Monday, August 23, 2010

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.”

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. 



If you like what I’ve written, then please subscribe to my mailing list.

I’ll only contact you with things that are worth your while.

Thank you.

—GL

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171 comments:

  1. Lots of comments over at ZH, so thought I might get a response here. For a non-broker/investor how would one go about setting up a hard-metal basket?

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  2. Hi Gonzalo, I liked this post, but I would like you to expand on something for me please: how can you make statements suggesting that the government _might_ seize supermarkets (private property), descend into a dictatorship, or implement wage/price controls, but offer a basket of hard metals as a potential solution without mentioning that the US government has a history of seizing privately held precious metals?

    In other words, if things get so bad that the government is seizing gas stations or turning dictator, why do you think they wouldn't simply seize any privately held metals? Failing that, why don't you think they would simply tax the hell out of any profitable sale of said metals?

    While I find your main argument entirely believable (even probable), I'm not sure that your solution would play out as cleanly or safely as you seem to suggest. Perhaps you could address that in a follow-up article.

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    1. I think what he didn't expand on, and expected you to assume, is that there would be a massive run on the banks. People would panic, and want to pull their cash out. I know it sounds drastic, but martial law would probably have to be instituted for a while, and during that time the Govt. has the power to seize anything they need for the general welfare, so there probably would be rationing so as to prevent hoarding. It could get ugly. Best to have a half years supply of food laying around, beans are cheap, and you might get tired of them, but they are better than fingernails.

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    2. What about other currencies as a safe haven.... Swiss francs? Are there any commodity backed currencies? What about egg mcmuffin certificates. One egg mcmuffin certificate could be exchanged for one egg mcmuffin at mcdonalds or for anything else or by anyone who is willing to accept them knowing they could exchange them for one egg mcmuffin at mcdonalds.

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  3. Thank you Gonzales, that was by far the best description of a hyperinflationary event i have read!

    GS

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  4. I have never seen an article with so many rights and so many big wrongs at the same time.

    > 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.

    While I agree that rising prices in a working economy is different from a hyperinflationary process, how can prices go up in a working economy without an expansion in the money supply?

    (and dont tell me is velocity, money velocity does not affect prices except because of specualtion)

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  5. A few Comments:

    After Hyper-inflation hits, the US will break up into the divided states of America. There will be no recovery of the federal gov't. Remember its the value of the dollar that provides all the power to the federal gov't without a currency that holds value it can't pay its bills. As the dollar crashes, States or groups of states will begin to print their own currencies in order to trade to buy important resources (ie Oil, natural gas, replacement parts for equipment).

    If this doesn't happen it will indeed be mad max, as the US is utterly dependant of foriegn energy and critical manufactured goods to keep the lights on and food shelves stocked.

    Consider that after a currency collapse, every major nation was broken up. most Recently the Soviet Union (divided into the Baltic states, Ukraine, George, and many new nations in former southern\central Russian terriorities. Before that it was Germany (Which was divided into Poland, baltic states, Chekslovikia), Before that was the British Empire (Canada, Austrialia, India, South Africa), before that it was the Roman Empire. I don't the US will be any different.

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  6. Great food for thought.... And, a very valid premise at the level of being blasphemy.

    Thank you for your thoughts,

    Econolicius

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  7. It all seems quite plausible to me. However, Joe Biden has established his reputation as a moron, but Sarah Palin's work as mayor, on the oil and gas commission and governor are evidence of a very effective executive, and one who knows the value of sound money. You have bought the smears against her without looking at the evidence. Anyway, I'm glad I stashed away some PM and sold our parents' house in settling the estate.

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  8. Gonzalo (or other interested parties)

    Could you please elaborate on what would happen in other countries, specifically Canada, as a result of US hyperinflation. It is pretty obvious that the Canadian economy would suffer greatly as the US economy collapsed. However, what do you see as the broader impacts given that Canada has:
    - a natural resources extraction economy resulting in a mining/petro currency
    - a decent public fiscal position (courtesy of efforts in the 1990s and early 2000s, but deteriorating lately)
    - private debt that is at scary levels (even when compared to the US)
    - essentially open borders with the US

    Also, in addition to the hard metal basket, I think it is prudent for individuals to buy hard goods sooner rather than later. The survivalist movement takes it to the extreme, but some consideration should be given to their actions.

    Thanks!
    Brian

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  9. If the US tanks then the whole of the Western world will go with it. Debt is an intricate web that links all our economies. A defaulting US will trigger an equally massive rush in all debt markets and the West will be undone. Global trade will surely cease. Where will the imports come from? How will they paid for? Who will be left in any position to trade anything at all?

    Seems to me that we're looking at the equivalent of a global financial cardiac arrest without anyone left to use the defib.

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  10. All great truths begin as blasphemy.

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  11. FOFOA lesen

    Everythingelse is FLAWED!

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  12. read and learn...

    http://www.scribd.com/full/34976449?access_key=key-fxdt66a500vjp2mkxrr

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  13. Excellent work! One question, please. I don't understand what you mean by a "hard metal basket." Do you mean bullion funds like CEF, PHYS, or allocated gold/silver accounts? It sounds like you are excluding solid precious metal stocks like Goldcorp and Silver Wheaton from the lifeboat.

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  14. Although the scenario of a 'run on Treasuries' is possible, I do not think it is probable unless there is a significant 'trigger event' to precipitate it. The magnitude of the 'trigger event' required could lessen with time if the US financial situation continues to deteriorate.

    Why do I say this? Because the TBTF banks have no incentive to join in the selling if the Fed stand for a price in the market.

    It took a 'Soros' for example to call the Bank of England out in their support for the pound in that famous incident. I see no such party of sufficient size now to take on the US Treasury.

    I do think a trigger event or incident is possible. I believe it would involve an exogenous party of size, for example China, and an announcement regarding Treasury reserves.

    I also think the Treasury run could be triggered by a precipitous decline in the value of the dollar. Note this implies the Treasury run would start on the shortest end of the curve, Fed notes of zero duration. Then the longer end would follow.

    Very nice description of such an event, and chilling to say the least. But I think we are some distance from this without a substantial 'trigger event.'

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  15. Derivatives are the underlying problem. They will trigger hyperinflation either as a result of monetizing all assets necessary to prevent its collapse or simply allowing it to collapse. Reading the Illinois Pension fund fooling with these things sent chills down my spine. It seems every institution on this planet is loaded to the gills with this worthless crap and only one domino falling can topple our mighty imperial system. What irony! Our forefathers never could have imagined that.

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  16. I like the article. You speak the language far beyond anything I can grasp.

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  17. I have been pondering this for months, wondering what it will look like when this bond bubble "pop" occurs. I've read a few other articles also, including Gordon Long's "Tipping Point" series. Yours is the first one to paint a likely scenario in which the house of cards will collapse. Thanks! I've converted it to a pdf and saved it on my hard drive for future reference and reading.

    A couple of quick questions. Is it possible/conceivable that the Fed or the government would somehow put a freeze on the sale of treasuries to allow a more orderly process of selling? Or would this just increase the sense of panic and a desire to rush for the exits? Do you foresee any measures that the government would take to slow down the meltdown?

    Best wishes! May we survive and prosper when that fateful day arrives!

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  18. By what possible mechanism will consumers get those wads of $100,000 dollar bills to buy the $500,000 Happy Meal? They can't and won't. The financial/asset economy is where the Fed plays and anything that happens in the real transaction for goods and services economy is just a second order trickle down affair. Various and sundry commodities or financial assets may explode higher but higher prices for consumer goods will just see demand destruction. Before McDonald's has the $100,000 Quarter Pounder they will have the Sawdust burger with lard glaze for $3.

    The mechanisms whereby Germany or Zimbabwe printed stupendous amounts of paper money and got it into the citizen economy is absent here and will remain so, on a hyper basis.

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  19. Holy crap! Just pure genius! This was almost like listening to Rush Limbaugh at the peak of one of his best rants - the author stated EVERYTHING we all feel and understand intuitively - yet cannot seem to get out all at once ourselves. Great article - absolutely fabulous!

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  20. To expand a bit on Anonymous's observation...

    > By what possible mechanism will consumers get those wads of $100,000 dollar bills to buy the $500,000 Happy Meal?

    So a quick search of "US money supply per capita" results in numbers ranging from $2300 to ~$5750 (and I'm not certain if this includes the pallets of cash "lost" in Iraq, some $9-12 Billion worth). And much of this hard cash sits overseas and/or in the hands of drug dealers (http://www.google.com/images?q=drug+cash+pictures).

    Now, IANAE (I Am Not An Economist, thank goodness ;), so I am more then a little ok with being completely off-kilter here... but doesn't this lack of ready cash, a result of the "credit card society" in the US preclude a "cash" hyperinflation, at least on the Main Street level?

    It's not like the credit card companies are going to up limits in the face of this, since they have already withdrawn outstanding credit by nearly a 3rd (?, per M. Whitney, can't find a link). And even if they did up limits, the time scale you are speaking to limits its effectiveness anyway; days/weeks to discuss + time to implement + time to inform customers + time for customers to react. Not to mention an overloading of their processing systems as the panic(s) take hold (so who will trust their cards anyway?).

    Now, don't get me wrong; I too have PDF'd this article for later reference as I believe this scenario is plausible to probable after some period (days to years) of continued deflation. But what of the mechanics of the actual cash hyperinflation? In most previous hyperinflations, societies were cash-based for individual trade. Some of the more modern ones of course may differ (Argentina, Zimbabwe) but what was their available currency per captia at the onset? Wouldn't the government have to be complacent in our case to allow a Main Street level hyperinflation to occur (as you mentioned above via Biden/Palin) by printing more physical cash? This could be done to allow the few of us who are savers to exit our FDIC accounts, but again lead time will kill us anyway (trial balloon, act of congress, physical printing, distribution, bank lines). Then what of the robberies of the people spilling out of the banks with physical cash?

    And, speaking as an individual with cash on hand waiting for RRE to "fully adjust" so as to make a purchase... how would I go about "deploying" that cash in this sort of event, where I have to work with the seller's bank to clear title? Or assuming I'll be realistically limited to the ~1/3 of properties owned outright in the US so as to avoid dealing with a bank at sale, how do I get those tens of thousands of dollars from me to them?

    So... with all this in account, wouldn't the hyperinflation be largely limited to the TBTF's while their games made us all proles/plebs?


    PS - I was linked here from Jesse, and I am very glad I was! Thank you for a cogent walkthrough of what I believe will be the next major "movement" of the Global Finical Crisis/Greater Depression. This will assist my family greatly in our preparation for what is invariably to come!

    Cn

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  21. I have a hard time understanding the logic you follow. Although, I agree that interest rates will go up, and Treasuries are a suckers bet.

    But it seems far more likely that people will use CDS or interest rate swaps as a way of hedging or getting out of treasuries, not commodities.

    Why would a bond trader at a JPM desk who is looking to short Treasuries buy pork bellies or cotton futures? Wouldn't it be easier to buy a CDS or an interest rate swap?

    Further, a situation as you describe would dry up liquidity, which would take out a speculative driven market like commodities. Just look at the GSCI during the 2008 market crash/Bernanke's now infamous money printing spree.

    And even if the JPM trader did decide to buy frozen orange juice futures, won't the collateral for those contracts be T-Bills? He would have to sell the bonds, then re-buy them to post collateral for the futures, no? It seems like it would be a wash.

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  22. I sit here to wonder and ponder. The day will come when we will awake to see all the mistakes our great leaders have made, no way to bury or disguise it's shape, no it's going be a "GREAT DAY".

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  23. Deflation should be understood as an implotion of credit, which is already in place since 2007/2008, I guess this process is a very long term correction of money expansion that lasted decades...

    So, Hyperinflation will take place, but not as sudden as you suggest, nobody knows, but my guess is that the economy will experience deflation for maybe 2 more years followed by an Hyperinflationary process that could take us until 2016 where with a new monetary order things will become stable.

    Remember that in 1929 depression it was illegal to have gold stored, and even it could be possible that treasuries could be exchanged for a new Stability Bond, or New Order Bond...and so on...

    There will be great opportunities for the survivors, Real Money Cash will be king to buy Assets for a cent.

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  24. Inspired! - Gifted too!

    I am just an artist, and the wife of a retired farmer. I sold my U.S. Savings bonds last Christmas. Before reading your article, I had never heard the expression "run on Treasurys," but I can you that I don't trust them, or trust the gov't to honor any tax advantages that have been associated with them.

    I took my money and did a few things: paid down some credit balances, bought some gold and silver bullion. I then went into to debt to add extra groceries,pet food, and take care of some medical needs.

    Thanks,
    Sunflower from Kansas.

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  25. I suspect that the next "Flash Crash" may not be a typo...........

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  26. Gonzalo,

    An interesting and fascinating post.

    My main question is,Have you ever worked in Finance or done trading of any sorts?You bio-states that you are a film-maker and Writer,no doubt prone to the hyperbole.

    What you fail to mention in your post are two very,very important and significant players in the US Treasury Bond market and especially their influence on both Issuance and Purchases.

    No1.The Baby Boomers-You fail to mention in your article that Baby-Boomers are now dumping Stocks in record numbers(check up the latest ICI numbers for this) and moving into the safety of Bonds(Corporate and US Treasury).

    What they are more concerned with is the Return OF capital as against the Return on Capital.And treasuries have an unbroken record of success here(for the last two decades).Anyone who looks at todays Treasury charts and decides to short is foolish in the extreme and deserves to loose his entire trading account.

    YOU DO NOT SHORT INTO A BULL MARKET.Its like standing in front of a freight train which is steaming towards you at full speed.This is where US Treasuries are today.

    Every bull market has to end at some point of time,but Investors would be wise to wait for the trend to change before jumping on the Short treasury bandwagon(after calling US treasuries bubble) and getting massacred in the process.

    As long as Baby Boomers and community banks (alongwith the TBTF banks)keep on buying Treasuries there will be no shortage of buyers for US Treasuries.

    If we do get a major debt default in the Corporate Bond market,all that money which has sought refuge there (from the Equity market),will higher-up the chain to US treasuries further strengthening this Bull run...

    Contd below

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  27. contd from above


    The Second player is the The Treasury and the IRS-
    The US Govt even today has the ability to tax citizens and corporations in ways you cannot imagine and comprehend.You will see the beginning of that when the Bush Tax cuts expire in 2011.The Super-rich are going to see taxes go up considerably from 2011-Death taxes,estate Taxes,dividend taxes and Capital Gains taxes.This(it is increasingly popular too) will go some way in plugging the deficit.

    In case you do not already know,America is the only major country which Taxes its Citizens on Worldwide Income.Even if an American has not been to America or made any money there for last 20 years he still has to pay taxes to Uncle Sam.

    Do you know how hard it is for a Super-Rich American to renounce his/her citizenship?Sure you can but first the IRS will rip off more then 55% of your assets and then let you give up your passport.This is the major reason why many super-rich Americans don't renounce their citizenship.

    As for Tax evasion-After the UBS fiasco(where some senior UBS execs were thrown in jail),forget US citizens who want to evade taxes even Mega Banks are scared shit to deal with US Citizens.All countries globally inform America if an American citizen tries to open a Bank account there and all that money is tracked.

    So the US Govt is not quite powerless/weak or out of Bullets as you say here again and again.

    Another area where they can increase revenue is by declaring a Tax Amnesty for all those corporations who are holding cash offshore.That will definitely help plug the hole.

    Another area where they can instantly increase Buyers for treasuries is 401Ks,if Congress passes a law making it mandatory that 50% of all 401Ks have to be invested in Long Dated Treasuries,Do you have any idea how big a source of Demand that would be for Treasuries???

    Plus it also helps the smartest politicians are getting the idea from the Public that we don't want anymore stimulus.Look what Barney told Freddie Mac last week in the Journal(Drop dead).

    The next few (5)years are going to be one of Below-trend growth where we will see America slowly reduce its Deficits and clawing out of the Mess we are in today.

    Many,Many things have to go wrong terribly wrong for your dream scenario(the one outlined above to work out).I retain full faith in American Democracy and in the ability of America to correct itself and extricate itself from this mess.

    Best Regards

    Ashish.

    P.S And if worst comes to worse,Investors should always hold some Physical Gold(between 5%-10% of your savings).

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  28. The Second player is the The Treasury and the IRS-
    The US Govt even today has the ability to tax citizens and corporations in ways you cannot imagine and comprehend.You will see the beginning of that when the Bush Tax cuts expire in 2011.The Super-rich are going to see taxes go up considerably from 2011-Death taxes,estate Taxes,dividend taxes and Capital Gains taxes.This(it is increasingly popular too) will go some way in plugging the deficit.

    In case you do not already know,America is the only major country which Taxes its Citizens on Worldwide Income.Even if an American has not been to America or made any money there for last 20 years he still has to pay taxes to Uncle Sam.

    Do you know how hard it is for a Super-Rich American to renounce his/her citizenship?Sure you can but first the IRS will rip off more then 55% of your assets and then let you give up your passport.This is the major reason why many super-rich Americans don't renounce their citizenship.

    As for Tax evasion-After the UBS fiasco(where some senior UBS execs were thrown in jail),forget US citizens who want to evade taxes even Mega Banks are scared shit to deal with US Citizens.All countries globally inform America if an American citizen tries to open a Bank account there and all that money is tracked.

    So the US Govt is not quite powerless/weak or out of Bullets as you say here again and again.

    Another area where they can increase revenue is by declaring a Tax Amnesty for all those corporations who are holding cash offshore.That will definitely help plug the hole.

    Another area where they can instantly increase Buyers for treasuries is 401Ks,if Congress passes a law making it mandatory that 50% of all 401Ks have to be invested in Long Dated Treasuries,Do you have any idea how big a source of Demand that would be for Treasuries???

    Plus it also helps the smartest politicians are getting the idea from the Public that we don't want anymore stimulus.Look what Barney told Freddie Mac last week in the Journal(Drop dead).

    The next few (5)years are going to be one of Below-trend growth where we will see America slowly reduce its Deficits and clawing out of the Mess we are in today.

    Many,Many things have to go wrong terribly wrong for your dream scenario(the one outlined above to work out).I retain full faith in American Democracy and in the ability of America to correct itself and extricate itself from this mess.

    Best Regards

    Ashish.

    P.S And if worst comes to worse,Investors should always hold some Physical Gold(between 5%-10% of your savings).

    ReplyDelete
  29. contd from above


    The Second player is the The Treasury and the IRS-
    The US Govt even today has the ability to tax citizens and corporations in ways you cannot imagine and comprehend.You will see the beginning of that when the Bush Tax cuts expire in 2011.The Super-rich are going to see taxes go up considerably from 2011-Death taxes,estate Taxes,dividend taxes and Capital Gains taxes.This(it is increasingly popular too) will go some way in plugging the deficit.

    In case you do not already know,America is the only major country which Taxes its Citizens on Worldwide Income.Even if an American has not been to America or made any money there for last 20 years he still has to pay taxes to Uncle Sam.

    Do you know how hard it is for a Super-Rich American to renounce his/her citizenship?Sure you can but first the IRS will rip off more then 55% of your assets and then let you give up your passport.This is the major reason why many super-rich Americans don't renounce their citizenship.

    As for Tax evasion-After the UBS fiasco(where some senior UBS execs were thrown in jail),forget US citizens who want to evade taxes even Mega Banks are scared shit to deal with US Citizens.All countries globally inform America if an American citizen tries to open a Bank account there and all that money is tracked.

    So the US Govt is not quite powerless/weak or out of Bullets as you say here again and again.

    Another area where they can increase revenue is by declaring a Tax Amnesty for all those corporations who are holding cash offshore.That will definitely help plug the hole.

    Another area where they can instantly increase Buyers for treasuries is 401Ks,if Congress passes a law making it mandatory that 50% of all 401Ks have to be invested in Long Dated Treasuries,Do you have any idea how big a source of Demand that would be for Treasuries???

    contd below

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  30. Plus it also helps the smartest politicians are getting the idea from the Public that we don't want anymore stimulus.Look what Barney told Freddie Mac last week in the Journal(Drop dead).

    The next few (5)years are going to be one of Below-trend growth where we will see America slowly reduce its Deficits and clawing out of the Mess we are in today.

    Plus your homeland (Italy) and the rest of Europe and are doing so much to strengthen the case of owning US Treasuries(There is no reliable alternative).

    Many,Many things have to go wrong ;terribly wrong for your dream scenario(the one outlined above to work out).I retain full faith in American Democracy and in the ability of America to correct itself and extricate itself from this mess.

    Best Regards

    Ashish.

    P.S And if worst comes to worse,Investors should always hold some Physical Gold(between 5%-10% of your savings).

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  31. Excellent post. Thanks for putting down so clearly something that many us feel intuitively.

    Could you reply to the questions about how to buy commodities...just logistics...how do to it? Especially to avoid the counter-party risk that you bring up.

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  32. Very interesting blog, your scenario certainly seems worst-case but it never hurts to think about how ugly things might get.

    A few comments did come to mind.

    Firstly gold and silver are all very well but didn't FDR confiscate them during the last depression, only to immediately and significantly devalue the dollar against the gold? Even if people denied holding precious metals it would render them useless at a stroke because trying to buy or sell gold would become comparable to trying to buy or sell cocaine and heroin today.

    The second issue is the idea of buying real estate at the lowest point. If the currency collapses then the likely implications for property taxes is that they go through the roof. So you potentially have the ironic situation of mansions costing almost nothing but nobody buying because they can't afford the maintenance - the oil to heat it or the taxes to keep ownership of it.

    The final issue is that of those who have not prepared for a collapse, whether through lack of ability or inclination isn't relevant. If people have empty stomachs but loaded guns they'll find food somewhere. Most domestic residences aren't built to withstand an angry mob who have guns or sticks and want the food that is in the cellar.

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  33. Excellent post, Gonzalo. I recommend a read of a novel called "Only in America" by John Soltez, a thoughtful look at how life in hyperinflationary America might play out -- including rationing, tent cities and partial Balkanization of the States.

    As a side note, we got to witness this phenomenon most recently in Argentina, which has come out of its own hyperinflationary period in fairly solid shape. (Much better than during the slave-to-the-IMF days, for certain.) This leads us to the big question: how will it be different in the U.S., which holds the world's reserve currency? Perhaps you could address this key issue in a future commentary.

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  34. 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.

    With what?

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  35. Hi

    thanks for the great article. I totally agree that if hyperinflation happens, it will happen very quickly because the financial system is so interconnected. Most people won't even have time to run to their bank because once enough people with instant informations withdraw their money electronically, all banks will have depleted their cash reserves. As Nassim Taleb says, complex systems are prone to wild swings.

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  36. Let me see...A few powerful families own the major international banks...Those banks have a cartel in primary dealership of US Treasuries and own the Fed and many other central banks. They also have defacto control of both political parties in the US, the major media and all of the large public corporations.
    They depressed the price of gold and silver for over a decade, while loading up personally on physical precious metals themselves, in whatever forms the governments will be told to overlook in the confiscation drive.
    So someday soon they pull the plug, and all their paper promises become worthless. Their minions in governments seize most of the remaining precious metals from the public to back a new global currency. Then they own just about everything.
    Presto! Global financial gulag!

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  37. I've read all of the comments and realized none of us have the same ideas as to what will happen.
    One mentions Baby-Boomers buying up US Treasuries. Really? Trillions of dollars of them sold throughout the year can not be gobbled up by the BB. I know too many BB who can't buy anything, they've lost their small business and homes. They are the new poor. Those who have been untouched so far, will not buy them when the dollar collapses. They will need every cent to purchase food, gas and pay taxes for their fixed incomes will not cover the price changes. They are primed for their savings & stocks to be obliterated.

    Buying real estate doesn't make sense if it will be taxed beyond your means to hold it. If Cap & Trade is passed, you won't be able to bring it up to code without a small fortune. There are groups trying to seize private property by passing bills for environmental reasons. Don't think the EPA will enforce it? Look at CA and the dead nut/fruit trees to save a minnow.

    The Uber-rich are fleeing the country and giving up citizenship. They can afford to BUY citizenship elsewhere- and do.

    After reading the book "Aftershock", I am inclined to follow it's advice. They speak of hyperinflation, PM soaring, standard of living going down and a 20 year Mega-depression -- following a dollar bubble and government bubble. Unemployment reaching 50%, many government employees being of them. AF and Navy hard hit and retirements (IRA/401K) taken for the good of the nation and invested in Wall Street. Finally, the evolution of a new world currency in an electronic form. This book covers it all and is quite frightening, although the economists (Ph.D) tried to make it hopeful.

    I remember when the Peso dropped like a stone. Understand, it is not the item that changes price-- it is the value of that paper dollar that changed. A box of nails doesn't lose value, but you will need more dollars to purchase it. That is how hyperinflation wipes out your income & savings.

    Prepare by buying NOW in this deflation period. It won't last. And buy quality, for it may need to hold you for the next 20 years.

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  38. Great scenario (excellen post) and very plausible but...I am comfortable with precious metal equities even though during the crash phase of this potential scenario all stocks will go down hard. But I think producing precious metals stocks will bounce back fairly quickly, while others will not come back for years. Reasoning, in addition to the 'real money" argument for gold and silver, is the possiblity that precious metals could play a role in whatever the new reserve currency wil be.

    On another note...today is feeling a lot like late August 1987...wasn't the peak prior to the 1987 crash on August 25, 1987...? With September the historically worst month of the year for stocks, and October the 2nd worst this could get interesting! Especially if something crazy (and stupid) happens like an attack on Iran, by Israel or the US, to get the ball rolling. Think I'll watch the DVD of the movie "Rollover" tonight with Jane Fonda and Kris Kristofferson - It's kind of appropriate to the conversation!

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  39. Your dramatization of how the initial Treasury sell-off would occur rings true. Every trader knows that when a big, dumb buyer is pegging the price of an asset, you not only dump everything you've got into that waiting bid, but short it to boot.

    Patience is needed in this Bubble, since the Fed's bid is backed by unlimited thin-air currency. But it's a delusion on the Fed's part to think they can't be busted. After all, Soros broke the Bank of England. The bigger they are, the harder they fall.

    I've said since 2008 that the authorities' only strategy is to create a Bubble III. Now we know that Bubble III is in Treasuries -- a particularly dangerous Bubble because, like the South Sea and Mississippi Bubbles of 1720, it's a government-sponsored Bubble in a 'guaranteed' 'risk-free' asset. When it pops, the consequences will be atrocious.

    A Tale of Three Bubbles:

    Bubble I -- techs/telecoms (1995-2000)
    Bubble II -- real estate (2001-2006)
    Bubble III -- Treasuries (2007-2011?)

    -- Jim Haygood

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  40. Hmm...forced to buy bonds with my own savings account? Well, the SOB's are already basically doing just that! Most Gov't Contractors already can direct money supposedly allocated to an employee for retirement in to a retirement plan of corporate choice! Even though this directly violates the Constitutional prohibitions on Congress, this criminal thievery by govcorp is now officially instutitionalized. The only way to recoup "your" supposed money is to quit your job! Any one dumb enough to buy in to any political belief should be immediately executed as far as I'm concerned. Other than the expected complete loss of any supposed retirement, by method of forced participation in a totally uninsured rigged gambling table by fascist forces, many of us still stay at our jobs, like where would we find other work, and they know this. Seems kind of criminal in my opinion, still I've stocked up on popcorn because I just think the American People, once reduced to utter poverty, and with 90% of the wealth in the hands of less than 1% will finally act in a sensible manner.

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  41. it took decades for the credit monster bubble to protract. Hence it will take the credit monster bubble decades (see Japan) to contract.

    Yes, after everything has been purged and the FED wants more IOU's (the bond market will make the decision of yay or nay)

    that is a long time away though.

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  42. I believe that in the situation as described, many of the brokerage firms and banks will simply collapse one way or another.

    If you think your gold ETF's or other gold/silver stocks will safe you, think again.

    You brokerage accounts or stocks / ETF's could be wiped out in matter of days.

    Your best bet would be to get silver and perhaps gold coins. Perhaps even better would be finished diamonds, which is easy to hide.

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  43. If the government's response is to declare martial law and put troops on the streets, or if they resort to war before hyperinflation hits in order to try to pay down the debt....we may very well have that Mad Max scenario. The "Neanderthal survivalists" aren't 1/2 as kooky as you caricature them.

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  44. Someone describe what our lifestyles will be like in this coming depression please?

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  45. Beautiful piece. I look forward to women losing their unappreciated special rights. It will happen, sooner than many think. And no, I don't hate women. But enough is enough....

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  46. The most brutal part of the next leg of the financial crisis will almost certainly be deflationary in nature. Panic will set in as more and more bad information is released by private equity groups. Enough of this bad information and you have sown the seeds for a monstrous collapse of the equities market and therefore demand for commodities, which will collapse, taking along with that collapse, prices, which will mean that anyone holding cash (in 2008 dollars, for best reference) will be sitting very pretty indeed. They will be able to buy silver, palladium, food, oil, commodities, and yes, even residential and commercial real estate, for a mere fraction of the prices they are today!

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  47. GL --
    Nice work, very nice work indeed. And the Comments by Anonymous are likewise supurb. Congratulations to all of you and thanks for taking the time to post.
    As far as a replacement currency for the USD, no problemo. Just get the TBTF banks to issue one more derivative instrument from their bankster bag of tricks. Call it the "amero" but don't coin or print any. Instead, make it purely digital as any other derivative is now. Ironically, the precident for this is the U.S. Dept. of Agriculture's Food Stamp Program. Instead of books of coupons the recipients get a debit card that is recharged every month after they submit their forms, either paper or electronic. This truly IS the Digital Age.
    The image of a flight of helicoptors dropping paper currency under the direction of Currency Czar Bernanke is useful but very misleading. Remember his words - - we posess a printing press, or its electronic equivalent - - and you will get the idea.
    Going fully digital-cash gives the PTB unlimited control over every transaction you will make. Just as Food Stamp digits cannot be spent on booze or tobacco products, I can guarantee you that amero digits will not be "cleared" for gold or silver coins or bars.
    Do I mean to imply that Everyone will have a Digital Cash Account? You better believe it, pardner. Not only that, but authorization access could be by means of an RFID chip either on the hand or forehead. How spooky is that?
    But not to worry. In every land under occupation, there are always methods found to circumvent the oppressive control mechanisms. Instead of coins and bars, maybe the barter currencies will be gold and silver rings. I can envision a world-wide fad of wearing multiple rings on all the fingers and toes as well as hanging from various body piercings. Maybe not a pretty picture to some but a way around the limits to physical cash.
    I could go on but you get the idea. As far as "little details" of what life will be like, ram this into your skull : Private transportation vehicles? Fuhgetaboudit. They will all have been "drafted" into public service over the years for "the greater good", you see.
    Investment ideas? How about building balance beam scales? How about building hydraulic presses to convert coins into rings? How about building solar ovens and water heaters? We will finally learn what an extravagance that cheap energy has been over the last century and will pay dearly for squandering those resources. We will also learn that we have lived through the greatest age of all . . . the age of peak consumption.

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  48. The guy who is opposed to women's supposedly "special" rights...Okay, I'll play.

    Women don't want special rights, they just want to be EQUAL. I guess that is too much to ask.

    I presume you are male. That's fair enough, 70% of all anti-abortionists are male. That's the vast majority of anti-abortionists...who fortunately for them will never have to face any pregnancy let alone an unwanted one or one with medical risks that are incalculable that could easily end in the death of that woman.

    What, say you, is the solution to all these unwanted pregnancies or pregnancies with proven fatal medical complications? Are you telling us here that millions of women should be forced to suffer or die because of your beliefs?

    None of us think that abortion is any good - it IS horrible, but that doesn't mean it isn't necessary and that women should be relegated to breeding stock status just to support one's idea of social order. Remember, Hitler once thought that everyone being blue eyed and blonde was his idea of a perfect society. It didn't work, did it? What about Stalin? Pol Pot? What about the Victorian-era anti-sex fanatics who mutilated their children's genitals to control their sexuality back in the 19th century and even now it still happens under the clever cloak of cleanliness and hygiene?

    Do you really want to return to those days? Cuz I can tell you one thing right now, I most certainly do not.

    Women should be equal to men in sexual matters, there should be no loss of equality - everyone is entitled to their own sexuality, including the right to their own bodily integrity, to be free of bodily mutilation or control by others without just cause. This includes being free from the wishes of anti-abortionists or anti-sex fanatics.

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  49. With deflation, the DOW might drop from 10,000 to 4000 or even 1000 and below.

    However, when hyperinflation sets in, guess where investors will dump their money to get rid of the dollar?

    Besides commodities, I think in stocks of companies which are most likely to survive. The DOW might very well jump from 1000 to 50,000 or more in matter of weeks/months.

    Take a look at the BOVESPA index. It's at 64,807. The Brazilian economy is not 6 times bigger than the U.S. economy. Much of that number comes from inflation endured over the last 40 years.

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  50. And now the good news ...

    Hyperinflation will be perfect to fight obesity!

    Millions of Americans will be forced slave laborers in Pres. Palin's collective farms, and enjoy the benefits of a healthy life style.

    At the same time, vice pres. Huckabee will make sure there will be mass forced conversions of godless democrats from emptied out cities.

    Enjoy ! We are going back to our roots !

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  51. I think I may agree with the commentor who said this was almost as good as a peaking Rush Limbaugh rant. Almost.

    Mass-Dump Treasuries..........on whom ?
    Sellers need buyers.

    Buy goldenthings ......hold em to the bottom
    (You'll know you're there by the traffic jam at FRBNY)

    Then buy cheap assets............ with what?
    Cheap??
    With gold???????
    "Yeah, my company failed and I lost my house and I'm broke - sure could use some GOLD about now."

    With hyper-inflated money????
    Truth is even real assets and commodities are anything but cheap in inflationary times - by definition.
    And that is hyped with hyper-inflation.

    Nice construct, but perhaps slightly more flawed than the normal Rush-rant.

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  52. Looking at the current Kirchner administration in Argentina, which went though a debt repudiation and virtual currency collapse, might be instructive. Of course, all the US's client countries would be even more scrod (that's pluperfect of screwed) than Argentina's citizens, who have learned to get along without community organization.

    The don't suck up to the IMF, they have no recognized foreign debt, and they are net exporters. So what if they couldn't get a loan!

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  53. The financial collapse 0f 2008 showed up the flaws in the Credit Default Swaps "I'll buy insurance
    to protect my investment" flaw--Companies like AIG
    that had sold that insurance were unable to deliver on
    the insurance policies (the CDS's)--so the author is right--the counterparty risk issue will be seen much more clearly for what it is--an illusion--an empty promise--a meaningless not worth the paper it is written on insurance policy--that is why PM's are so far superior as insurance policies--they HAVE NO COUNTERPARTY RISK! Got gold? Got silver? And I imagine that the black market for PM's during a hyper-inflationary period would operate just fine and dandy no matter what the US GOVT ordered. AND, as less than 2% of all investors actually own precious metals it is hard to imagine the US Govt
    undertaking house to house searches and thereby risk driving the price of precious metals higher and higher and higher and making them even more
    desirable. Who knew a film-maker would have so many interesting economic insights to offer. Forewarned is forearmed.

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  54. Not to be anonymous...ScottB here...

    Unless you can put some actual numbers into this scenario, it fails at every juncture. What are the numbers involved in the initial base anomoly that get this thing started? It's all modeled after the "flash crash", but, unlike the flash crash which took place in a comparative "closet" (the NYSE) in relation to the worldwide economy (the entire hotel), your premise is that a single event (the flooding of an entire floor of a hotel) is bound to happen, sooner or later, and when a single floor floods, well then, self interest will take over, everyone will run for the exits at the same time, etc.

    The problem is, we cannot understand from your analysis/theory, how big is the hotel relative to the number or floors, and how big is that hotel floor? There are simply no concrete examples of the dimensions to your analysis/theory. Just saying that there are countable "too big to fail" banks is not enough to lift this whole scenario off the ground. You have to explain (1) the total volume/ extant of US Treasuries, and the proportion of those treasuries tradable to market, and the speed at which those treasuries can come to market. What about those institutions mandated by law, to hold treasuries? They cannot come to market, regardless of panic or otherwise. What is their proportion?

    Simply speaking, you have to put some numbers behind your theory. It all sounds seductively persuasive, because we all enjoy catastrophic failures, such as fireworks explosions, or waves crashing against the seawall. But to continue my analogy, you propose that an event (flooding of an entire hotel floor) to kick this off, when the entire contents of the water tower at the top of the hotel could be emptied onto said floor, with the result of water one centimeter deep, across only half of one floor of the hotel....no "panic" would ensue. With no panic, nothing else comes to pass.

    You need numbers, and use of such number to create a persuasive scenario.

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  55. How come you would value silver (or gold) in this scenario? What real intrinsic value does it have?

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  56. I love the way this post flows. I mean, you gold bugs and tin foil hatters were chanting hyperinflation in 2007 - 2009. And guess what... you got zip, zilch, nada. Here we are again. Now you bend to the fact that we are deflating and still clinging to your hyperinflation dreams. Let's get real guys, it's not happen right here. The credit markets are just much more larger than the amount of capital out there. I can't speak for 5 years down the road, but right now, it's still a dream.

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  57. Really good scenario. I agree with much of what has been said here. Inflation/deflation, tomatoe/tomato. Gold will re-emerge as real money as it always has inflation as a flight to safety, deflation as assets "evaporate" ie extners inverse pyramid.

    As stated this will be good for us. A cathartic cleansing if you will. The money for nothing crowd will vanish and we'll go back to making things again. Artisans. Producers. Freedom. Let's hit rock bottom. Let's get this party started.

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  58. Many of you get it. Many of you don't get it.

    The central message of this article was summed up in one paragraph:

    "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."

    Loss of faith in the currency! It won't play out exactly as Gonzalo Lira has presented it, but it will happen!

    FAITH is what drives modern economic systems. -Dave

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  59. Two other factors that have suppressed inflation the last decades are:
    1) The cheap imports from China and
    2) The productivity increases due to IT and internet innovation.
    Both factors will play less of a role in the coming decades and that could cause higher inflation.

    However, the collapse of the US Dollar as described here would mean that investors flee to other currencies. They can’t put all money into commodities, can they? So which currencies would they flee to? The Chinese RMB? The Euro? The Yen? And why would they flee to those currencies?

    The RMB is not the most liberal managed currency. Public debt in Japan is around 200% of GDP (double that of the US). Yes, most of this debt is financed by Japanese savings but around 50% of the US public debt is in national hands as well and this percentage is rising. And the debt in Euro countries is not much different from the US. Plus that the economic growth expectations for the US are higher than for Europe and Japan, just for demographic reasons already.

    I see no realistic alternative to the US Dollar for investors. Thus I do not see the collapse of the dollar as a very likely scenario. I let someone else explain why it is unlikely that the Dollar, Euro and Yen will collapse all together.

    Sleep well but keep your eyes on your investments since the stock markets still could end up in a slump of course.

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  60. Lets get to the meat of the matter...An economic collapse isn't just a financial disaster it's a human tragedy...I found this blog site and it's readers to be very well mannered and educated unlike some of the other blogs with the name calling and anger.

    Have you people ever thought about what would actually happen?...Riots/hoarding/rape and pillage that's what...Maybe not in rural areas where people know each other but in cities and urban areas with little to no resources and the average American as unprepared it will get verrrrrry bad.

    I was in Mexico during the Peso Crash and let me tell you gold/silver help but so does having a weapon/ammo/stored food...Since then I've been a prepper before it had a name...Just like your grandma that drank her coffee without sugar because they had none when she was a child...Or me who cannot throw away food without guilt...I say do the reading and if you do believe that there will be a crash then prep for it...Even if it's just pepper spray, some canned food and water.

    When I was growing up it was 8 pesos for a dollar...It stabilized at 12-13 pesos...Then the collapse came and it became about 12,000 pesos for one dollar in what seemed to be a blink of an eye.

    My mother had just sold a small house for about 170,000 pesos or $14,000 dollars...In a NY minute that would have become $14 dollars if we hadn't been lucky and traded the currency.

    The government cut off 3 zeros but the truth is even now it's 13,000 not the 13 they let you think it is...Things were so bad all major contracts had to be in dollars...Deposits made in dollars had to be paid out in dollars etc.

    We survived because the dollar was our support currency, what's going to support the dollar?...A new currency.

    A new currency that will force those who have hidden assets to have to come and trade it before it's worthless...Just like what they did with the Euro...Forcing the criminals to buy or invest to launder the money AND give the economy a boost.

    Evil geniuses...That's what they are...Clean the market and just leave themselves/wipe out the debt owed while technically not defaulting/wiping out a bunch of mouthbreathers/cutting social services and programs/controlling the new currency and forming a sweet lil oligarchy a la Russia circa 1992...Bit much?

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  61. "Inflation is when the economy overheats..."

    This is utter nonsense. There is no such thing as cost-push inflation.

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  62. OK, yes, hyperinflation could happen. Caused by people's lack of faith in a currency with no intrinsic value. Since all currencies, and all government debt have no intrinsic value, it could go viral globally and take down the entire world financial system.

    However, if it starts per this senario, I would suspect it is planned and a world currency of some sort is in the wings, ready to go. Why? Because the TBTF US banks, the FED, the major world bank primary Treasury dealers, and many other central banks are controlled by the same group and work together. Is it possible they could screw up? Sure, but it is unlikely without complicating factors.

    Hyperinflation could also be triggered by any event that causes large numbers of people to dump paper assets for commodities, such as world famine, cascading sovereign debt defaults (likely), a global internet crash, nuclear war or the perception that nuclear war is imminent, a deadly pandemic disease, or some worldwide natural disaster, etc.

    If one of these scenarios plays out it is hard to know if gold or silver coin will circulate in the aftermath. Depending on the locality it could be gasoline, firewood, cigarettes, bottled water, ammunition, MRE's, canned food, toilet paper or garden seeds that turn out to be "money"; certianly barter of all kinds will be much more common than now.

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  63. Could this be the "jiggle" day you mentioned? Perhaps not. But a day like this is what it'll look like!

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  64. BTW, OIL WAS THE BIG WINNER TODAY IN THE MOVE OUT OF TREASURIES! Including oil stocks. Oopss...didn't mean to have all caps on.

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  65. My first attempt had a typo due to a disability. Sorry, I deleted it.
    I couldn't help thinking about this article today after seeing the plunge in treasuries. Apparently, I wasn't the only one.
    I hope this isn't the "jiggle" yet. I have an 81-year-old mother with bonds that I'm trying to get her to liquidate. Her trust adviser, Morgan Stanley, bought bonds in Fannie and Freddie for her. She is really stressed about it, and she should be!

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  66. This is a very good explanation of likely US hyperinflation and I agree.

    It is less clear what happens after the crisis. It may be more government controls or it may be that the US Federal government falls. This would be much like the USSR going away and leaving many individual countries.

    I have an article you and your readers might like. It is about a 38 year cycle between gold and paper money and also more info on hyperinflation and other stuff related to the current mess:

    http://pair.offshore.ai/38yearcycle/#hyperinflation

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  67. Here is another attempt to explain HYPER-INFLATION which Mr. Lira has done an excellent job of doing in my opinion. This one is from Martin Armstrong in his piece entitled: "Staring Into The Abyss". In this piece, Mr.Armstrong says: "VELOCITY is always the key for as it declines due to people then hoarding money you get DEFLATION. When people are afraid the money will become worthless (paper or debased coinage), they spend it faster before it depreciates and that creates HYPER-INFLATION at the other extreme."

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  68. S Bernaard,

    If your mother is holding Fannie and Freddie paper that matures in 2012 or before she'll be made whole....congress hasn't yet decided what to do with the paper being held beyond that yet (though Bernake believes it'll be supported by the Taxpayer because it has to for confidence sakes).

    This was a jiggle. However, it not how Gonzola described it. This jiggle was people selling Treasuries BECAUSE that no announcemen of further reserve purchases. So, big money, thinking that made the money on the Treasury Trade, sold and switched it to ALL STOCKS OF ANY KIND.

    I think I disagree with Gonzola in that OIL STOCKS will do really really well in his scenario....remember, the rich will need to protect their "stored value" money---money not needed for basic needs. Where will these PILES of money go? It won't go into just PM's. They will diversify that safe "stored value" money into the likes of Exxon, Conoco, etc. etc. etc. See what happened in this intitial move out of the Treasury? OIL PUMMELED THE PRECIOUS METALS. And it will pummel precious metals. Because NO MATTER WHAT, nearly everyone believes, as they do already, that OIL will skyrocket in hyperinflation and that buying OIL companies through equity WILL protect oneself from the demise of paper. Remember, equity is a claim to the cash flow. THe cash will go parbabolic with the price of the spot market.

    If fact, if it's not hyperinflation, it'll be long term demand and supply disruptions that jack OIL higher. I think oil is the ultimate play here.

    Look what happened to OIL on Friday! WOW!

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  69. It is true that "investors" are withdrawing money
    from U.S. stock funds to the tune of $5.4 billion in the week ending Aug 25th and putting $7.5 billion INTO U.S. bond funds over the same period--and as the crowd is always wrong, from a
    contrarian point of view, this is exactly the wrong place to be. The average retail investor is
    almost always on the wrong side of the trade while the smart money has quietly been doing the opposite--for instance how many average retail investors invested in gold in 2001 when it was selling for $250/oz and now at $1230/oz it has
    had an almost 500% increase in value in 9 years.
    Sadly the average investor almost always can be counted on to buy the wrong thing at the wrong time and BB may think they are buying "safety" when buying US treasuries, they are in fact investing in a sinking ship and will yet again
    lose their financial shirts. The majority of investors ALWAYS buy high and sell low. They will all pile in when gold gets to $5000/oz or whatever
    and again the smart money will have quietly left
    the scene long ago.

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  70. The banksters plan to bring in a world currency also means they have a plan to stop you selling your gold to anybody but them at their price.....

    http://www.marketoracle.co.uk/Article20327.html

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  71. The most important problem in US is not the debt, deflation or even hyperinflation. Either of these can be fixed with some sort of nationalization and dictatorship, food/goods stamps and other temporarily regulations.

    The main problem is the huge trade deficit. Every month the other countries send 50-60 bln dollars worth goods, from oil to food, more than US exports back. This used to be called "colonial tax" in 19th century, there are better looking words for that today, but still the principle is the same, US is receiving commodities and goods in exchange for nothing. The hi-tech export is a myth. Google, Apple and Hollywood is absolutely not enough to import oil for 200 mln cars, you know.

    With any sort of financial disaster, when the US dollar loses its intristic value, this will immediately lead to collapse in the international trade. No oil, no gas and no everyday goods would be a disaster that no one can even imagine.

    That is by the way what makes the situation different from what happened with USSR economy in 1990. They used to have trade proficit and they had enough industry to live on their own, without dependency on factories and labour force from south east Asia, and "free" oil from the middle east.

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  72. I agree that hyperinflation(HF) will happen, but I disagree about the form it will take. IMHO, HF will happen in two stages. The first stage will happen when foreign investors realize that the US can never pay of fit's debts at face value and they panic out of treasuries and the dollar. That inflation will probably be 200-300% in over a few months and limited by the amount of reserve currency and treasuries out there. The second stage will happen when the US gov faces the political reality that it can't meet it's obligations without printing up money, this inflation will have no limit till we get rid of the federal reserve.

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  73. How is real estate supposed to be cheap when property taxes are likely to be a significant portion of the actual purchase price of the property?

    How can the Fed not prop up treasuries when they can buy as much as they need, and their pockets ARE deeper than anyone who is foolish enough to bet against them? What you are describing can not happen because anyone who tries going against the Fed so blatantly is continuously and repeatedly violated until they have no money left. And by the way, the central banks own more gold than all the potential panic buyers. They will sell into it and pull system liquidity before their bluff is called. Then no one will be able to buy gold. That combined with HFT machines can sell the hell out of gold until it is lower than it was before the panic began, even on 1/100th the volume.

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  74. The Govman is letting the air out of the economy slowly so I don't exspect a sudden hyper-inflation. I see Govman-corporate masking. 5 oz tuna fish can wil 3.75 oz for the same price. It's happening already. Try a bag of potato chips or a box of cereal it's only 25%. 1/3 if your lucky.

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  75. I think those of us who took Y2K seriously may get thru what will be a nightmare of shortages just a little better, though chance may be the biggest factor. Do some careful thinking about water supply, food, paper goods, and ACT! Two additional suggestions - keep as much newspaper as you can - it has many uses from fuel to insulation to toilet paper. Also don't forget that booze will be very valuable barter goods.

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  76. Good point Iconoclast... however, I believe Central Banks won't be selling REAL gold (or silver) into the market - they will be selling commodity ETF’s, or derivatives, in exchange for Elmer Fudd's remaining bank deposit balance. Either instrument (cash or coupon) will not hold value. Physical gold and silver will allow transactions to take place until such a scenario as Denarius lays out comes to fruition - the implanted chip. Those holding REAL gold or silver will most likely be able to capitalize on the market demand.

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  77. Good article. America has more savings than nearly all the countries of the world taken together. Retirement accounts 401k, IRA etc. Trillions are on deposit for use in emergency by the government to buy treasuries or fund SS obligations or pork. Isn't hyperinflation more likely to take hold after the retirement funds were seized or spent?

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  78. Many of the comments have an underlying premise that freaked out, suddenly destitute US citizens will continue to obey oppressive laws.

    Would you? If TSHTF, are you gonna dutifully pay property taxes? Esp if they are rising geometrically? Or your mortgage, for that matter? Or are you going to hand over your gold to the govt or bank because some shlep says it is your patriotic duty to do so?

    In critical situations, just like in every disaster that ever happens, regular local people band together and handle things. When govt or other 'authorities' show up and attempt to force their hand, most people will say fuck off, while fingering their rifle/pistol/knife. Trust and faith in govt/banks is extremely low right now, only to go lower yet. Anyone who goes through financial armageddon and yet continues to kiss boot deserves their slavery.

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  79. Economists agree that inflation is a monetary phenomenon. Hyperinflation requires a loss of confidence in the current money system. The money in use then ecomes essentially worthless. A period of chaos ensues. It seems to me that what will emerge from chaos is unpredictable. The price of assets, of course, will deflate enormously. The mass public will be reduced to poverty. One's principal protection logically would be to posess real money. Gold and silver have been recognized as real money for 4000 years, give or take 1000 years. Need any more be said?

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  80. GL - thanks for the post. Interesting and educational.
    I agree with most of it, particularly once the "trigger event" occurs.

    However, the trigger event cannot be the Fed purchasing treasuries from the secondary market during a treasury auction.

    When the treasury needs money (bottomless pit they are) they hold an auction. During that auction they are the only sellers. There aren't banks or institutions selling treasury notes at the same auction that they purchased sometime in the past.
    Since that's the case, the Fed will not be moved to suddenly panic and start buying everything that comes up for sale becasue the only thing being sold at the auction is "new issued" treasury notes.

    Dustin

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  81. Iconoplast,

    My work colleague bought three rooms flat (5 years old building) 25 kilometers from capitol city... For one bottle of Absolut Vodka*.

    I read article, and this exact fact proved to me realistic of this apocalyptic fiction. Author has good insight into this.

    Although it is "linear thinking" - we are taking some facts and playing scenarios. In real life there are happening just some parts of scenarios, somehow mixed with something unpredicted.

    ====

    When Soviet Union collapsed, I just ended elementary school. I had money in my savings (wanted to buy bike). After two years it was value like ten kilos of Bananas.

    About bottle of Absolut. Collapse of Militar superpover ended up with independence in our country. So Soviet Army moved to Russia. Of ourse, officers had living flats, etc. All that stayed here. Some person privatised, sold this and so on.

    And my work colleague knew - near her work there is army leaving and they are selling their flats rapidly. But due to hyperinflation there was no real money at that time - so, lot of people would buy (we had real deficit (lack) of living real estate at that time). So she agreed to borrow in bar bottle of Absolut and army officer agreed to sell flat for that value.

    At that time she had sallary per month approximately 15$ eqvivalent by real value of roubles on free market.

    So, year 2007... Similar neighbours flats costed 150 000 USD.

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  82. I was very much in agreement with your hyperinflation explanation essay. I am but a very small semi retired investor here in Perth, Western Australia. Housing here is well overpriced and "the recession" has yet to hit Australia, but I feel it will soon. I started buying silver bullion coins on Ebay in 2002, and glad I did. People back then thought (and still do now), think I'm mad, but I know, along with the minority of people globally, that gold & silver will be the "base" that all things will be priced to in any valuation, inflationery or deflation, either way, money will devalue. Anyone only has to see the gold & silver charts (in all currencies)from 2000, you don't have to a chartist to understand.

    Graham.

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  83. Little of this matters for soon all shall be under Sharia law and order shall be restored.

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  84. just another apocalyptic hippy here... mad max is a training video, watch it and learn... 20 years can easily turn to 50. the orphans will come, prepare while you can... HopperHB

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  85. Didn't read all the comments but one thing worth mentioning is when the run on the dollar happens, foreign reserves denominated in USD, held by our creditors, will come back home to roost further exacerbating the situation.

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  86. I must say I agree with the poster above. If this crap goes down it will be China that gets the ball rolling. They have already stopped buying treasuries and are looking to creep out of the dollar. They are not stupid and they know the score...and they are sitting on a trillion dollars in reserves. That trillion dollars coming back to the US seeking out real value before the QE policies of the fed bring the dollar down...that is what will spark it off IMO. China want no more dollar. China trying to spur domestic spending...and not doing too shabby a job of it lately. China want to throw the US Yoke off its neck. I think the writter of this blog is very smart but needs to take a closer look at China. Those Chinese students who openly laughed at Timmy boy knew the score. You really think the Chinese Technocrats who run that country don't know the score?

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  87. Interesting scenario, but has little to do with the Fed and Treasury, actually. If there is a supply crunch with oil, say a war with Iran that shuts off ME oil suddenly and apparently for a long time, then the price of petroleum will surge. This will be essentially the same as what happened in Zimbabwe with a supply contraction. Except this time it won't be Zimbabwe that stops. it will be the world, especially the developed nations that are heavily dependent on petroleum. I wouldn't be so much concerned with the hyperinflation associated with supply contraction as nuclear war. After all, this is exactly what the US military is for. What is the likelihood of something this occurring? Probably a lot higher than most of people think. Petroleum is a real 1000 pound gorilla in the global economy.

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  88. Someone asked to describe our lifestyles during those hyperinflationary times. While I don’t have a crystal ball, I can tell you what I believe it will be like for my upper middle class family.
    What I expect is that when hyperinflation hits, the employers will not keep up wages with the rate of inflation, even they may attempt to appear to do so. Therefore even if you manage to still have a job, you will find yourself falling further and further behind, not on fixed debts as those will for a short time become easier to pay off, but for basic necessities like food, gasoline, electricity, heating oil and property taxes.
    There is nothing to hint that the government would initially change their current approach in a hyperinflationary situation, in a sense, I believe they would simply “hyper inflate” their policies. For the average citizen this would mean that if they lost their job unemployment funds would not be available as the payments into it would be lagging behind the inflation rate. The government would be forced to print money to cover the gap, perpetuating the problem or risking an outright revolt of the populous. As more and more people became dependent upon the government for survival, the rich and those who still have jobs (regardless of income bracket) would find themselves taxed at rates not seen in generations of perhaps 75-90% to cover the rising costs. Corporations would be taxed likewise, forcing them to lay off more and more workers. There will be a huge contraction in the corporate sector with privately owned small businesses unable to survive.
    It is at this point the Government will use its recently passed “too big to fail” emergency powers to take “temporary” control of large businesses and crucial infrastructures: Media, Oil, Refining, Transportation, Water treatment, Technology, Financial, Agriculture, Internet. It will be touted as the only way to ensure the continued survival of the Country and the “safety” of the people. It is only once the government has control of all commerce, having picked, once again, the winners and losers, that they will be able to make whatever currency adjustments they will make to “reset” the economy and get the new method of currency into circulation efficiently.
    What the common citizen will feel is a temporary inability to access the cash in the bank, receiving wages in cash rather than direct deposit, and vouchers for food, water, clothing, gasoline and other necessities perhaps on some government issued card, which will be “loaded” for you each pay period. There will be a temporary moratorium on mortgages and other debts as they are converted to the new currency peg. Our family plan is to pay off as much debt with worthless dollars as possible PRIOR to this point. If you think to yourself this is a centrally planned economy scenario (communistic) you are right. Whether or not it will also be a “One World Government” scenario I don’t know, though I suppose it is possible.
    Continues....

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  89. All retirement savings will become property of the government, just as is seen today with government workers (if the government owns your employer, you are now a government worker) The wealth will be redistributed and “excess housing” will be “given” to those who have none. So investment in more than one home may not be such a good idea. In the event of food shortages, it will become illegal to have more than “X” in your home, under penalty of loss of privilege to fuel or medical care rations, being overweight will be reason for suspicion. And all food that is to be distributed for sale, even via farmer’s markets, will come under the jurisdiction of the USDA regulations.
    Travel will be suspended temporarily until the “National ID Cards” can be distributed again under the issue of “safety” and purposes of gainful employment. Weaponry first in the large cities and then suburbs will be turned in as a prerequisite to getting one of these cards. The penalty for possessing a card and owning a weapon or ammunition will be loss of your card and thus employment. This requisite will be sold as “necessary to ensure a safe transition in these troubled times” but will in fact be an overt violation of the 2nd amendment (which will not really matter since the Constitution will have been shredded well before this point)
    If you think that the American people would never put up with this you could be right or wrong. We have allowed some fantastic things to occur in the name of “safety” in the last 10 years. Hungry bellies, sick children and despite wage earners are quite willing to do anything to make the suffering stop and ensure survival.
    Gonzo is right, it will not be forever, but we may not recognize our Country coming out on the other end.

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  90. Greetings,

    I, too, have a hard time understanding the Gold and Silver Bugs that are out there. If we actually see hyperinflation, such as described by the author, then a panicked public will not benefit from nor understand the intrinsic value of those precious metals.

    There are no adults alive today that can remember a time before the FED. Governments and large institutions may be able to trade in gold but the man on the street will likely resort to barter.

    Finally, the moment that gasoline reaches $30 a gallon will be the precise moment that the United States shuts down and owning all the gold in the world wont help one bit.

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  91. Great explanation. What the national government is doing right now has never produced any result other than hyper inflation. This Argentinian policy is actually a result of an Argentinian ideology - namely, anti-capitalism.

    I would argue that we are not really experiencing "deflation". Deflation is a drop in money circulating in the economy. Like hyper-inflation it is really only about currency.

    Thus, a lot of the measures the fed is taking to prop up asset values will create deflation because those assets are overvalued. Housing prices, to name the most obvious example, are artificially high and have been for two decades. The money has been printed, the interest rates have been dropped, the subsidies have been given with load guarantees and no one is buying because the asset is over priced.

    What will get people to buy houses? Not doing all of the things that keep prices artificially high. Once the houses fall to their actual value, people will start buying them. Those industries connected to home ownership will then see increased demand for their products and services.

    As things stand now, this is a classic case of government policy making economic resources idle. The assumption underlying all statist tinkering is that you can select a good and subsidize it and resources will have the incentive to move towards that good. But that's not the case.

    With housing, credit is not flowing into the housing industry, nor are resources flowing into related industries. In other words, people aren't selling their stock in shoe companies and buying up housing assets.

    So you say that's fine, the shoe companies will continue to thrive and that's supply and demand. AU CONTRAIRE! The shoe companies are not assets favored by the government. They know that they must pay to prop up housing, or health care, or autos, or state and local government employees in unionized blue states that would turn on Obama and the Democrats if they lose their jobs. So shoe companies shore up their resources and become idle in anticipation of needing to cover future the anticipated future costs of subsidizing favored industries.

    You can see where this is going. The shoe company quickly sees that the only path to economic sustainability is not creating value but acquiring political pull. Thus, within the company itself, resources are diverted from production to political lobbying. That makes the products worse, but since the price can't go down, the company then increasingly relies on political pull to feed off the rapidly diminishing good companies that produce value.

    So this is all pretty basic. When you allow the bad to feed off the good in any economy, the good shrinks and shrinks. In other words, prolonged recession. Government spending and subsidies for the bad - i.e Keynesian pump priming, monetarist manipulations - do not lead to renewed growth because the good, knowing that they actually produce value, rightly anticipate future costs and slow down production. This leads to more Keynesian pumping - i.e more money printing. But the money is not released into the economy.

    Then someone with ECON 101 knowledge is elected president, signals to the productive that they can produce without being punished, they seek the credit, and all that money that's been sitting there, is released into the economy and voila: HYPERINFLATION. And who takes the blame? The good President who stopped punishing the good to feed the parasitic bad.

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  92. Guys, to all the doomsayers. Do you really think the Chinesse are that dumb? Maybe it's time to take head of out your US Ass? You certailny will have to.

    Ever hear of TIPS, thats what Chinesse owns:

    TIPS

    Treasury Inflation-Protected Securities (or TIPS) are the inflation-indexed bonds issued by the U.S. Treasury. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against inflation. TIPS are currently offered in 5-year, 10-year and 30-year maturities.[9]


    It means, you'll have to work to pay it back. Oops.

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  93. Maybe the breakdown of the false money machine will be a good thing in the long run. Maybe people will learn the purpose of work instead of getting up each day thinking about money. Maybe we will think about how I can be be a better tradesman, craftsman, farmer, merchant, artist in order to please myself, my family and my fellow man. Maybe I can be more concerned about quality-of my work, of how it affects others, of how I didn't deceive or cut corners. Maybe I would actually have to know who lives next door to me. Maybe I would have to provide care for my aged parents. Maybe I would spend less time yacking and texting and i-podding and watching drivel on TV to escape actual conversation and constructive action.
    I can't wait for the economic system to break down, so that we will learn to build something better.

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  94. "someone" said TIPS - Treasury Inflation Protected Securities - protect "the holder against inflation", and we will all "have to work to pay it back."

    In theory both these ideas make sense. But adopting theory as fact is the reason why we are faced with the mess we have today.

    I have friends who had business interests in Peru in the 1980s. High inflation fostered a huge underground economy - people demanded payment in US dollars. They converted any Peruvian currency that landed in their laps to dollars as soon as they could. Businesses flourished whose sole purpose it was to help people convert Peruvian currency to US dollars as fast as possible.

    If we experience sky high inflation, people will demand payment for goods and services in something other than dollars. It will cost money to own them. As soon as someone gets one they work to find a way to convert it to something else. Inflation protection will be meaningless.

    And we will not have to work to pay it all back. No one has to do anything. You cannot make people do what they do not want to do.

    People can leave the country. They already are. Three times as many Americans renounced their citizenship in 2009 as in 2008.

    Those who are unable to leave can refuse to pay taxes. Our nation was founded on the idea of a tax revolt, and we have a strong tradition of civil disobedience.

    I am not advocating that people not pay their taxes. I am just saying that if "someone" thinks the American people will pay confiscatory taxes, he or she is incredibly naive.

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  95. Sorry, not going to happen! Right now commodities are a terrible investment.

    Why? Simple - China. China will crash in the next 12 months from a massive property bubble, bringing commodities down with it.

    Don't believe me? Wait and see.

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  96. Actually, our forefathers imagined quite well what financial calamities could befall us:

    "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." - Thomas Jefferson

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  97. I just loved this addition to the deflation / inflation debate. The mistake all the doomers are making is timing. I had a chance to talk with the chief economist of Canada's largest chartered bank and found him to be unconcerned in the short term. His opinion is that the end game of the American debt problem won't play out for many years, at least six and maybe as long as ten.

    What will our favorite blogger here say what 2011 passes and there's no collapse? Giant hollowed out corrupt institutions can continue for years and years, just look at the walking around but dead USSR - ten years of inertia.

    ..

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  98. Jesus, the rank horse manure in this post is just mind boggling.

    "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"

    The moment you said this, you confirmed you know NOTHING about how a currency sovereign operates under a fiat monetary paradigm. As such, the rest of your post was just garbage. Let me give you the 6 year old explanation:

    - Greece owed debts in a currency it did not issue, control nor influence. It's called Euros.
    - The US owe debts in a currency they control, issue and influence. It's called US dollars.

    As such, there will never be a solvency concern. The US will never go bankrupt, this is why it's considered a risk free rate. By the way this is the same for the UK and Japan. Name me one example of a currency sovereign, by which I mean:

    - issues its own currency
    - floats it FREELY(not pegged) on the world markets
    - owes its entire "debt" in said currency

    that has ever defaulted on its debt? Comparing the US to Greece is pure nonsense.

    "The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed."

    Another false statement. Debt does not fund anything. The government spends first, putting reserves into the banking system. Banks want interest on those reserves, they get that via Treasuries. The government can stop this anytime it chooses to. This is no different than having a savings account at your bank. You can leave money in the checking, earning nothing, or move to the savings account earning something guaranteed.

    Your doomsday scenario is absolute fantasy. THERE IS NO INSOLVENCY THREAT EVER. Why would you dump something guaranteed to pay you back? How can there a threat of insolvency be when the government can always service the debt?

    "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. "

    LMAO!!!! First of all, the fact that the Japanese people are saving vs spending is why they've had 2 decades of stagnation despite the government's attempts to goose the economy!!!! Secondly, PLENTY of US debt is owned by US citizens via pensions, money market funds and other vehicles. The rest is owned by nations who MUST OWN TREASURIES if they want to earn anything on their surplus dollars due to the trade deficit!!!! The battle between the banks and the foreign nations who want a return on their sterile dollar reserves will always keep rates low as long as the Fed steps in to keep the available supply low enough and the government keeps spending.

    Lastly, the major reason hyperinflation can NEVER occur here is simple:

    - you cannot transmit the rise in prices into wages since workers do not have the bargaining power to demand the associated increase in wages to support the higher prices.

    End of discussion

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  99. Hyperinflation can never occur here for one reason:

    - the rise in prices could never be transferred to a proportionate rise in wages to support the prices.

    Despite popular opinion, unions do not hold enough power to demand increases in wages.

    The rest of this post demonstrates Lira clearly has no idea how a currency sovereign nation operates under a fiat paradigm. He still believes debt "funds" government operations and that the bond market can hold the government hostage when nothing of the sort occurs.

    Einhorn made a huge bet on Japan rates rising and I'm sure he's losing money each day they stay the same.

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  100. twinsanity, is that post you just made just elaborate sarcasm or do you actually believe all that? If it's the latter I'll very briefly explain some of the things you're confused about:

    "- Greece owed debts in a currency it did not issue, control nor influence. It's called Euros.
    - The US owe debts in a currency they control, issue and influence. It's called US dollars.

    As such, there will never be a solvency concern. The US will never go bankrupt, this is why it's considered a risk free rate. "

    - You're right, the US can print all the money they want and will never go bankrupt in the sense of the "dollars" not being there. What will happen is that the dollars lose their purchasing power which is essentially the same thing. The US being able to print their own money is not a solution to the problem it's actually part of the cause of the problem. They can't create purchasing power. Using your logic Zimbabwe isn't bankrupt either -- they've got billionaires all over the country.

    "Why would you dump something guaranteed to pay you back? How can there a threat of insolvency be when the government can always service the debt? "
    Because being paid back in a debased currency in nominal terms is the same as not being paid back.

    "LMAO!!!! First of all, the fact that the Japanese people are saving vs spending is why they've had 2 decades of stagnation despite the government's attempts to goose the economy!!!! "
    No. Japanese had 2 decades of stagnation specifically because the government tried to do what our government is doing right now after their real estate and stock bubble burst. The fact that Japan had a surplus and was a nation of savers is what kept them from having something much worse than what we're going to have due to the fact that we're already in debt up to our eyeballs.

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  101. I like your story, it's good fiction. I suppose you figure that all the banks will continue to function as normal during all of this and that they will continue to process all the credit dollars as they flow from account to account and out of their accounts and into commodities. And I suppose that those people who lose their faith in the credit system's ability to keep up will just mosey on down to their local bank branch and demand actual printed dollars for their deposited credit and they'll get them, even though credit dollars far exceed the total amount of FRNs in circulation by about 60 to 1. And I suppose that those who are in charge of the system will just sit on their thumbs and watch the entire thing, that can shut down within a matter of minutes, explode into a credit swapping, price escalating frenzy. Yep, that sounds plausible.

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  102. twinsanity, you fool, did you graduate from the robert mugabe school of economics? you and tax cheat timmy must have been at the top of the class

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  103. I would imagine in a hyperinflated enviroment that Investment Real Estate would be good investment, so long as you have a fixed interst rate loan...

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  104. great article and discussion, having been researching the obvious debasement of our currency by the fed and the misguided Keynesian economic policies which have unfortunately pervaded our government for years now I must say I agree that the end game is unfolding before our eyes.

    How it will unfold is up for speculation and debate no doubt. Whether this or that will happen first is an academic argument and debate at this point it seems to me but worth having just the same.

    one thing I have learned over the years is that we can never underestimate the perversion of those in power advancing their own agenda and gain, or the unwillingness of the average person to take the time to become informed and see what is happening right before their eyes. we are so "busy" that we have agreed to hand the reigns of our lives over to our eventual overlords and to in essence trust them to do what is right for us and our lives.

    "This time is different, We are different, chosen, special, and the experts know what they are doing" you can hear your fellow coworkers and citizens parrot these phrases.

    All we can do now is hedge our bets as best we can and hang on tight.

    and it may even come down to fighting and dying for what is right, the principles of Liberty which our founding fathers pledged their fortunes, sacred honor and lives to establishing will be necessary before it is all through.

    Will you join the fight and die for what may well be the a fight for the future of the liberty of man vs the oppression of the masses in exchange for "safety?" for world government and orderly control?

    I would rather die free than become a slave.

    And may god have mercy on my soul...

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  105. One question I have about your scenario is this -- if the asset managers and TBTF banks remove their money from Treasuries and put in in "Commodities" but not into ETFs of Commdiities, where exaclty are they going to park all their cash?They can't go out and buy hundreds of milliions of dollars of actual "feel it and touch it" commodidities (where would they store all that oil?).

    it's OK for you and me to go out and buy some gold bullion or collectibles but what about the person managing a billion dollar fund? how can he park that money that he withdrew from T-bills? Even futures contracts on the Chicago board have counter-party risk?

    what is the investment that those managers of the larger funds make (a couple stock symbols would be nice!).

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  106. Bunch o' Hooey.

    The flood of hypothetical cash out of Treasurys into commodities must... generate an off-setting pile of cash from the previous holder of commodities who are relinquishing their positions in the transaction.

    Now, the TBTF previous-holders of Treasurys may have converted to commodities, but what are the previous commodity-holders supposed to do with the cash position necessarily created by your scenario?

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  107. First without wage inflation you can't have hyperinflation. We are in a squeeze play for the middle and upper middle class. During the inflation of the 70s we had unions and manufacturing jobs. Ross Perot was right that sucking sound was my job going to china ( he was wrong about Mexico (GATT not NAFTA). Family incomes are dropping and taxes are going up to support the debt levels which leaves less money for everything else! Less demand! The GDP of USA is 70% consumer spending. That's a crushing sound of the america families getting the hammer on them! You are right about all assets that require debt to service them (like boats,cars, RVs,housing). You are wrong about the timing..think about a 25K house in the Bay area in the 1975 now it's still 350K... and a candy bar in 1975 was 10 cent now a 99 cents?..It will happen but slower than one or two years. BUT it will feel like hyper inflation to many Families because their incomes are dropping and the cost of basic items like food and heating oil/gas are going up. Think of 5% per year for 4 years equals 20 percent total then add a negetive 10 percent for a drop in family incomes followed by an increase in taxes by 10%( state, local and feds)!!! Less disposal income for families!

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  108. It's a house of cards folks--leverage built on leverage--and the more dollar bills that get put in circulation, the shakier it gets.

    Gonzalo, I don't think that there will be as many bills to burn as you think, because (I've heard) only 3% of dollars are actually in paper form. The rest are bits floating around in databases, or as George Bailey would say "the money's in your house, and your house, and your house." It's not actually there.

    If this is the case, then there is the possibility of computer failure, in which case paper money would be very useful (and thus valuable), while your online banking account... not so much.

    I think that this documentary (http://themoneyfix.org/content/video-money-fix) proposes the best solution I've seen so far to hedge against hyperinflation: which is local currency's that are supported with local production of the goods. Economics can be really easy if everyone knows how to make themselves useful.

    This is why I wonder if your idea to invest in commodities actually matters at all. If you mean commodities that you can store in your basement, sure those have actual value, but as far as the exchanges go, I think it's the luck of the draw as to how they will be effected. I really think that if you are lucky enough to have money to play around with right now, you should invest in actual material goods that will sustain your life (even if not your lifestyle) and keep you happy. The hardest decision you have is where to choose to live. Other than that, I would suggest investing in shovels and a hoes, seeds and compost, and copies of The Great Gatsby and Brave New World.

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  109. In the Last Days Perilous Times Will ComeSeptember 20, 2010 at 7:53 AM

    For those wondering about whether or not to be concerned about holding gold and silver mining shares - don't be!

    In the crash of 1929 all stock market shares plummeted and stayed down for years . . . except the gold shares. They fell initially along with the rest of the market but then picked themselves up and started rising. They rose and rose until they were the best performing sector of all and eventually over several years rose to record highs. Fortunes were made on the precious metals shares during the Great Depression and fortunes will be made again during the Greater Depression which is soon to unfold.

    Don't believe it? Google Homestake Mining and look at its chart for the period 1929 to 1938. How would you like to have been holding that or one or another of the quality precious metals miners?

    Gold and silver mining shares represent real wealth because they represent ownership in companies that are literally mining money. And I don't mean paper money. I mean REAL, TANGIBLE wealth. The shares represent a leveraged play on the companies' ability to profit and profit they will during a time of fiat currency implosion.

    Gold and silver bullion are unquestionably going to hold their value. The companies that mine them are going to constitute virtually the only companies (except possibly for oil and other select commodity producers) that will be profitable in the coming financial debacle.

    Don't lose out on the profit opportunity of a lifetime just because you cannot see the difference between the shares of precious metals mining companies and the shares of companies engaged in businesses that will be hurt by the approaching financial maelstrom.

    Such an enormous opportunity for profit will not soon come again.

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  110. I'm not going to get into the details because it's not worth my time, but you have little to no idea what you're talking about.

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  111. The phrase used for Treasury bonds is “Backed by the full faith and credit of the US Government.”

    What happens when no one has any faith? And no one willingly extends credit to the US Government? Can the Government force them do both? Yes, temporarily, because the public is not hiding their transactions, yet. Soon, because of the Financial Reform Bill, any transaction over $600 must be reported to the government.

    As soon as the public starts to hide their financial dealings, then a Black market arises. On this Black Market is where the prices increase, despite any governmental actions like Wage and Price controls, rationing or currency laws.

    The Government will do everything it can to prevent a Black Market from arising, but it will fail. The Soviet Union had the largest Black Market in the world. The only way of finding what you needed was to go on it; even the bureaucrats had to engage in the Black Market to survive. You would wait for hours to buy shoes which would not fit you, so you could, then, peddle them on the Black Market. The shoes were at a subsidized price and could be sold for much more on the unofficial market.

    The more restrictive and tyrannical the US government becomes, the more the Black Market is needed. Dollars will be the only currency in the government approved markets, but increasingly, all goods and services will be shifted out of government approved sources, corruption will become rife and economic activity will wane. This is a wonderful way of turning us into a third world nation. We stop being producers and become consumers. Producers are at too much risk from envious informers. Resources and manufacturing will dry up because they are not rewarded.

    When the US Dollar stops being a medium of exchange, then a new medium will arise. The market will demand this because barter is too inefficient. Anything of value will serve, but traditionally Gold and Silver have fulfilled this function, although a stable foreign currency will serve. No one wants the Gold or Silver in itself, it is just used as a middle resource and a store of value where there is no certainty.

    Hence, the author is correct, but a hyperinflation is the end times for a currency. A depression will follow that hyperinflation, because that sets the economy on a rational footing again. Wages, prices and profits need to adjust to market conditions.

    We need not necessarily go to a hyperinflation, though; we could stop at a Stagflation, devaluation or a prolonged depression. But the trends are pushing us in that direction. It is where the smart money is betting.

    The economic ignorance of the Obama administration and its stupidity is making a hyperinflation increasingly likely. No one knows when or if this may happen. The change-over will be swift and chaotic. Therefore, the only safe bet is to position yourself early and take the risk that it won’t happen.

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  112. Gonzalo
    Thank you for a well written article. There is only one problem with your hypothesis. The TBTF banks are not allowed to purchase commodities, so to expect them to dump treasuries and buy commodities is not likely. It is more likely they will sell long treasuries and buy shorter duration treasuries.

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  113. I would not say it is not possible. But the forces will not be present for another 5 years in my opinion. Bring the right wingers back in and we are screwed for sure.

    Japan is still the better model unless the GOP/tea party are really stupid, which of course we know is very possible.

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  114. I'm always amazed how few people can spell buoy. Better yet, how few run their spellcheck... cheesh get with the program bloggers...

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  115. TIPS do not offer protection from Hyper inflation.
    Sure, some might argue that inflation-indexed bonds offer a better and more direct inflation hedge than gold. But gold bugs are right to worry about whether the government will honor its commitments under more extreme circumstances. In fact, as Carmen Reinhart and Kenneth Rogoff discuss in their recent book on the history of financial crises, This Time is Different, cash-strapped governments will often forcibly convert indexed debt to non-indexed debt, precisely so that its value might be inflated away. Even the United States abrogated indexation clauses in bond contracts during the Great Depression of the 1930s. So it can happen anywhere.

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  116. Part II

    So say trading is curbed. Of course that does not mean that the shorts would not just pile on later. But again assuming no conspiracy, they would be going up against financial powerhouses that can write their own money into existence in order to defend the current world order. To challenge that…it would be like screaming at a hurricane.

    In summation….if treasuries pop many other currencies will go down with them. If this is allowed we must ask ourselves, just exactly how are we going to pay for all those products and services that we have come to expect? Do you really seriously think, that you are going to be able to pay your phone bill with little gold clippings? Or go to the emergency room and have your silver weighed before you get your gashed head sown up! It is laughable! Oh you probably could buy a chicken or two from farmer brown, that is if you have a farmer brown say within a 100 miles of where you live, but it may be difficult to get there as the international global oil conglomerate from which you buy your gas is prone to resist trading precious fuel for grandma’s wedding ring. This says nothing of just how we are going to buy all those products from China and still have any gold or silver to use in our economy as we discover quite to our surprise that China wants nothing from us!!!

    Bonds may fall in a day, but a new industrial revolution would take….what….decades? Faced with this reality, people will accept the system as it is.

    I agree that U.S. treasuries are sort of a long con. That is just the way it is. The entire financial system is a circular argument. For example: Bonds are valuable because they pay out in cash and cash is valuable because it is secured by bonds. This is exactly the structure of a currency. That is like saying gold is valuable because it pays out in gold. How circular can it get? But then again the value of gold is just as arbitrary as the value of the dollar. Some fallacy of value has to be an “accepted” premise to establish the “norm”, which comprises the base error from which all financial system spring forth. Delusion of value is integral in functioning markets. In the end, it is faith, which binds universally the fools to their money.

    As long as we believe and have no other religion, treasuries will probably stand.

    A finale point….So what if we are in a deflation. All this means is that the real rate of interest on treasuries is guaranteed to be a no risk positive position. Not true if nominal rates fall behind inflation. Wouldn’t investors want to stay in treasuries as others chase speculative sector bubbles, which are unsustainable, do to the very fact we are in a deflation? Wouldn’t these bubble pop before treasuries since they are smaller and less liquid markets?

    Take gold for example. All that has to occur to pop that bubble is raise interest rates to just the right level so as to make the carry cost of gold a fraction higher than the gain on its speculative driven price and they will run for the exits. Gold will plummet. Tell me, if there is a run on bonds wouldn’t that by necessity drive interest rates up on the entire curve? Wouldn’t that break the speculators on carry cost?

    I think in the end treasuries are a bubble, but to admit that, it is the same thing as saying America is a bubble. America is a very big ship of state. I think it is going to take a lot more than sector rotations in profit pursuit to bring it down. To bring it down, people will need a viable alternative to the dollar to run to. Saddam Hussein tried to sell oil in Euros and he found himself at the end of “his rope”. Are we at the end of our rope? I guess that depends on how much rope there is to go around.

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  117. Part I

    Gonzalo,

    Great article. I particularly appreciated the points about collapsing asset prices. A fact not usually mentioned.

    I too have informed people about the “treasury bubble” and the cultist belief in them. If it is not apparent by now that treasuries are perpetual and all the interest capitalizes I don’t know when it will be. This structure is the hallmark of junta-style financing ah la South America or the many dictator “democracies” we have seen around the world that have exploded their currencies.

    However we have several things going for us that they don’t. First, we have a military network that can enforce our “good credit” around the world. Two, we have made sure our major allies and various trading partners are up to their eyeballs in treasury holdings. Three, the Fed can go as deep as it wants to monetize the debt, which it has done for decades. This is a basic process of creating base money. Nothing new here and certainly nothing “stealth” about it. It is a fact that it monetized like 1.2 trillion of commercial trash in just a handful on months and nothing happened. Nobody cried foul. Everybody just moved on like nothing happened. The markets did not seize and the sky did not fall.

    The Fed could have and can at anytime in the future, mop up trillions of treasuries and not spark one blip of inflation pressure. Would that cause a currency collapse though? Perhaps, but the Fed won’t be acting alone to defend treasuries. Do you think seriously that China, Japan, the middle east, Canada, England, Germany etc etc etc are just going to sit buy and watch their U.S. treasuries collapse in value? Of course they will be faced with a choice…dump or pump. But to pump all they have to do is allow their central banks to hold as assets US Treasuries as direct backing to their own currency (which pegged countries already do) and then sell their own currencies to buy dollars to buy treasuries. With any combined effort and a protection plan in place to defend the world’s reserve currency and thus the entire stability of global trade no amount of speculators on the short will survive. They will be easily destroyed. An across the bored devaluation would snap treasuries right back into shape.

    Without a serious alternative reserve currency…..speculators will buckle and cover since most won’t even be holders of the underlying in the first place!!!! Which will turn the market right back around.

    To do what you suggest would require that the TBTFs would have to act in collusion along with at least one major economy that would be willing to essentially overthrow America. That would be the only way to keep the peddle on the floor after program trading went berserk but was soon shut down and a counter flow program initiated by the central banks. Now I am not familiar with the trading rules for treasuries. I am sure plenty happens over the counter. But in the pits, I would have to believe that trading breakers would come into play at some point and shut it down. So that will have to play some part in cooling it out. To crush treasuries wouldn’t it take a real political attack from a major economy that would be willing to take a bath on their holdings as well as potentially wreck their economy by hardening their currency, besides risking trade agreements for their products?

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  118. I lived thru economy that collapsed
    People went utterly broke. We had Deutchmark
    then to keep things stable.
    Now in the World, China has to make right choice:
    Turn to their own middle class or..
    Failure=disaster
    Another Key is exclusivity to new (cheap) fuel source, something Arabs
    had until now; Solution? "create it"
    Do not transmit power, CREATE it
    This will delay chaos at least until another Great war
    Above all, cheap, next to free, clean energy source is a first and not the only
    requirement for continued World's prosperity
    "Give to Caesar what's his and to God -God's"

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  119. To live, i need air, water, food, warmth shelter...and the resources to replenish food on an ongoing basis. The rest is a means to these needs. This will be starkly operant the day after. Farmable land/ garden space is the best real estate that one can be setting on. Use it, rent it, barter it...

    Yes it sounds "survivalist" but to condemn it for that is imprudent. One does not need have a smile on his face to imagine some barter offerings. " I will trade you the service of not discharging this firearm, for the commodity of your hog. " A few months latter, as gardens bloom, clothing might be in vogue and fungible. "How to" intellectual property will be at a premium. (WSJ has already noted a renaissance for shoe repair)

    From the first days when they prayed to repair the economy and get back to business as USUAL, I went in mourning. I don't want to go back to a speculative based money game, the "trading a dead horse for a dead cow" game that well describes the treasuries strategy. This is how we have inflation without money- SPECULATION trumping investing!

    I am saddened that so many commentators read this and then object via recitations of the received wisdom aka the road we came to the disaster by. Black Swan anybody?

    I agree that the Flash collapse will leave China holding. I think they know this. Scarry But more that the flash traders won't forsake their, to date so lucrative, "algorhythims."

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  120. The Nine Steps of Hyperinflation

    1. BOOM. Markets rise. Creation of asset bubbles.
    2. BUST: Market Crash. Inflation goes negative. Central Banks overreact and cut interest rates. Money injections.
    3. BOND BOOM: Government debt balloons. Debt issuance soars.
    4. STABILIZATION: Stocks and commodities recover. Bonds stabilize. Volatility declines.
    YOU ARE HERE
    5. BOND BUST: Inflation goes positive. Bond buyers pull out. Central Banks step in and buy bonds (Quantative Easing). This gradually crowds out and scares off real buyers.
    6. CURRENCY CRISIS: Money flees inflated currency, at first a trickle then a flood.
    7. INFLATION SOARS: Quantitive Easing. Currency weakness pushes prices. Inflation accelerates. Commodities rise. Inflation reaches pre-bust highs.
    8. POINT of NO RETURN: Central Banks are slow to contract money supply. Government continues to spend more. Deficits continue to grow. Real economy is still slow. Prices spiral.
    9. CURRENCY DESTRUCTION: Double digit inflation. Currency devaluation. Bond market crash. Inflation goes logarithmic. Confidence in money is destroyed. Eventually even monetary contraction will not help as demand for cash evaporates.

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  121. When the markets suddenly grasp the reality that demand for oil has outstripped available supply.

    Indeed, the trigger will be a spike in oil price.
    Highly probable scenario for hyperinflation.

    Many thanks Gonzalo.

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  122. I suggest you guys listen to this soundtrack in the background while you read this article.

    http://www.youtube.com/watch?v=qjvqY-U9gV0

    Ooh, and why don't you throw in a few FX explosions and lots of smoke, and that deep bass voice that seems to be on all the movie trailers 'Ever since QE1 they thought they were safe...'

    Geez, you've been watching too many Hollywood blockbusters. It's getting annoying how you people almost want it to play out the way you write it. Which leads me to believe that most of you are all really just sore that you have zilch assets / negative equity (probably took out one of those NINJA loans) so goddammn all the rest and pray gleefully that it all will come tumbling down.

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  123. Part 1

    If loss in faith in currency prompts a concurrent with loss of faith in (and delinking from) a world financial governance system run by a narrow elite, then it might have beneficial effects: namely a decoupling of popular, democratic economy from the parasitic, siphoning game called global finance.

    We all can see with derivatives, they are not even hiding their de facto printing of counterfeit money in the form of leveraged asset "multipliers" like credit default swaps that go far beyond the value of the underlying asset. It is purely conjured value meant to maximize a "profit" that is becoming increasingly abstract and unmoored not only from reality by from any reasonable or livable notion of quality of life. It's a tortured trap of numbers having nothing at the other end but exploitation and eventual suicide.

    Possible benefits of collapse, whatever its form, may include a waking up from assumption and a letting go of false attachments. The U.S. or world financial governance will not be able to fix the economy because of the scale of the counterfeiting. Once that is recognized. The gerbil wheel of endless consumption and materialism crashes, and the addiction/association of physical goods with meaning of life is broken cold turkey, with various levels of pain depending upon the psychological and physical level of addiction.

    I have long argued (and laid out in some frameworks) how we are being forced in an accelerated fashion to move value from a material (including gold, commodities, etc.) to a non-material basis of meaning. We have overcapacity technologically to produce food, but undercapacity to distribute it in a way the optimizes well-being rather than reinforcing misery. "Disconnected" profit acts like a cancer, hypercharging certain parts of the system and impoverishing other parts.

    You cannot eat gold, nor even commodities that are not in your refrigerator or your pantry. What value do these have? Since the central states and their paymasters (the financial elites) will fail, what takes its place? Most of the scenarios offered are of a survivalist bent, but I see this myopic, constrained guess as a product of perception and fear, an imagination indentured to a psychological need to be God and predict the course of events rather than an outflow of keen, intuitive grasp of the possibilities.

    Zeus Yiamouyiannis

    ReplyDelete
  124. Part 2

    When Y2K came, the world did not end. When New York City blacked out, people milled around amusedly rather than storming the grocery stores. Fact is, financial collapse will leave us to our own devices, and we will have to invent. We have some tools: local currency, barter, microfinance, in which productivity can be linked back to (locally driven, globally linked) economic enterprise, and real quality of life can emerge as present- and people-directed, rather than future- and "disconnected profit"-directed, which (by and for itself) is nothing more than an agreement to exploitation and imbalance.

    Connected profit, in conjunction with people and planet (triple bottom line) can be transformed into a quality-of-life value-added marker, rather than a power grab and concentration. We are coming to the big face-off between top-down control by those who would be gods over us and impose value on us, and bottom up creativity which recognizes that any "god" (energy, good, intelligence) comes up through us and is connected between us. It is this "within" and "between" well-negotiated and exchanged that produces real value.

    We are reaching the limits of physical exploitation and growth (as shown by its effects on environmental health). We need to transfer that growth and "frontier" mentality to non-scarce, non-material assets like learning, intellect, culture, music, community, family, creativity, human connection and interest. This cannot happen until the grip of the former is dashed by its own means, by its own unraveling. This is now happening.

    Disconnected profit is self-refuting. It is a lose-lose. It creates scarcity, rather than abundance, and its currency is scarcity and the fear associated with scarcity. It is also unnecessary and dangerous. Connected "profit" is a win-win based on what value people of their own being, their own uniqueness and diversity, bring toward our enhancement of experiencing what it means to be human for others.

    Individual and cultural difference is not a threat, but a blessing, a way to share something from the most essential part of oneself to expand and deepen the learning and experience of others. Once this central possibility is grasp on a gut level, you will see an outpouring of creativity like this planet has never seen. From the second Dark Ages (the Industrial Era with all its mechanistic oppression) comes the second Renaissance.

    Zeus Yiamouyiannis

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  125. Why don't our idiots-in-charge realize this could happen and start permitting huge private sector oil-drilling in Alaska and the other oil-rich areas? This would have HUGE positive effects on our economy and private sector job-creation. Hell, it's what keeps Norway economically-viable in its quasi-socialist state.

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  126. I would hope this could be stopped with a few phone calls to the TBTFs, threatening them with takeovers. We know they're insolvent and I would think the President does too. Whether he has the guts to do it is another matter.

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  127. The question is: What type of weed do you smoke?

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  128. There is a problem with the run on treasuries scenario. For large amounts of money (bigger than you can do with cash), Treasuries ARE cash. If you sell them, what do you get in exchange? Dollars in a bank account? But the bank will hold those dollars as Treasuries. This is nothing more than a swap of a US Gov't guaranteed instrument for a bank account that is only insured up to 250K. And if you want Euros, good luck. The holders of Euros won't want depreciating dollars, so you won't get many Euros. And if you exchange your T-bill for gold, the seller of the gold has the T-bill. And what is he going to do with it? Either keep it or sell it to someone else for some other commodity. So the dollar will drop precipitously in value against Euros, Gold, or whatever imported good people want in place of dollars. But for internally produced goods, the dollar will still retain its value because the government has a lot of control over the distribution of food. They will clamp down on exports and issue ration coupons if they really need to if panic hoarding takes place.

    My best scenario for hyperinflation is based on Peak Oil. The peak was passed in 2005, but the difference has been made up with natural gas liquids. Once supplies fall below a critical point, this will no longer be viable, and the exporters will demand gold in exchange for oil. This will cause the US to print dollars without limit, and hyperinflate the currency.

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  129. Where does China figure into all of this...if at all?

    Don't they own a significant amount of the United States debt?

    Forgive me if that is a stupid question...I am in the beginning stages of learning about all of this.

    --K

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  130. Can you please add a printer friendly button to your site?

    ReplyDelete
  131. It is not a matter IF we are going into hyperinflation - it is a matter of WHEN!

    Prepare or get rolled over!

    Here are the facts and the truth;

    Meltup
    http://www.youtube.com/watch?v=eb1n1X0Oqdw&feature=channel
    http://www.youtube.com/watch?v=E4ez21OItqQ&feature=channel



    Hyper inflation nation
    http://www.youtube.com/watch?v=SzmYI_4XCbM&feature=&p=97D691C1469FE5EB&index=0&playnext=1
    http://www.youtube.com/watch?v=vQCCDttLhA4&playnext=1&list=PL97D691C1469FE5EB&index=1
    http://www.youtube.com/watch?v=rVcyM2Z4Ego&playnext=1&list=PL97D691C1469FE5EB&index=2

    ReplyDelete
  132. This is the best article on how hyperinflation will actually take place that I have read. And very scary indeed. Thank you.

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  133. Admittedly, I haven't read all of the comments. But I didn't see any mention of revolution. If you believe men are inherently the same throughout history, doesn't this sound like a possible effect also? Are we any more or less moral than our predecessors? I don't know, I haven't read enough history to answer that, but I believe we as humans only attempt to be morally upright when we have been tested and know right from wrong. Then can we truly know ourselves. I know that is a generalization but I will say that for the most part it holds true. It is one thing to know right from wrong, it is another thing to do it under trying times.
    When I read about the French revolution, the American revolution, Hungarian revolution of 1956,weimar germany,and others, there is a time when people say enough is enough! What will we do? Will the people revolt peacefully? Will we be a God-fearing people and act accordingly? I really don't know.

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  134. Interesting article, Thank you for sharing it with us!

    My question is this...I see a lot of people saying to buy commodities (for various reasons) but no one ever talks about "HOW" those commodities will help you "pay" for anything in a realistic sense if the dollar does crash.

    I mean unless you've purchased actual coins or small quarter/half oz. bullion...how are you going to be able to actually USE the commodities
    to purchase your basic needs?

    Smelt your own little weighted globs of silver or gold?

    I agree that logically commodities are a great hedge and safety net against the dollar.

    I just don't see how they will be used (spent & received) as a currency when and after the crap hits the fan???

    I'm hoping that someone here can show/tell me what I'm missing or haven't considered :)

    Thanks & Warm Regards to ALL

    Stu

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  135. Thanks for this analysis of hyperinflation, however there is a more likely scenario: a smart central banker would simply raise interest rates to a very high level, a la Volcker, to attract more investors into the USD. This would break commodity prices on the spot, fix the malinvestment and fortify the dollar. Question is, is there a smart central banker out there?

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  136. A nice article... RUINED by the unnecessary "Neanderthal Survivalists" comment, how very arrogant of you.

    ReplyDelete
  137. They can't raise interest rates. All the mortgages would default not to mention credit card debt, municipal debt etc...

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  138. Ive never had the opportunity to thank you for your insights. So thank you.

    on a second note, your senario here is actually quite good, but there is an answer to your flash crash hyperinflation.

    You just close the markets and declare a banking holiday for a week. After all markets are unstable, robocontrolled and not really reflacting actual demand/supply. After that, each and every bank manager that doesnt agree with the new game in town has his bank properly nationalized like in sweden , and next monday everything is peachy .
    Of course nothing is peachy, but at least you have prevented catastrophy.

    Markets are not physical, they are constructs. So by law they are created, by law they are regulated and by law the can change

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  139. It is a confident commentator who makes such a specific prediction. I salute your bravery. And of course, if your scenario comes to pass the kudos to be gained is incredible.

    But of course the flip-side of this is that as the clock ticks on and the scenario you describe does not come to pass (and it will not come to pass) you begin to look more and more foolish.

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  140. GL, I love your site man.

    I think hyperinflation will be caused by another factor. The U.S. municipal bond market is going to crash. I think that is the black swan that will ignite all the firecrackers around the world. Here are the firecrackers:

    1. Municipal bond
    2. U.S. state bonds
    3. U.S Treasury bonds
    3. Euro bonds
    4. Commodities

    Meridith Whitney said that people will start selling municipal bonds indiscriminately once one municipality stops paying. I agree with her. People are going to say think if one municipality is going to default then what is going to stop other municipalities from doing the same. It's the cockroach effect. If you see one then there's others.

    I'm going to take it a step further. The state, U.S. Treasury, and Euro bond holders are going to all freak out. They will sell like mad. It will spread like fire and all the fireworks get popped. The bond sell off is going to spread through the financial market and cause commodities to jump sky high. People are going to dump their paper currency.

    It is the municipal bond market that is weaker then the Euro or U.S. Treasury bond because the cities and counties can not print money. The weakest link in the financial market will cause the downfall of the financial market.

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  141. I meant to hit edit before posting. Sorry for the grammatical errors.

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  142. Has there ever been an instant where hyperinflation comes out of a period of disinflation?

    I think that you need to have significant inflation before you have hyperinflation.

    I would like to know of some historical precedence for the scenario that you paint out Gonzalo.

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  143. The thing about Hyperinflation is you never see it coming until its too late.
    You wake up one morning and it's all gone to shit.
    It's a game of chicken, the first one to blink starts the rot.

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  144. I think you are correct in your assumptions. I also think Stoneleigh is correct in her assumptions. Where you both need to connect is the order in which these crises will occur. Hyperinflation first. When no one has $100 for a cup of coffee, either the coffee will no longer be available, or the price will fall. People now control the money, this is what few realize. Corporations direct our money. WE give it all to them. The bankers play a game that no one else plays. It is a diversion more than anything else. People will get by without banks...but only after a nice swift civil war over food.

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  145. Anyone have a time frame for this?

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  146. In modern American economics, sharply rising unemployment has been followed by sharply declining inflation without fail. Of course, every time there is high unemployment and mounting national debt (yes, America has seen these levels of debt before), educated, intelligent, and well-intentioned authors like Mr. Lira invariably scream, "This time is different!"

    Let's look at some numbers. The national unemployment rate is relatively stable at about 9.8% which is high and the inflation rate is also relatively stable at about 1.6% annually which is low. There has been a notable rise in the CPI (Consumer Price Index) of about 0.4% monthly for both Dec 2010 and Jan 2011. Notable, but hardly the makings of hyperinflation. There are no anomalies that imply the current financial situation is anything more than a cycle that has repeated itself countless times in world history... wackos and doomsayers included.

    However, the near future should give everyone an opportunity to decide for themselves. We may see another sharp rise in unemployment sometime soon, possibly to levels of 15% or higher. When this happens, there will also be a sharp drop in the inflation rate as has always happened previously. Since we are currently at a relatively low inflation rate, a significant drop in inflation will result in deflation which will persist until the unemployment rate tops out and begins to decline again.

    This is not some crazy prediction that goes against conventional wisdom. When people lose their jobs, they stop spending money. This causes demand for existing goods and services to drop and consequently prices to drop as well. This cycle has repeated itself again and again across time and locality. Short of mailing every adult in America a $20,000 check, the Fed has no way of getting the money they print into the hands of spenders. It will just sit in bank vaults, just as it is now, because banks don't lend money to people without jobs!

    If I'm wrong, then the next rise in unemployment will be followed by sharply rising inflation. If this happens, then lookout! This time really is different, but I seriously doubt that will be the case.

    ReplyDelete
    Replies
    1. "short of mailing every American a check"...what the heck do you think they're doing now spending $3 for every $2 they take in in taxes?

      Food stamps, welfare, free healthcare, housing vouchers to those in need. Mortgage refi assistance. This will be followed by mass student debt forgiveness.

      As it spirals downwards the tax receipts fall and the deficit increases. Eventually 50% of the population will be on the dole (ooops, they almost are in a way). No politician would be able to resist calls for more "help" from an economically ignorant populace. Eventually we'd have the government directly renting homes for people and buying their groceries. This takes printed money. More and more. As interest rates rise in response, the deficit increases even further.

      Mr. Lira was wrong only in trying to pin a date on when it happens. But it will happen. There are a multitude of factors to consider tugging back and forth that make such predictions foolish, but one steady one is the people's ability to demand something for nothing.

      Delete
  147. This time is truly different. Never before has communication or trading been so instantaneous much less so automatic by computer algorithms. The fast money now outweighs the long term investment. Our debt is un-payable and growing. Our bought and paid for politicians do not have the backbone to stand up and make the hard decisions as they wish to be re-elected. I agree with GL that it is a matter of time and the trigger. The Fed and other central banks have been doing this for a long time and they know what is coming. What their long term objectives are is known only to a small number but you can bet the farm that theirs are not yours. Cover your assets, make sure they are nimble, and have a core of PMs to preserve what you have. Also a little actual cash to cover that period between the crash and stability.

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  148. Wow...
    But what happens to the rest of the world if USA undergoes hyperinflation?

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  149. So, one year later, how's your hyper-inflation model working out?

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  150. "for predicting eventual dollar hyperinflation"
    ..uhh huh...sure..right....how can one predict something that is "eventual"? Makes no sense

    You should stick to film making and not macroeconomics...imho

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  151. His prediction is most certainly off in terms of timing. But as to everything else, it is happening. Gonzalo Lira is not the only person predicting hyperinflation, start following others such as Mike Maloney, Kip Herriage, Gerald Celente, and others and you will find that the predictions that these men have been making have been spot on for the past decade. Fiat currencies are doomed to fail, history repeats itself, just with a little twist each and every time.

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  152. interesting! although I have no expert, but I want have to know more and more, on your blog just interesting and useful information.

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  153. Depends on how you define "inflation", .... price inflation or increase of money supply. Increasing the money supply leads to price inflation, but there is a lag period of course, of which advantage can be taken. Money supply increase comes from creation of $$, either by individuals, corporate / business entities or by government. When individuals live beyond their means, en masse, and get foreclosed on, their ability to affect the money supply is nil. When businesses are hunkering down and not borrowing, then the only source of money supply increase is government borrowing. It's the continued borrowing of government that's what's responsible for any growth in the economy. But, everybody always thinks the economy is going to always "grow" (inflate). I disagree - what goes up must come down - the money magicians just don't want to be blamed for the natural contractions that occur, so they interfere, to put off the day of shrinkage as long as possible.

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  154. Thank you for a well imagined and thoughtful article. It seems that many are investing in treasuries and willing to lose money doing so to "maintain their powder dry" for a deflationary collapse in real property and other assets (particularly productive ones) and the accompanying "fire sale". Losing a few points now to make a killing on the collapsed prices. If this is the case, the Fed is now doing what it must, buying what others shun (long term debt) and selling what they can (short term debt). If and when the money sees the deflated prices the owners of the treasuries will try to sell to the Fed to buy at the distressed prices when there is "blood in the streets". The president could then easily quash the crisis by issuing an emergency order to immediately extend the shorter term maturities to 10 or 30 years ending the pressure on the Fed to redeem them and tying up all of that potential (of course a royal screw for the investors the treasuries). It is hard to see what would happen next but I'm sure it wouldn't be any more pretty than what you are suggesting.
    Thanks again

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  155. - Fatal Flaw -

    "Because the economy is in no better shape than it was in September 2008"

    - Wrong -

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  156. just a comment the next fall is at the end ...

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  157. "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."

    Gonzalo does not take into consideration the fact that asset values determine the supply of credit as currency. Treasuries being the primary asset used to back the credit issued, their loss of value destroys the credit created, so any rush to get out of Treasuries would cause an almost immediate collapse in credit as currency. This indicates that a hyper-deflationary event will be the more probable outcome of a collapse in the Treasury markets.

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    Replies
    1. WOW! Thank you! What we are facing is a cascading collapse of credit as currency, not hyperinflation. The TBTF banks will be the instigators and the first deserving victims. If there is any hyperinflation it will be at the very top of the economic food chain and it will be over in a matter of days, if not hours...

      Delete
  158. Gonzalo is right on point that hyperinflation is on it's way. The "Perfect Storm" is brewing and there are so many potential triggers named here that one only has to use some imagination to determine the possibilities. Most on here see what is coming but if you speak to typical American they will say what alternative to US$ "Petro dollar" is there and China needs us to take their exports. Well if you do some research other nations (and central banks)are hoarding great quantities of gold lately and China has outlawed gold export while importing 800 tons per year, encouraging citizens to hold gold/silver, opening its own merchantile exchange for metals (good by comex manipulation). Venezuela has recently called home it's gold holding in three other countries, 13 US states are legislating to make gold a backup currency, gold is charting up (with some minor corrections). Well, the wise will not need to see the actual finger writing on the wall to know that our gov't has been weighted, measured and found wanting. Now, it is up to the individual to bet their future of what they believe is happening and do some research and seek the truth. In the end it is main street that will be homeless and hungry and trapped in the planned generational serfdom.

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  159. Until the summer of 2013 this scenario will try to play out. But the owners of the Federal Reserve will keep a total collapse from coming until July 7, 2013. Then they will allow a coordinated nuclear attack by Russia and China/Japan to occur on July 8, 2013. They are not about to let the USA to become free from their control via USD Federal Reserve Notes.

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    Replies
    1. Anonymous, that's a mighty specific prediction you have there. Would you mind sharing how you came to that conclusion, please?

      Farmerhardt@live.com

      Delete
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  162. I missed the collapse. I must have been sleeping. Oh well. Maybe I'll get to be a part of it next time.

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