for a cautious, incrementalist approach, vis-à-vis QE2: “A couple of hundred billion at a time”. You know: “Just the tip—just to see how it feels.”
But then on the other hand, also just yesterday, Tyler Durden at Zero Hedge had a justifiable freak-out over the NY Fed asking Primary Dealers for their thoughts on the size of QE2. According to Bloomberg, the NY Fed was asking the dealers how big they thought QE2 would be, and how big they thought it ought be: $250 billion? $500 billion? A trillion? A trillion every six months? (Or as Tyler pointed out, $2 trillion for 2011.)
That’s like asking a bunch of junkies how much smack they want for the upcoming year—half a kilo? A full kilo? Two kilos?
What the hell you think the junkies are gonna say?
Between BK’s clear reading of the tea leaves coming from the Wall Street Journal, and TD’s also very clear reading of the tea leaves by way of Bloomberg, you’re getting a seriously contradictory message: The Fed is going to lightly tap-tap-tap liquidity into the markets—just a little—just a few hundred billion dollars at a time—
—while at the same time, the Fed is saying to the Primary Dealers, “We’re gonna make you guys happy-happy-happy with a righteously sized QE2!”
The contradictory messages don’t pacify the financial markets—on the contrary, they make the markets simultaneously contemptuous of Bernanke and the Fed, while very frightened as to what they will ultimately do.
What happens when the financial markets don’t really know what the central bank is going to do, and suspect that the central bankers themselves aren’t too clear either?
Guess.
So to sum up, we have:
• Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January–March of 2011.
• A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.
• A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous—nervous about the Fed’s ultimate responsibility, which is safeguarding the U.S. dollar.
• A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth—and which therefore prohibits the Fed from raising interest rates, if need be.
• A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable—especially considering that the total U.S. fiscal debt is well over 100% of GDP.
These factors all point to one and the same thing:
An imminent currency collapse.
Therefore, I am confident in predicting the following sequence of events:
• By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.
• By July of 2011, annualized CPI will be no less than 8% annualized.
• By October of 2011, annualized CPI will have crossed 10%.
• By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.
After that, CPI will rapidly increase, much like it did in 1980.
What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: “Happy days are here again! People are spending! The economy is back on track!”
However, by the late spring, early summer of 2011, people will realize what’s going on—and the Federal Reserve will initially be unwilling to drastically raise interest rates so as to quell inflation.
Actually, the Fed won’t be able to raise rates, at least not like Volcker did back in 1980: The U.S. economy will be too weak, and the Federal government’s balance sheet will be too distressed, with it’s $1.5 trillion deficit. So at first, the Fed will have to let the rising inflation rate slide, and keep trying hard to explain it away as “a sign of a recovering economy”.
Once the Fed realizes that the rising CPI is not a sign of a reignited economy, but rather a sign of the collapsing dollar, they will pursue a puerile “inflation fighting” scheme of incremental interest rate hikes—much like G. William Miller, the Chairman of the Fed from January of ‘78 to August of ‘79, pursued so unsuccessfully.
2012 will be the bad year: I predict that hyperinflation’s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.
By that point, the rest of the economy—unemployment, GDP, all the rest of it—will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression—which is actually kind of funny.
It’s funny because, as you know, I am a conservative Catholic: I of course put absolutely no stock in the ridiculous notion that “The Mayans predicted our civilization’s collapse in 2012!”—that’s all rubbish, as far as I’m concerned.
It’s just one of those cosmic jokes that 2012 will turn out to be the year the dollar collapses, and the larger world economies go down the tubes.
As cosmic jokes go, all I’ve got to say is this:
Good one, God.
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Email ThisBlogThis!Share to TwitterShare to FacebookShare to Google Buzz Posted by Gonzalo Lira at 10:57 AM
47 comments:
Anonymous said...
That's a pretty bold prediction but I give you props for making it publicly. John Williams from shadowstats said that he sees the everything being in place around March - June 2011 for hyperinflation to start taking hold. The Nov. 3rd FOMC meeting has the potential to be the final nail in the coffin for the U.S. dollar. Exciting times ahead. Keep writing.
October 28, 2010 11:27 AM
Anonymous said...
I am new to your blog and found your assessments refreshingly understandable but pretty scary. Hope you are wrong on the timing...
October 28, 2010 11:32 AM
Anonymous said...
GL, living in Europe, I would like to know your take on what happens to some of the European economies.
My particular country (a smaller Northern one) is living hand-to-mouth, or more accurately, the government is borrowing like there's no tomorrow to meet all the obligations they have given themselves over the years, to cover for the fact that revenues have dropped like a stone.
They also project to do that borrowing from other countries well into late 2010s.
So, if 2012 is the year of hyperinflation in the U.S., shutting down the U.S. borrowing of world's monies, does that borrowing window close for most of the other western countries as well at the same time?
Because if that is the case, my particular country is looking at at least a 17% instant "austerity" on the budget (and more as economy falls further), going into a system of "get one peso, spend one peso" (from Bolivian Juan Cariaga, www.pbs.org/wgbh/commandingheights/shared/minitext/tr_show02.html#11, about their hyperinflation correcting measures).
October 28, 2010 11:40 AM
riotwire said...
The biggest thing that sticks out to me from your post is that everyone is waiting anxiously like begging dogs to see what the private Fed Reserve is going to give them. I've known that we are all pawns in a bigger game all along, but how long are we going to stand by and accept this system as legitimate? When are we going to demand from our government, our representatives, that there must be consequences for their actions?
Or are we really that dumb to beg for the table scraps of these clowns who treat their positions like they are owed that position of power? The power comes from you and me recognizing it as legitimate. If we don't, we will be an unstoppable force against those who we willingly allow to take advantage of us.
I guess it took putting it in those words for it to really sink in. I hope you are wrong, but I am preparing as much as possible for when you are right. Be blessed.
October 28, 2010 12:11 PM
Brian said...
Great post as always, GL. Bold prediction, but based on data and some pretty sound reasoning. I too, hope you are wrong, but just one glance at the Fed's balance sheet, Bernanke's persistance, and lawmakers' ambivalence/ignorance has me resigned to the fact that we are done for.
Idea for future post: what can investors/people due to prepare for this economic tsunami? Is gold the real store of value or would it make sense to take those worthless dollars and buy companies that sell needs like food when everyone dumps their stock for cash? I don't pretend to know the answer, but I would be interested in hearing other ideas.
October 28, 2010 1:07 PM
Anonymous said...
Thank you, Mr. Lira. I am just a simple truck driver, but thanks to people like you, I have been looking real smart over the past few years. For all the ignorant/uninformed who now ask for my opinions, I now have something I can use to scare the poop out of them!
These may be scary times, but I intend enjoy myself just the same.
Oh well, back to collecting nuts.
October 28, 2010 1:35 PM
Anonymous said...
Interesting read and indeed scary, but actually, at this point, I would love a trade war with China! What do they have that we can't do without other than cheap goods which the majority of Americans have gone into debt to purchase and of course, JOBS! No one says a word about import duties or tariffs to level the playing field so that we can go back to producing our own goods for consumption at home. Pay more for those goods? Hell yes! Cheap shit from Third World countries is what has killed the goose that has been laying the gold eggs for the rest of the world ever since WWII. The thrill ride is over and we have to get back to reality and produce products and jobs here in America, even if they cost more.
October 28, 2010 1:35 PM
Editor said...
Here's an alternate prediction.
--A merchant in India will read online about how the dollar is dropping against the rupee and how the Fed is actively debasing the dollar. It worries him. So he pulls his dollars out of his mattresses.
--When he goes to his money changer to trade dollars for rupees. He will be shocked to get a much worse price than listed online. This has never happened before, but too many others had the same idea and the money changer is overloaded with dollars. He will notice a line is forming as he leaves and he will get on his cell phone and begin calling friends to warn them about their dollars.
--By that afternoon, Indian banks will see a huge influx of dollars and they'll start trying to lay them off onto someone else.
--The central bank will take some, but then they will get concerned and temporarily close the window to dollars.
--Then the real panic will set in, spreading rapidly around India and across SE Asia and then to the rest of the world.
--Banks and investors everywhere join in, selling dollars and Treasuries. A huge imbalance in sellers vs buyers will cause interest rates to spike and the Fed will step in, buying up Treasuries to prevent this.
--The panic just keeps spreading and the Fed just keeps buying.
--Even while talking to the Fed about coordinating support for the dollar, some central banks will be secretly selling dollars through intermediaries.
--Within 48 hours the Fed is the proud owner of most of the US government's debt. This fact soon become apparent and the buying power of the dollar tanks.
--OPEC countries begin demanding gold for oil deliveries to the USA.
--TEOTWAWKI
October 28, 2010 1:55 PM
Anonymous said...
Yeah that whole mayan calendar nonsense is so far fetched, not like the rock solid precpets of
catholicismm such as the Vigin bith, walking on water etc.
mememonkey
October 28, 2010 2:15 PM
Andy Shand said...
As Abraham Lincoln stated: America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.
I believe we are in the first stages of a new America, the new normal. This new normal for Americans is not something they are used to, as we all know, Americans have a heightened sense of entitlement.
I was born and raised in Europe where no such entitlements existed, thus I believe I am better suited and more educated in being able to better understand the complexities of the current fiscal Armageddon the USA is facing.
I neither wish or hope that America has to endure what is surely coming, but, I strongly hope that America ditches the old clichés of “Land of the Free” “God Bless America” “Liberty” and all the Patriotic BS. How many US citizens will embrace these once cherished beliefs when they start to see prices rise, no access to affordable healthcare, no decent schools, higher education costs, and so on.
You can always count on Americans to do the right thing – after they’ve tried everything else.
October 28, 2010 2:19 PM
Wil Martindale said...
"However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke."
It is not available because Benny the Bubble and his primary dealers are locked in a QUADRILLION dollar interest rate futures derivative stalemate. And not by chance, but by design. It's too mcuh to explain the history of how many times the honorable profession of commerce has been hijacked by organized crime, but if you mix in financial innovation and technology you get magnitudes of risk on the order of the extinction of the human race.
And that extinction is the ransom we gradually bailout, until ... we're extinct.
October 28, 2010 2:20 PM
Raphael said...
Thanks for the post. Very scary scenario. The interesting thing is the timing of the worst part of the collapse. 2012 is an election year and as it's looking like the GOP will be making some significant gains this year I can see how the Dems will blame the collapse on the GOP. Although *we* know that the seeds of this have already been sown and it won't be the fault of whoever is in power for 2011-2012, the liberal media will try to blame it on the Republican Congress and the gullible public might react by voting the Dems back in. I hope that doesn't happen...
October 28, 2010 2:28 PM
Anonymous said...
Hi, GL.
This was posted on economicpolicy.com and supports your analysis, and a great chart.
Linked to, http://www.shtfplan.com/emergency-preparedness/stunning-chart-the-real-rate-of-inflation-and-how-to-protect-yourself_10272010?utm_source=twitterfeed&utm_medium=twitter
Keep up the good work.
October 28, 2010 2:41 PM
Parth said...
Moral of the story -
1) Do not save money -spend it all.
2) In hyperinflation liquor and cigarettes are the most useful barter commodities.
Well iof thats how the world is going to end I must say God is a party animal. Another one please.........Go Giants!!
October 28, 2010 2:42 PM
Anonymous said...
As I understand inflation and rising prices, your hyperinflation scenario resembles a kind of inflation on steroids. That is not hyperinflation, which is actually a rejection of the currency. Under a hyperinflation I don't want more money -- I want to immediately get rid of the money that I have -- to turn it into something real -- to anyone that will take those dollars. Picture in your mind, if you will, a scene where debtors with fists full of dollars are trying to chase down their bankers to pay off debts, with the bankers in full stride trying to get away from them.
The solution to our present monetary problem is to simply let the dollar fall to zero. What wasn't paid off in worthless dollars defaults, and we start over -- preferably with money backed 100% by silver/gold controlled by the free market and without government interference. The U.S. has the largest stockpile of gold of any country in the world. Once that gold was divided evenly among its citizens, the free market would take over.
October 28, 2010 3:15 PM
Anonymous said...
Gonzalo, very nice writing of late.
As far as prophecy goes, one should not make light of things they do not completely understand. Nostradamus did look cool, but he was more than looks. I don't mean that as heavy handed as it sounds, by the way. This would apply towards those who mock gold as a barbaric relic. I'm not saying the world will end in 2012, I personally don't believe that either. Do consider though that Nostradamus may have actually predicted the collapse of the dollar:
--------------------------------------------
Century 8 Quatrain 28
Les simulachres d’or & argent enflez,
Qu’apres le rapt au lac furent gettez
Au descouuert estaincts tous & troublez.
Au marbre escripz prescript intergetez.
The imitations of gold and silver will become inflated,
Which after the rape [or robbery] are thrown into the fire,
After discovering all is exhausted and dissipated by the debt,
All scripts and bonds are wiped out.
----------------------------------------------
Many ways this could apply to now: bond market bubble, QE's, gold/silver short squeeze, an empty fort knox, gold/silver lending schemes.
-Joe
October 28, 2010 3:34 PM
jonil_8 said...
Anonymous;
I assume you meant 'had' the largest stockpile. Since we are blocked by TPTB to audit Fort Knox, I sincerely doubt if there is even one bar left for 'show'.
October 28, 2010 3:51 PM
shelby said...
DEFLATION, NOT HYPERINFLATION
=============================
http://www.marketoracle.co.uk/Article23162.html
I thought I explained it sufficiently in the above article, yet people continue to follow the incorrect logic of this writer Gonzalo Lira. He writes recently that the recent fast rise in commodity prices is a sign of arriving hyperinflation:
http://gonzalolira.blogspot.com/2010/10/signs-hyperinflation-is-arriving.html
It is impossible to get hyperinflation with respect to general commodities, when the unit-of-account (the currency) is global and wages are not increasing at same rate as commodities are, because if the entire world has to pay runaway spiring up prices for commodities, then pretty soon no one has any more money to buy anything, and the global economy implodes. At that point, no one can sell the commodities they held, and there is a crash in prices.
In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.
Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.
The only hyperinflation that is possible on a global reserve currency is relative to gold and silver. And this is happening now. This is actually DEFLATION, because everything is getting cheaper with respect to real money (gold and silver). And deflation is exactly what is expected during a debt implosion.
Commodities will rise in price only as fast as the developing world wages rise. We will see periods of boom and bust over the next years or decade, as the global reserve currency (the current fiats all hinged to dollar) dies with respect to gold and silver.
I have made dozens of comments on this site, which further detail my logic:
http://www.google.com/search?q=site:marketoracle.co.uk+Shelby+Moore
I have also discussed this in great depth and quoting from numerous articles (from this site) at my forum (which is free, I sell nothing, I am software developer, ad-hoc economist, and ad-hoc theoretical physicist):
http://goldwetrust.up-with.com/economics-f4/shelby-s-newsletters-t38.htm#3834
I recently explained that we are in global devaluation, which is not the same as hyperinflation, and is much more insidious, perpetual, and hard to escape from:
http://goldwetrust.up-with.com/economics-f4/shelby-s-newsletters-t38.htm#3816
Cheers.
October 28, 2010 3:54 PM
Edward Ulysses Cate said...
It's quite interesting that the Federal Reserve, a private corporation, could possibly end up buying all that debt with money created out of thin-air, just like it always does. However, when they take over debt, they also take title to the collateral supposedly backing that debt. When the Great Red Dragon book was written in 1889, it stated that the foreign Money Power planned to "own the earth in fee-simple." The recent unprecedented debt accumulation might just be how they planned to achieved that goal.
October 28, 2010 3:56 PM
shelby said...
I will post this in multiple parts, as it is too large to fit in one comment.
DEFLATION, NOT HYPERINFLATION
=============================
http://www.marketoracle.co.uk/Article23162.html
I thought I explained it sufficiently in the above article, yet people continue to follow the incorrect logic of this writer Gonzalo Lira. He writes recently that the recent fast rise in commodity prices is a sign of arriving hyperinflation:
http://gonzalolira.blogspot.com/2010/10/signs-hyperinflation-is-arriving.html
It is impossible to get hyperinflation with respect to general commodities, when the unit-of-account (the currency) is global and wages are not increasing at same rate as commodities are, because if the entire world has to pay runaway spiraling up prices for commodities, then pretty soon no one has any more money to buy anything, and the global economy implodes. At that point, no one can sell the commodities they held, and there is a crash in prices.
October 28, 2010 3:56 PM
shelby said...
In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.
Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.
The only hyperinflation that is possible on a global reserve currency is relative to gold and silver. And this is happening now. This is actually DEFLATION, because everything is getting cheaper with respect to real money (gold and silver). And deflation is exactly what is expected during a debt implosion.
Commodities will rise in price only as fast as the developing world wages rise. We will see periods of boom and bust over the next years or decade, as the global reserve currency (the current fiats all hinged to dollar) dies with respect to gold and silver.
I have made dozens of comments on this site, which further detail my logic:
http://www.google.com/search?q=site:marketoracle.co.uk+Shelby+Moore
I have also discussed this in great depth and quoting from numerous articles (from this site) at my forum (which is free, I sell nothing, I am software developer, ad-hoc economist, and ad-hoc theoretical physicist):
http://goldwetrust.up-with.com/economics-f4/shelby-s-newsletters-t38.htm#3834
I recently explained that we are in global devaluation, which is not the same as hyperinflation, and is much more insidious, perpetual, and hard to escape from:
http://goldwetrust.up-with.com/economics-f4/shelby-s-newsletters-t38.htm#3816
Cheers
October 28, 2010 3:57 PM
shelby said...
...continued from prior comment
==================
In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.
Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.
October 28, 2010 3:59 PM
Anonymous said...
see the hyperinflation occurs when the faith in paper money dies...so is very diff from inflation...
October 28, 2010 4:05 PM
Anonymous said...
Good article. easy to understand, a little sarcastic here and there, but potentially very controversial and awesome. good luck with those bars of silver in 2012, coins and bullets be worth more...
October 28, 2010 4:12 PM
Anonymous said...
Buy gold, silver and bullets. We in the US will need them all before this mess is over.
October 28, 2010 4:15 PM
MarkS said...
So, in essence, you changed your whole nonsensical theory that treasuries would collapse? What caused this dramatic change?
October 28, 2010 4:27 PM
ejhickey said...
Scary article and I took it seriously . Just went out and bought 12 cases of assorted whiskies. Question: should I add some vodka and gin for diversification?
October 28, 2010 4:56 PM
Anonymous said...
Maybe the objective is a quiet move to finally dollarise most or all of the world. The dollar could find enormous renewed demand worldwide because it could act like a very large global put or huge short position against all debt owed everywhere and needed to pay expenses, taxes and interest on debt. It would seem the folks that manufacture the tools that create the dollar could also induce wholesale debt, commodity and personal property liquidation at anytime without hyperinflation. Some very wise people have said, if something is this obvious, it obviously isn't going to happen.
October 28, 2010 4:57 PM
Anonymous said...
I agree with your conclusion about the dollar but think the BLS will find a way to keep core and headline CPI around 2%.
October 28, 2010 5:55 PM
Sharonsj said...
I would like to point out that we have had price inflation over the last two years but the mainstream media has completely ignored it. So has Congress--probably because their maid goes to the supermarket and not them--and so no COLA for the elderly and disabled.
As for prices rising 6 months later, that's a crock. If the price of crude goes up, the gas stations immediately raise the price of gasoline, often on the same day.
Vy the way, I've been stocking coffee and sugar for barter. Vodka too.
October 28, 2010 6:32 PM
Anonymous said...
i value these predictions equal to the view counter on this page. seems someone is looking for attention. i am sure in one to two months we ll get new predictions adjusted to the flow of things. that's what's the prediction business about...
October 28, 2010 6:55 PM
Agent P said...
There is a great piece from May 8th of this year. Gonzalo, if you will allow me to point your readers to it, here it is:
Kingworldnews.com
May 8th interview with Rob Arnott (Chairman, Research Affiliates)
Excellent piece that rationally (and accurately) explains our debt-service-load and the likely government responses/reactions to it.
Governments have stifled/distorted the natural laws of deflation before and they will do it again, all effecting a much worse outcome than if the natural deflationary, market-clearing process was allowed to play out.
Unfortunately, Politics is what gets in the way, and as anyone with a pulse recognizes, It's All Political Now -
October 28, 2010 7:13 PM
Vincent Cate said...
As people point out, as long as all world commodities are priced in dollars and 60% of central bank reserves around the world are dollars we probably won't have full hyperinflation. But what this means is the world will be detaching from the dollar in the early stages.
Also, bond market failure really is the normal start of hyperinflation. It might not be "the official trigger" but it probably is the real trigger. If the Fed has to buy all the bonds then the gig is really up.
There are many potential triggering events:
http://pair.offshore.ai/38yearcycle/#triggers
October 28, 2010 7:59 PM
Kreditanstalt said...
Wait! From predicting a T-bond boycott/selloff to detecting currency devaluation??
Wow! GL gets religion...late. This is a sudden 180-degree turn...everyone KNEW that price inflation would be triggered by a run for commodities based on the collapsing dollar.
Does anyone out there REALLY THINK that traditional, cost-push, investment-in-plant-and-equipment, higher employment would drive price inflation? Dream on...to concur with that, you have to buy the current mainstream line...
We've had this argument with the die-with-your-boots-on deflationists for MONTHS now. They're wrong in saying that deflation everywhere will swamp all. You CAN have price inflation coupled with debt-dependent-asset deflation. At the same time. Maybe in different areas but they can coexist...
Just took you a long time to come round to it,and a rather suddent U-turn...
October 28, 2010 8:01 PM
Anonymous said...
Fight the fed and the banksters, put your US dollars into gold and silver ASAP. A supply of food and some knowledge of guns and how to use them and you too should be set to survive the craziness the government is about to unleash upon us all.
October 28, 2010 8:24 PM
Anonymous said...
maybe all this is leading to 12/21/2012 when the alignment takes place as the mayan calendar predicts. let's hope a true transformation of consciousness takes place in each of us during this unique event.
October 28, 2010 8:38 PM
Edwardo said...
Shelby wrote:
"The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars."
No, they absolutely are not. And I am not suggesting that some other currency will do in lieu of the dollar.
October 28, 2010 8:41 PM
Anonymous said...
Ah Gonzalo: As a Catholic you cannot believe in the Mayan calendar.
One reason it is hard to believe is because the Catholics were so busy burning Mayan codices in the 16th century there is little remaining background material to study.
http://en.wikipedia.org/wiki/Maya_codices
Also in the 16th century Catholics burnt Bruno, a former Dominican (one of the orders that burnt the codices) friar, at the stake for attempting to expand knowledge of the galaxy, and allow Europeans the basis to understand some of what the Mayan calendar had been tracking for centuries.
Typical of Catholic authorities with power: Wipe out knowledge that calls their dogma into question, then ridicule the remnant that escapes.
October 28, 2010 10:13 PM
Vincent Cate said...
I see two big reasons other currencies will be in trouble when the dollar gets in trouble. First, the central bank reserves used to support other currencies are mostly in dollars. So if the reserves become worthless they can not support their local currency. Second, if people see that the mighty dollar can fall, then clearly any paper money is vulnerable.
October 28, 2010 10:17 PM
Anonymous said...
Too bad ole Peter Schiff couldn't stop by at a time like this to at least warn everybody what "might" happen when everybody gets so decidedly on the same side of the trade. How much did he lose his deciples as a result of touting runaway inflation and the death of the dollar before the Lehman/Bear collapse? And he had oil at $150/bbl and Goldman Sux calling for $200/bbl on his side back then. I guess oil forgot it was a measure of inflation but luckily gold picked up the slack *-) I know...I know...Schiff would right now be like everybody else....calling for the death of the dollar and runaway inflation all over again. What was I thinking? I will tell you this tho...all you ex-spurts had better be right about the coming collapse of the dollar and spiraling inflation cuz you are all in this together. I certainly hope you don't mind if I stand close to the exits tho. Uncle Ben has done a fine job of making sure that real estate has sloooooowly meandered it's way to it's final destination. Who's dumb enough to buy a house anyway when there are stocks that have rallied from $2 to $40+ in 2 years? Good thing we don't have to worry about bubbles anymore. Mr. Market is "obviously" gonna be kind to those who heed the rhetoric of Uncle Ben. That's pretty "obvious" ...all you need to do is come to this site and read the commentary. Peter Schiff can't make the same mistake twice...can he? :o
October 28, 2010 10:22 PM
Anonymous said...
It's hard for me to contemplate all those people who took out huge debts to buy more house than they could afford will somehow make out like bandits pushing cart loads of devalued dollars to the bank to pay off their note. (poor borrowers massively short dollars)
Especially when those dollars are owed to the wealthy in society, (tptb massively long dollars)
That's what should happen in a hyperinflation. So I kind of doubt that's what we'll get.
Besides, I think we have already had our inflation. From 1973 till 2008 the price of everything went up.
Remember what Thomas Jefferson said- If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation"
Notice Jefferson says the inflation comes first, after inflation then comes the deflation. The rest of his qoute about people being deprived of their property and ending up homeless also has come true. One smart guy that Jefferson.
Can we have price increases in commodities that don't require debt financing? Sure, Copper, cotton and agriculture are doing well of late. Natural gas, zinc, lead, nickel not so hot. Oil just kind of trading in a range, well off it's 2008 high.
When the essentials, oil and food, rise in price because of peak oil or drought, it just squeezes flat incomes causing the price of non essential commodities to fall. Rising prices in a few select commodities doesn't signal inflation nor hyper inflation necessarily, it might just be a supply constraint.
October 28, 2010 11:10 PM
Anonymous said...
I have nearly 200 cans of Costco tuna fish stashed with 2014 'best by' dates. Not worried about a thing, ha!
October 29, 2010 12:23 AM
Anonymous said...
I think you mean Tyler Durgen of FC Hedge fund.
October 29, 2010 12:48 AM
aardvark said...
Sir, your article is a good one which I wish to share, but it contains (or Lew Rockwell headed it with) such foul language I could not. Perhaps it could be modified?
October 29, 2010 1:01 AM
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October 29, 2010 1:39 AM
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October 29, 2010 3:46 AM
Anonymous said...
From a very small Northern European country I refer you all to the following article published on Wednesday - http://www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/the-scary-actual-us-government-debt/article1773879/
Hold on to your hats chaps..
October 29, 2010 4:14 AM
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