Let’s Think This Through Together…

EST

[Discussion prompted by the commentary below continues to evolve and may yet enlighten us sufficiently to produce some useful conclusions about the banking system’s looming endgame.  Hyperinflation, or deflation?  At this point, I’ll concede that it could be either that brings us to economic ruin.  But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation.  Under this scenario, it would not be a question of paying $1,000 for a barrel of oil, or $100 for a carton of eggs; rather, those in a position to supply such basic necessities would simply stop taking dollars.  This clearly implies that we would move rapidly to barter, abandoning a currency system that might conceivably have become useless overnight. (The spectacularly bullish implications this holds for gold are impossible to miss).  To drive the discussion toward a conclusion, I would urge readers to immerse themselves in this idea. You can skip the commentary itself if you’d like, since whatever insights it might provide at this point pale in comparison to the gems that have turned up in the forum. Simply click on the “Comments” link above to enter the forum.

When you jump into the fray, argue not from theory but from the logic of how you imagine your life would proceed in the wake of a collapse of the banking system and the dollar.  You might pretend that the catalyst for the collapse was a Treasury auction at which the Fed was the only buyer amidst wholesale dumping of U.S. paper by…everyone.  To heighten your acuity and stimulate the imagination, make this catastrophe a personal one. Pretend, for example, that it is the first of the month, that your employer and your $100,000 job are unexpectedly in dire jeopardy, and that you are about to send your mortgage lender a check for $2000 drawn on an account with $10,000 in it. The evening news is filled with reports that the Federal Reserve will do everything in its power to keep the system liquid, but they note as well that the dollar has fallen steeply relative to other currencies.  All interest rates have soared spectacularly, threatening to send your ARM in the same direction.  RA]

First, let me say that I’ve long enjoyed reading the rants of over-the-top inflationists like Jim Willie, but also the relatively subdued essays of Gonzalo Lira — even if the latter sometimes comes across as the kind of guy who could wear out a mirror.  I feel a comradeship with both because, predictions about the financial endgame aside, I agree with much of what they have said — most particularly about the robust defensive role that bullion seems likely to play no matter what happens.  But that is not to say that I agree with all of Lira’s and Jim Willie’s arguments. Some background is in order. My instincts concerning deflation were hard-wired in 1976 after reading C.V. Myers’ The Coming Deflation.  The title was premature, as we now know, but the book’s core idea was as timeless and immutable as the Law of Gravity. Myers stated, with elegant simplicity, that “Ultimately, every penny of every debt must be paid — if not by the borrower, then by the  lender.”  Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and  we differ only on the question of who, borrower or lender, will take the hit.  As Myers made clear, however, someone will have to pay.  If you understand this, then you understand why the dreadnought of real estate deflation, for one, will remain with us even if 30 million terminally afflicted homeowners leave their house keys in the mailbox. To repeat: We do not make debt disappear by walking away from it; someone will have to take the hit. 

Expanding on that point alone, I could dismiss Lira’s entire argument with a wave of the hand, invoking the killer question that blogger Charles Hugh Smith has asked of overheated inflationists, to wit:  Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?  The obvious answer is that they wouldn’t. And won’t. I’ve made this point myself many times before and in many ways, sometimes asking rhetorically whether we should expect Joe Sixpack and tens of millions of other underwater homeowners to be able to retire their mortgages using the confetti money that a hyperinflation would produce. Mortgage lenders would be big losers, of course, but so would anyone hoping to ever own a home — or to borrow money, for whatever purpose.

Unbearable Cost of ‘Escaping’ Debt

One of the best places to find the inflation vs. deflation argument deconstructed to a fine science, and to confront the horrific – and, as I am about to argue, unbearable — cost of “escaping” debt via hyperinflation, is the 1993 book The Great Reckoning. Co-authors Jim Davidson and Lord William Rees-Mogg went to great lengths to refract every aspect of the debate. It was this book, and a subsequent dialogue that I had with Jim Davidson, that hardened my deflationist ideas, convincing me – as they likely would many of you, though perhaps not Lira — that a deflationary path would at least be less ruinous than a hyperinflationary one. To be sure, vast amounts of real wealth would be destroyed in either case.  But deflation would have the virtue of inflicting pain on debtors more or less in accordance with their sins, bankrupting those who most deserved it.  That said, one needn’t drag in moral baggage to explain why the powers that be are extremely unlikely to pursue a hyperinflationary course.

And “pursue” is the correct word here, since, as The Great Reckoning made clear, hyperinflations don’t simply happen; they can only occur following the willful and deliberate decision of a sovereign government to hyperinflate. We need only consider the catastrophic consequences of hyperinflation to understand why such a scheme is so very unlikely to be promoted and effected by the Masters of the Universe.  For starters, savers and lenders as a class would be wiped out, since their financial assets would become as worthless as the dollar itself. Bond markets and all other institutional conduits of saving and investment would cease to function in the absence of trust – trust that would take many years for capitalists to earn back. From day one, a darkening economy would subsist on cash transactions, which in turn would bring on the hardest of times, little economic growth, and a drop in the standard of living so steep that it might take a generation to rekindle even a glimmer of the American Dream.

Deflation’s ‘Virtues’

Deflation, on the other hand, would leave the bond and stock markets intact, sparing those with little or no debt from its worst ravages.  For those who owe, a tidal wave of bankruptcies would mete out punishment commensurate with each borrower’s sins of profligacy and/or greed. Businesses would be starved for credit, but whatever savings were available would go to the most promising of them.  Most advantageously for an economy on-the-mend, it would be many years before capital would be hijacked by the paper-shufflers and feather merchants.  In both the public and private sphere, Americans would be forced to live within their means.

I won’t belabor Lira’s arguments where he attempts, not entirely without success, to “slice and dice” my logic when it is at its weakest.  But his main criticism — that I have not made a case for deflation, only one against hyperinflation – is disingenuous. For in fact, I have stated the case for deflation thus:  Someday very soon, following the precipitous failure of the world’s banks and securities markets, we will all be too broke to push the price of anything sky-high. Hyperinflationists assume we will have vast piles of cash at-the-ready, physical or digital, to exchange for real goods in a panic or along the way to hyperinflation. But will we? Read Lira’s smug hit-job a dozen times and you will find no mention of how that cash will get into our hands, much less into our hands if the banking system should go blotto. He avers only that, well before a collapse, via quantitative easing, the government will “ram” money “into the economy.” As if that hasn’t been tried to death already.

No Middle Way

If you believe that one or the other, deflation or hyperinflation, will eventually do us in, then you may find yourself won over by my argument simply on the evidence I muster against hyperinflation.  Read on and judge for yourself. For what it’s worth, Lira’s ruinist essays suggest that we do see eye to eye on one thing – that there is no “middle way” that might allow us to avoid the catastrophic liquidation of a global debt bubble whose notional value has been estimated as high as a quadrillion dollars.

Let me dwell for yet another moment on this idea that Americans could go broke overnight. Lira apparently believes this unlikely, if not impossible, and he could be right. But not very, since it is beyond conjecture that the day-to-day economy would grind to a halt quickly if digital money were thrown into chaos and disrepute for more than a few days.  And it’s not as though Americans are so very confident in electronic money’s soundness at this point that the banking system could withstand even a minor crisis. Unfortunately, and as we all know, there are no minor crises any more, especially in the financial realm.

We’ll All Be Broke

So, broke is what most of us will be when the dust settles, and it is perhaps only a matter of the rate at which we go broke that divides inflationist from deflationist. How quickly could the financial system come tumbling down? Last May’s “flash crash” on Wall Street demonstrated that it could occur in a trice.  Picture the Morning After the next flash crash, but assume that, this time around, the Plunge Protection Team has been unable to arrest its spread into bond markets and other securities markets around the world. Hardly a stretch, right?  But it’s a big stretch to imagine a hyperinflation arising from the smoke and rubble of the creditless world that would result.

Will we have gone broke without having had the chance to pay off our mortgages in snide? I say yes; Lira, for his argument to hold, is obliged to say no.  I hope he’s right. Then again, maybe hyperinflation will unfold so slowly that we’ll all have time to trade piles of shrinking dollars for real stuff currently owned by…fools?

Whatever happens, I wouldn’t put much store in Lira’s assurance that even small branch-banks keep scads of cash around. Try to withdraw $25,000 from your own branch if you want to find out the truth. He’ll probably say that the banks, with a nod from Uncle Sam, could refill everyone’s account with digital money overnight. I say, think about that for a moment – about the economically fatal traffic jam this would create instantly in the world of real transactions.

Deflationary Gas-Bag

Lira’s arguments, although certainly not his ungentlemanly, preening condescension, are at their weakest when he attempts to explain how quantitative easing will inject a hyperinflationary sum of dollars into the real economy.  He says our bankrupt government will simply spend limitless quantities of funny money into the “wider economy.”  If it were that easy, why are home prices still falling after trillions of dollars worth of “stimulus”? And why have wages failed to rise?  Granted, fuel and grocery prices have been going up. But how long can that trend continue with incomes stagnating and household discretionary cash plummeting?  (That was not a problem in 1922 Weimar, by the way, for reason that I shall explain shortly.) And how many seats will the airlines fill this summer if prices stay above $500?  With respect to the inflation of stock-market prices, we’ll let Lira shoot himself in the foot if he wants to argue that Wall Street’s cosmic gas-bag is other than a deflationary juggernaut waiting to implode.  Meanwhile, a vastly larger gas-bag in the form of a global derivatives bubble is set to implode with irresistible force. Hundreds of trillions of dollars’ worth of collateral are destined to shrink to the vanishing point.  That is the true measure of deflation’s force, and when it starts to snowball again as it did in 2008, no puny multitrillion-dollar monetization by the Fed will even begin to counteract it.

Finally, we cannot let Lira evade the question of how, specifically, the government will “ram” (his word) QE3/QE4/QE5 money into the economy, especially when the state and local governments who in earlier times would have been the most eager and efficient conduits for these sums have begun to refuse them, knowing as they do that each new stimulus dollar will only create more debt for future taxpayers.  We’d like to believe that the common sense of Republican and Tea Party governors and legislators alone will suffice to smother any inflation that might otherwise seep into the economy via supercharged outlays of cities, counties and states. In fact, the deflationary opposite is happening as local and state governments expand layoffs and pare budgets to the bone. Which leaves only the private economy to receive a wage stimulus sufficient to catalyze hyperinflation.  On that score, just as we’ve asked hyperinflationists to wake us when we can sell our home for a quadrillion dollars, we’ll ask them now to send us a job application when GM is paying assembly-line workers $800 an hour.

When Money Dies

Big employers effectively did so in Germany, allowing weekly wage settlements with then-pervasive trade unions to track hyperinflation almost step-for-step.  But you’ll need to read Adam Fergusson’s book about the Weimar hyperinflation, When Money Dies, to understand exactly why the U.S. is legally and practically constrained from duplicating Germany’s dubious feat. If you believe otherwise — believe, as Lira evidently does, that the Fed could somehow put a google of dollars into circulation on demand — then you should be buying real estate hand-over-fist right now. When Money Dies is a great read even for those who’d rather not be disabused of the notion that today’s USA, economically and financially, is not 1921’s Weimar. I particularly recommend a chapter that recounts how the most extreme periods of German hyperinflation occurred while the country’s money-printing presses were idled by strikes.  Turns out, some of Weimar’s largest employers had been authorized by the government to print scrip in the event that crates of official money didn’t arrive in time to meet payroll. Imagine what such a policy could do for Detroit! For the whole world!

Rather than argue that this couldn’t happen, we’ll say only that if it did, it would be but a momentary blip in a deflationary collapse in real estate that Lira doesn’t even mention.  Just wait till the incipient collapse in commercial property values hits full-bore.  This is yet another deflationary juggernaut that the arrogant and pompous Lira has conveniently failed to notice.  He will soon, though, and the shock of it may yet distract his attention from an inflation that so far has barely overflowed the lettuce bin.

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Comments on this entry are closed.

Daniel James May 5, 2011, 10:51 pm

With a central bank’s ability to create money out of thin air (legal counterfeiting), we will have deflation of real estate and wages, and at the same time, inflation of prices for consumer goods. The entire argument above for deflation does not make this distinction because of the lack of attention paid to the act of creating money out of nothing – this is inflation of the currency and a hidden tax. What a buyer is willing to pay for a house is not necessarily tied to the inflation in the system. This is called the transfer of wealth (real estate) from middle class to the elite. A concurrent asset deflation and price inflation. Please don’t waste any more time arguing for one or the other when they both will occur. It depends on what asset class you are talking about.

David April 23, 2011, 6:58 pm

FOFOA has a new post out today on this subject, and it’s great as usual.

Peter April 11, 2011, 5:35 am

There was a lengthy but good comment here after Wim’s. Now that comment is gone.
Deleted by mistake, technical error, censorship? Please put it back if deleted erroneously. If censorship, shame on you. Answer him instead of sneakily and cowardly deleting it.

SATAN April 11, 2011, 1:13 am

frenchie ex-accountant boozy–
(boozy sounds better than bozzy–couldn´t resist)

does the USA govt. LEGALLY
´suspending´ (Mark-to-Market) ´reality´
(as of early 2009)–to quote your admired beth–
is THAT—deflationary, OR inflationary—you opine?

further question.
IS something´s TRUEST value, no longer what
someone else is WILLING to pay for it, in PRESENT TIME?

Or, is NOW something truly worth,
what the USA govt. LEGALLY SAYS it´s worth?

And, if THAT were true, is that—
deflationary, OR inflationary–you think, boozy?

bozzy April 11, 2011, 7:19 pm

Satan, thank you for your comment.

Just to restate – I did the inflationary/deflationary opinion about MTM from the smoke and mirrors perspective rather than belabouring all the old chestnuts again, I suggest you read it.

The second question in your response is a closed and leading question, and as such you should ask it of someone who is a bigger fool than the one you take me for.

Cam Fitzgerald April 13, 2011, 5:21 pm

I guess i should not be surprised that Satan has actually shown up in person on Rick’s-Picks given all the extreme hostility between inflationist’s and defaltionist’s these past few days. I am sure it is creating a healthy breeding ground for the confiscation of a few empty soul-less mouthpieces (not naming anyone or intoning the name Lira for example) to be taken to where they really belong into the purgatory of worthless commentary.

Ouch, did I actually just write that out loud!!!

SATAN April 14, 2011, 8:15 pm

bozzy–leading YES, closed NO.
CLOSED is your own perception on the matter;
for you are so obssesed with trees, you see no forest.

fitz cam–
¨extreme hostility¨ is the normal condition of all predators on earth, man included.
And it is only comfortable, well-fed, 21st century ¨educated¨ modern man,
that continues to self-servingly live out (and endlessly feed) the delusion, it is not.

Benjamin April 10, 2011, 11:48 pm

Hi guys,

While I’m not in the camp of a dead USD (yet), what, exactly, will it rise against?

I’ve ruled out the EUR because their austerity started (in earnest) last year. Not the Chinese currency; as Cam pointed out, the have inflation, but rising wages and purchasing power vs the USD (not sure about others).

On the other hand, our “big austerity” is only getting started. While I believe this will continue to snowball into bigger cuts, I just don’t see it being of any significance this week, and probably not in the year. Maybe it (USDX) will bounce between a wide range, but vs other currencies I think the trends will remain intact.

Benjamin April 10, 2011, 11:49 pm

that comment goes out to Cam and gary leibowitz, btw…

Cam Fitzgerald April 13, 2011, 5:13 pm

Benjamin, to me the Euro is over priced and due for a setback and a correction as the debt crisis spawned in Europe has not even come close to being resolved. I can barely fathom that the Euro has advanced as it has given all the hazards and in fact think that it is only speculative forces driving its value far above real worth. A dollar rise then could be inferred as a Euro fall and this outcome could be imminent.

gary leibowitz April 10, 2011, 10:53 pm

Don’t look now but the dollar should see a HUGE reversal this coming week. Just when everyone concluded it was dead.

The Republican austerity program just allowed for the dollar to rally “Big Time”. Commodities, equities are going to be tested to hold any sort of up pattern.

Time for those fast moving bets. The coming weeks will be anything but boring.

Cam Fitzgerald April 10, 2011, 11:08 pm

I think you could be right Gary. That would place you and I into one of the most contrarian trades of the year. There cannot be more than a couple percent of investors out there who would agree with either of us today.

I fully expect a trend reversal soon though.

donniemac April 10, 2011, 2:14 pm

Bozzy,
Here is a defense of the suspension of MTM rules from someone other than a bank. And let me add that I hope the suspension does not become permanent, although it looks that way.
Please understand that this simplistic explanation is how I came to support the suspension of MTM. Assuming a default rate of 20% and a devaluation of 20% resulted in a “real” loss of a minimum of 20% and a maximum of 40%. But only an income loss of 20%. As no one wanted that paper it was only worth 20-30 cents on the dollar. But it was still earning 4% instead of 5%. So now my $1000k piece of paper, which had a “real” worth of minimum $600k can only be sold for $300k, but is earning $40k. And if held to maturity that paper will give me back $600k-800k or more, + income. But the rules are going to force me to close my doors as my asset ratio is now too low and someone else (a vulture-LOL) is going to swoop in and make a killing. I just do not see how the Powers That Be could make any decision except to suspend MTM.
Don’t know if it was the right decision, but it was the correct decision to help keep the banking industry from failing. That is a discussion for another day, but IMHO, the average man on the street benefited from the MTM rule change back to what that rule was a couple of years before that change for a total banking collapse helps no one. Again not arguing that we may or may not still be headed that way, it is just the chaos that follows will not be pretty and older citizens, like me, are particularly vulnerable.
There are times various markets act very irrationally, in either direction, and that was one of those times. If Bernanke et al have any chance of pulling this out of their butt, any action that reduces irrationality is the correct action.

bozzy April 10, 2011, 4:23 pm

Donniemac – many thanks for the comment – just spotted.

I too am a “mature” taxpayer, albeit in France rather than the USA. Frankly, I respect your opinion, but simply cannot agree, as it comes down to a very simple question of accounting principles or no accounting principles, pain now or pain later.

It feels to me that the banking industry has driven a coach and several teams of horses through ALL the attempts at meaningful regulation which have been “attempted” to the extent that you have to ask whether there ever has been any real prospect of controlling their activities.

Before the 2008 crisis, there was the third world debt problem, and the dot.com collapse, which despite all the ballyhoo was truly anticipated by very few, rather like the situation we have with gold where the majority of pundits are now claiming to have forecast the bull market based on their belated recognition of 5 minutes ago. But, in both collapses, the banks were once again at the root of the problem. Any doubt you may have about whether these actions were well intended could be dispelled by a little reading on the subject of how third world debt was and is still manufactured. In Rick’s terms, the banks like to fund the sale of fishes, not fishing rods.

For me, these are just the tip of the iceberg when considering the evils inflicted on our world by these vile institutions, and I would prefer to bring them down at all costs and as soon as possible rather than aid their survival, even though there would be a terrible price to pay. Some would argue that the price has now already become impossible to pay by reason of Bernanke’s actions.

The abandonment of MTM was described in print by a senior E&Y partner as heading into the abyss, or something similar, and it is to the shame of that, my own one-time profession that it has proved weak abject and ineffectual when most it could have benefited the system and societies that gave it existence.

“Deleveraging” once widely accepted as completely necessary to any valid recovery, is now scarcely mentioned. Those who will pay will be our sons and daughters, and yes of course we shall a little too, but the real burden has been cruelly, mercilessly flung off onto the accepting shoulders of those who are not yet able to understand it or defend against it.

No other decision practical for Bernanke et al? I do not think so. In my own opinion, better that the failing banks should have been allowed to fail, and we should all have been allowed to see them as they truly were.

bozzy April 10, 2011, 9:38 pm

Donniemac: –

I found the quote from E&Y – it was in the Jim Quinn piece kindly linked earlier by Rick.

“Suspending mark-to-market accounting, in essence, suspends reality.”
— Beth Brooke, global vice chair, at Ernst & Young

ebear April 10, 2011, 1:43 pm

“Expanding on that point alone, I could dismiss Lira’s entire argument with a wave of the hand, invoking the killer question that blogger Charles Hugh Smith has asked of overheated inflationists, to wit: Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen? The obvious answer is that they wouldn’t.”

This assumes that a) the rich and powerful actually know what they’re doing, and b) have the means to act on that knowledge. I’m not sure that’s true, and I think history bears that out. No need for a list of fallen empires – I think anyone who reads a little history will draw the same conclusion.

What this means in practical terms is that the rich and powerful, by their very effort to avoid a certain outcome may in fact precipitate it.

The serial bubbles of the last few decades are a good example. Each new attempt to avoid a loss (brought about by the greed and hubris that goes with being rich and powerful) sets the ground for the next failure and subsequent similar reaction. It’s all very predictable – the only question is, at what point are the physical limits reached? Everything has it’s breaking point. Do the rich and powerful see it coming? If so, why embark on a course that leads there? If you see it coming, why not take steps to avoid it?

Wealth, yes, but I doubt these people have as much power as we credit them with. In truth, they’re just as swept along by events as the rest of us. Their position may be more advantageous, but it also leads to a false sense of confidence that ultimately proves their undoing.

Trying to prevent something brought about by one’s own greed and conceit? How much success can it have?

ebear

&&&&&&

It would be lovely to think that Soros and his evil ilk will be consumed in the flames. Although hyperinflation would likely achieve this, I still have my doubts that that is what is going to occur. As I tried to make clear, hyperinflation doesn’t simply happen — it must be willfully and deliberately pursued. This would become likely if populist forces controlled the money upply and interest rates. Clearly they don’t; it is the bankers who are in charge. RA

ebear April 10, 2011, 11:28 pm

Soros and his pals no doubt have their escape helicopters on standby. They didn’t get where they are by not anticipating contingencies. That said, it’s impossible to anticipate every contingency, so there’s always hope;)

I would agree that hyperinflation is an intentional strategy, unlikely to be pursued except as a last desperate attempt to retain control. In that scenario you’d have a general collapse where the agents responsible (bankers or otherwise) would withdraw to a safe distance. Their wealth, no doubt reduced, would still be sufficient to retain control in the new, smaller game that would result. Meanwhile, the suffering of millions is of little consequence to them since the pathology of the controller is to maintain control at any cost.

Getting back to the original question then: If we equate hyperinflation to the destruction of a currency, then the clear path to survival is to have one’s wealth offshore, or in some other asset that retains value in relative terms. That’s my answer to the question of “what if we woke up one day…etc…” But if I can prepare for it, certainly a banker can, and given the international nature of their trade it’s not hard to imagine them intentionally ruining a currency in order to pick up the pieces later at a sharp discount. Isn’t that what the IMF is accused of doing in concert with international banks?

From that standpoint the argument vis-a-vis the USA becomes “it can’t happen here” not that it can’t happen at all, since clearly it already has.

ebear

BrantW April 10, 2011, 11:31 am

FYI….total credit market debt is currently at 365%. It was set to collapse, as the inevitable debt default in the private sector (where most of the debt was) took hold in 08…but we have stepped in, and transferred that debt to the public sector…in hope of getting the credit growth to continue….

My question is continue to where….400%, 500%? Do these fools actually think there is no limit? Hey…lets pull and Iceland…1200%!!

BrantW April 10, 2011, 11:29 am

To PH Niebyl,

“Capitalism needs increasing credit to expand, otherwise it contracts.”

Gross over-simplification. What does expanding credit mean? Relative to what? When you exclude the period from the mid 20′ through the late 40’s (bubble, crash, war), and you exclude the period from the mid 90’s till now (bubbles, crashes, ongoing wars), total US credit market debt as a % of GDP (this includes Fed, State-Muni, Corporate, Mortgage, and Consumer) ranged from 140% to 200% of GDP.

So long term, credit does NOT have to expand relative to GDP. It needs to track GDP. This is at the heart of responsible central bank policy and financial system macro-regulation.

The bubble, crash, war cycle is a cultural phenomenon of mass stupidity. People lose the wisdom of experience, and embark on credit expansion that outpaces GDP. It becomes a self reinforcing cultural phenomenon, and ends badly.

So to say you have to expand credit for capitalism to work, is to lose sight of the fact of how that growth must be paced. When a cycle of continuous credit growth that outpaces GDP year after year takes hold, you are not promoting growth, you are stealing from the future, and the price will eventually be paid.

Benjamin April 10, 2011, 11:02 am

Cam Fitzgerald April 10, 2011 at 5:38 am:

“I hope there will be one person out there who will comment on this thought and tell me why it should not be absolutely obvious to all.”

Cam, you’ve absolutely nailed it. Perefect. Indeed, that is all they can accomplish with QE.

And that’s because they’re hoarding the QE money for themselves. Not that our having a bigger slice of that pie would help, but since they use it to prop up prices, and we’re only as a whole getting broker-er, they simply will not keep prices at those heights.

True, it will hurt them in the end, too, but hey… from their perspective, isn’t it better to be a taller pygmy than pint-sized pygmy? That is how they will protect the FRN from the ravages of us. But oh, the agony of depression…

And while many think that government will just up entitelments, no, they won’t. With the recent defeat of a once-powerful state union, more are certain to come. And if for no other reason than spite, the public unions, as they fall, will join in the cutting games.

This, in my view, ensures that the FRN will die from loss of faith, not hyperinflation. If, that is, people don’t feel like bearing this out for at least another generation or two. I don’t, and I make no secret of that!

Benjamin April 10, 2011, 11:10 am

I almost forgot… You were looking for an explanation as to why this isn’t obvious to all?

Aside from misguided notions, I believe people pray for the “wrath of god” to end this, rather than their assertion of their liberties. So much easier that way, but it’ll never happen without effort on our part.

Delving a bit deeper, holding that hyperinflation is “inevitable” also creates a sense of security in the eternal sense. ie, It allows people to feel no pressure or guilt for living and dying in a world where the evil is certain to die on it’s own; aside from mechanical “wrath” saving them through hyperinflation, they also needn’t worry about future generations, how they leave the world.

And I ought to know because I used to think that way.

But at this point, it is impossible for me to overlook profound honesty. We have got to do what we must do. There is no getting around that.

Cam Fitzgerald April 10, 2011, 7:14 pm

Many thanks Benjamin,

I was happy to see you shared my concern that the QE’s may just lead to a repeat of the cycle we just got out of and may in fact accelerate that trend which has been only temporarily forestalled.

The implications for rising interest rates just makes the certainty of a return to recession an inevitability to my way of thinking as the advent of that prescription comes concurrent with an evolving commodity bubble that looks to ruin the party of its own accord.

I am worrying a little too much out loud I suppose but it still strikes me as ironic that commodity inflation which only eats up our surplus savings and deprives us the use of excess disposable income is the true bogey man here. In China on the other hand there is a more certain and predictable course underway that is seeing buying power increase as wages rise in tandem with the inflation effect while a Renminbi that floats would turn that nation into a superpower overnight.

Our inflation ironically enough will eventually lead to a deflator effect as it harms all consumption and simultaneously reduces economic activity without offering income growth or the opportunity of more savings.

Can we say “squeezed” between a rock and ahard place now?

Twoggle April 10, 2011, 6:45 am

I’m glad that you can agree that the dollar can collapse. But you are debating some ridiculous caricature of the “inflationist” argument. I admit that the deflation argument sounds pretty good when pitted against some simplistic argument such as: “prices will hyperinflate because the Fed will digitally print billions and trillions, etc. in order to liquify/save the economy.”

Your blog article mentions various issues in a way that appears you think “inflationists” are completely oblivious to these points. When I say, “inflationist,” I am referring to economists and financial experts who have long-predicted that the U.S. will experience massive inflation or hyperinflation due to the monetary policies, corporate fraud and other government policies. I cannot speaking for all “inflationists,” but anyone who follows them would probably agree that:
1. “Inflationists” have long predicted the housing bubble and collapse (and many predicted the NASDAQ bubble).
2. “Inflationists” have long predicted that commercial real estate will collapse.
3. “Inflationists” are very aware of the trillions of dollars in derivatives waiting to blow up.
4. “Inflationists” are aware of the “velocity of money” or “money needs to get from the banks to the people” argument … and do not find it convincing for various reasons.
5. There was an “inflationist” appearing on CNBC a few days ago pointing out that we have had “inflation” and “deflation” in the same commodity over the last ~40 years at the same time. If you don’t understand how this is possible, you have not really been following the “inflationist” argument.

That “killer question” by Charles Hugh Smith can be addressed very simply. Those rich and powerful men that control the Federal Reserve won’t be wiped out because they will have most of their assets in commodities, gold, land, company ownership, foreign currencies, etc. Do any of our multinational companies have money abroad? Did some major company recently divest itself of most of it’s U.S. Treasuries? These guy (and gals … Blythe) are not the total bumbling fools they pretend to be. Then, when there’s enough pain and fear, we can have a new world order currency or monetary system pushed on us that can insulate the financial terrorists from national government control.

When you mention that if the dollar collapses, we could avoid hyperinflation because we would quickly abandon currencies and move to a barter system. I suppose that is possible, but more likely, in my opinion, is that by the time the U.S. dollar is ready to collapse (or just after it has collapsed and we have defaulted as a government), there will have been tremendous inflation pain and the fear will be so great that we will welcome our financial overlords “blessing” us with a new world monetary system.

To answer your question, if there was a wholesale dumping of U.S. paper, that would mean that I would be unable to afford products and commodities from abroad unless I had a massive and sudden salary increase. The same would be true for wholesalers and retailers selling items from abroad. Yes, I won’t have much of a supply of money under your scenario, but the foreign manufacturers won’t lower prices just because I can’t afford it. Under normal circumstances, store shelves would empty out until we could supply things locally. Things that we actually make in the U.S. such as agriculture, weapons, more weapons, and energy … well the bigger companies and distributors would prefer to sell things abroad to get non-collapsing currencies. I would default on my mortgage (if I had an ARM), use my gold/silver (if I had any) to buy land, build my own house and forage/garden for my food and use my food supplies until the chaos subsides. My bad mortgage debt will be bought up by the Fed with the taxpayers as the ultimate responsibility … at least until we get a new monetary system.

Twoggle

&&&&&&

For starters, I think you’ve greatly overestimated the financial acumen of the rich. Their financial advisors are not exactly out-of-the-box thinkers, and their wealth has grown mainly in conventional ways. No hard statistics to back this up, but my gut feeling is that they have $100 in real estate for every $1 in bullion.

Concerning all of the things inflationists supposedly foresaw, you’ve deliberately avoided following these predictions to their conclusion. It’s not as though the collapse in residential and commerical real estate has already run its course. Nor do you attempt — for obvious reasons — to follow the thread of your own logic when you assert that bad mortgage debt will eventually fall on taxpayers’ shoulders. That is not exactly making an airtight case for inflation.

Ultimately, no claim made by either inflationists or deflationists can be made airtight. But deflation will surely occur in the absence of Fed efforts to counteract it. That doesn’t mean the bankers have the will or the desire to do so, though, since they really will be the big losers. The wild swings in supposedly “safe” assets in recent years should tell you that there is no safe haven. Even bullion’s course cannot be predicted with certitude. RA

Cam Fitzgerald April 10, 2011, 5:16 am

`
I will add one last remark here and I think it is just stating the obvious…..If Quantitative Easing and Monetization are indeed what is driving up commodity prices then the whole exercise will become self defeating as rising energy costs will send us back to where we began.

I mean back to recession from whence we came.

They (the Fed) are “easing” to boost economic activity and growth while creating a wealth effect in stocks right?

Well the Goose that is laying the golden egg (QE’s) is actually an albatross around our necks as high oil prices will bring the recovery to a screeching halt and send us all back into an even nastier recession.

And you thought property could not become more worthless while the last bit of sweat and blood got squeezed out of your wallet to cover heating and energy costs along with food and health insurance, right?

You ain’t een nuthing baby! This is a no-win game anymore. Next time there will be no rabbit coming out of the magicians hat. Just despair.

PHN April 10, 2011, 2:11 am

Capitalism needs increasing credit to expand, otherwise it contracts. After decades of finding new ways to extend and expand credit most recently derivatives, the cost of credit would appear to be greater than goods produced due to the enormity of the debt despite low interest rates thus leading to stagnation. J6P knows times are tough, but sees light at the end of the tunnel because good news media reports the stock market and their pensions in US$ rather than gold. Even when measured in gold, the gold price has been greatly suppressed. So much of the recent and even past progress is really inflation which J6P does not see because of his faith in the $. As long as the $ can buy oil at a low price (Petro dollar) under military pressure, both central banks and J6P will hold and need $. Stagflation will not give way to hyperinflation til the $price of oil goes wild.
But as Rick points out, will J6P have a wheelbarrow of $ to buy gas? Hyper-Stagflation?

Cam Fitzgerald April 10, 2011, 5:38 am

What I meant to say above (in short words) was that QE is just creating a massive negative feedback loop wherein it only succeeds in destroying the initiatives it seeks to promote.

It means that the effort is a one-trick pony and it cannot be successfully reproduced twice. This is why we will see an end to that initiative. It will not be saleable next time around if it only results in another deeper recession and greater jobs losses.

Can everyone else see what I am getting at here?

The “inflation effect” brought on by the QE’s will be defeated by the process of the QE’s too as energy that goes out of reach eventually drives a deflationary effect on stocks and housing. Furthermore, as the stimulus money is withdrawn then commodities will also fall and all we will really have left is an entry point into a depression.

I hope there will be one person out there who will comment on this thought and tell me why it should not be absolutely obvious to all.

Douglas Bailey April 10, 2011, 1:09 am

It seems that you and Jim Willies have differing definitions for hyperinflation and deflation. All I know is that gas is going up by leaps and bounds, and groceries, (food prices) continue going up. It seems to me up is inflation and down is deflation is down. Maybe he is speaking of what causes the man on the street to notice something going up and you are noticing the dollar going down. I am enjoying the dollar going down since it is causing my investment to go up, (inflation), since most gold mines are not worth the current price.

Brad Bolz April 9, 2011, 9:02 pm

Someone please explain to me how Mr. Drockton is coming to his conclusion that silver may hit $ 1,000 before year’s end? I’ve read his article 5 times and cannot create in my mind, a scenario in which this would occur. What conditions have to exist for this to happen?

http://www.moneyteachers.org/Paul+Drockton+Silver+Predictions.htm

&&&&&&

On the epiphany of the dollar’s worthlessness, think about how many who hold paper gold would seek to convert it to physical. If, in the ensuing collapse of the dollar, the CFTC, for one, were to require that all contracts settle as specified, it might well cost one $1000 to acquire an ounce of physical Silver for instant delivery. This is akin to the cash market that develops for stocks that have been subjected to a short squeeze. Shares might be trading for $30, but you could pay $100 or more for it in the cash market if you were short the stock and needed to come up with a certificate that day. RA

hmk April 9, 2011, 7:15 pm

You explained why we wouldn’t head into a Weimar Republic engineered hyperinflation but were the dynamics in Zimbabwe and Argentina different? If so could you explain why that scenario couldn’t be repeated in the USA?

&&&&&

Zimbabwe’s economy was 100% cash; and Argentina’s currency, unlike the U.S. dollar, is not a global reserve. An “Argentina” could conceivably happen here, but it would have global repercussions that would make their experience seem like a ripple on a placid pond in comparison. RA

SATAN April 9, 2011, 6:42 pm

On the possibility of the commencement soon, of a deflationary (OR inflationary) world depression, I would like to read opinions on this forum, on the specific bearing the following wikipedia excerpt has, on this particular matter.

(Excerpt taken from wikipedia´s definition of
´Mark-to-market accounting´–
especifically taken from it´s last section, entitled:
´Effect on subprime crisis and Emergency Economic Stabilization Act of 2008´):

———————————-
Note—I placed in CAPS, words or sentences I found to be the most pertinent (to this thread´s argument, whether there is soon a forthcoming deflationary, OR inflationary, depression).

Additionally, to the subjective inferences below I felt were the most hypothetically questionable, I added MY OWN questionmarks at their end: (?)

I have not changed one word in this wikipedia article– you can go to wikipedia and read it yourself.

As far as I know, the section I have quoted herein was added to the ´amrk-to-market´ definition, sometime in late 2009.

(FYI, I have only reduced the capitalized acronyms (such as ´MBS´or ´FDIC, down to ´m.b.s.´ or ´f.d.i.c´), so they are not confused with MY use of CAPS, for what I found to be most interestingly relevant.

I also separated some sentences into paragraphs, to make more readable what I considered of consequence.
————————————–

¨FORMER f.d.i.c. Chair William Isaac placed much of the blame for the subprime mortgage crisis on the Securities and Exchange Commission and its fair-value accounting rules, especially the REQUIREMENT FOR BANKS TO MARK THEIR ASSETS TO MARKET, PARTICULARLY mortgage-backed securities.

Whether or not this is true has been the subject of ongoing debate.

The debate arises because this accounting rule REQUIRES companies to ADJUST THE VALUE of marketable securities (such as the mortgage-backed securities (´m.b.s.´, at the center of the crisis) TO THEIR MARKET VALUE.

The INTENT of the standard is to help investors UNDERSTAND THE VALUE OF THESE ASSETS at a point in time, rather than just their historical purchase price. BECAUSE THE MARKET FOR THESE ASSETS IS DISTRESSED, IT IS DIFFICULT TO SELL many m.b.s. at other than prices which may (OR MAY NOT)(?) be reflective of market stresses, which MAY(?) be below the value that the mortgage CASH FLOW related to the m.b.s. WOULD MERIT(?).

As initially INTERPRETED(?) by companies and their auditors, the typically lower sale value was used as the market value rather than the CASH FLOW VALUE(?).

Many large financial institutions RECOGNIZED significant losses during 2007 and 2008 as a result of marking-down m.b.s. ASSET prices to MARKET VALUE.

For SOME institutions, this also triggered a margin call, where lenders that had provided the funds using the m.b.s. AS COLLATERAL had contractual rights to GET THEIR MONEY BACK. This resulted in further forced sales of m.b.s. and emergency efforts to obtain cash (liquidity) to pay off the margin call.

Markdowns may also reduce the value of BANK REGULATORY CAPITAL, requiring additional capital raising and CREATING UNCERTAINTY(?) regarding the HEALTH(?) of the bank.

It is the combination of the EXTENSIVE use of financial LEVERAGE (i.e., borrowing to invest, leaving LIMITED room in the event of a downturn), margin calls and large REPORTED losses that MAY(?) have exacerbated the crisis.

IF(?) CASH FLOW-derived VALUE(?) — which EXCLUDES(?) market JUDGMENT(?) as to DEFAULT RISK but MAY(?) also MORE(?) accurately reflect ‘ACTUAL'(?) value IF the market is SUFFICIENTLY(?) distressed — IS used (rather than sale value), the size of market-value adjustments under the accounting standard would TYPICALLY(?) be reduced.

One MIGHT(?) question WHY banks or GSEs (Fannie Mae and Freddie Mac) are allowed to use HIGH-RISK, DIFFICULT-TO-VALUE assets like m.b.s. or deferred tax assets as PART of their regulatory CAPITAL BASE.

Whether a margin call is involved IS NOT part of the accounting standard itself; it is part of the contracts negotiated between lender and borrower.

Critics charge that claims that this had happened are akin to claiming “the problem, in short, is not that the banks acted irresponsibly in creating financial instruments that blew up, or in making loans that could NEVER be repaid. It is that SOMEONE IS FORCING THEM TO FESS UP. If only the banks could PRETEND(?) the assets WERE valuable, then THE SYSTEM(?) would be SAFE(?).”

On September 30, 2008, the s.e.c. and the f.a.s.b. issued a JOINT clarification regarding the implementation of FAIR(?) value accounting IN CASES(?) where a market is DISORDERLY OR INACTIVE(?).

This guidance CLARIFIES(?) that FORCED liquidations are NOT INDICATIVE(?) of FAIR(?) value, AS this IS NOT an “ORDERLY”(?) transaction.

Further, it CLARIFIES(?) that ESTIMATES(?) of FAIR(?) value CAN be made using the EXPECTED(?) cash flows from SUCH(?) instruments, provided that the estimates REFLECT(?) adjustments that a WILLING(?) buyer WOULD(?) make, such as ADJUSTMENTS(?) for DEFAULT and liquidity RISKS(?).

Section 132 of the Emergency Economic Stabilization Act of 2008, titled “Authority to SUSPEND Mark-to-Market Accounting” restates the Securities and Exchange Commission’s authority to suspend the application of f.a.s. 157 IF the s.e.c. DETERMINES(?) THAT IT IS IN THE PUBLIC(?) INTEREST AND PROTECTS(?) INVESTORS.

Section 133 of the Act, titled “Study on Mark-to-Market Accounting,” requires the s.e.c., IN CONSULTATION WITH the Federal Reserve Board and the Department of the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including IT´S EFFECT on BALANCE(?) sheets, IMPACT on the QUALITY(?) of financial INFORMATION(?), and OTHER(?) matters, and to report to Congress within 90 days on its FINDINGS(?).

The Emergency Economic STABILIZATION(?) Act of 2008 was passed and SIGNED INTO LAW on October 3, 2008. On October 7, 2008, the s.e.c. began to conduct a study on “mark-to-market” accounting, as authorized by Sec. 133 of the Emergency Economic STABILIZATION(?) Act of 2008.

On October 10, 2008, the f.a.s.c. issued further GUIDANCE(?) to provide an EXAMPLE(?) of HOW to estimate FAIR(?) value IN CASES(?) where the market for THAT(?) asset is NOT ACTIVE(?) at a REPORTING DATE.

On December 30, 2008, the s.e.c. issued its report under Sec. 133 and decided NOT to suspend mark-to-market accounting.

On March 9, 2009, In remarks made in the COUNCIL ON FOREIGN RELATIONS in Washington, Federal Reserve Chairman BEN BERNANKE, “We should review regulatory policies and ACCOUNTING RULES to ENSURE(?) that THEY(?) do not INDUCE(?) EXCESSIVE(?) (SWINGS in the financial system and economy)”.

Although he doesn’t support the FULL suspension of BASIC proposition of Mark to Market principles, he is OPEN to IMPROVING IT(?) and provide “GUIDANCE”(?) on REASONABLE(?) ways to VALUE(?) assets to REDUCE(?) their pro-CYCLICAL(?) effects.

On March 16, 2009, f.a.s.b. PROPOSED ALLOWING companies to use MORE LEEWAY(?) in valuing THEIR assets under “mark-to-market” accounting, a move that could EASE(?) balance-sheet PRESSURES(?) many companies say THEY ARE FEELING(?) during the economic crisis.

On April 2, 2009, after a 15-day public COMMENT(?) period, f.a.s.b. EASED the mark-to-market rules.

Financial institutions are still required by the rules to mark transactions to market prices BUT MORE SO IN A STEADY(?) MARKET and LESS SO(?) WHEN THE MARKET IS INACTIVE(?).

To proponents of the rules, this REMOVES(?) the UNNECESSARY(??) “positive feedback loop” that CAN(?) result in a DEEPLY weakened economy.

On April 9, 2009, f.a.s.b. issued the OFFICIAL update to FAS 157 that EASES the mark-to-market rules WHEN(?) the market is UNSTEADY(?) or INACTIVE(?).

EARLY ADOPTERS were ALLOWED to APPLY the ruling AS OF March 15, 2009, and THE REST as of June 15, 2009.

It was ANTICIPATED that THESE changes COULD(?) SIGNIFICANTLY boost banks’ statements of earnings and ALLOW THEM TO DEFER REPORTING losses.

The changes, however, AFFECTED accounting standards APPLICABLE TO A BROAD RANGE OF DERIVATIVES, NOT JUST banks holding mortgage-backed securities.

Opponents argue that the IMPLICATIONS for investors are that the VALUATION of assets UNDERLYING SUCH securities will be INCREASINGLY DIFFICULT TO ANALYSE, NOT less so.

An example would be DETERMINING a company’s ACTUAL ASSETS, EQUITY and earnings, which WILL BE OVERSTATED IF the assets are NOT ALLOWED to be marked down APPROPRIATELY.¨ [citation needed](?)

———————————–

Bottomline–As of March 15, 2009, publicly-held banks can now publicly report the valuation of their ´assets´(INCLUDING derivatives), pretty much in any way they ´feel´ like–as to never create ´uncertainty´, or appear ´unhealthy´, nor ´unsteady.´

And with the full authorization (and encouragement) of ALL their oversight govermental agencies.

————————————

Curiously, March 15, 2009 is also EXACTLY when, the current ongoing 2-year+ stockmarket rally started.

——————————

So, in your opinion, is LEGALLY ´flexible´ public bank reporting, deflationary or inflationary?

For I have never read anyone, anywhere on the net, writing about the effect of the repeal of mark-to-market rules in early 2009, for ALL public corporations (not just public banks, but also home builders, mortgage lenders, etc.).

So I would like to know what you think about it.
Deflationary, or inflationary.

bozzy April 10, 2011, 2:17 am

“Satan, your kingdom must come down” (Buddy Miller – from the Written in Chalk album) – couldn’t resist it – nothing personal intended.

I do hope this is not a troll. You will easily find a great deal of material which discusses “mark to market”, its abandonment, and why everything is “still OK” – accounting presses were rolling out little else. I am myself an erstwhile accountant by profession (I am ashamed to admit) and I think if you need to ask whether what we have now is better than mark to market you need the help of your local pharmacist.

The only body of opinion to defend the abandonment of MTM in favour of “make it up as you go along”, are the banks, who have more than a little self interest at stake. MTM was accused of a destabilising effect when volatility is extreme, because they allow some measure of ad-hoc revaluation of organisations before reporting points come around. Obviously that means that if you are a large (listed) bank and your balance sheet little else but CDS, CDO’s, MBS’s etc then you are likely to be in the glue, and it is for this reason that the banks hollered out against MTM.

Unfortunately, Yerunca Sam needed to rubber stamp the notion or mainstreet might have understood rather quicker that Ben and Timmy had decided to shore up the rotting detritus of the world banking system – and in doing so had also decided to sacrifice the labour of the sons and daughters of mainstreet for the forseeable future.

Yerunca Sam complied with record indecent haste.

We now have no accounting principles left worth talking about – the FASB has long since abdicated any notion of integrity it may ever have had, and reported results are about as much use as the official NFP numbers. But earnings – “the number” – will be ruler straight, the ridiculous tree full of simians which is dubbed the NYSE will continue to generate bonuses for said simians, and by the time anyone gets really serious about fixing things, retribution will be impossible as those who brought these ills will have enjoyed their fabulous retirements, and will long since have abandoned high office – public or private.

Inflationary or deflationary was your question, and on balance I think it is clear that an absence of any consisten basis of valuation is likely to prove more inflationary than MTM, if for no other reason than it allows creative accountants to realise revaluation surpluses, and more importantly avoid making provision for unrealised losses thus keeping the money mills turning. Yes and of course, playing around with the reserve asset ratio, and potentially freeing up even more capital for recirculation via the bankers magic trick – fractional reserve money production, their favourite trick of all… If MTM had been retained, and proper and rigorous application of reserve requirements review had been put in place, a tier of banks would have been lost, their investors would have received nothing, and borrowing from Rick Ackerman – the “jig would have been up” with the massive global credit expansion of recent decades. It was to preserve the apparent loan value of worthless credit that the bailouts were conducted. My own opinion is that these gentlemen who brought us these financial miracles of loan vehicles would have been better returned to work on the petrol pumps, or pea picking. Instead, we elected to have them continue to run our miserable existences, and well… hell we might as well commit the kids for a few decades at the same time, so we did that too.

William Wilberforce might have chuckled if he could have foreseen that the slave trade of his own time would be replaced by an insidious financial slavery with the willing acceptance of the dumbed and ever dumber populations.

The only problem with arguing the inflationary effects of MTM is that right now, consumer borrowers, without whom the fractional reserve thing stalls, are right now in very short supply.

Just one further side issue – I should like to point out that some comment recently heard to the effect that banks do worse because of the low interest which currently apply is complete codswallop. Bankers LOVE low interest rates – their lend borrow spread – typically 3% or better – stays exactly the same and makes their gross lending margin look obscenely good.

Oliver April 9, 2011, 6:10 pm

Marcel: great quote, thanks!

marcel martel April 9, 2011, 6:00 pm

I’m afraid Rick has skewered his deflation argument with the description of $100 offer / no bid for 1 doz eggs. Sounds to me like that equals infinite inflation.

I came across this Chris Martenson interview with Paul Tustain of BullionVault fame today. Paul eloquently and succinctly ends the inflation/deflation argument once and for all during the interview.

http://news.goldseek.com/GoldSeek/1302277170.php

” But in fact, the point that I have been trying to make is that what we will get, what we will hear from governments as they print money, is that it is a relatively modest amount of money that they are printing. And in fact, it is, that is perfectly true. But it hides the thing that is really going on. And this is the thing that really worries me. When you just print even a little bit of money, if you just print whatever it is, seven hundred billion dollars, or whatever, it sounds modest next to coins and notes of some fifteen trillion dollars in circulation, but it sends a very powerful message to savers. Now if you look at that monetary stock, it has got this time element built into it. You think of the hundred trillion dollars of bonds, they are basically spaced out over broadly about a twenty-year period. Most of that money was frozen into the bond market freely by people who owned the debts. But they basically had this signal from QE that it is no longer safe to put money out to twenty years. And indeed, you will see that the likes of PIMCO have basically withdrawn all their money from U.S. Treasuries because they think that it is so fatal.
Now what that means is that you give the markets that signal that you are going to print money whenever the going gets tough, but eighteen-year bonds or twenty-year bonds are all still eighteen and twenty-year bonds. And the clock has to wind down, allowing those bonds to get to the short end. And you see steadily, and this of course already happened in Greece, you see a mountain of money, as it gets redeemed, even a twenty-year bond which gets redeemed, is going to be re-invested in the short end. Nothing goes back out to twenty years. And so you get this hump of money at the short end and short-end money behaves very much like cash. That is why it is kept at the short end; you can sell a short dated bond for very near its cash value, its nominal value. You cannot necessarily do that with a long-term bond. So with this pile of money at the short end, you have got, instead of having twenty trillion in coins and notes and near-term money, you suddenly go up to one hundred and twenty trillion in coins and short-term notes but getting there, is going to take fifteen years. And that is the point. The switch has been flicked and it is not possible to un-flick it. So that shift to the short end is clearly happening. If you look at quantitative easing now, it is essentially making the financing of bond purchases very cheap but the bonds themselves are still, lets say in the fifteen-year end, anything from seven years up, which is basically in the quantitative easing stock. But they are only being bought by banks, because the banks can put them back to the central bank because the central bank has got a mandate now to buy illiquid long-dated quality bonds. So that is where they all end up, everyone connects it and goes back into cash which is provided by the central bank when it buys these long-term bonds and converts all the holder’s money back into cash. So it creates this mountain of short-term money. And this is why you get inflation and deflation at the same time.
What you have got now, is an increasing glut of short-term money chasing all the things that people buy with short-term money, and that seems like your shopping basket or the gasoline for your car. But you have got a shortage of long-term money and that is what you would use obviously to buy a house. So your house, there being a shortage of money, is falling in price but the things that you buy in your shopping basket, they are all increasing in price. So the inflation has switched round from where it was in 2005 but it was the other way around as all of the money was swept out to the long end to finance house purchases. It has switched round now and it now both ways, it hurts people who have savings. Their cost of living goes up, their assets go down in value, and their standard of living steadily slides as they compete on world markets for their commodities, their food, their clothes and their oil that are the compulsory purchases of life. And for which you are competing for, on international markets, with Asians who now are sitting on a stock of two trillion dollars.”

&&&&&&

This is a lucid desciption of what is in fact happening, but it stops short of predicting an outcome. As how could it? In terms of size, there is no precedent for the debt collapse still to come, nor can their be any certitude about the response politicians and the Fed will attempt. So far, they have guessed wrong about how many trillions of dollars’ worth of stimulus it would take to arrest the deflation in real estate.

Whatever is still to occur, no one can say for certain whether it will lead to hyperinflation or deflation. As FOFOA points out, the two are nearly identical. But if the dollar is repudiated overnight, don’t expect that, necessarily, to produce hyperinflation. The implication of $100 eggs and no bid in no way “skewers” my argument. Indeed, it is a deflationary paradigm. RA

El Els April 9, 2011, 5:26 pm

Hard to say exactly how this is going to work out. If it was me solving the problem I would deflate first driving the world into depression. Then and I would do the necessary money printing. When money is very hard to come by people really don’t care if the government is printing it. Depression holds prices down and reduces the cost of everything including entitlement programs and debt service. Under such circumstances a nation could get away with monetizing a large portion of it’s debt without causing serious inflation. The inflationary effects of all this new money would be minimized or postponed until the population recovered from their financial woes and began to consume again.

Thought you might like to read this piece found on Wikileaks.

http://mirror.wikileaks.info/wiki/Shadowy_Bilderberg_group_meet_in_Greece_-_and_here%27s_their_address/index.html

Wim April 9, 2011, 4:33 pm

I agree with KC. The Obama’s and Bernanke’s are just the puppets of the men behind the screens. They play a game which enriches them the most, that’s actually human’s nature. Besides that they like to manipulate.
They play a game, and no game plays out as foreseen.
People took the bait of increasing home prices. They manipulate interest down, and instead of shelter people regarded their home as a cash machine. The mantra was real estate never goes down. That play worked out okay, but now it has burst. Sure thing the puppeteers saw it coming as they orchestrated it. In 2000 I bought my first home. I never followed real estate, but I was amazed what a home cost me. I paid down cash in full. I knew something wasn’t right, but I knew nothing about the monetary system and the manipulations in it. Everybody said real estate would skyrocket forever, but I counted on a 150,000 usd loss as a home is only shelter, you can’t expect the children of the future only work for a roof over their heads. It took an overwhelming long time, because only now it’s beginning to go down in Holland, after it indeed went further up for a time. I don’t care at all because a home is a place to sleep. I don’t care what my home is worth, because I would like to die in it. Then in 2008 I started to investigate the monetary system and started to study the financial system. It’s bubble to bubble, and mainstreet pays the bill as it has always been. A gradual devaluation of fiat paper is a slow process which produces a long time of enrichment for the elite. I retired 11 years ago at the age of 36, but as real estate soared further I got a little worried about cash capital. In 2008 I started to study the internet, GATA, Schiff, Zeitgeist, Faber, Calente, Prechter and so on. I took action and did well. It’s bubble to bubble, where in the meantime higher inflation than wage increases will lower the standard of living. A gradual process, but accidents could happen. It’s all about manipulation. When the euro was forced upon us the government promised the stability pact which included a maximum money growth of 4,5%. When I checked the ECB site in 2008 I found money growth was some 12%. I never heard of it in the media, but it jumpstarted my hunger for investigation on the internet.

The trouble I experience now is a lot of debates make sense to me, and they vary from deflation, inflation, hyperinflation, stagflation and so on. All the debates make sense to me. Debt can’t grow forever and must implode. Money printing can go on forever. One thing will be sure, the standard of living in the west will go down.

We live in interesting times. If people fall back on the essentials of life, they tend to rethink things. Let’s hope it will be gradual process as no one lives happily in chaos. I financially gained by the ongoing process, but I would have hoped it wouldn’t be necessary as chaos I wouldn’t like to see. Common sense should prevail, and to me common sense is to stay out of debt. I never owed one penny to anyone, and allways lived below my means. I always lived worriefree and slept well.

Arnold Webre Jr. April 9, 2011, 2:33 pm

I understand that it would not be in the best interests of the U.S. Federal Reserve and all U.S. banks to have hyper-inflation; however, the U.S. Fed is merely reacting to the increasing governmental debt placed on us by our politicians.

As the U.S. House of Representatives originates all financial and monetary appropriation bills [voted on by the House, the Senate and vetoed or signed by the president of the United States], and it is the job of Congress to oversee the U.S. Federal Reserve, the most likely long-term outcome is hyper-inflation, not deflation.

The U.S. Federal Reserve is supposed to be independent, but, in reality, it reports to the U.S. Congress.

On the other hand, either way, a hyper-inflationary or a deflationary depression will mean the end of business as usual, and a forced new way of doing business, which I like to call “financially responsible behavior” that will permeate the affairs of all private citizens, businesses, organizations, bureaucrats and politicians in the United States of America.

In the not so distant future, out of dire necessity this new “financially responsible behavior” will be demanded by all Americans.

Though it will look like the end of the United States, in reality, it will just be a new beginning, which will make us much stronger, wiser and more cautious, again.

We are just one of a long line of nations and civilizations that will have had to re-learn these lessons of history, which play over and over, again, throughout time and probably always will.

In the end, human nature is always the same, we learn from lessons, then we prosper from those lessons, the generations that lived through those lessons die-out, and then we go through the painful process of re-learning all of those lessons again.

Mel G April 9, 2011, 2:03 pm

Sorry correction “The Dollar Crisis”

Mel G April 9, 2011, 1:59 pm

The first book I read when I was starting to get really concerned about the global economy in 2006 was “The Dollar Collapse” by an ex IMF economist Richard Duncan
Most of you will probably have read it.

Bottom line it will be death by ice or fire.

Looking at the evidence to date since 2008, governments are going to extraordinary lengths to prop up the banks and the financial system, living in Ireland I’ve seen the workings of our European overlords up close and personal .

Seems to me that Robert Prechter nailed it years ago in “Conquer the Crash” – we will probably get both , first a crushing period of deflation and only then will the hyperinflationary phase emerge from that ruin.

This current period of phoney war limbo can’t last forever, can it ?

KC April 9, 2011, 1:27 pm

First, I want to point out that the Federal Reserve is modeled exactly after Weimar Germany’s banking system. In 1907, a delegation from the United States went to Germany to study their banking system which was reputed to be the best banking system in the world at that time. They then returned to the U.S. and designed the Federal Reswerve system which was put into law in 1913.

Next, you raise an interesting point when you note that American wage earners do not have the negotiating power to obtain the ever increasing wages that were obtained by the powerful German trade unions. Therefore, you argue that German style hyperinflation is impossible without the increasing wages to push prices higher.

However, you are proceeding on a false assumption. You assume that it is increasing wages that cause prices to go higher and that, absent the increased wages, prices would remain stable. Would that this were so. If this was the case, our problems would be over.

Certainly, increasing wages can fuel the flames of inflation. However, at the end of the day, there isn’t any difference between wages increasing from $1 to $100 while the price for a loaf of bread increases from $1 to $1,000, and wages staying at $1 while the price of bread increases to $100. The net result is the same; the impoverishment of the people.

In fact, prices are rising. In the last 6 monthe of 2010, the wholesale price index was up an average of 22%. Wages haven’t gone up 22%. They haven’t gone up at all. But, according to your deflationary theroy, prices can’t go up without increased wages to cause this.

Perhaps “German style” hyperinflation is impossible, but American style hyperinflation certainly is possible. And, this “style” of inflation is prices increasing while wages do not.

You ask; “Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?”

You have asked the 64 thousand dollar question. Or, adjusted for inflation, the 64 billion dollar question.

The men who control the Federal Reserve and the other central banks around the world are not the Ben Bernankes or the Alan Greenspans. These individuals are merely front men, employees, hired hands. Those with the real power are the owners of the central banks. And, their identities are, for the most part, a secret. The central banks, including the Federal Reserve member banks, are private corporations. The stock in these corporations cannot be sold. It can only be transferred by inheritence. These people are the real “masters of the universe”.

These people already have unlimited wealth. (How could they not. They have the power to print money.)
Now, they are seeking absolute power. The New World Order that you hear some priominent people refer to, is a one world government. This government will be controled by the same peiople that own the central banks. They will impose a cashless society, the world will be impoverished while they will live in luxury, and they will have absolute power.

In order to achieve their goal of a one world government, it is necessary to impoverish the middle class in all countries, especially the United States. The reason for this is that a country with a prosperous middle class would never agree to relinquish its soverignty.

Okay, I know that this sounds like crazy talk. However, before you dismiss it, check out a book called “The Naked Capitalist” by W. Cleon Skousen. Go to Amazom.com and read the reviews. This will, I’m sure, motivate youi to purchase and read this book. After you read it you will know that I am correct in what I say. So, don’t take my word for anything. Read the book.

When the dollar crash (which will likely be soon), the solution offered will be a North American Union with Canada and Mexico, and a common currrency called the Amero. If we agree to this, we will have relinquished our soverignty and the ability to rebuild our economy. The United States of America, as we know it, will cease to exist and we will be permanently impoverished.

I do agree with you about one thing. The hyperinflationary crash of the dollar will not happen gradually over a period of years or even months. In this age of instant communications, it is likely to happen overnight. If you would like to view a fictional scenario depicting this, go to YouTube.com and search for “The Day The Dollar Died”.

If you want to understand why the debt based monetary system that we have MUST eventually end with hyperinflation, I urge you to watch a video called
The Crash Course at ChrisMartensom.com.

Last, if you want to understand how the Federal Reserve operates and why it must be abolished, go to YouTube and search for a video called “The Money Masters”.

Let me close by saying that I wish you were right because deflation would be less painful than hyperinflation. But in order for deflation to happen, the government would have to be willing to default on its obligations. In other words, declare bankruptsey. Ain’t gonna happen. The politicians ain’t gonna put themselves out of business. Instead, they will continue to print money until our paper dollars are completely worthless.

&&&&&

How far can prices rise, even for essentials, if households savings are non-existent, wages are stagnant, and unemployment is headed for 30 percent? RA

Wim April 9, 2011, 1:05 pm

I live in Holland and most people don’t see the monetary risks at this time. They generally think the banks have been sort of healed. In the news the possible shutdown of the governement of the USA is brought as if the USA is considering serious austerity. The world turns around money wherein lies govern. Elitists who have all the money in the world like to manipulate the world like a Nintendo game, and care not about consequences. To trust they want to keep the current game going I don’t see as a sure bet. The money creation system is a fraudulent one, and because of this architecture one can foresee the enslavement of most people. The cheapest prison is the illusion of freedom.
There will sure be an economic collapse, but to foresee the exact way would need a crystal ball. I like to get a sort of view of ‘how’ it could be coming. In Holland we put up 50 billion euro for the emergency fund, and people aren’t even outrageous. The majaority didn’t want the euro, but it just came around. I fear the majority will wake up when it’s too late.

Peter April 9, 2011, 9:41 am

Some comments say hyper-inflation would be bad for the parasites, therefore they would not let it happen. As if that was one of their choices. Can somebody explain to me how they could stop it? They started QE to prevent the system from imploding immediately through deflation. No politician wants to be seen as responsible for suddenly busting the system, so they will keep inflating until we will have hyper-inflation – because that is much slower than deflation. There are no more other choices. Those who claim there are must know something others don’t. Ascribing to them powers to prevent hyper-inflation – other than through sudden death deflation – seems akin to claiming King Canute actually has the power to calm waves.

&&&&&;

It all hinges on whether the parasites allow the Fed to monetize mortgage debt. After all, how far can a “hyperinflation” get if we are all stuck paying $300,000 mortgages on $100,000 homes. RA

Benjamin April 9, 2011, 3:21 pm

For the umteenth trillionth time, they are stopping it by having saw to it well ahead of time that the new money would mostly never see circulation.

Credit has regressed severely, wages were already falling, entitlements are below the rate of inflation, and now unemployment stands at around 20-25% (I forget which). Most of all, once influential public union thugs are being forced into retreat. Prices of food and energy are rising but it is not the result of increasing amounts of currency in circulation by you, me, and other ordinary Joes. It is in larger part the result of the big banks using some of that newly created cash.

But all they can do with that tactic is get price increases, falling demand, more depression, which will in time force prices to crash, like they did back in 08. They can no more game the system to infinite heights by stuffing it with cash than they could by stuffing it with credit. The higher they drive the prices, the less people spend and/or pay down existing debts. One has to see that for what it is; the banking system is 100% naked, but only have at most a tattered half blanket to cover up with. But the more bloated they get, the smaller that blanket becomes and the more quickly it wears away.

Now, when you say they are going to lose control over it and take us straight to hyperinflation, you’re really saying you’ve had enough of their power to cheat the system they created and run, and now want to do it yourself. While the currency can always fail by simple refusal, that itself is not hyperinflation. That is loss of faith. Hyperinflation would be the government, at the demand of the people, siezing monetary policy and then printing/keying in the currency ad libitum.

But general public sentiment is calling for more cutbacks in govt spending, while rallying calls to spend more are being scorned into bitter defeat. Virtually no one is demanding government to print money. Ergo, we’re nowhere near a hyperinflation. Loss of faith? Well, that may well be another story, but definitely would not be hyperinflation when/if it happens.

And anyone still counting on other countries dropping the USD are dreaming. Dumping of FRNs by foreign holders is simply never going to be done by the corrupt governments of the world. They would suffer total loss, which is why all of them would rather face a violent revolt (look at the Middle East; China also has them from time to time) in which they can escape, wealth in hand, and be replaced by someone who will rule the same as them (and pass on to them a smaller dose of spoils). Barring that, they become rich enough to buy substantial protection against the inevitable. Such is how the savage real world works, and rather than hinder it, the FRN rather makes it easier for them.

They’re going to let that go? Bull. They’re going to lose control? Highly unlikely; the masses are well capable of getting angry, but insight and wise action remain elusive. On top of that, there is no major push in the U.S. to hyperinflate. So no, there is not going to a massive foreign dump and there is going to be no Weimar sparked by domestic demand.

Eugen April 9, 2011, 2:01 am

As the USD keeps losing value and the risk to hold US debt increases, seems like it might trigger a US midnight madness debt sale?
What happens when everyone (especially foreign debt) attempts to trade their T-bills back in at the same time in order to get what ever worth is left for something tangible? Is this inflationary or deflationary. Seems like there would be demand for dollars in some sort but in another sale of dollars at the same time??

&&&&&

So far, U.S. debt holders have been quietly heading for the fire exit without trampling each other. Bet it will last? RA

Tom April 9, 2011, 12:45 am

Hi All, thanks for a great discussion with many ideas new to me.

I’m on the fence now whether the final result is going to be hyperinflation or deflation – it’s got to be a tug-o’war between both forces as many have mentioned here. But a US treasuries collapse does seem increasingly certain to me the more I think about it. How it plays out is what I’m trying to get my head around.

Assuming a US treasuries collapse is forthcoming, I imagine we should see a serious external demand for USD at the time foreigners begin dumping in earnest. After all they’ll be paid for their sales in USD. In other words, foreign sellers of treasuries would presumably drive up the price of the USD as their disbursement of treasuries increases demand for payment in USD. Could we see something like the USD rally in 2008, but bigger? That sounds very deflationary to me.

The point was made too about whether or not these dollars would be able to make back it home to the states to buy up anything of value. I.e. would congress limit purchases of strategic assets? Well they’re doing it now to some extent. I don’t understand well enough how capital flows across borders to say, other than I expect the US government to put up as many obstacles as as it can to thwart a swamp of USD coming onshore. How they do it and how effective they are to be at it are good questions. But to the extent the US still has free markets, those dollars will flow back. Is there a possiblity of an offshore dollar, onshore dollar arrangement with intense capital controls? It seems possible, maybe even likely. It would be a good time to consider offshoring some capital. http://www.sovereignman.com is a great site where users discusses exactly that.

Once it’s serious hot USD potato time though, that’s when I expect inflation to overtake deflation especially in the US. The point about a crisis in confidence versus hyperinflation is an interesting one. What if we consider that hyperinflation is already in the system, contained within the quantity of US dollars out there? The question possibly becomes one of the concentration of dollars in the US. Assuming lots of dollars come home to roost, the crisis of and the hyperinflation become the same thing don’t they?

I’m am inclined to watch out for a USD rally, and use it as maybe a last great final dip to load up on the PM’s and shares of the PM miners, as well as get my firearms permits and buy some guns (I hate Canada’s gun laws) and stock up on the essentials everyone’s mentioned here.

BTW, there is talk about the Fed jawboning the dollar higher for the April FOMC meeting. I’m trying to hedge my positions for this to some extent in case they’re successful in putting a bid under the dollar.

I’m certain PM’s are a great place to be in either of inflation or deflation, and I would buy farmland if I had the money. Guns I see as essential. Liberty seems like a distant memory from childhood.

Good luck all.

Tom.

Steve April 8, 2011, 8:47 pm

I just looked at a long term silver chart, and I looked at a long term gold chart – can it be – so simple an example of what to expect via fiat/fraud ? Can that PM history express where we are in real terms ? Have we run our hyper-inflation of debt? Is that last binge of credit being thrown at silver and gold? Will this time be different, and the vertical spike will just round off like the stock market does? And then, will the stock market reach radical vertical peaks, and round bottoms?

The standard is that an Eagle buys a suit year 1800, year 2011. So a 50 Eagle Legal Tender has a “value”. Fiat is being dumped, but; if the trader is honest in Constitutional Eagles he looses nothing.

IS one in debt – now there is a problem. No wonder the debt fear is creating anger.

Bc April 8, 2011, 8:22 pm

One reason govt. prints money to induce monetary inflation is that it is much easier to reallocate purchasing power as an inducement to work and produce by this mechanism. Instead of laying off almost everyone in banking and finance as I believe must happen, we just have them be not keeping up with inflation by wage increases in their sector while more necessary functions like health care delivery receive get big raises. We need a lot of monetary inflation now because the turn down ratio is very large to fully empty out certain sectors. Ask yourself who gets more, bankers on strike or doctors and nurses on strike. The PTB will induce monetary inflation until this reallocation of marginal compensation runs it’s course. For a while this will seem like hyperinflation but it’s really the most politically painless way to inform non critical sectors it may be time to find gainful employment in a different sector or starve. Expect strikes, anger, political lobbying, tantrums, and even violence as the non productive get the bad news.

Steve April 8, 2011, 8:07 pm

Thanks again Rick !!!!, and for all the other posters on this forum.

GET OUT OF DEBT. Pay it all off now, sell everything until one is down to a piece of land that can support them and theirs. Or, have a ‘useful’ trade like a plumber, or the builder of furniture so that one can trade for what one does not have, or make the internet work without the government. Have enough excess ‘stores’ that can be traded, and be able to secure those stores. Learn to grow by sustained means now – we will all gain whether its inflation, deflation, hyper-inflation, or stagnation.

Own what one can afford to pay for, and wait to obtain what one wants so that no contract lies against you creating a superior over you. ( if this theory had been practiced – where would we be – and where would the banksters be ?) This is not the 1930’s and the masses do not have “skills” for living, growing, building, and fixing of things that existed 80 years ago. Today is not the 1930’s person, and unemployment welfare didn’t exist in that time.

Can you build a fire without matches ?

I believe this debt debacle did not start until F.D.R. stared the CCC’s and that simple welfare based upon credit to enslave into F.D.R.’s intellectual dream for the mind of Man. We are still paying with Liberty, and we are still loosing to debt.

Want to know where one can survive and how – study the Native Americans, and what they did. I am thinking that what I am writing is protectionism in its grass root form. Banksters do not like protectionism. As I remember in Colorado it is against the Law to hoard over 3 months of food and supplies. I believe Clinton may have made that National by executive Order.

Benjamin April 8, 2011, 8:22 pm

My thanks to Rick and all, as well. What a week this has been!

But I came here again to inform/remind that tonight we’ll know if there will be a federal government shutdown. I don’t think they’ll manage to keep it going any longer. I think tonight is the night.

See yall Monday.

Cam Fitzgerald April 8, 2011, 9:46 pm

Indeed Benjamin! This has been an amazing week and I credit this site and its many posters for touching off a credible debate about the future that we were not discussing just days ago. That is progress. I think I have seen brilliance here too over the last few days and plenty of open minds with lots of good ideas on offer.

Marc April 8, 2011, 8:07 pm

To Robert and Steve:

I’m in full agreement with all of the things you mentioned. We will certainly make sure our next property has no livestock restrictions (I’d prefer chickens and sheep to rabbits), and a very reliable source of water (that is particularly important in the arid areas we’ve considered). Timber, as well, since we will use a wood-burning boiler and stove as backup to solar hot water and a natural gas or propane stove.

As for protecting it, I’m a firm believer in the Second Amendment. I’m the only person in at least four generations of my family to own firearms, and I wouldn’t have it any other way. I even got my concealed carry license a couple of years ago.

Rich April 8, 2011, 8:27 pm

Goats are nice too for milk and meat…

Brad Bolz April 9, 2011, 9:42 pm

Great, you own guns….now get some “real” training. Two places I trust my life with…. http://frankgarciausa.com/usa.html or http://www.GunSite.com

Strong preferences to Frank Garcia and his group as they are both, world class shooters and teachers. That’s a combination infrequently found.

Gunsite is awesome also, their mindset will infect you for the rest of your life.

Rich April 8, 2011, 7:58 pm

With Japanese 200% Debt:GDP 3rd largest economy imploding, global inflation may suddenly turn to deflation with a vengeance.

Both dollar and gold targeting much higher as safe haven plays…

Rich April 8, 2011, 8:12 pm

Oil much higher too, choking off the economy = deflation…

Rich April 8, 2011, 7:29 pm

Am I the only dollar bull left here, as the dollar hits a one year low, still above the March 2008 70.70 lows?

http://stockcharts.com/freecharts/gallery.html?s=%24USD

Since gold still targeting $1710, implication may be the USA may become the last oasis on earth…

http://stockcharts.com/freecharts/gallery.html?s=%24gold

&&&&&&

Jimmy Rogers doesn’t post here, Rich, at least not under that name, so I guess you are the only dollar bull. Steve Jon Kaplan — “The True Contrarian” — is bullish as well, and he may be smarter than Rogers, but I don’t find anything on the technical side myself that is supportive of the dollar. RA

ricecake April 8, 2011, 6:38 pm

Japan helped by the deflation post crash so the majority of the japanese can live a reasonably more affordable live. Ask any Japanese if he/she doesn’t think things aren too expensive in Japan. I had work for a Japanese firm 20 years ago and remember my Japanese boss complained constantly about how expensive Japan was then.

Now Japan deflation is ending. I believe most Japanese won’t like it.

btw my Japanese friends say that in Japan rich-poor gap is much smaller than the American or the Chinese ones. And their Happy Index is much higher.

Robert April 8, 2011, 6:20 pm

“It’s how we get there — how quickly we get there, I’m convinced — that will make all the difference.”

– Me too, and the most rational response to this viewpoint is elegant in its simplicity:

If you are prepared for an overnight collapse,then you are simultaneously prepared for a long, drawn out collapse… for the required preparation steps are the same, it is only the individual ratio allocations to particular items (canned foods, ammo, fuel, etc) that matter.

If you are NOT prepared for an overnight collapse, then you had better be rubbing the belly of your little Bernanke-Buddha doll and praying at the alter of Geithner, because you have put your life in their hands….

Marc April 8, 2011, 5:05 pm

Having struggled with this topic for almost a decade now, my personal expectation is that there will be a period of serious deflation (trumping what occurred in 2008 – 2009) before the psychology of both the powers that be and the public at large gets pushed to the point that we could have a complete currency collapse or, alternatively, a hyperinflation leading to a collapse. That being said, there are just too many smart people that I greatly respect in each of those camps (deflation, hyperinflation, overnight collapse) for me to assume that my particular expectation will come to pass. As a result, about five years ago I decided it was time to start hedging my bets for any one of those outcomes, rather than positioning myself exclusively for deflation.

Whereas I had been putting all of my savings into physical cash and precious metals (about 80:20), I started seriously preparing for a world in which cash might be worthless, or nearly so. So what might that world look like, in a worst case scenario? Empty shelves at the grocery store and the pharmacy; no gasoline; utility interruptions or stoppages. This would lead to government rationing of supplies and major civil unrest, and potentially starvation and disease on a fairly large scale. It really calls for more of a survival strategy than an investment strategy.

With my wife and me being in our thirties with two children under ten, I don’t want to disappear into the woods. I want our kids to have as close to “normal” a life as possible. Also, being Jewish, it is important to us that we have access to a temple, and you don’t usually find them in really small towns. Finally, with us being a one-income household that comes nowhere near six-figures a year, we only have so much purchasing power to dedicate to disaster preparedness. So here’s what we’ve done:

Instead of continuing to buy precious metals, we began buying freeze-dried food in #10 cans. So now, along with all of the bullion we had previously bought as a store of wealth and means of barter, we also have a year’s worth of food for sustenance and barter.

Instead of mowing the grass in my backyard, I tore a large part of it up and have been growing an organic garden for the last two years.

Instead of buying my boys a traditional pet, we built a few hutches in the yard and got them some rabbits to raise and breed (a great source of healthy meat for a suburban neighborhood with deed restrictions that prohibit chickens or other livestock).

Instead of family vacations to the beach or Disneyworld, we’ve taken road trips around Utah, Colorado, and Arizona in search of places where we can have a solar-powered and -heated ranch with good soil and wtaer, low property taxes, and reaonable proximity to normal city amenities (so long as they last). We’re now actively monitoring the locations we like for an ideal off-grid home for sale, and we’ll use a chunk of the cash we’ve saved to buy one (and soon, since it’s all for naught if the currency were to blow up first). If I cannot find a job in that locale, I’ll make my own way.

In the end, we will not have as much cash and bullion to employ at a deflationary bottom, should that occur, but we will have a comfortable, self-sufficient property on which we raise our own food come-what-may. It’s actually a very appealing lifestyle, as far as I’m concerned.

Robert April 8, 2011, 6:25 pm

“In the end, we will not have as much cash and bullion to employ at a deflationary bottom, should that occur, but we will have a comfortable, self-sufficient property on which we raise our own food come-what-may. It’s actually a very appealing lifestyle, as far as I’m concerned.”

It sure worked for millions of folks in the 1930’s who did not happen to find themselves in the coincident death grip of the Midwest dustbowl. And I agree- it does have appeal as a healthy lifestyle (although I don’t really like the taste rabbit- so I would have to grow chickens, and the HOA be damned :) )

Access to flowing water is key.

Steve April 8, 2011, 7:10 pm

I agree Robert, WATER !!!!

Don’t forget to have the guts to protect what you have because others will not be as wise as Marc.

David Franck April 8, 2011, 4:59 pm

Sorry Ben, missed your post somehow. It just seems to me that if you prepare: gold, silver, some cash, guns, garden, place in the mountains, ect, you’ll do the best you can. With the cycles that are coming around, the Feds 100 year contract ending, IMF and BIS pretty much run by the same masters, the Arab world protesting itself into Sharia law so the US can default on their IOU claims, the populous turning a bit conservative, and the main street news controlling most thought, Everything will be changed before we know it and the hypers will have been just a needless worry.

Benjamin April 8, 2011, 5:49 pm

No need to apologize, Dave. I kind of figured that among the 200+ responses that any one post here could easily be missed or forgotten :-)

Anyway, I won’t disagree with you on the rationale for preparations. All well and good, and in all likelihood we’ll probably need to rely on those plans and skills for a stretch. Which is why I’ve come to see preparation not as for survival so much as for defeat…

…so long as said plans lack a firm realization that markets based in Liberty is what we need to acheive, as well as the hows and whys of that course. It is also of the uttmost importance that those with no understanding and/or monetary metal are taught about how all this was supposed to work.

And though I fear we’re past the point of an immediate re-establishment, all I can do is try and see to it that upcoming and future generations have a better chance than we do. To that end, if you haven’t already, pack that understanding and action in your survival kit (but not too deeply so that you might lose it!). Not to come off as overly dramatic, but the future of humankind most probably depends on it!

Rick J April 8, 2011, 4:54 pm

Fortunately, I have access to a family farm, but it is 3 hours and 8 gallons of gas from our house here in the city. So, I would waste no time getting there, First contact the kids to tell them to get ready, load the car with survival equipment/warm clothes/food/seeds/etc. and the car is not big enough.
If the banks were open and I felt I had enough time, Imight take the physical metals out of the safety deposit box. might phone work and leave a message that there is a family emergency, might mail the mortgage payment from the farm if things stabilized, but my guess is that the thin veneer of civility would wear off in hours if not minutes.
If we were reduced to barter, only food, survival equipment and self defense equipment would have any value as barter. There would be mass chaos, since there would be no further deliveries of fuel, food, anything.
People would begin to take whatever they could in order to ensure their survival. There would be no law and order since the people who enforce it would have no reason to stay on the job without some sort of recompense. Further, there would be just too much looting to be able to control it, even if there were gas for the police. Things would disintegrate very quickly into an all-out survival battle which would see tens of millions of deaths within months.

Steve April 8, 2011, 5:58 pm

Law enforcement has be discussing this senario for years – you don’t want to know the conclusions.

kraig April 8, 2011, 4:33 pm
Steve April 8, 2011, 5:56 pm

Delusion on value.

Cam Fitzgerald April 8, 2011, 6:20 pm

I just read that article by Jim Willie. He has many good points of course and even deflationists would have a hard time denying that some of the facts he points to suggest a nasty outcome.

But when did this debate turn in a tirade and a fistfight? It would have been a whole lot easier getting through his material without all the invective and hate levelled at everyone who does not see things his way.

Seriously. I have never felt angry at the inflation camp in my life and indeed plenty of the ideas from both camps merge. It is just the divide in how the outcome will manifest that seems to be getting them so riled up.

From my perspective there are compelling scenarios from both camps that could well play out and another poster here, David Franck has suggested that we cannot really predict how the people themselves might act in the end. That is always the wildcard.

We know one thing. When millions of unprepared people suddenly lose everything then all hell can break loose.

What amazes me more than anything else is how little the average person I come across grasps the severity of either scenario or the dangers that lie ahead. Most don’t seem to even care, often rolling their eyes when you bring up issues of the economy or proving they have no idea what you are talking about by fixating on some irrelevant fact as if it is the cornerstone of our economic calamity to come.

Whatever is about to happen next will sure make life interesting. Hopefully we can keep having civil constructive debates without out all the online shouting and badgering. Plenty are demanding solutions already but if we can’t come up with the right prescriptions then the situation could really get a lot worse than it already is.

Steve April 8, 2011, 7:08 pm

Thank you Cam !!!! I have no anger at either camp either. When one or the other happens – just leave me alone, which ever side is wrong. Debt and the fear of loosing ‘things’ is what drives the anger. Be prepared for either eventuality, spend time with your family instead of working 80 hours a week.

David Franck April 8, 2011, 4:05 pm

I have read with interest the postings and articles being debated here. I have to say that both sides carry water, but in leaky buckets. How can we proclaim with any certainty how the populace will act in a given situation, when by our involvement and concern, we are maybe 1% that understand somethings happening? Outside of immediate family, how many people believe a damn thing you tell them about a coming catastrophe? How many seem to care and try to protect themselves with gold and silver? So if their groceries continue to cost more, and their jobs continue to pay less, who are we to say how they will react?

During the deflation of the depression of the 30s, wages increased thanks to government intervention. Of course with that increase came the unemployment increase. The men that I personally knew that grew up and lived during this time period did not know they were in a depression. It was life as usual for them because they were poor. You couldn’t get poorer. We have no real poor today in the US. We have a bunch of Nanny State economically crippled citizens with cars, cable flat screen TVs, cell phones and string cheese and shrimp. Have you seen these people shop at the 1st of the month? Do you really feel that these people will stand around and accept higher costs without a government paycheck increase? Do you think for a minute that these people that have been conditioned for 3 generations to suck at the governments teat, will not riot in the street at the first empty store shelf or reduction in their aid?

Look at the circus in Wisconsin. The union is throwing fits at the thought of loosing its 100% free ride in dictating to the taxpayer what they will shell out to them. Even though these people work, they are still freeloaders on the taxpayers dime making almost twice the going wage. I grew up in that state for 40 years and had to leave. It takes a full income just to pay your taxes to these people. The chaos that would erupt with either hyper would be unbelievable.

Long before we would ever have hyperinflation or hyper deflation, the US would self destruct. We do not have a citizenship with enough good character to weather either. Sorry, look around you.

There has to be a third option that isn’t being discussed and that is a plan being implemented to transition into a world currency just in the nick of time to save us all from ourselves.

Benjamin April 8, 2011, 4:24 pm

“There has to be a third option that isn’t being discussed and that is a plan being implemented to transition into a world currency just in the nick of time to save us all from ourselves.”

Ahem…

http://www.rickackerman.com/2011/04/heres-why-hyperinflationist-lira-is-wrong/comment-page-1/#comment-20262

And even if one has no gold or silver, demanding their natural right to live and die by a market-determined currrency weight is the best way for them to get some.

Carol April 8, 2011, 5:08 pm

“There has to be a third option that isn’t being discussed and that is a plan being implemented to transition into a world currency just in the nick of time to save us all from ourselves.”

Bingo!! You win

roger erickson April 8, 2011, 3:22 pm

> All the money in my account here at ICBC in China is
> in RMB. But I can easily convert it instantly.

Until you can’t, at a moment’s notice.

Rick’s point about people suddenly refusing to accept $US is theoretically possible, but only as a corollary of a prior step. Distributed barter can occur only with accurate, distributed bookkeeping. Hence, barter efficiency, like currency efficiency, is always dependent upon public security.

That’s why distributed markets, and currency, are monopolies of group coordination (i.e., government), and the dominant form of capital is not any commodity, but public-coordination itself. The best thing to have in your “bank account” is some neighbors who have your back.

My argument is simple.
1) If we lose control of our own gov, we’ll have deflation,

2) UNLESS we let that gov commit us to foreign denominated debts. In case #2, the easiest route is to reject our gov & revert to #1.

3) Question is really about how to recover from either. Without coordinated public security, all roads lead through deflated public output until public security allows public coordination to start growing again.

ps: Why, on this forum, is every mention of the US Constitution auto-rejected by some as Marxism? How did we get to this point? I have the feeling that those who conflate the two wouldn’t have helped fight the revolution in 1776.

Benjamin April 8, 2011, 4:42 pm

Roger, I think there’s some things you’ve missed, concerning your three points…

“If we lose control of our own gov, we’ll have deflation”

Done. The government is us, we are the government. We allowed the bubbles and busts based in credit. And now, we have growing unemployment, less wages, far too little saving, and…Pitiful!

“UNLESS we let that gov commit us to foreign denominated debts. In case #2, the easiest route is to reject our gov & revert to #1.”

We sold our jobs and production to China. Our workforce, to the government, the financial system, or just plain up the shite creek. #2 is already a consquence of having done #1.

“Question is really about how to recover from either. Without coordinated public security, all roads lead through deflated public output until public security allows public coordination to start growing again.”

No argument there. But do you know what recovery entails and why? Do you realize and accept our god-given right and responsibility to live and die only by currency weights determined through people living in Liberty? (listen to me… I’m starting to sound like Steve!)

Bob April 8, 2011, 5:03 pm

Because you speak like greenspan – gibberish. I have read alot of your writting and have no idea what it is that you are trying to say. In your efforts to sound so intelligent you come off as arrogant.

e.g., “are monopolies of group coordination (i.e., government), and the dominant form of capital is not any commodity, but public-coordination itself.”

what are you trying to say here? “monopolies of coordination”? “public coordination itself”? WTF governments have nothing to do with coordination and everyting to do with force, raw force and threat and yes guns too.

mario cavolo April 8, 2011, 2:18 pm

Good Evening All,

One Tough Nut To Crack…no kidding. I’m staring at the most ridiculous short squeeze on the S&P, Dow, oil & copper I have ever seen exactly as Rick said, a slap in the face of all the current bad news.

Meanwhile, I wonder, really I do wonder how meaningful it may be for any of you in America to get your various assets out of USD into other currencies.

It is simple in fact, not complex, not sneaky, to open an HSBC bank account in Hong Kong. Paperwork can be done by mail/fax, DHL, then wire out deposits, and convert the currency into HK dollars, Singapore dollars, even RMB, anything but USD! There are many ways to legally facilitate the currency exchanges. Even in your online account, you can put the money in forex spreads (unleveraged) or any major currency you want. You can open a brokerage acct at http://www.boom.com too and trade many of the country indexes in their currencies. For even say a $50,000 I suggest it is a wise consideration.

All the money in my account here at ICBC in China is in RMB. But I can easily convert it instantly. Any Chinese person inside China is allowed to wire out $50,000 USD worth per year no questions asked. Spending $100,000 to buy a new apt in a 2nd tier city area with new roads and subways going in is a relatively darned good idea. There are many private lenders who facilitate swaps, etc, charge a small fee.

Cheers, Mario

mario cavolo April 8, 2011, 3:35 pm

Hi Roger, I mean its convertible into all the other major currencies…If I had RMB or HK dollars, I could get AU, CA, Sing, etc. But hell, if the USD implodes who can figure out what other currencies will be worth what?

Benjamin April 8, 2011, 4:16 pm

Mario,

Now that you mention it, I wonder just how many Chinese even have $50k USD to wire out in the first place. Not that I would know, but I imagine it’s like telling most Americans that they can only withdraw up to 1,000,000/day from the ATM. We can’t? Hey, fine. Not like the majority of Americans have that much money banked anyway!

But seriously, I have to question the wisdom of doing as you helpfuly suggest. What of the exchange rate? If I put my USD into RMB, and the exchange rate goes up, as would happen in a deflation, I’d wire in less than I put in. But because we don’t really have textbook deflation, I’d be transfering back into a place still ravaged by price inflation. On the other hand, a falling USD is like selling gold. Once you get back into FRN “dollars”, you’ll be getting out of less of them later (less gold for the same amount of $).

The more I think about this, the more I see it as a matter of powers, not of positioning. If one doesn’t have the powers that the TPTB have over them, they’re a sitting duck regardless of what they do. Sad but true.

mario cavolo April 8, 2011, 5:09 pm

Hi Benjamin!

I agree with you. It seems that as diversifying one’s portfolios is a way of managin risk, diversifying into currencies/assets in other currencies might also be a good play. But I agree with you completely, how can we know how it will turn out? It might end up protecting us or not. While I would say that we all assume the USD is going to devalue, not the RMB or HKD or AUD, in an extreme situation where currencies and inflation rates are out of control, its real hard to figure out who will land on their feet.

Benjamin April 8, 2011, 5:55 pm

Hi, Mario. Glad we can see eye to eye for a change! Well, mostly… I hate to cut this short, but I have to get of here early today before I wind up staying for hours :-)

See my post to David Franck, below, for how we will all need to deal with this sometime this side of the millennia (but preferably this decade). I can think of no better position than that.

Kevin April 8, 2011, 2:10 pm

OK RICK, YOU ARE RIGHT!

The top 1% in the US would not want ruinous hyperinflation. 1000% AGREE.

Unfortunatly you miss what hyperinflation is a loss of confidence in the currency, in the world’s reserve currency, in other words it will be global not local. And not from governments but from people, smart money, and business diversifying out or abandonning the dollar sending them back home. That will be the influx of currency which drives hyperinflation in the States in conjunction with a devalueing of the dollar and the symptom of rising prices.

THAT’S THE SCENARIO!

To answer the proactive question of what to do, I have already done. Precious metals are a store of wealth. I have accumulated enough to cover 5 years of expenses with gold. Then I accumulated silver to cover 5 years of daily expenses such as food and gas. I am counting on the undervaluation of silver to rectify itself in this period so an investment as well coupled with a small porfolio of growth gold and silver juniors for profiting off the debacle the central bankers have born on us. I intend to be one of the survirors of this turmoil first for the inflation-hyperflation period then the deflationary colapse. I just hope I sell at the right time but so far simple has netted me + 700 percent on investment. I see NOTHING to change my optimistic veiw of further gains at least for the next 2 years, possibly 3, at a minimum. I just sit now.

Jim Willie’s latest commentary debunks all your arguements and then some. I believe he makes reference to you as well, but with tact, not by name. It can be found at Jackass.com.

&&&&&&

Suppose foreigners, when they lose all faith in our currency, simply stop taking dollars? Doesn’t that seem more logical than their attempting to figure out, on a given day, whether they should sell an Audi to us for $100,000, or $1 million or $10 million of those dollars that they have no faith in? Concerning Jim Willie and everyone else, including deflationists, no argument is airtight, and it is only the really stupid arguments that can be “debunked.” RA

Benjamin April 8, 2011, 2:40 pm

One of the key, new conclusions I’ve had in the course of this topic is that hyperinflation and loss of faith in currency are not the same things.

Loss of faith: Refused. And that being the case, how can it ever be that we’d have trillion dollar houses and million dollar loaves of bread?

Hyperinflation: An excessive issue of money to match excessive demand that results in the loss of advantage to the issuer/creditor.

There is some room for overlap, though. Maybe I don’t have enough faith to sell you something at $900 billion. But at 180 trillion, well, we have a deal!

Still, that doesn’t mean loss of faith. At some point, faith is there. But what still remains is that the bankers lose the utility of currency. When every Tom, Dick, and Harry has enough confetti to pay off their debts, how am I, the debt-slave master, to make any use of them?

I’d have to indebt them all again somehow. So I wouldn’t accept the currency, no matter how much I’m offered. I have to lose faith, first and only, not them. And next time they need to finance something (as inevitably they will), I’ll be sure to have them all snug in a set of shackles when they do… just not in the old currency.

Steve April 8, 2011, 5:45 pm

Kevin, the loss of a standard of living is not hyper-inflation death. Glad you have all that personal stuff in your hands. Go ahead and advertise it some more – put a sign in your yard that you are holding PM. Delusion that an Eagle has changed value is just delusion. Silver has not changed “value” either, and anything to the contrary is delusion. There are radical spikes in valueless fiat currency created by speculation, but; nothing more.

What is happening is that the wage earners are not keeping up, but; in deed are stagnet because they are all tapped out with debt. Someone is going to absolutely need to allow wage earners to “gain” wages otherwise there is only the loss of value in “things” that are not necessary like food. Violence will turn up as people fight for food.

When it comes down to it Kevin, people will not want your silver for anything they have, and/or can make. Hope you know how to do something of value besides collect something that is not a necessity.

craig kick April 8, 2011, 1:50 pm

One more question…..if money from thin air is the “principal”…..how does this have value? Now I’ll answer that question: “It only has value to the extent the borrower has the ABILITY TO PAY IT BACK”. The Dollars value measures this ABILITY. There is no tangible value to deflate against. There is no gold. What the FED is saying by buying 70+% of the bonds……is that ability as a nation to pay back Treasuries is GONE. You can give a relative that makes minimum wage $1000 and they can give you an I.O.U…….the I.O.U. technically has value……if they lose their job the I.O.U loses value. However, once they owe you $10,000,000 you can cling to your I.O.U, you can get tough, you can impose “austerity”….LOL…..but you are not getting paid back. You loaned too much….the debt is bad. The quicker you realize this….the quicker you get into gold and silver….the better.

Cam Fitzgerald April 8, 2011, 11:46 am

I am having a hard time trying to locate the new comments lately because the comment list is just so long and they do not run in sequence. Not complaining Rick but I cannot find the most recent comments without a lot of effort anymore. If there is an easy way to locate them then maybe someone can help me out a little with some advice about it.

&&&&&&

I’m going to start some new threads this week. This one really IS getting too long. RA

Benjamin April 8, 2011, 12:09 pm

Cam,

Do a ctrl-f page search, and use the date. That’ll highlight the posts with that date.

Cam Fitzgerald April 8, 2011, 12:52 pm

Thank you Benjamin. I am a Neanderthal with computers. All I really do is type and then hit the “submit” button. I do appreciate the extra help.

tac April 8, 2011, 10:03 am

Have other countries already experienced runaway inflation? Are food and fuel costs already exerting
levels of pressure on households in other parts of the world? Does the U.S. import food and fuel? How about rare earth resources? Hasn’t the dollar already lost a great deal of it’s purchasing power? You may earn $100,000 or more a year but I assure you that the many who do not know painful degrees of inflation already, with the promise of much more to come.

Harry April 8, 2011, 9:31 am

A collapse of the dollar in no-one’s interest and for a long time the government’s PR machine has been working hard on this – but it’s more and more difficult, as they rush from one place to another to try to prop up their tangled web of deceit. 50% of T-Bonds are being bought by penniless Brits and beachcombing West Indians? Give me a break. And there’s a nasty odour from other manipulated official statistics, CPI, unemployment, the majority can see they’re nonsense.

The mechanism for hyperinflation will be exactly the same as it was for all the other tinpot dictators who believed they were special and it couldn’t happen to them.

Inflation is not transmitted through wages – the peasants start poor and stay poor. It’s the dictator and his cronies spending the confetti on war adventures, or simply exchanging it for hard currencies in their Swiss bank accounts. And it’s the money-changers and financial managers who mark down the currency. Listen to Bill Gross, he won’t touch US bonds any more.

As for the lame argument that this is the reserve currency and there’s nothing to change it into, well that’s what the Emperor Nero thought too, and various English and French Kings, to no avail.

Like China, holders of USD’s are going for hard assets: gold, silver, iron ore, farmland, water and other resources. And yes a dollar collapse is not in China’s interest, nor other bondholders, but at a certain moment there will be a rush to get rid of the old maid before the game ends.

Steve April 8, 2011, 5:27 pm

Lost you on hyper-inflation. I understand the slow loss of purchasing power, but; were are the wages coming from to hyper-inflate ? 10% of the population, or less might play, but; those few will only drive “create” a revolution of envy and class warfare.

Oliver April 8, 2011, 8:03 am

I´m in the Alex Bond camp.
Another discussion is basically, whether this “thing” will have an overnight heart-attack or whether it´s more going to be a prolonged disintegration, restructuring.
I think a heart attack will lead to mad max.
We´re not poor. And I feel threatened. If we get washed out, there will be global mad max. It will be a religious experience.
Refugees, civil wars, famines you name it.
Well, 2008 looked very much like a heart attack event to me.
Lira and Jim Willie et. al. are in my opinion guessing around like anybody else.
Although, in my opinion, Jim Willie is one with a lot of hard numbers (when he´s not napalming Rick) and sometimes crucial central bank inside information.
No central bank on this planet is interested in a run on the dollar.
G7 and G20 is not a world currency, but a shadow meeting of all central banks of relevance.
It´s a political world currency.
For those powers hidden in the limelight there is no interest in a disintegration of the Dollar or the United States.
Banksters and Politicos may be a married gay couple, but the politico is the one pointing the gun.
So, the question would be whether “they” will lose control or not.
They almost already did. The seizure of overnight lending is already “it”. It would just have to continue longer to blow up our entire global credit and delivery system.
The term is not being used, but “inflationary” deflation would be what I expect to happen if it can be managed to be a slow ride. It is what is already happening and everybody is in a bit of a different situation. Germany, for instance, is booming like mad. The Euro is rising. Wow, the ECB even just raised rates. And 30% of the Dax belongs to Black Rock.
Now there is this interesting situation of an emergency where everybody has the same currency, but everybody would need their own interest rates. Germany could use 4-5%…
What makes the discussion difficult beyond repair, and therefore I don´t really see a need of Lira and Willie go Rick-bashing, is that no one knows the political side in ernest, let alone mingled with financial decisions, needs and fears. There are too many moving variables, and decisions now can still influence the outcome of everything.
What we can do is try to know what is what and watch hard with sensible parameters, statistics and also historic phenomena in mind at which point in history we might be at any given moment.
Weimar is the worst example for anything. There is only one book available in English (well there is another in German, but very old and expensive), but there are many modern German historical films about that time, and it was a post war Germany, beaten and hated, and all kinds of other circumstances not comparable to the US-Japan-Euro clusterf***.
An “inflationary” deflation is what transfers wealth from the bottom to the top in the most elegant way.
A stealth run into “hard assets” has long begun. Turns out that commodities are the new “hard”. And Jim Rogers said so in time. And I don´t care how short JPMorgan and friends are on anything – long commodities up to their chin they certainly are.
Because the banksters run for protection to the exact same places like everybody else. Only they get the money first and for free, and we can than buy with a 30% premium, when the money arrives in our hands.

The streetfight here doesn´t make our “stars” look good, I was surprised and disappointed about JimWillies reaction, really. It should have been beyond him.
Rick didn´t give names to people. And yea, he makes some political assumptions that must not turn out to become true.
And as far as I can remember, Rick never called tops for gold or silver, or anything for that matter.
Armstrong has some old inflation essays out, by the way.

One thing, though, is for sure: if the politicians of the United States of America do not one day begin to even start fixing their bloody obviously unsustainable budget gap, foreign countries that used to be friends could really start blinking with the cold shoulder.
I don´t think they will, come June, but if America keeps “outgreeking the Greeks” people will someday be forced to dump their treasuries.

Maybe there should be a march on Washington FOR budget cuts… instead of bickering about DC all the time. The French are on the streets for everything all the time – it´s fun!

Bed Rock April 8, 2011, 5:36 am

The place I looked to see how to be prepared for a dollar collapse was in the journals of the pioneers who setteled the frontiers in N. Am. two to three hundred years ago. When moving to an unexplored reigon inside the frontier and being months of hard travel away from any civilization where the necessities of life could be purchased, is basically where we all will be when commerce stops because of a dollar collapse.
Bartering works good, but money was not very valuable even gold. The people needed a place to live that offered protection from the weather, water and food. Everything else was and is a luxury. The people who had the talents of building shelters and producing food prospered and those that came with family money either died or went home broke.
So what i took from this is be prepared to use your hands. Surround yourself with good, honest people who have talents in the many life saving areas needed to survive any circumstances that may be thrown at us. Raising chickens, making bread, treating sickness, making a garden, a carpenter, etc. You will know what you need for your area.
I am a rancher and produce enough beef to feed apx. 6,000 people. But with having to do that without cheap fuel, fertilizer, and life saving drugs for the cattle, I will produce much less. But protein is one of the necessities needed to survive and something the pioneers treasured.
If you suceed and prosper as our great country makes its comeback, you will have moved up the ladder of social and economic ranking. Survival of the fittest and we will be rid of all those who live off of government aid.
So don’t be caught with just a lot of gold and silver when the collapse comes. Sell some and buy the tools you will need to survive so you can use the metals latter when civilization returns.

Robert April 8, 2011, 6:05 pm

That is a great point-

Money (as a store of value) is, at its core, a LUXURY item, not required for survival.

But, I’m not ready to jump the chasm into the camp that suggests that the quest for luxury is somehow evil.

I know a lot of cowboys who still have leather seats in their trucks :)

jeff kahn April 8, 2011, 3:44 am

By THEY I mean the FED. The FED is currently the largest debtor the world has ever seen. And it’s the Fed that controls the issuance and flow of money.

Carol April 8, 2011, 4:30 pm

Jeff,
you have it backwards, the fed (I assume you mean the federal reserve?) is the creditor; it is the US guvmnt that is the debtor.

jeff kahn April 8, 2011, 3:39 am

Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen? The obvious answer is that they wouldn’t. And won’t.

But they’d also be wiped out be deflation. So why would they allow that as they are massive debtors/ They will try for controlled inflation.

How that ends is still very difficult to determine.

Steve April 8, 2011, 6:24 am

No one will be wiped out unless they are in debt !!!! Inflation, deflation – it does not matter if one is out of debt, and does not HAVE TO sell, buy, something right now.

Steve April 8, 2011, 2:06 am

Maybe my view is warped. My dad came out of the depression after his dad died during the depression. (dad the oldest, and the bread winner at 18). My dad borrowed 100 in silver to buy some land in 1946, paid it back rather quickly, and never borrowed again.

I have no voluntary debt in any form. Inflate, deflate, and I’ll still butcher a steer, and grow a garden, and use Trust Law to avoid the Tar Baby of the federal union of states until the Law does not matter in any form, and my thoughts about the several States fade into old age.

I do not like the 450k in forced loans compelled upon me by the federal union of states. But, I can still come out at net zero, owning nothing, and with nothing owning me. I can still be technically Free, and without anything after I used something “Real” to extinguish the alleged 450k. Then I am IN DEED FREE if the government, or bank is greedy enough to allow me to extinguish the debt alleged. I don’t need the valueless frn to go here, or to go there. I can TRADE !!!! in something real, and of real “value”.

Liberty !!!! is what matters, and whether or not the debtors can handle a Man, who is Free, walking around.

And just for kicks. I have created some things, many things that have the possibility of providing joy 1000 years from now, or 10,000 years from now. Or, in an emergency, my creations can be turned into missles of defense.

Maybe my mind is warped by really believing in creating something that may give joy, and; that that creation may last 10,000 years, and by not caring about deflation, or inflation except as a topic of frantastic discussion these past couple of days. I might be able to walk away in Liberty, with nothing owning me when the time comes. Who knows, inflation, deflation, hyper-inflation = great conversation everyone.

Thanks especially to Rick, his writting skill, and the great people he has attracted. Thanks for the opportunity to discover, learn, and hash things about with all of your great minds. I AM GRATEFUL

Robert April 8, 2011, 12:39 am

My head will probably explode long before this discussion is over….

Rick Ackerman:

If the global financial system imploded tonight while Ben Bernanke was sleeping (thereby disallowing his helicopter prophecy from ever seeing the light) then would the sun not still rise tomorrow?

and, in such a scenario, would people really feel the oppression of their “debt load”?

I mean, would the bankers really have the resources to issue the kinds of margin calls against credit card holders and mortgagees that define the nature of “debt based deflationary oppression”?

After all, deflation is really about sentiment toward debt. If the global financial system imploded overnight, then the scenario would be able to be accurately characterized as a deflation OR inflation… because all the common numerators of exchange (or price) would be rendered worthless.

So really, in a worse case, overnight financial collapse scenario where the most likely outcome is a prolonged period of barter based trade… would history really regard that episode as a deflation?

Was the Middle Ages deflationary? is that why alchemy was so popular? Were the alchemists looking for a way to “manufacture” more money into existence so as to erode the source of monetary power via debasement? If so, then how did the Renaissance happen? After all, the alchemists failed in their quest…

It doesn’t matter how (or why) a sentiment based economic collapse occurs… it only matters that people are provided with the information they need to make the best choice on whether or not preparation makes personal sense to them…. this discussion has made considerable headway toward that end.

Rick Ackerman April 8, 2011, 1:41 am

Much enlightened by this discussion, my thoughts are moving in the same direction as yours, Robert. A key idea is that the collapse of the dollar does not necessarily imply hyperinflation. Seemingly more likely is that if the dollar were to become worthless overnight, as seems possible, deflation would result, not hyperinflation.

Benjamin April 8, 2011, 9:15 am

“Was the Middle Ages deflationary? is that why alchemy was so popular? Were the alchemists looking for a way to “manufacture” more money into existence so as to erode the source of monetary power via debasement? If so, then how did the Renaissance happen? After all, the alchemists failed in their quest…”

Not so fast, Robert… No one is enough an immortal god to take that view without me saying something about it :-)

The Middle Ages roughly spanned 10 centuries, from about 500 to 1500. This historians do not much dispute; what they do dispute is whether or not the Dark Ages were in fact dark (typical academics. Of course it was awful!). Maybe our regression into utter misery will be shorter-lived, but I would bet that the sun wouldn’t rise again in our lifetimes (and we’re both young, still).

I would bet that if (not a big if, either) we really do regress back into barter as it is commonly misunderstood and malpracticed. One need only look at the places where simple swaping takes place. They’re far from being prosperous, with generally filthy living conditions, more sickness, and with much lower life-expectancy. It’s only a good thing to a Malthusian who hallucinates silver linings in regression.

Not that the prison built of malicious financing is any different. Crushing depression, crushing ignorance… we all lose. And just how am I so certain of that?

Since things have gotten so extensively, abusively bad as they have, a brighter aftermath would imply that all along the overwhelming majority were intelligent and honest enough to have avoided things getting this bad in the first place; they all for some reason just decided to play along, bidding their time for no good reason at all.

The only alternative is that things as they are and were _are_ the bright side… Which is no more possible than the sun quickly rising from the towering mountain ranges of ashes. If today is the bright side, the power to coin money and have direct and absolute power over currency and credit creation would be in all our hands. If tommorow is going to be brighter, then we wouldn’t be so in the dark today.

I would _love_ to hear any argument against that firm logic…

Robert April 8, 2011, 5:54 pm

Benjamin-

I see no flaws in your argument, but I do see the two open questions regarding timing and duration:

Firstly- I believe that the Internet and the speed of information will NOT allow any impending doom to last more than one year, max- just a personal opinion; and to any of Roger’s “hermits” out there- No I do not think that any impending monetary collapse will shut down the global power and information grid. I say that only because I know people like myself can restore connectivity, even in the complete absence of ICANN, or global DNS.

I have personally built localized wireless SCADA networks that can run 100% off of solar power, and successfully connected them to a Satellite based ISP.

This may sound kind of Terminator-ish, but the Internet can heal and rebuild itself.

Next- if such a collapse did put us back into barter mode on a global scale- just remember that the playing field would be level, and I personally think that for many Americans (80%+ in my viewpoint) all they are looking for is a FAIR playing field, and not a playing field where the deeply connected who pass through the revolving door between Washington and New York get to make the decisions that impact everyone.

Ask the people you know if they would rather be poor in a fair world, or would they rather be a rich and privileged member of the Wall Street/Washington cocaine and hooker crowd….

The answers you get to this question should inspire your faith in humanity.

Benjamin April 8, 2011, 6:13 pm

I almost forgot I responded to ya, Robert. Darn. As I said with Mario, I’m trying to get out of here some time today :-)

But I’ll take some more time yet…

I do hope it is only a year, or even ten. But I’m not going to psychologically rely on that. You can build all the solar-powered internets you want so long as you can but… Supposing you’re wrong about the expediency of meaningful change? Then what?

“Ask the people you know if they would rather be poor in a fair world, or would they rather be a rich and privileged member of the Wall Street/Washington cocaine and hooker crowd…. ”

I think that’s called the either/or fallacy. Or maybe more like the “election fallacy”? With only two choices, people naturally will in their igorance/mental laziness choose what they perceive as the better choice… and never see a third option, let alone choose it.

“The answers you get to this question should inspire your faith in humanity.”

Mmmm… No, it doesn’t. It only firms my resolve to bring them to understanding. If after that has been learned and they’d still rather be poor and oppressed self-suckered suckers… So be it. However, one should be aware that collapsing the system without stepping into the genuine brave new world is to commit crimes against liberty and humanity.

If that seems an extreme, insane view, ponder this some more, and you’ll come to see why.

ebear April 8, 2011, 12:17 am

Hello everyone! I don’t usually have much to say in these forums – most of my time is spent paddling my canoe upstream where ahead lies a massive dam leaking ever increasing amounts of water, forcing me to paddle harder and harder just to stay in one place. I guess you’d call that inflation. Food, fuel. No leverage on the wage front. All the toys long ago bought then set aside, so no advantage there. Familiar ground to most, so no point belaboring it.

To me, what stands out most in this debate is how (more often than not) it seems to focus on the US side of things. Understandable, since most posters on these forums are American. Still, there’s a big world out there and it’s growing larger, if not in absolute terms then at least relative to the US. Is that good or bad? Don’t know. I just notice it’s happening.

I also notice that in the deflation vs inflation vs hyperinflation debate the equation doesn’t seem to balance – at least not to my mathematical mind. Where’s the hyperdeflation term? My spellchecker won’t even accept it. Is there such a thing? What would it look like?

I have on my desk a paperweight filled with old Mexican coins – the pocket change accumulated on various trips taken over past decades – all worthless now, except for the metal content. The product of debt default, as I understand it, followed by a reset consisting of zeros added, which wiped out anyone not holding external currency. I’m pretty sure this has happened elsewhere – no need to mention Zimbabwe, even though I just did.

So, why not here? The thesis seems to be that as a reserve currency, the US is immune to this sort of thing. True, insofar as that remains the case, but I do notice change at the margin – China & Russia trading in their own currencies, China doing swaps with African nations, oil being sold in Euros and so forth. I also notice commodities as priced in dollars seem to be getting dearer with each passing week. Look at corn for instance. We may burn it for fuel, but much of the world (including Mexico) actually eats the stuff.

Which brings me to my main point. Someone here suggested that housing was the last great bubble. I’m not so sure about that. Someone else mentioned that the banks aren’t lending – no one left to borrow I believe was the reason given. Well, we still have hedge funds right? So, with stocks and bonds near historic highs and real estate in the dumpster, what does a hedge fund do these days but buy commodities? And what do the remaining pockets of trend following wealth do in response? Isn’t this the “next” bubble? And isn’t it different this time in the sense that (unlike stocks, bonds and housing) it immediately feeds through to higher producer prices, thus shrinking margins, rising consumer prices, lower (or no) wages, or some combination thereof? Looks that way to me.

Is that inflation? Friedman might disagree, but he didn’t live in the same world as me, so I tend to discount his view. One ag trader I follow pointed out something germaine: No amount of money printing can grow a single acre of corn if nature won’t cooperate. The same holds for oil and other stuff we need, dare I say compete for? Law of diminishing returns. This does seem to be the point we’re at, no? The coyote moment? Looks to me like that moment has already passed in some places. Not only has the coyote hit the first ledge, but that ledge has broken off and the canyon floor looms ahead.

This doesn’t seem like an atmosphere conducive to hyperinflation so much as pulling up the drawbridge and defending what you have left. I guess trade still goes on – thank God or nature for locating most of the world’s oil under a desert full of hungry mouths to feed. Food expensive. Oil expensive. To some degree they cancel out. Nonetheless, it makes for interesting politics. He who starves last.

With this as the backdrop, the debate over this ‘flation vs that ‘flation seems a bit sterile to me. Either outcome makes it hard to put food on the table and places me in the position of having to compete with those who have even less than I do. Very uncomfortable place to be. Very. But with so many people working on the problem (thank you internet) surely we can find a solution?

Thank you for your time. No, really. At this stage of my life I’ve come to realize just how valuable that is.

ebear

Rick Ackerman April 8, 2011, 1:30 am

Thanks for your thoughts, ebear. Interesting how inflationists and deflationists are in complete agreement about how things will turn out. It’s how we get there — how quickly we get there, I’m convinced — that will make all the difference.

Tom April 7, 2011, 11:41 pm

Lurker

That is a good point. We may get significant inflation (in every day goods) but NO hyperinflation/deflation before the US$ dies.

Lurker April 7, 2011, 11:15 pm

Ok HI or Deflation?

How about just death of the $.

What would $200-$300 dollars a barrel oil do to the economy? What would $3000 gold signal to you? Well its coming and I don’t think it is hyperinflation or deflation it is just currency collapse. As this happens the people will be starving and out of work (or wont be able to afford the gas to go to their minimal pay jobs). They will be rioting in the streets begging for “something to be done”. And guess what? Something will be done the dollar will be replaced with the new world currency.

Ok, ok.

Steve April 7, 2011, 11:54 pm

How about defining the Dollar as specie Coin, and federal reserve notes as fiat fraud having no value. Spend some time on the telephone with the Fed and ask some smart questions based on what the definition of an American Dollar is.

Rick Ackerman April 8, 2011, 1:19 am

A persuasive possibility, Lurker — the moreso when you frame the argument, as you have, in the context of how much oil a dollar will buy a day after the collapse. The answer, arguably, is that all the dollars in the world will not buy even a single barrel of oil. Under the circumstances, the dollar will not have enjoyed the opportunity to hyperinflate. We go straight to deflation: no jobs, falling prices, exorbitant real interest rates, barren shelves.

Is a currency collapse tantamount to hyperinflation? The (hyper)inflationists obviously think so. But your argument suggests there’s room to differ.

Benjamin April 8, 2011, 2:50 am

“Under the circumstances, the dollar will not have enjoyed the opportunity to hyperinflate. We go straight to deflation: no jobs, falling prices, exorbitant real interest rates, barren shelves.”

Indeed. The currency dies and a new one takes it’s place. Fresh, brand new, and not yet devalued.

How’s A$20 (Amero 20) a month salary sound to you? Wait… that might be too much. Better make it A$2!

And I doubt such a new currency would be the world reserve. Credit would be so limited that it would probably be as mythical as Atalntis. That’s not what the world wants. It wants a currency it can hang all it’s dirty laundry on. Reserve status would be lost, and probably permanently (as far as anyone alive this century would be concerned).

Tom April 7, 2011, 10:16 pm

My previous post got the following 2 comments:

Steve April 7, 2011 at 3:55 pm
Tom, No one can get to hyper-inflation without increased wages, or the spending of savings. The U.S. has no wage pressure, there are no savings, and no one is going to loan to the masses because they are broke. Outside money cannot come rushing into the hands of the masses, because THEY ARE BROKE and so far in debt they cannot see. Just because one ignores the 450k of forced loans by the legislature does not mean they are not there. Start seening wages increase every day, and I’ll go with you, otherwise – poor premise.

Rick Ackerman April 7, 2011 at 5:36 pm
I’ll let readers attempt to parse your logic rather than waste my time responding to this gobbledygook.

LET ME REPEAT IT AGAIN:
The price of every day goods are rising. The Walmart CEO said there will be SIGNIFICANT inflation this year.
My theory is Walmart has significant inflation in 2013,2015, 2016, 2017,2018 eg it will become an annual event.
What happens when Walmart says: We prefer Canadian $ or Euro $ or Chinese Yuan because US $ keeps losing value???
STEVE – Prices can rise in America despite low wages or savings. Say a business has a cost increase of 10%. Because the business knows it will lose some customers, it is forced to raise its price 20%. Less people buying but higher prices – I think thats called stagflation?
I agree DISCRETIONARY items will drop in value because noone has spare money to buy them.

RICK: You dismissed my arguments without a stupid insult because it seems you are wrong. You need to explain why Walmart is predicting significant inflation. When Walmart and other businesses have to raise their prices siginficantly every year (or more frequently), what happens to faith in the US Dollar???? Eventually sellers will prefer other currencies and then the US$ dies very quickly.

Steve April 7, 2011, 11:52 pm

I’ll keep at it. We are talking about hyper-inflation versus deflation. Inflation is defined as more wages chasing less product. Stagflation, what the heck is that, huh ? Work on the issue of hyper-inflation which is where the discussion is.

Benjamin April 8, 2011, 2:37 am

There’s really one point to address concerning the dollar…

“Eventually sellers will prefer other currencies and then the US$ dies very quickly.”

As I and one or two others have pointed out already, for China (say) to drop the USD is to compromise or lose their competitive edge. Too, and because of that reality…

One has to understand the coordination between the rich eltie of the global “economy”. There are RULES, ie, which forbid what you’re talking about. For example…

You speak of accquiring and spending Euros as if you can, to your hearts content, take them out of Europe and spend them here in the U.S. No, you can’t. Try using those at Walmart and they’ll tell you to exchange them first. If any currency were just allowed to go anywhere, any time, in any amount, the whole system would’ve collapsed long ago.

As I pointed out earlier to another reader, I cannot log on to my old forex account and trade all paris in the world, the reason being that I could create money out of thin air if I were allowed to do so. Therefore, only so many pairs are legally allowed.

Again, rules. There are limits on both what and how much you can trade and; limits on which and how much cash you can take out of your resident country and into another. This is as true of the market market as it is for the black/grey markets. Just the same, you can only take out so much money from your local bank.

Rules. Forget about the currencies and instead focus on the rules. Can those change radically overnight?

No. Hyperinflation _must_ be a domestic/political occurance. Speaking of which, name me one HI where that wasn’t the case, bearing in mind that Weimar happened at a time when the British pound was the dominant currency. And look what happened to the GBP; did people rush out of those and throw England into hyperinflation? I don’t recall that ever having happened. Quite the opposite. The GBP is the strongest currency in the world today!

mario cavolo April 8, 2011, 4:56 pm

Hi Tom,

As you said “Less people buying but at higher prices.”

That is exactly what U.S. restaurants including my families has experienced over the past 20 years.

We are doing the same revenue volume as we were doing 10 years ago, but we are selling half the number of pizzas we used to sell per day. Pizza prices rose as the cost of business continued to rise.

20 years ago, we would sell 800 pizzas on a packed Friday night at $5 a piece, and needed a crew of 16 employees at $4/ minimum wage to do it.

Now we sell 400 pizzas at $10 a piece with a crew of 8 at $8/ minimum wage to do it.

Bingo….

Cheers, Mario

Robert April 8, 2011, 5:31 pm

“20 years ago, we would sell 800 pizzas on a packed Friday night at $5 a piece, and needed a crew of 16 employees at $4/ minimum wage to do it.

Now we sell 400 pizzas at $10 a piece with a crew of 8 at $8/ minimum wage to do it. ”

-But Mario- you fail to express which side of the sentiment thesis this falls under- it it INFLATIONARY due to the prices of wheat, cheese, and tomatos (and therefore pizzas) rising, or is it DEFLATIONARY due to the flat revenues and declining employment?

??????????

Steve April 8, 2011, 6:56 pm

Ben, only two forms of legal tender here, frn & Specie. What you suggest appears to be barter, where joe will take 25,000 Iraqi Dinar, or a chicken for a pizza.

That is an escape from Nash’s Non Co-operative game theory – the bank’s and government’s success in control of the game – THEY are not going to like it.

Carol April 7, 2011, 6:42 pm

Steve,

Unlike most here I totally understand what you are saying. And to an extent I agree. However there is one area that I totally disagree.

steve -> “the governmental form is inferior to the People. But, who are you persons of corporate enfranchisement – enfranchisees of 28 U.S.C. 3002(15) created by a legislative Master, see; Master/servant Law ”

Please explain (yes this is off topic) how on one hand the people can be superior to the government but then on the other hand they are “corporate enfranchisees created legislatively”. I have never seen a legislator anywhere that can create a man or woman. You must clearify in your mind and in the minds of those here you are trying to reach that Congress does not and cannot create people so the enfranchisees you speak of are the “persons” (corporate FICTIONS) with a “first and last name” and “social security numbers” and not people.

Steve April 8, 2011, 1:44 am

Carol, My People took, by the Rights of Conquest, at Concord Bridge A.D. 1775, all of the Rights held by the King in his prerogative, “People of a state are entitled to all rights which formerly belonged to the king by his prerogative” Lansing v. Smith 21 D. 89.

I start there, but; one can come into the story by choice in naturalization, whether to the State, or to the federal government – one used to be able to choose Liberty, or slavery under the security of the congress.

The war of Northern Aggression ended with President Lincoln Pardoning all of the several States. The Great Problem of the 13th Amendment was that the Africans were turned loose on the Land with no Law because they were formerly under Master/ servant Law, and the Constitution is only for whites. The 13th amendment banned slavery by individuals, and by the several States, but; keep the Right to Slave for Congress territorially within the district and territories. Congress would not obey the Presidential Pardon, Article II, sec. 2, and went extra-constitutional to pass The Reconstruction Acts of 1867 which forced the states to ratify the 14th amendment under military threat. The Reconstruction Acts established a voluntary military voter scheme under the Commander in Chief (know why the Colors of the Commander in Chief are flown in your state house, and your courts), (see; Veterans of Foreign Wars). The supreme court holds the 14th amendment as a voluntary political act that may be overturned by the voters puting in good representatives. There is no question of Law under the Separation of Powers Doctrine – the 14th amendment is exclusively political in nature unless it is compelled by force.

Stepping back a bit. I, by Covenant Endowment, unanimous Declaration of united States of America, am Endowed by the Covenant of Abraham with Unalienable Rights ( we hold these truths to be self-evident, that all men are Created equal, that they are endowed by their Creator with Certain (absolute) Unalienable Rights, Declaration, supra). The Creator is Sovereign over me his creation. On this Earth I, Steven George Fair, holder of all Rights Endowed, am the Sovereign over all government in trust of certain delegated powers. I am a Common Man, among other Sovereigns in Common, holding Lordship over none of my peers.

A number of good men came together to form a more perfect union. You will understand Carol that the Constitution is a blind contract endorsed only by the Framers, and only binding upon those Men who take Oath to obtain beneficial use of Public Trust Office in fiduciary oblitgation. The representative of the People looses all Rights while in office, see; The State of Georgia v. Stanton 73 U.S. 50 1867. The voluntary office holder is now an inferior with no rights of any kind, holding immunity Covert Baron (under Steven George Fair’s wing) for performance of duty without misfeasance, or malfeasance.

What goes forth is always Contract Law. I, Steven George Fair, owe nothing to the government because I am far more ancient, and antecedent to the states and federal Government, Hale v. Hinkel (cite ommited). The government owes the beneficiary Citizen, Article IV, sec. 2, Const., the absolute protection of the Unalienable Rights endowed by Covenant. There is not a single power in the Constitution that is not First mine by Endowment, and their’s second in fiduciary trust. The government cannot be Sovereign over an unenfranchised Man. What the government creates by legislation is quite another thing (evil intent herein)

The bankers, Hamilton, knew that if a Man had debt, he owed his “P”erson to the grantor of the privilege of borrowing. The borrower becomes a tenant in Fee, even if the ‘estate’ ‘property’ is inheritable without constraint as a fee. One puts their money in the Bank and it is the Bank’s money to do as they wish by contract law – only the contract governs how the bank must return the deposit (watch this word further down in the discussion)

The Senate’s rebellion in 1867, and the War of Northern Aggression set the stage for congress to gain control of the slave trade exclusively to themselves under Article I, sec. 8, cls. 17, and Article IV, sec. 3, cls. 2. What was required was domicle within the district, internal for taxation, or territorial domicle/residency. Without a whole thesis on the Buck Act and how OR is a territory for u.s. residents to do business under commerce clause, suffice to say the boys figured out how to slave in the territory, within the district, and over the top of the several States (in the air).

There still was no Law, or government document for the slaves who were released under the 13th amendment, and who were enslaved to congress. Congress in 1872 chartered a corporation named the UNITED STATES, that is foreign to the several States. “The United States government is a foreign corporation with respect to a state.”, N.Y. In. re. Merriam, 36 N.E. 505, 141 N.Y. 471, affirmed 16 S.Ct. 1073, 163 U.S. 625, 41 L.Ed. 287.

Congress cannot interfere with Private Contract. There were now two parallel governments on the land of North America. One operated confined by the Orignal Constitution, trust law, and contract obligation to defend the beneficial rights, constitutionally secured of Persons, who were Man/WoMan. The other UNITED STATES was corporate in nature taking the original constitution and adopting it as an inferior corporate charter created by the congress. The great distinction is that the Framers created a Blind Contract creating legislators, and the legislators created a corporate charter inferior to themselves which has now created person(s) who in bailment depositum give their Rights and Endowment to Congress to hold and benefit from. These enfranchisees are reduced to equality as slaves voluntarily by contract. Both entites are United States, but; only one is the united States. As you know Carol, there are at least 3 definitions for the word(s) united states. One word “United States” is one thing, and two words united States is quite another.

The congress, now full of their creative powers, needed to find a way to ‘trick’ the Sovereigns in Common into voluntarily giving away their Covenant Endowed Rights. The 14th amendment created inferior legislative immunity and privilege “LIKE” those Rights noted in Article IV, sec. 2, for Citizen’s Immunity and Privileges that are ancient and antecedent to all states. These 14th amendment grants from the legislature are “civil rights”; A “civil right” is a right given and protected by the law, and a person’s enjoyment thereof is regulated entirely by the law that creates it. Nickell v. Rosenfield (1927) 82 CA 369, 375, 255 P 760. These ‘civil rights’ are Roman Civil Law for a new federal union of states (Sandra Day O’Conner). Roman Civil Law is sinister. These “civil rights” are the security of enfranchisement, and that father government will take care of the enfranchisee.

Under this Roman Law if one takes something, one owes a debt (implied/adhesion contracts). If the benefit is legislatively created by the rebellion of congress (Reconstrution Acts of 1867, 14th voluntary political act) under their corporate theory 28 U.S.C. 3002(15) one is enfranchised to that system. Now understand “use” of the benefit of fiat fraud, federal reserve notes, to hold possession as a debtor of something one does not own via discharge and bailment depositum of the Value of Endowments.

After the Banking Act of 1913, and the fraud already presented the Supreme court said in the early 1930’s under the Erie Railroad Doctrine, that the persumption a Person was the Sovereign in Common could no longer be made because it appeared over 1/2 of the population was using federal reserve notes as corporate enfranchiees of the rebellion. The word ‘person’ is now presumed to mean the same thing whether the person is artificial (corporation), or naturally born and presumed to be enfranchised corporately. Everyone is “equal” under the 14th amendment and the creator/g-d the congress/senate/Commander in Chief. To help this the court said in the Clearfield Trust Doctrine, again very early 1930’s, that “use” of something (let us say federal reserve notes) creates “debt” which equals TRUST. The federal government was now trustee over all the persons (enfranchisees) who deposited their Sovereignty with the federal government in exchange for the benefit ( loss of inheritance for a bowl of stew).

Now grab onto this one really solid. Under the Ashwander v. Tenn Vly. Authority Doctrine from the Supreme Court, “. . . beneficiary cannot raise constitutional question against benefactor while in receipt of benefit.”

The U.S. corporation and the rebellion of the legislators is creating benefits that ya all are taking voluntarily (frn), or involuntarily – interstate commerce – those wonderful fresh veggies in the store coming under authority and legislation of a corporation called U.S. “use” = “trust” = “debt”, Clearfield Trust Doctrine creates a silent notice of bailment depositum.

No one can raise an actual Constitutional Question while in receipt of the benefits of rebellion as a corporate enfrancisee. One can raise a ‘civil right’ question under Title 42, that is kinda like the Rights in the 4th and 5th Articles of Amendment, but; they are ‘contract rights’ of slaves similar to what Free Men have by Covenant Endowment. The s.Court might even reference the Original Contract Constitution to show the civil rights are similar “like” the REAL RIGHTS OF MAN.

Read the Original Constitution at Article IV, and read the “C”apital letters in the middle of the sentences, and then read the 14th amendment and ask yourself why the 14th amendment is needed at all because Steven George Fair’s Covenant Endowed Rights are constitutionally secured therein (Original Constitution). The 14th amendment is ‘subject’ ‘citizen’ ‘immunity’ ‘privilege’ as legislative grants inferior to the “P”erson, and Endowments notice in Article IV, sec. 2, Const. The 14th amendment ‘subject’s endowments are legislatively created by rebellion, see; Amos H. Short v. Francis Ertimanager (cite ommitted) for “On local, person, or political grounds, the great body of the people, without nicely scanning the merits of the legal question, upheld ‘the locations act’, and all subsequent proceedings under it, by sheer force of public opinion, if not otherwise” (cite ommitted), “. . .utterly null and void. . .”, and “. . . in rebellion. . .” (cite ommitted). Sheer force of public opinion sounds like communistic/marxist abuses of Individual Rights by a rebellion slaver legislator who hids behind alleged contract law in bailment depositum.

Congress came back with 10 Stat. 146 to say that person(s) have a right to practice mobocracy if they choose. In other words, Men have a right to contract away their rights. This is called ‘bailment’ ‘depositum’ in the hands of someone who now owns the Rights based upon the contract established ( your corporate government, federal union of states). When bailed by various means (contract) congress is the owner of the Covenant Endowed, constitutionally secured, Endowments of Man/Woman who is in debt to their legislation and creation as a corporate person.

Make a claim under the 14th amendment and one bails their Rights to congress, making congress your MASTER. Make a voluntary “use” of federal reserve notes and one bails their Rights to the corporate state as congress is your MASTER.

Simple isn’t it. There are silver Specie Coin Dollars for the Sovereign to make a “use” of. If there were not, congress would be guilty of High Treason. No corporate U.S. 14th amendment ‘c’itizen, under roman civil law, has the right of owership in anything, they are only debtors in possession, tenants in fee. Hold your master’s Eagle, but; pay taxes in frn on the tally/gain because you are a person, corporate, natural, but; enfranchised and equal to legislatively created corporations, or slaves.

Line up and register to an inferior corporate enfrancisee, in military voter scam under the 14th amendment U.S. citizen under penalty of perjury. That ‘person’ (corporate) is the “subject” of the Commander in Chief as an inferior advisor/slave of the congress’s legislative actions

Please just open your eyes and see the Colors of the Miliary flown in every government office. These Colors are more important in International Law than any spoken word. There is no Constitutional Govenment under Obama (0r Bush for that matter), only the corporate world, and private contract in bailment of rights to become equal as slaves, tenant in fee, feudal, peon, serf, slave.

There are Naturally Born Fee Unenfranchised Man/Woman “Persons” – see that big P.
There is Naturally Born corporate enfranchisees, artificial – persons – see that little p.
There are artifical persons -see that little p.

That last two are equal in all ways, both the naturally born who bailed his/her Covenant Endowment, and the artificial corporation created by governmental powers.

The former two persons hate Person(s), and work by skullduggery to keep the jury abusing the Rights of Man via fear and ignorance of loosing something that the corporate enfranchisee does not own, will never own, and whom holds it only by fraud and breach of Contract, United States Statute I. Study how Nash’s Non Co-operative Game Theory keeps business and persons enfranchised to corporatism,while denying the Legal Tender of Specie Coin for Free Men/WoMan to do Trade with.

(Had to rush to get this in, spelling may be bad, I really need a bunch more time Carol)

Carol April 8, 2011, 8:11 pm

Steve,

I am well aware and understand the legal history that you wrote about. You may remember (see above) I told you I understood what you were writing. However you dissertation brings up many questions/statements for me (yes I know this is off topic).

1) “A number of good men came together to form a more perfect union.”

No a small number of moneied men came together to protect their own self interests and their families’ fortunes.

2) “There were now two parallel governments on the land of North America. One operated confined by the Orignal Constitution, trust law, and contract obligation to defend the beneficial rights, constitutionally secured of Persons, who were Man/WoMan.” .

No there are at least 3. The Articles of Confederation (pre original CONstitution) was very “perfect” except that it didn’t allow the wealth of the people to be stolen and given to the banksters. BTW the Articles of Confederation were never repealed, vacated, or destroyed and are still very much in effect today.

3) how did the 13th, 14th or any amendment or even the CONstitution itself affect me or any man or woman (including a slave) who is/was not subject to their creation – congress? answer the constiution was/is a contract between the states and the federal govement and has no bearing whatsoever on the people unless and until they take an oath to it (or “volunter” to be an officer or employee of US Inc by way of ssn).

4) “the legislators created a corporate charter inferior to themselves which has now created person(s) who in bailment depositum give their Rights and Endowment to Congress to hold and benefit from. These enfranchisees are reduced to equality as slaves voluntarily by contract.”.

Please show me what “voluntary” contract that I signed to become an “enfranchisee”. Please tell my how a “contract” can be legal or binding when there is no disclosure, meeting of minds, or consideration given? (Oh and here I really mean me! I have no drivers licence, I own no car, house, bank or financial account, I never registered to vote, have no governement id, not “employed”, so where is the contract??? and don’t tell me using frns is a valid contract making a sovereign into a slave)

5) I am well aware of the Buck act and its implications. Remember the Buck act set up federal districts laid over (“in the air”) the states so that US Inc could contact THEIR employees so that it could regulate and tax them! You are “federal personnel” under title 5 552(a). When you have, use, or admit to having a SSN you “volunteer” into US Inc and all its lovely “benefits”.

6) “Under this Roman Law if one takes something, one owes a debt (implied/adhesion contracts). ”

What obligates me to THEIR Roman Law if I have NOT contracted into being one of US Incs officers or employees?

7) “Now understand “use” of the benefit of fiat fraud, federal reserve notes, to hold possession as a debtor of something one does not own via discharge and bailment depositum of the Value of Endowments.”

Are you saying that foreigners who travel to this soid to vacation and have frns in their pockets become 14th amendment us citizens subject to the CONstitution and all the rules and regulations of US Inc? So who has “use” of FRNs? Answer federal reserve banks only (can’t think of the statute that states this but anyhow when you “use” FRNS you become a regulateable “federal reserve bank”).

7) “No one can raise an actual Constitutional Question while in receipt of the benefits of rebellion as a corporate enfrancisee.”

Neither can one raise an actual Constitution question because they are “not a party to the CONstitution” ie only the states were parties to that contract/trust (forget the cite).

8) “Simple isn’t it. There are silver Specie Coin Dollars for the Sovereign to make a “use” of. If there were not, congress would be guilty of High Treason.”

Ok so where and what are these silver Specie Coin Dollars that you keep referring to? How does one get them without using frns to aquire them? The people don’t possess any and “employers” certainly are not going to give you any, and your customers are not going to give you any so how would a “sovereign” get his hands on them without the “debtor in possession” through use of the frn?

9) “Men have a right to contract away their rights.” Then what does “unalienable” mean (as in the declaration of independence)?

10) “Please just open your eyes and see the Colors of the Miliary flown in every government office.”

My my I believe my eyes are wide open. The military flags prove we are under military law of conquest -> admiralty/statutory law.

Ok Steve, I truely appreciate your time and expertise and I know this is totally off topic so I will cut it here as I could go on forever debating you.

Tom April 7, 2011, 5:41 pm

Hi Cam, Steve, Rick et al: I don’t claim to be an inflation/deflation expert – I’m treating this as a debate to improve my understanding of the possibilities (after all, if I bet wrong on the outcome, I stand to lose a lot).

As I understand it, US Treasuries are bought and sold for US $, like any other security. Cam, if treasuries are sold by a sovereign for US dollars, they could flood into your wallet assuming you owned something of value that the now USD-holding sovereign wants. Like the company you work for, your farm, the toll road you commute on, etc. They can credit your account for securities you own. The list goes on and on. Anything of value they agree to buy from you, presumably they could as long as they hold US dollars and you’re willing to accept them in a deal. You’re obligated by law to accept USD as legal tender if you buy or sell anything, if you live in the states…

For Rick, I can’t say what epiphany sovereigns could have to get them to sell treasuries individually or en masse, then repatriate those dollars to the US by buying up US assets. I do see the treasury market as central to the possibility of a hyperinflation but I don’t see it as certain. I agree with most here that a hyperinflation is very unlikely to happen from internal forces alone – after all, US citizens are by and large broke, and maxed out on credit. And the helicopter drop doesn’t seem likely. Neither does QE in support of US markets seem hyperinflationary.

But 6 or 8 trillion in treasuries are external to the US. That’s not to say they’re out of control of the Fed though. What happens if the sovereigns decide to dump treasuries? They have to sell them, but there has to be a buyer. If there is no buyer, the value of the
treasuries goes to zero. That doesn’t sound hyper-inflationary to me either.

But will the Fed allow the treasury market to collapse, causing the sovereigns to be bag holders of worthless treasuries, by not stepping in as buyer of last resort in a treasuries selloff? I suppose it’s a possibility but I don’t see it as likely, since the US government depends almost entirely on the sale of treasuries to fund itself.

If the Fed was to allow the treasury market to collapase, it implies the they would allow the US government to go unfunded. I can’t see that happening. Currently the Fed is supporting the Treasury market by purchasing 70 percent of newly issued treasuries. Do they collapse the US government, or do they print money to support the value of the sovereign treasury holdings?

And if they continue to print to support the value of the soverign treasury holdings, why would I as a sovereign nation and US treasury holder, not start dumping them and buying up everything of value in the US?

That does sound hyperinflationary to me, or at least highly inflationary. Is it likely? That gets down to Rick’s question of what are the events leading up to the epiphany causing hyperinflation. I don’t know the answer to that. A calamity at home, like the Japan tsunami? So far apparently not.

As to what might be the effect of a US treasuries calamity on borrowers and lenders – borrowers could get bailed to some degree by soveriegn dumping of treasuries, but it totally depends on how far the Fed is willing print to support the US government via the treasury market. The lenders would get hurt I suppose, since they would be paid back in a swamp of devalued USD.

Steve April 7, 2011, 6:19 pm

Just a question or two:

What do you have that you want to sell to a foreigner ? Will you sell your house to buy another, or move in with your family? Of the funds received for selling your house, will the majority come into your individual hands, or into the hands of the bank?

How many Chinese and others will it take, and how much money infused, to stop the deflationary impact ongoing in the housing market, let alone inflate it 30%?

At 30% inflated housing, are we even, have we lost, or is it possible to gain after climbing back to 00.00?

Will you stand by while the congress sells the National Forests, and the land mass of the U.S. ?

Specie Coin silver “Dollar” are Legal Tender and Constitutional. Can you make a use of them to extinguish your debts, instead of discharging as a debtor in possession? Interesting, yes ! Anything can be manipulated as Legal Tender. Canada Dollars are Legal Tender – they are Dollars – but;…………….. where can one use Signapore Dollars?

The government of the U.S. is not a Sovereign – period; the governmental form is inferior to the People. But, who are you persons of corporate enfranchisement – enfranchisees of 28 U.S.C. 3002(15) created by a legislative Master, see; Master/servant Law – all residents over a several State dominciled within the district, Article I, sec. 8, cls. 17, Article IV, sec. 3, cls. 2. Who is your sovereign as a U.S. citizen ‘subject’? Answer – the congress is the u.s. citizens Legislative Creator, and Master by Law = an inferior highly limited sovereignty only over the corporate enfranchisee.

Do the enfranchisees own, or; are they simple debtors in possession in fee, ie; Fee Simple Absolute Deed, fee, fife, feod, feud, feudal tenant, peon, serf, slave (Blacks Law Dictionary Fourth Revised Edition 1968).

The congress could put more ‘value’ into the hands of the enfranchisees, but; what do these persons have to offer ? The congress has already branded/tatooed the mind of U.S. citizens, and by the ‘brand SSN’ claimed their value Internationally – need more numbers ? Just make mexicans legals who get a SSN = equals more International Credit in exchange.

It is a grand idea to put funds into the hands of the people, but; it will not happen by selling houses to Chinese. If the American sells, and buys another house – the banksters make out.

The u.s. citizen is tapped out on debt. If the u.s. citizen sells, he will not gain. The banks and upper 10% own the empty houses – not the people.

How many individual u.s. residents have savings they are lending? No one counts that has debt superior to their savings.

Never forget that the area around the District of Columbia is doing very well because they have WAGE INCREASES.

Cam Fitzgerald April 7, 2011, 7:24 pm

Not so sure about that one Tom. Even if I had a theoretical equity stake in a local farm, business, toll road or even the bridge my city built it is still a virtual impossibility for funds to transfer to me without an act of Congress to make it happen. It won’t do that. Much more likely is that surplus currency, whether physical of digital, will simply be withdrawn from the markets and destroyed. That is done now and is a tool at the disposal of the Fed during periods of high inflation. We would expect as much from the The Treasury, Fed, Banks and others to ensure the system did not spin out of control. If on the other hand the Government chose to start hiking pension checks and handing out massive increases in welfare payments like it was candy flung off a float in a parade then the end would be in sight. This is one topic where I am 100% behind Ricks assertion that for a hyperinflation to ocurr it can only happen as a deliberate act of Government. Yet that seems very unlikely. The public is in no mood for more profligacy. They demand accountability and responsibility more than at any time in the past decade. It is a rare person these days who does not “get” that we are deeply indebted and few are calling for increased financial shenanigans.

Rick Ackerman April 8, 2011, 1:08 am

You are on Schiff’s turf here, Tom, which I respect. Moreover, you’ve laid out a scenario sufficiently compelling to suggest why the dollar might collapse in an instant. When the Fed shifts into high gear, monetizing 100% into foreign dumping of Treasury debt, the jig really is up for the dollar. And yet, we will awaken the next morning — dollars in our wallets and bank accounts, and try to exchange them for, oh, guns, ammo and batteries. Store shelves would be stripped clean so quickly that it’s hard to believe this hyperinflationary surge could last more than a day or two. It’s not hard to see gold achieving spectacular heights in the days that follow. But my hunch is that gold hoarders better not hoard for too long — better trade their maple leafs for whatever essentials they may have failed to provide before the collapse. So, maybe hyperinflation will come and go in a blink. Your mortgage payment will still be due on the first of the month, and it’ll be interesting to see how quickly Congress responds to pressure from lenders who don’t fancy being paid in snide. I’ll need to think about this some more, since, even though the dollars in my wallet and the checking balance on which I would make my mortgage payment would be unchanged, the dollars themselves, including the digital ones, would already be worthless.

Steve April 7, 2011, 5:35 pm

Roger @ “Let’s not revert, let’s move forward. The US Constitution was written by bright people seeking to unleash the power of “a more perfect union” that at the time consisted of ~2.5 million people in 13 colonies. It’s scaled up fairly successfully to 312 million people in >50 states & territories.”

This thread; the topic is deflation versus hyper-inflation, so if Rick finds it best to delete this response I will fully understand. It is unfair of me to broad brush stroke the frosting of marxism, so; in taking a little more time to rebut the misstatement above I am going against deflation versus hyper-inflation debate.

The scale of “so called success” from 1776 to 2011 is one of the establishment of rugged individualism by the Laws of Conquest, to the total enfranchisement of a People into persons of debt slavery under the control of the few 2011. Marxism in its pure form is a grand governmental form. The perpetual problem is the leaders who impose their will on everything, and become a High Caste of their own forgetting the principles of collectivism. ( High I.Q. verbal genius, no common sense) Pure democracy always falls into despotism. (Oh Yes ! it will be different this time, and this time will be different Roger)

The presumption that the Constitution is anything other than a blind contract drawn up by a few individuals to create a highly limited governmental form to secure Individual Liberty is bad theory. The Constitution is an estoppel, a prohibition on abuses, only governing the individual who voluntarily gives up all secured Rights to serve in beneficial use of trust office by election (senator/representative). The sole purpose of the legislator is to secure Individual Rights by appropriate legislation, and to protect the Nation’s shores and air. (abuse of the Commerce Clause is another thesis) The first two to go against that theory of Rugged Individualism were Washington, the Whiskey Rebellion, and Hamilton, who sought to put the people into debt so that they were controlled and slaved the British way. Washington was in a tight spot, and Hamilton was owned by the Bank of England. Mr. Burr allowed the Providence of God to deal with Mr. Hamilton. Peace came about not by collectivism, but; by rugged individualism secured by constitutional restraint.

Fast forward to the War of Northern Aggression and the Constitution went out the window in treasonous designs by senatorial rebellion. (this is another complete debate). Since 1867 the federal government has ruled under a.k.a. The Reconstruction Acts of 1867 by Africanizing society as equal under the 14th Amendment. There was no law for freed slaves, and there was no way to force whites into slavery. Congress created the 14th amendment under authority of Article I, sec. 8, cls 17, and/or Article IV, sec. 3, cls. 2 ‘exclusive jurisdiction’, and began a means to get the whites to volunteer to be enfranchised under Master/servant law through voluntary registration to a military voter scheme (which we still have). The blacks were already slaves under a new Master territorially the Congress, and new federal union of states (justice Sandra Day O’Conner). That scheme did not work every well so the Banksters began to work at debt enfranchisement. The Banking Act of 1913, yet; still voluntary; – federal reserve notes are good for money – they are not money unless specially agreed to McLeod v. Hoover, June 22, 1925, No 26395, S.Ct. La.; 105 S.Rep. 305. 1934 the legislature went into full blown High Treason allowing F.D. Roosevelt to create an executive “dollar” – The Trial Thomas Earl of Strafford, Dr. Edwin Vieria. By infringement the legislative branch continued to create alternative/ territorial residency. Finally, the legislative branch succeeded in creating a complete alternative fiat fraud/slave state where businesses could not trade unless they only dealt with federal reserve banks, and made use of federal reserve notes. (Nash’s Non Co-operative Game Theory). Specie Coin Dollars are still minted for the People – its just that the People have all enfranchised to become corporate. Slaves cannot own anything – that belonging to the Master (congress), and the tally, the number on the valueless paper, (federal reserve notes) calculates how good a slave, and what benefits there are for working for the Master.

Today the fraud is perpetuated by the sin of making a use of federal reserve notes, which creates a debtor in possession, with a general and paramount lien against the life blood, labor of their hands in exchange for some form of security. The is all done by silent judicial notice, and through Roman Civil Law adheasion, and implied contract with a dash of trust law, Clearfield Trust Doctrine USSC.

The assumption in the U.S. is that all persons are equal. First, the legislator has no constitutionally secured Covenant Endowment while in office, owing all protection to the Sovereign Right of the People, and their, the People’s Immunity and Privilege, the legislator is highly inferior owning his existence to trust law, and fiduciary duty (all fall short today). The hardest thing to swallow is that all persons in 2011 are equal under Master/servant law, the subjects of congress territorially.

Roger, gaining security at the loss of Liberty is the result of not obeying the Constitution, but; rather in circumventing the constitution via territorialism, collectivism, and skullduggery to trick people into enfrancisement. What I hear in reading Roger’s words is that he believes that Man should be forced by abusive power to become a collective of enfranchisees owing to a master class of intellectuals of high I.Q. I call this underlying theory marxism – eventually the elite will kill all who will not volunteer-

That is the progession I see Roger. From Liberty, to execution for believing in Individual Liberty in a mere 230 years. The Constitution has not been in play since the senate went into Rebellion in 1867, actually the War of 1861 in violation of constitutional estoppel. Infringement has taken his long – 230 years plus or minus. Anything that suggests the Constitution is in play, or was anything other than an estoppel against marxist theory is just bogus propaganda. The document in play is a corporate charter created by congress. The created is never greater than that which created it. Congress thinks they are superior, and they are because they created the territorial corporate charter 28 U.S.C. 3002(15) for their slaves and government of commerce.

We are all presumed to be EQUAL in the federal union of states territorial authority of congress, Article I, sec. 8, cls. 17, Article IV, sec. 3, cls. 2. Just in case you wonder – a Black Man from Colorado named Eric taught me this reality in regard to slavery. He said he was a Free Man in his Nation Africa and we are all slaves here. This was a Common Man of uncommon understanding of the Common Rights of Man declared July 4th 1776.

The Constitution, it went into disuse in 1867 for the benefits of a corporate charter with the new King in succession – was Bush, now is Obama. Just read the executive orders and the powers claimed –

The Truth Is What One Finds Not Necessarily What One Wants to Know

Any attempt to say that the U.S. has progressed by going from Freedom and Liberty to slavery is just disingenuine and inauthentic. All I see is someone telling me how I must be and how I must think for the better of the masses. The statement about the Constitution is abusive inauthenticity. The thought that collective slavery is better than Liberty is the thought of control radicalism.

@ Roger “. . .It’s scaled up fairly successfully to 312 million people in >50 states & territories.”

If this is the measure of success – I don’t want any, and never will. The only question remaining is; will Roger continue to practice mobocracy under a corporate charter lie in 28 U.S.C. 3002(15) – a foreign corporation, as a feudal enfranchisee of the new King in succession Obama – or will he stand for the Endowment of Indivudal Liberty ?

Steve April 7, 2011, 5:54 pm

Sorry about the spelling errors, and typo’s – was just going too fast, and without a good proof read.

roger erickson April 7, 2011, 3:59 pm

Rick’s “Hidden Pivot” methods are one form of entrepreneurship

Rick’s “Rick’s Picks” website, disseminating his methods, and allowing this volume of discussion to scale up, is a corollary form of entrepreneurship

entrepreneurial methods keep expanding, and those with value are always complementary to prior methods

roger erickson April 7, 2011, 3:53 pm

> Roger: “The hardest asset of all is return-on-coordination”

> Robert: I agree, because those who would choose to
> “coordinate” others are overwhelmingly NOT
> QUALIFIED to do so.

That’s exactly what happens when group numbers outgrow group methods.

> Robert: I work in Corporate America- I see the number
> of key, strategic decisions made everyday by people
> who do not understand the basic underlying criteria of
> what constitutes the right thing to do given the
> circumstances… so they make blanket judgement calls
> that amount to an intellectual flip of the coin.

That’s exactly what Deming spent his whole career railing about. To no avail – except in a few narrow disciplines, mostly in Japan, and even there pretty much ONLY at Toyota.

> Robert: The higher you go, the more clueless the
> decision process becomes, until you get to governmental
> regulators who fail in understanding even the fundamental
> foundations of the industries they are charged to over-look

Yes, that’s the universal task that comes with scaling population. You can try to reverse history & fate, but reality is that we have to scale up methods for aggregating on a larger scale, not just whine about it. The glory really does go to those that invent better methods for tuning larger aggregates. End of story. Hermits don’t inherit the future. They just die off.

> Robert: There are other key metrics that are missing on a
> global scale:
> 1) Return on personal incentive
> 2) Return on entreprenuerism
> 3) Return on intellectual discipline

Not completely missing. It just takes time to select what actually works on a larger scale.
Russia still has plenty of return on personal incentive. They produce tons of ruthless gangsters, but simply can’t scale.

Bankers produce plenty of entrepreneurs, focused on sequestering resources from neighbors, instead of growing the national pie. That also doesn’t scale, as we keep discovering.

Funny you should bring up return on intellectual discipline! Success in aligning personal-intelligence into group-intelligence follows methodology for group tuning. Those tuning methods have to be discovered, separate from any conceivable amount of personal intellect. Once coordinated, group intelligence trumps any personal intelligence. That’s why social species dominate the earth, why we have nation states, and why the US Constitution allowed us to leap frog all prior nations. Coordination methodology.

Let’s not revert, let’s move forward. The US Constitution was written by bright people seeking to unleash the power of “a more perfect union” that at the time consisted of ~2.5 million people in 13 colonies. It’s scaled up fairly successfully to 312 million people in >50 states & territories.

That’s astounding. Let’s do something that honors that past effort, by tuning our race-engine to scale up further. Admittedly, that’s not a task for grumpy hermits.

ps: why do so many avowed hermits bother posting on public forums? Struggling with oxymorons? For heaven’s sake, take your assets and go enjoy ’em! In private. The beehive growing down in the flatlands isn’t going to threaten you. Don’t go out of your way to attack your own descendants who are simply trying to select a way to actually still make a more perfect union. It sure as hell ain’t easy. Don’t make it harder. Be patient with the grandkids, and above all else, encourage them to keep making suggestions, not just be silent.

roger erickson April 7, 2011, 3:56 pm

forgot to add, what pays off the MOST as populations grow, are entrepreneurs who invent those methods allowing aggregation on a larger scale

e.g., writing the US Constitution; those guys were non-financial entrepreneurs

another example, 200 years of communication tools;

on and on, to the intense interest in “social” media tools currently all the rage on the web & mobile networks

Steve April 7, 2011, 3:58 pm

Roger, it always sounds like you know better how I should live and think. I support that you should live and think the way you want. But, that is all Roger – the marxist frosting is getting stale.

Robert April 8, 2011, 12:13 am

“why do so many avowed hermits bother posting on public forums?”

Because the Internet is the last bastion of hope for those who possess intellectual discipline…

Unfortunatley, it is also a playground for those who believe the social experience (operating in a void of intellect) is all that’s needed for the species to continue thriving…

The stupid typically elevate the most stupid to the positions of leadership, while the intelligent typically elevate the most intelligent.

Once the stupid out-number the intelligent, all hope is lost until the system implodes, darkness ensues, and the “hermits” suddenly decide that it is time to re-introduce the concept of enlightenment…

In the Middle Ages, the intellectual were burned as heretics. We are entering a similar period, as Strauss and Howe theorize in the 4th Turning.

Why did John Galt feel the need to flee to Atlantis? understand this question and you will understand the mindset of the “hermits” you choose to chastise.

Steve April 8, 2011, 6:43 pm

Insults Roger. Same theory – marxist – the illuminated – the educated – the better – the higher. I support your privilege of believing as you wish. I’ve fought for you to be allowed to believe as you wish for your personal life. What are your thoughts on deflation/hyperinflation, and now Rick’s question for today?

Tom April 7, 2011, 2:12 pm

Rick Ackerman April 7, 2011 at 12:44 am
Concerning loss of faith in the dollar, I am going to ask that those who say it will happen — and it absolutely will — describe the events leading up to that epiphany. Most crucially, I want you to tell me what will happen to mortgage borrowers and lenders as the dollar either sinks or collapses.

RICK ACKERMAN DOESN”T MAKE SENSE?
Rick writes an entire article explaining why hyperinflation can’t possibly happen, and then in the comments says people will lose faith in the US Dollar! Surely if noone accepts the US Dollar then it will hyperinflate to worthlessness.
The so called killer question “Why would the rich and powerful men….allow such a thing to happen” is easily answered: they don’t care what happens as long as they know before everyone else – its easy to profit if you have inside knowledge.

So Rick its obvious hyperinflation is a real possibility. Prices of every day goods will keep rising and rising until it gets to the stage where sellers prefer foreign currency, because its more stable. Loss of confidence in the US Dollar and bam it hyperinflates away in a short period of time.

Rick it may be time for you to admit that deflation in every day items is extremely unlikely. Just ask the Walmart CEO.

Steve April 7, 2011, 3:55 pm

Tom, No one can get to hyper-inflation without increased wages, or the spending of savings. The U.S. has no wage pressure, there are no savings, and no one is going to loan to the masses because they are broke. Outside money cannot come rushing into the hands of the masses, because THEY ARE BROKE and so far in debt they cannot see. Just because one ignores the 450k of forced loans by the legislature does not mean they are not there. Start seening wages increase every day, and I’ll go with you, otherwise – poor premise.

Rick Ackerman April 7, 2011, 5:36 pm

I’ll let readers attempt to parse your logic rather than waste my time responding to this gobbledygook.

Tom April 7, 2011, 10:24 am

What about the offshore US dollars that have to come flooding home at some point, as the dollar continues to be debased?  As foreigners increasingly refuse to accept dollars as viable money for payment or as a store of value, any holder of dollars should increasingly be pressured to dump them in the US.  Foreiners have alternatives, however lousy, to the USD.  Aren’t there around 6 or 8 trillion out there in $’s ?  Though I’m unsure what form they’re in, I can’t imagine they’re out there in entirely the form of paper cash.  For me alot of this question gets down to what form that external USD is in, treasuries, cash dollars, electrons etc, and what mechanisms there are to move it back onshore and convert it into something spendable.  Could the demand for a spendable form of USD bottleneck this flowback of dollars to the US?    

Cam Fitzgerald April 7, 2011, 1:09 pm

All those US dollars that might coming flooding home do not flood back into our wallets though. This is just one of the flaws in the argument for instant hyperinflation in my opinion.

If everyone on the planet simultaneously refused dollars then how the hell do I miraculously acquire them for spending without huge wage increases?

Robert April 7, 2011, 11:58 pm

Halleleujah Tom!

repatriation of EXISTING offshore dollars is all it would take.

And Cam, they COULD flood into our wallets. Foreigners, when currency imbalances create trade distortions, start by sucking up real estate.

Now, Rick Ackerman’s house may not reach a quadrillion dollars under such a scenario, but if foreign dollars begin chasing native US properties, then watch for a complete repeat of 2004-2008 all over again.

Steve April 8, 2011, 6:35 pm

You all forget “Contract Law”. If the contract says pay with FRN, one will pay will FRN. Otherwise there is breach of contract. Nothing but FRN, and Specie Dollars are Legal Tender on the Land of the U.S.

As to the house argument – so you sell your home at 30% more than it is currently worth in todays market. Everyone is at net zero because you already took a second and third mortgage. The BANKER gets paid his though.

Then you either move in with your inlaws, or you have to go buy another house at a loss, and with 30% down, and in the mean time the prices have gone up.

Do not see a win if every Chinaman buys a house, except for the Banksters that is.

Alex Bond April 7, 2011, 6:01 am

As far as the whole “where does the money come from” debate, think about this: the vast majority of Americans are already broke and living paycheck to paycheck. Few have any significant cash reserves, with the major investments being a primary residence and a 401k – neither of which are liquid.

Even if everyone spent every dollar that was in their bank accounts (which is almost happening already!), it wouldn’t be enough to trigger any serious inflation – the money simply isn’t there. If purchasing switched over entirely to credit cards, the effect would be short-lived. It would only take a couple of months before cards were maxed out and minimum payments missed, thereby removing credit from the system. This would slow down the previous rate of purchases, and prices would fall back (if they had risen at all), and store shelves would be replenished — and then sold at a discount because no one could afford to buy.

There simply isn’t enough money in the hands of the average Joe to cause inflation, let alone hyperinflation. The boogey man of last resort for the inflationists is always the trillion dollars or so that the banks hold at the Fed. The argument is that if that money came into the economy, we’d be swimming in inflationary dollars within weeks. The problem with that is that those trillion dollars have no place to go. No one wants to borrow them, the banks have no way to spend them. If the banks had any reasonable use for that money, it wouldn’t be sitting at the Fed in the first place.

The only thing that will draw that money out is a recovering economy that wants and needs loans to expand, to purchase materials, etc. If that happens, the money will be drawn out in proportion to its demand and again, it will not create inflation.

You cannot have hyperinflation without lots of money. We have no money. We’re broke. We couldn’t conjure up hyperinflation even if we wanted to.

Unless the US Treasury decides to simply end The Fed, and start printing actual money to pay government bills instead of borrowing it to pay government bills, there will never be enough cash floating around to turn the US into another Weimar.

Steve April 7, 2011, 7:12 am

Great job. It is all about wages, or the fed giving unlimited credit on that debit card – which isn’t going to happen because you are sooooo right – the masses are broke, and so upside down they don’t want to know the truth.

Robert April 7, 2011, 11:53 pm

If that is the case, then where did the Weimar money come from?

For that matter- where did the Zimbabwe moeny come from?

Germans were reeling in poverty after WWI, and their economy was not booming in any sense of the world.

I find your argument suspiciously lacking.

&&&&&&

In fact, and ironically, unlike the Allies, Germany returned to nearly full employment after the Great War. It is often thought that Germany’s goal in running the presses was to stiff the Allies by paying reparations in confetti. Actually, the goal was to keep the work force as fully employed as possible. (An interesting contrast, by the way, with current U.S policy, which seeks, not to keep unemployment low, but to keep stock prices high.) Regarding the notion that the Germans revved up the money supply to inflate away their reparation obligations, the Allies were using a gold peg to calculate (and adjust, over time) what Germany owed them. RA

Steve April 8, 2011, 6:22 pm

I’ll leave you with this. The Mint is already coining Specie Dollars and Eagles – call them, go to the website.

Steve April 8, 2011, 6:28 pm

Robert, Weimar money came from the government forcing increased wages, and the government giving ‘business’ the privilege of issuing private script if inflation became too great on a single day.

Get it that the Weimar situation was caused by the ‘peace’ forced on Germany at the end of WWI, by whom but the bankers. Dig down deep and find out which mega entity gained control of the fee after 700 years of losses to military order that found out it did not need to send the fee to a foreign master.

Steve April 8, 2011, 6:29 pm

Didn’t see your Post Rick. Interesting.

LongWay April 7, 2011, 5:47 am

Where does the money come from? Banks. Imagine everyone in your neighborhood loses confidence in the dollar all at once. They go to the grocery store to max out their credit cards on food. Their banks lend money into existence via the credit cards. It’s not like my Capital One card gets declined because you used up all of Capital One’s money. They just create more. Store shelves empty until store owners realize they need to raise prices astronomically on what’s left. Hyperinflation.

Steve April 7, 2011, 7:08 am

Who would lend to you, or anyone else ? You are not going to pay – very bad risk because there are no wages to support your borrowing. Cap One does not create money, that coming from the federal reserve based upon the ‘assets’ of Cap One. There will not be hyper-inflation the way you speak of it. There simply is no credit/savings/wages in the hands of Americans to support it. Increase cost of goods, without increased wages does not seem to fit the definitions of inflation, but; maybe that is stagflation. There is no way the Cap One credit limit at 1000, 5000, 10,000, and 500 a day cash machine can create hyper-inflation.

Benjamin April 7, 2011, 8:23 am

Excellent point, Steve. For all that can be said of the banking and financial system, they at least have rules that they most certainly enforce concerning spending, withdrawal, transacting, etc.

I think the reason that some come waltzing in here announcing their easy victory do so because of the housing bubble. Hey, if the banks allowed that to happen, then there is no limit on what they’ll do in the present and future. But that bubble had its purpose, namely to extend debt like suppressive fire; the monied eltie then create and use relatively modest sums to buy up the carnage as it rolls in.

@ LongWay…

“Imagine everyone in your neighborhood loses confidence in the dollar all at once. ”

Q: Exactly why do governments seize monetary policy and then proceed to create new money like there’s no tomorrow?

A: Because the majority _demands_ it.

It’s absurd to keep defining hyperinflation as the loss of faith in a currency. If that were the case, then there wouldn’t be any over-issuing/demanding in the first place.

What really happens is that the bankers lose advantage in it. Now that Joe Six Pack has tons of it, and no debt, what good is it to them? That is why their next move following HI is to create a new currency. Which is another blow to the argument that HI = loss of faith. If demand for fiat currencies is supposed to be nil… then why all the printing and then creation and acceptance of a new one?

Again, demand, which is not a loss of faith.

mario cavolo April 7, 2011, 5:34 am

Great stuff Rick….Cheers, Mario

Alex Bond April 7, 2011, 5:14 am

I have never understood those who believe that some mystical group of “the elite” are gunning for hyperinflation because they’ve supposedly positioned themselves to benefit. No one benefits from hyperinflation. The increase in value from any reliable investment (such as gold) is never enough to offset the reduced standard of living that inflation brings, even if the monetary value seems to maintain purchasing power.

At this point, deflation would be the best choice for “the elite”, since they’ve amassed a huge amount of cash to go along with their loans on real property. As deflation crushes any and all debtors, foreclosure and the subsequent confiscation of real property simply enhances the elites’ portfolio at relatively no cost (aside from a few lawyers to handle the paperwork). After foreclosing on everything possible, the huge cash cache will come to bear on the market and snap up other properties at pennies on the dollar. Once control over real property is established, the market can then start inflating again, allowing the properties to be sold at higher nominal prices to produce handsome returns.

The “elite” already have all of the money they want or could possibly ever spend; a nice deflation will let them have our property as well.

I see this whole scenario as nothing different than Hamilton’s treasonous acts regarding the establishment of the first United States Bank. Only this time, instead of letting the rich buy State debts at huge discounts and getting the politicians in Washington to redeem those debts at par (in silver, no less!), the rich have created mortgages with free money from the Fed and encumbered vast amounts of real estate — and are encouraging the politicians in Washington to deflate the system to the point where they can foreclose on real properties that were paid for with imaginary money.

True deflation is coming. Consumer inflation is also coming. The things you need (food, electricity, fuel, etc.) will become significantly more expensive. Everything else will succumb to deflation. When houses are selling for $10,000 and the average American family is spending 30% of its budget on food (in line with the rest of the world), instead of eating for “free” as we do now (spending 7% or less on food), then the cycle will have bottomed out.

Why debate inflation vs. deflation? We’re going to have both.

Steve April 7, 2011, 6:59 am

Is it too simplistic to say that the boyz want to keep the tenants in place paying. And, after all anyone with a Fee Simple Deed is a simple tenant in fee, the most simple inheritible estate. Beyond that the ‘boyz’ are not going to loose their standard of living, are they. The boys are not going to loose their estate, are they. In a mere 70 years we have gone from Free allodialists at Liberty, to corporate enfranchisees 450k in debt at birth. Happy Free, happy slave – just be happy.

Steve April 7, 2011, 7:00 am

The discussion has been hyper-inflation. The controversy in regard to how hyper can happen without rampaging wages !

Rick Ackerman April 7, 2011, 5:28 pm

Terrific post, Alex, although it begs the question of how much more consumer inflation we can have if everyone is broke, unemployment is at 30% and the real wages of those who are working are falling.

Robert April 7, 2011, 10:59 pm
Alex Bond April 8, 2011, 5:09 am

Rick – We can continue to see rather significant inflation on the consumer side (even though we’re broke and unemployed) because those prices are being driven by external forces: oil is up, import costs are up and shortages on the supply side are driving input costs through the roof. None of these items even notice that we’re broke – the price is what it is.

As more consumer dollars (as a percentage of income) are dedicated to the all-important consumer items of food, clothing and fuel, less is available for everything else – which drives deflation in those sectors. We will continue seeing consumer inflation as long as external forces are acting on input costs. With the wonders of globalization, “external forces” affect everything now, unfortunately.

Steve April 8, 2011, 6:20 pm

Must say I agree with Alex.

Rick J April 7, 2011, 4:49 am

Carol; you were right about my question regarding cash or digital/debit, and until such payment is not honored, then I believe they are the same thing.

Craig kick April 7, 2011, 4:40 am

Lira is right but for the wrong reason……. money for “interest” is never printed by the FED. This is why eventually there is a ponzi scheme default. The interest builds to the point where it can only be serviced through continual inflation…bubbles. The housing bubble replaced the tech bubble…..but nothing is bigger than housing. This is why the FED turned to QE to infinity. Once the interest payments on our debt is not met…..the United States defaults. Bernanke therefore has 2 choices….print to buy bonds (bonds that are used to pay interest on other bonds.) or default. Add in derivative leverage in the hundreds of trillions….national obligations of $80 trillion…..combine that with globalization and shrinking wages….you think we can still meet our minimum payments? Not a chance.

As for why FED would allow collapse? They bought all the metals, tangibles, corporations…..now they want a World Bank. The IMF will be there new home….backed by the metals they all own. The perfect heist. Geithner already admitted he is open to global currency….China wants it, Russia wants it, the Saudis want it….in fact they are telling you what is coming…..a new global monetary system.

One more thing….who is the biggest debtor in US dollars? Answer…the US Treasury. So you think they will pay out the hard way through sacrifice and pain? Nope. Governments have one call….always….to get bigger not smaller. They will say the right thing….but print they will until they have the press taken away….or they run out of trees.

Rick Ackerman April 7, 2011, 5:17 pm

Interesting point about “interest,” although it doesn’t make Lira right, even for the wrong reasons. If you are monetizing “principal,” though not interest, and real rates adjust by creeping — or perhaps leaping — higher, that hardly sounds inflationary. Although it is correct to infer, as you have, that The Government can peg T-rates to zero for as long as it chooses, it cannot do so in other debt markets that affect private borrowing. Schiff says The Government would wind up monetizing ALL debt, and it may do so. But that can only happen as a result of a deliberate decision to hyperinflate, and there is no getting around the fact that that would destroy savers and lenders (aka Masters of the Universe) as a class.

warren April 7, 2011, 3:48 am

In the second last paragraph you say the U.S. is legally and practically constrained from repeating what happened in Germany. Wasn’t the U.S. supposed to be legally constrained from printing a fiat currency in the first place via the constitution?
Essentially, the Federal Reserve should not exist and yet it does so, I think “legal” is the last consideration of the powers that be and anything is possible.

Rick Ackerman April 7, 2011, 5:07 pm

The practical constraints are more daunting than the legal ones. Please read Fergusson’s book if you want to “get it”. “When Money Dies” recently came back in-print and is available via Kindle for as little as $8.

dman April 7, 2011, 3:20 am

The end is total hyperinflation of the currency.
The currency collapses as all highly leveraged ponzi
processes must. Debt is not some linear bookkeeping
entry for economic value that must be repaid because
the asset underlying the debt has a distorted inflated
value that bears no relationship to the econ0mony once
the monetary debt ponzi system begins it,s implosion
(realestate upfront and centre first) . Once the confidence in the economy..political is gone..the hyperinflation event is happening.
The TPTB have the power and guns. They take it all
initially, Production, real money..gold, guns.Hopefully
we find mechanisms to fight and regain liberty..but
a dark age comes. Stocks and bonds will mean nothing to most of us.
Guns , food, liberty, gold will have meaning.

I just hope the money printing can hold the safety
net and buy some time.. I’m not ready for survival mode yet.

Steve April 8, 2011, 6:16 pm

What ? Hyper-inflation on who’s wages ? And collapse is hyper-inflation?

No one is prepared for hypothermia, but; an idiot it will make of one in about 15 minutes.

Angela April 7, 2011, 2:38 am

As I read “When Money Dies” as you did…. the part about the DAILY rise in pay that workers got to go out and buy their ever higher priced goods, I knew right then and there that hyperinflation was WAY off. Not that it can’t happen at all (never say never in this f-‘d up world)….but to think that much husband, who is a truck driver, will see his rate of pay change on that scale anytime soon is laughable. He’s been stuck at $62 grand a year for the past 10 years!

Cam Fitzgerald April 8, 2011, 9:33 am

I would have to agree that there is a slim possibility of seeing a wage spiral and therefore a hyperinflation Angela. As you mentioned, “never say never”.

It seems obvious to me how the mechanism for this to take place would begin to function. The seeds of a hyperinflation would be found in payments (wages) to the unemployed, veterans, retired folk, the disabled and those who depend upon state support because for whatever variety of reasons they are simply not employable.

This is a really big group of people actually when you consider just as one example how many miillions remain unemployed and how many more millions are set to leave the workforce.

Here we have the case where the impetus can then be generated for total currency debasement and we actually have a perfect example of it taking place right now.

That is, the extension of benefits for those who are currently unemployed.

Furthermore, at this time the US government is already spending far more than it takes in tax revenues each year. We know too that is an unsustainable practice and the accumulation of this kind of debt is by it’s own virtue destructive to confidence in the Government and therefore in the dollar.

Lets assume for a moment then that the unemployment benefits are extended permanently as the country falls back into a recession. Lets further assume that the unemployment rate rages higher on the back of a debt implosion and bursting credit bubble globally (not an impossible scenario).

Interest rates now begin to climb as GDP falls and bondholders and external creditors lose confidence in the dollar. In a very short time the debt/GDP picture is wildly distorted from what we see today as debt servicing consumes a massive share of national revenues. Now it starts to get ugly.

We might then see Government stand in as the supplier of incomes of last resort for 25 or 30% or more of the working population while it simultaneously continues to expand benefits in inflation adjusted terms to a growing army of retirees. Remember how many people that are headed for retirement over the coming years due to the distorted demographic of the Boomer bubble. Millions.

In my worst case scenario, there is little remaining of a manufacturing and export base as European austerity means little is demanded by that region. Asia meanwhile has begun to meet most of its own needs independantly or by doing business with its BRIC friends.

Few people now actually work to earn an income in America at this stage. The majority of people in fact receive some kind of benefit directly from government while tax revenues fall dramatically post credit bubble crash. Tax revenues fall everywhere too. At the municipal, State and Federal level.

In the early stages of this crisis the government would be susidizing energy costs, food and public transportation for millions. As the crisis wore on homes values would plummet to worthlessness and most urban properties would end up being owned by municipalites due to tax default.

Eventually the Federal government would step in and become the landlord for all thus we will have seen a massive shift in private property from individuals to the state.

I think we might swiftly be on the way to a full blown hyperinflation in such as case as the government, unable to manage the economy (or the people) any other way, simply resorts to wage payments to the vast numbers who do not work.

Naturally enough those payments would start to rise quickly as the economic picture became bleaker and the currency withered in value. This would just spill over into the private sector eventually causing all wages to begin to spiral higher.

Thus, a hyperinflation would break out by default and as an alternative to civil unrest that might grow from impoverishment of people who have always known entitlement.

Not saying that this will happen and I admit it is pretty dark but it is theoretically possible that the nation could lurch directly into nanny-state mode and a kind of Socialism that is otherwise unknown to most Americans.

That it would be triggered by the end of easy credit, a bursting of the debt bubble, growing and widespread unemployment and political unrest as the remnants of the manufacturing base disappear, just seems a natural conclusion to me.

Steve April 8, 2011, 6:13 pm

Cam, a quick browse of what you wrote. First, people with Fee Simple Deeds are already “Tenants in Fee”. They will just keep you on the land working, if one produces something of value. The houses go to hell if someone does not live in them. I watch it each day as the house behind me on 5 acres rots and decays.

With the loss of property Fee, in this worst case senario, the county is still going to want to keep tenants in the houses, tax structure will change.

In Oregon the Oregon Division of Lands is already the Lord of Lands. I’ve had many discussions with them in this regard. Under the Law of Escheats this state is the Lord of Lands, others mere debtors in possession, tenants in fee.

There comes a point where the government cannot keep handing out debt to people who do not produce – What happens ? A spike in food costs, and wages, and then a complete collapse into – What ? Whether inflation, or deflation the need for something of real “value” will be a must.

What is real “value” Cam ? I believe in security. But, no security is going to come from any government. Establish your own real security, be prepared for the worst, hope for the best.

Cam Fitzgerald April 8, 2011, 7:24 pm

“There comes a point where the government cannot keep handing out debt to people who do not produce – What happens…” ~~~Steve
————————————————————

Thanks Steve. I think you got my point immediately. What concerns me is that the unproductive sector of the economy and those who consume the largest share of health dollars and benefits could overwhelm the rest of the economy if the right conditions were present.

There is a tipping point then that could become the source driver for a true hyperinflation as the tail wagging the dog becomes the animal that is obedient to no master and in effect forces the hands of government against the wisdom of the pack.

But that is just getting poetic, is it not?

Robert April 7, 2011, 1:51 am

Rick, Are you afraid to answer FOFOA’s recent piece?
If you need time to think about your response I understand but I am interested in your opinion.

Big Gap in Understanding Weakens Deflationist Argument

Steve April 7, 2011, 3:04 am

Robert, may I venture that claiming a sliding scale value for money is the root of the evil, and the fatal flaw of all that is in your link to the FOFOA ‘piece’.
The debt instruments, federal reserve notes, are valueless promises of enfranchisement via ‘use’, and under Roman Civil Law. The theory that fraud begets logic is logically incompetent. The fed can print all it wants and not accomplish anything – just look at the trillions thrown at the stock market, to get an extreme low volume climb based upon banks and corporations. Everyone is pushing on a string, until wages begin to skyrocket allowing borrowing of what is printed.

It is sort of like this. Chief Justice John Marshal went to Georgia to engage in a debate. The contestant was asked the first question. Do you believe in an immutable Law. The contestant said no. Marshal said the debate is won, and you have lost. Because without a moral base, you will change the rules and change the rules until all is lost.

FOFOA is nothing but a contestant that lost with the first words he spoke, and has become nothing more than a TAR BABY of blind intellect and IQ. From my perspective – Do not respond to the TAR BABY Rick. He will not learn, and he will not play by the rules, and he will not change from his ways.

Rick Ackerman April 7, 2011, 5:59 pm

Afraid? Nah. Just that I’ve been spending way too much time at my desk and didn’t feel like jumping into another snakepit. I’m sure I’ll have my defenders at FOFOA.

FYI, I may have a chance to step in the ring with Lira. More on that as details develop.

Eugen April 7, 2011, 1:39 am

Rick is cool in his arguments for deflation. In fact he makes the most sense of all the articles I read on goldseek.

I however can not agree that a heavy defaltion will be chosen without some sort of heavy inflation first. The simple reason is……… The US will not submit itself a slave to Asia and other countries by paying its debt back. I think that would be worse then running the country into the ground with inflation and starting over.

The way my logic tells me ………..inflate enough by order to render the debt minimal to none, then allow for some deflation to run its course. Banks and the gov can ride out the inflation by parking the cash in quality assets then move back to cash. It would seem the least harmful way?

Steve April 7, 2011, 2:50 am

The hyper-inflation, buying binge took place already, and housing was the base.

Rick Ackerman April 7, 2011, 5:54 pm

We’ve already tried “heavy” inflation. Will The Guvvamint push the effort into hyperdrive? I don’t think so, since it would wreck the financial system. Even the ostensible winners — mortgage debtors who would get to pay off their mortgages with confetti — would learn, the day after, why they’d have been better off if their capitalist taskmasters and rentiers had survived.

ricecake April 7, 2011, 1:27 am

Great article. But still all things you must have/need cost much more. Merely fortune change hands. Housing get crashed. Mortgage lenders get crashed. But your income get crash from all sides: wage reduction cost of living inflation for sure.

But China is starting away from commoditie trades
http://video.ft.com/v/887459309001/Deals-and-Dealmakers-Chinese-M-A

Rick Ackerman April 7, 2011, 5:48 pm

The smoldering rubble of the endgame you’ve described is where deflationists and hyperinflationists cannot avoid seeing eye-to-eye.

Carol April 7, 2011, 1:08 am

Phil C with all due respect I am not certain of what Kucini or Denniger have proposed but I do know that going to a monetary system where the money is issued by the government instead of by a private corporation at interest is not only a better solution but very well may be THE solution. Look into the greenbacks, or the currency being issued right before the revolutionary war. Better yet watch this video it will change your mind.

http://www.youtube.com/watch?v=swkq2E8mswI&feature=relmfu

Tom April 7, 2011, 4:05 am

Carol

How would passing control of the currency to the federal government be a solution? Wouldn`t Congress just abuse the power by spending the created currency on their pet projects? Right now, the federal reserve banks check the politicians by charging them interest to borrow. Remove that check and spending would get even more out of control.

Carol April 7, 2011, 4:20 am

Tom,

the problem is the interest being charged especially since the principle is the only money ever created so there is always this need to inflate the money supply enough to create the money needed to pay back the principle + the interest. If there is no interest due there is no need to pay income taxes (the irs would be abolished). The money would be spent into the economy. I urge you to watch the video as he explains it beautifully

Carol April 7, 2011, 4:34 am

Tom,

I think my response was not clear that since the money would be spent into the economy (instead of loaned) there would be no debt, Nothing money would need to be paid back to the fed or anyone else so congress is free to spend whatever is required in order to create the money supply that is needed to faciliate trade. Of course there would still need to be some contraint on spending to keep the money supply inline with the needs of trade and population growth but it has been done successfully many times through out history. The four that I can remember was during Ceasars time in Rome, using tally sticks in England (700 years of a great economy resulted from tally stick usage), in US before the revolution (which money system King George halted which is the real reason for the revolution) and the last time was the greenback that Lincoln used. Kennedy was about to reinstate non-debt US issed money when he was killed.

Any time that this system failed was because of conterfetting (sabatoged by enemies). Today we have technology that makes conterfetting much more difficult (or course not impossible).

Watch the video.

Phil C April 7, 2011, 2:54 pm

Carol, the only difference would be the private bankers would not get their free 6% dividends ( by law) from the federal reserve income from interest rate. The rest all goes back to the treasury. The major difference is that currently, part of that interest payment goes to china et al and the banksters not getting a piece of the pie. The threat of not getting a piece of the pie will make sure they stick with the treasury needs.

Tony April 7, 2011, 12:54 am

Rick is correct. Repeat a 100 times till you get it “Our money is BORROWED into existence” If you don’t understand this point, you will forever be swayed by the nonsense about hyperinflation. We have borrowed money simply means its money we have yet to earn. It is not there. It is credit, a book entry. Those who are claiming hyperinflation are suggesting that the Fed will monetize ALL THE DEBT. It cannot happen because the debt markets (i.e. credit) will collapse. All the attempt to juice the economy is being done with BORROWED MONEY. Think of DEBT as a HOLE in the ground. The first rule of HOLES… when you find yourself in one, STOP DIGGING.

Phil C April 7, 2011, 12:25 am

For deflation to happen, doesn’t that mean that the Federal Reserve has to stop buying treasury bonds with new freshly printed money?
If that would happen, interest rate would jack up and also the tax revenue from the gvt would plunge even more severily. Since the dollar is based on the capacity of the gvt to repay, and we have revenue falling, interest rate and cost of paying the debt will climb up. This doesn’t look good for the dollar either way (death by ice or death by fire).
But since the Federal Reserve is a political animal that the government allowed to have a monopoly on money at the condition that those bankers supply the money to the government, I see it difficult to imagine the printing press stopping. Congress will come up with one of those idiocy that some idiot have called for – its own fiat money like the greenback of the civil war (I think it is Kucini who came up with this stupidity backed by this fool Denniger) – if the Federal reserve let deflation happen. After a rapid deflation, the barking will start. “You told us in 2008 that if we didn’t approve those bailouts it would be the end of the world, now it is the end of the world because you are not monetising the debt, only valid for bank bailouts!”
One thing sure, this will be ugly.

Tom April 7, 2011, 12:22 am

Q:`Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen? `

A: Because rich and powerful men control real assets (land, commodities and factories) and will be even more rich and powerful when bank notes are replaced with commodity money.

Steve April 7, 2011, 12:44 am

Not when the People stand on their Hind Feet. These bums own nothing. The People just refuse to be Men.

Benjamin April 7, 2011, 12:19 am

I hate to clutter this already cluttered topic, but given how so many keep having their king Arthur moment at the stone, bringing their same old arguments with which they beleive they will unsheath the sword…

First, why is this so important, anyway? I mean, what is the difference? Well, I’ll tell ya what the difference is…

Hyperinflation would be the “wrath of god”, visited on the oppressors. If you expect HI, you have faith that you don’t need to do anything to extricate yourself and others from debt slavery.

WAKE UP! and smell the coffee. The only way out of this is a successful revolt (which can also mean the political will to hyperinflate, but is by no means the only means). But as it is, half or more are not even armed and the ones who are, haven’t the firepower to contend with the firepower and armor of the oppressors. Supply chains are still surgically grafted to the credit/debt matrix.

We’re all slaves. Whether you like it or you don’t like it, you’ll live and die as one. And that means sad, sad, sad depression. But not all hope is lost…

The more people that understand what is happening and why, the more powerful revolt grows. But even then, with nothing to shoot for, successful revolt will only lead to hyperinflationary death.

This is why I so frequently, every chance I get where it stays on topic, make mention of what makes gold and silver so special. More to the point, what YOUR individual power is, which is to weight the currency to determine the burden or lack thereof under which you live and die. I’ve said it so many times that I know I need not say more.

But as it stands, too many who understand finance and economics are expecting hyperinflation to fight and win the war for them. It will not.

Those who don’t understand any of this, on the other hand, are expecting government to do it (no matter their party/political affiliation and philosophy). Government will not; soon enough, even the left and government employees will gleefuly join in the cutbacks game, knowing that they will be showing conservatives that TWO! can play at that game. And this will only accomplish what the masters wish: depression.

But even if all this was to succeed in thwarting that goal, without wide-spread guiding principles leading the plan… We’ll just wind up richt back in prison, of a different sort. Rather than escape it, we’ll be entombed in the rubble.

So , we all need to realize that the prison will not collapse on it’s own. Many are the slaves who are and will maintain it. Because if we don’t, it’s unceromonious burial. It must be made to collapse by us, yes, but the very root of Liberty also needs to be quickly re-established. Failure to do both is failure to free us or kill us.

Rick Ackerman April 7, 2011, 12:52 am

I agree that anyone who owes too much shouldn’t trust hyperinflation to automatically “emancipate” us. It seems too good to be true, and it is. That is why I continue to dwell on the problem of real estate deflation, since it is big and powerful enough to crush us.

Benjamin April 7, 2011, 1:17 am

Rick,

I don’t blame you one bit for dwelling on the dwellings. What surprises me is that some, perhaps many still think that walking away from the mortgage would be the same printing the way out. But I deeply suspect that course of action would only result in a reduction in wages/employment or entitlements.

Every dime repaid… Never an exception. To be perfectly honest though, I used to think you crazy for thinking that. But I just didn’t understand the workings of the whole thing, then. There’s simply too much mess and not enough rug to sweep it under.

At least, within the scope of these rules. In the future that I hope, pray, and strive for, it will be currency weight which takes the hit. And with 150 decillion atoms in just the gold supply alone, it can take a lot of hits.

Rick J April 7, 2011, 12:02 am

Steve; And as above, the 10:03pm….enfranchisees in fee?

Steve April 7, 2011, 12:31 am

Your mortgage is Fee Simple Absolute, fee, fife, feod, feud, feudal tenant, peon, serf, slave, Blacks Law Dictionary 4th Revised Edition 1968.

Persons under U.S. citizenship are enfranchised to the legislative act, 14th amendment, and a foreign corporation identified at 28 U.S.C. 3002(15), created for the district and territories in A.D. 1872.

One is thus corporate, enfranchised, as an enfranchisee of the federal incorporation.
There are a dozen ways to get there via Roman Civil Law, and the civil privileges granted ‘subjects’ created legislatively as ‘person’ inferior to P erson at Article IV of Amendment.

Rick J April 6, 2011, 11:59 pm

Steve; Your 7:14pm posting is fascinating. Can you elaborate on the lien idea. I remember reading with disbelief, that virtually all shareholdings are in fact beneficial shares, meaning that if there should be a benefit in holding shares, we share in those benefits. But ownership, no. That rests in CEDE and Co. which if memory serves, is a division of the NY Fed Reserve bank.
That, in combination with Presidential order statutes can legally facilitate the transfer of all assets to the government. But, might the government give that money to the fed? Who owns the gold if it is still in the basement of NY fed, the people, the guv, or the Fed?

Carol April 7, 2011, 12:35 am

Rick J -> “But ownership, no. That rests in CEDE and Co. which if memory serves, is a division of the NY Fed Reserve bank.”

You are correct Sir, you own nothing. Your house, your car, your stocks and bonds all belong to another. You are only given “beneficial ownership” of those items to uses as your owners’ see fit and to be taken from you when your owners see fit.

Also CEDE & Co is owned by the DTC (Depository Trust Co). This is the main reason why you will never recieve a “stock certificate” any longer because the DTC holds them all.

Don’t believe me, look up “certificate of title” in a law dictionary, stop paying your property taxes and see how long you get to stay in YOUR house, stop paying the registration on YOUR car and see how long you get to use it. If they can take it from you -> you don’t own it.

Steve April 7, 2011, 12:42 am

My mind is weaker than it used to be. I cannot quote the page from memory – but; the Banking Act of 1913 creates a General and Paramount Lien against anything discharged with federal reserve notes. It is the phony way the system trys to establish a value on the labor of a Man, as in only a Man owns credit upon the sweat of his brow. Math can place a value on slave labor based upon what is discharged, and held as a debtor in possession. One is a simple debtor in possession under ‘use’, which creates a ‘trust’ with the government/legislature trustee.

The mortgage held ‘fee simple absolute’ is a Declaration of FEE, fife, feod, feud, feudal tenant, peon, serf, slave. In 1832 all lands were held in Allodium, by Allodialists, which is opposite of fee and feudal, like the British scheme. Free Man at Liberty, versus legislatively created subject person under the 14th.

Federal Reserve Notes are Treason, except in federal territory, the district, and for ‘use’ by corporate enfranchisee ‘subjects’ created legislatively by the 14th amendment, within my understanding, see; Article I, sec. 10, cls. 1. The masses do not operate under the Constitution, the legislative branch corporately holding sovereignty under Article I, sec. 8, cls. 17, and Article IV, sec. 3, cls. 2. The masses operate under Roman Civil Law, quote; Sandra Day O’Conner

Rick J April 6, 2011, 11:44 pm

There were some comments in the responses to the editorial to the effect that stimulation has been tried.
I disagree, based on a 70`s comparison. Economic stimulus, other than low interest rates and giving public money to banks who will not lend it into the economy has not really begun. I remember, in fact wrote down in notes while attending business school, the amounts of increases in departmental spending and they ran into the 50 to 150% range over a couple of years.(US, Britain, etc)
Also, our inflation today is in my opinion mostly cost-push; whereas demand pull takes hold only when inflation really gets going.
Hyperinflation will only start when bonds can no longer be sold to foreigners. Given that Pimco has already gone vigilante, it may not take that long for that event, one no American has lived through, to occur.

Rick J April 6, 2011, 11:26 pm

Rick, This is a good debate, I would like to know if you believe there is any difference between cash and digital money transfer. At the level of a credit card purchase or a cash card payment for groceries, I do not see it.

Steve April 7, 2011, 12:25 am

I’ll jump. There is a huge difference between Specie Money, and fiat money. Credit runs out. Debit cards can only be filled by wages, sales, or trade.

Rick Ackerman April 7, 2011, 12:45 am

See my response to Carol concerning digital money/credit cards.

Carol April 7, 2011, 12:45 am

Steve -> “I’ll jump. There is a huge difference between Specie Money, and fiat money. Credit runs out. Debit cards can only be filled by wages, sales, or trade.”

Rick J is asking the differnce between cash (FRN) and electronic money (debit cards).

Who has/carries/ or uses silver coins (species money) any longer ? Where would they even get such and if you could who would give real money away?

Also if debit cards can only be filled by wages, sales, or trade how else would one get cash (FRNS) other than illegal drug or black market sales.

What Rick is asking is exactly what I have been asking. He is not talking about species money only CASH (FRNS) or electronic money (DEBIT card). There is no difference.

Tom April 6, 2011, 10:45 pm

Rick Question:
Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?

Answer:
The rich and powerful men KNOW what is going to happen so they position themselves appropriately. As long as they KNOW what will happen they can make money from it.
They KNOW hyperinflation will occur so they prepare by buying real assets. Knowing the future is how you profit – and profit is all that rich people care about.

Rick Question:
How would the trillions of dollars get into the hands of Joe Sixpack?

Answer:
It doesn’t need to! If Joe Sixpack loses faith in the US$ he will ask for Canadian $ or Euro $ in payment.
Once the average person prefers Canadian dollars, what will happen to the value of the US$?

Rick your 2 main theories as to why hyperinflation can’t happen seem to be easily answered.

Steve April 7, 2011, 12:23 am

There is an assumption that any other currency would be legal tender in the U.S. BAD ASSUMPTION

Rick Ackerman April 7, 2011, 12:44 am

There IS no way to “position” yourself for a deflation, other than to stay out of debt. The spectacle of killer volatility in munis and Treasurys proves that there is virtually no safe asset (other than bullion) that you can simply buy and hold. And even if you are genius enough to keep moving your money around, if you make a mistake, you can take a big hit. I don’t believe that Soros is so smart that he can play this game of musical chairs without getting whacked time and again. Make enough mistakes, and a large fortune can turn into a small one.

Concerning loss of faith in the dollar, I am going to ask that those who say it will happen — and it absolutely will — describe the events leading up to that epiphany. Most crucially, I want you to tell me what will happen to mortgage borrowers and lenders as the dollar either sinks or collapses.

phn April 6, 2011, 9:19 pm

In debt forgiveness, the lender takes the hit. But converting private debt to public debt, which is happening in numerous ways, as Adam Smith said long ago, governments never pay their debt. Empires do collapse.

Steve April 6, 2011, 10:03 pm

phn, American subjects don’t own anything. They are debtors in possession. The people are legislative creations of the 14th amendment, ie; subject enfranchisees in FEE. No one wants to know or accept the reality. Ignoring the truth does not make it inauthentic, or does it ?

John April 6, 2011, 9:12 pm

Pumped money is flowing into commodities which effectively pulls money out of the population through increased prices.

This drives demand down in other sectors which causes loss of jobs and leads to further pumping.

The current system runs backwards and will grind to a halt regardless of ones perspective on inflation/deflation.

We have both, and both will get worse.

Discussions like this are an attempt to find a way to adapt and convince ourselves we’ll retain our perceived position in society as this crisis deepens.

None of us will.

If you want to discuss something worthwhile why not delve into the legitimacy of a system in which Government activities are primarily funded by debt that is expected to be paid by the people, but the majority of activities the Government engages in negatively impacts those same people while enriching those who assume the debt?

Steve April 6, 2011, 10:00 pm

The discussion is easy. Standing Case Law, The Trial of Thomas Earl of Strafford – its High Treason. Now whatchagonado – nothing !

John April 6, 2011, 11:56 pm

Steve…

Snotty comments do not qualify as discussion.

You’re attempting to avoid my suggested topic by sidestepping it in favor of a challenge in order to feel superior, but by doing so you’re declaring your own inadequacy.

Man up, or shut up.

(see – I can do it too)

mario cavolo April 7, 2011, 5:33 am

You too should get a room :)

Meanwhile, speaking of price being pumped up. Price in China are steadily rising. That’s the case more than anywhere in the cost of luxury goods here. The yacht industry is booming but a $5 million yacht here costs closer to 10 million. Luxury brands are far more expensive on the mainland than back in America or in Hong Kong, prompting the popularity of Hong Kong shopping runs too.

Cheers, Mario

Steve April 6, 2011, 8:49 pm

I’ve been waiting for this “imminent” commercial property collapse for years now. Anyway, there are a number of ways the colossal amount of reserves sitting at the Fed could enter the system. I haven’t seen any indication that the Fed has wanted these funds to enter the system, however, so there’s your answer (so far) as to why we haven’t seen massive inflation as of yet. The Fed is keeping these funds within their grasp, apparently as a primary focus of keeping the banks solvent and functioning. What will ultimately happen with these reserves? Will they just disappear like magic, or slowly enter the economy over a period of decades? Maybe the Fed has it all under control, I don’t know. But there are multiple ways for the inflationary dollars to find their way to your pocket, and without the need of your employer to have a printing press. It’s called asset inflation. Should we review how many dollars are held overseas? Foreigners are looking for deals, and as the dollar continues to slide, American asset are looking like a good deal to them. Will they keep buying up the new treasuries coming to market to fund our ever increasing deficit, and if so, at what prices? To what extent will the Fed have to continue to intervene? Oh, there will be deflation alright – in the value of your currency.

Steve April 6, 2011, 10:07 pm

Hyper-inflation versus deflation. How many T shoved at the market, and real estate debt, and where are things ? How many years have you been waiting for commercial property to fall ? Because it is falling, has been falling, and if one just drives around a bit the banks are holding lots of empty space – but; once again accounting standards can make a purse out of a sow’s ear.

Brian April 6, 2011, 7:37 pm

Rick,

I think you have missed two incredibly important points in your argument that I believe lead to the failure of your argument. First, you state:

“Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen? The obvious answer is that they wouldn’t. And won’t.”

You have made an implicit assumption that the “rich and powerful men” are still able to control the system. This may not be the case, and I believe that it is indeed not the case.

Second, and more importantly, you have not referenced the impacts of the loss of faith in the US currency by the holders of the US debt. More specifically, the Chinese, the ME OPEC countries, and Japan (to a lesser degree). Once they start to dispose of their US debt holdings, the US can either stop spending or they can monetize all of the government spending through the Fed. Once this happens, only a fool would hold US$.

These two points lead me to believe that there is no middle ground, to which you have stated your support. However, I believe the US is in an unstable, short-lived, bifurcated deflationary/inflationary situation right now. At some point in the not too distant future, the debt purchasers and holders will lose patience and/or faith and dump their debt holdings – the first one off the boat will lose the least. When this happens, hyperinflation is what I believe will be the outcome…. regardless of what the “rich and powerful men” want to happen.

Steve April 6, 2011, 8:08 pm

China cannot sell, if the U.S. does not buy. U.S. cannot continue to buy if China does not take the debt.

China must create hyper-inflation to survive if the U.S. does not buy (looks like China is taking on German theory of forced wage increases). The U.S. citizen is a net debtor. The Chinese citizen a net saver. How quickly can the Chinese citizen be convinced to take on the debt that killed the U.S. citizen?

Imported costs of products are going up, wages are going down in the U.S. = too few dollars chasing too much product. Maybe the people of the cities of America can go into the suburbs and pound flax to weave linen by hand for export, and thereby start industry over again. Any way one looks at it, it appears that the U.S. is going down in standards, and China will be coming up, even if its hyper-inflated in China.

Rich April 6, 2011, 8:37 pm

You can bet everything you own against the rich and powerful and wake up broken.

Only poor fools bet everything on the lottery.

Bill Gross already sold his Treasuries and may be waiting to buy them back at higher yields when the markets break into deflation…

Wyz April 6, 2011, 9:24 pm

Brian,
Finally a reply that states the issue I see with Rick’s question. The question has an “implicit assumption”, and that is the FED and others can control the system, and will be successful controlling it.

As analogy, drivers can control their car, and usually successfully. But every so often control is lost, and of those some are catastrophic. And if you are under control, what of those around you. Or those that deliberately drive to cause problems for others (as Soros to the Bank of England, probably based on inside information on how they soul react).

If the FED and their banking interests succeed in their control, then Rick’s analysis is sound. But that is an assumption I can’t take as a given, but only as a possibility.

&&&&&&&

Deflation can be efficiently managed once it has taken root, mainly by expediting casualties through the bankruptcy courts while survivors learns to cope with a precipitous decline in the standard of living. Hyperinflation, on the other hand, cannot be managed at all for reasons that I spell out in my essay. As I also noted, hyperinflation can occur only if a government willfully and deliberately causes it to occur. Deflation, on the other hand, can take hold regardless of whether anyone wants it (no one does). RA

Wyz April 6, 2011, 9:27 pm

Edit: “how they would react”

Brian April 6, 2011, 9:57 pm

Steve,

Steve,

Based on the US debt requirements, the Chinese and other current debt purchasers may simply need to stop buying US debt. That could very well be the minimum action to drive a US collapse and subsequently lead to HI. The Chinese have already been buying PMs, striking trade deals that do not use the US$, and talking up the move to a new global reserve currency. None of this bodes well for the US or the greenback.

One also needs to remember that, even in extreme circumstances, the lender usually has the upper hand in any negotiation. The US has a very weak position right now.

Rick Ackerman April 6, 2011, 10:35 pm

You haven’t met a reasonable standard of proof on either count, Brian, for in fact: 1) I have not omitted anything of “incredible” importance; and, 2) your post-mortem of foreign dollar holders’ loss of faith does not consider what might have occurred, economically and financially speaking, to bring them to that point.

And while I agree that foreign holders of U.S. debt will eventually dump all of it, I cannot fathom how the resulting spike in real interest rates would be inflationary. There is that chance — as Peter Schiff has explained — that the Fed will monetize every Treasury bill, bond and note that comes to auction. But that would not necessarily be inflationary either, since it would spike the dollar toward worthless in an hour. At that point, a Mercedes Benz would be out of reach for all of us. But is that (hyper)inflationary?

mario cavolo April 7, 2011, 3:40 am

Bingo Steve…the mercantile strategy is still alive and well until things may fall apart at the seams.

In China all standards and prices in the society are going up and that includes very high inflation. I suggest in the real world its been about 10% /quarter this past year. Wages are also going up. And as you said, China’s inflation is therefore going to be exported in higher prices to the U.S. where middle class wages are not rising. That’s big trouble for the middle class there as has been discussed here countless times.

Brian April 7, 2011, 6:43 pm

Rick,

My first comment required no proof.

With Point 1 simply stated that you has made an assumption without providing support. Can you provide support for your assertion that the “rich and powerful men” can control the situation now that they have opened a proverbial Pandora’s box?

With Point 2 I simply noted that you had not presented any consideration for the impact of decisions by foreign debt holders. My description of the impacts was speculative and I did not say that the scenario I described would happen, only that it could happen and would be catastrophic. Facts can be easily found regarding the move to other currencies and to PMs, so I will leave that to you to search. ZeroHedge has a plethora of articles and hard facts that demonstrate that foreign debt holders are already acting in their best interests.

Lastly, you state:
“There is that chance — as Peter Schiff has explained — that the Fed will monetize every Treasury bill, bond and note that comes to auction. But that would not necessarily be inflationary either, since it would spike the dollar toward worthless in an hour. At that point, a Mercedes Benz would be out of reach for all of us. But is that (hyper)inflationary?”

This statement shows me that you are contradicting yourself and actually do believe that HyperInflation can occur – just substitute ‘loaf of bread’ for Mercedes Benz and you have your answer in form that the average person can understand, and may experience soon. You appear to be conflating Inflation with HyperInflation. They are very, very different.

———

Mario,

From what I have read, China has been pursuing a mercantilist strategy for a long time, as have past empires (i.e., UK), and current empires (i.e., US). This appears to be one of the defining factors that successful empires need to have as a core policy. At present, China is experiencing price inflation (at least partially driven by the Fd QE policies) and wage inflation (as workers are taking advantage of some minor increases in their power vs. the owners of the capital infrastructure). In my opinion, this is normal inflation rather that the crisis situation that the US is in.

Steve April 6, 2011, 7:25 pm

How old is this ? Back to Tulips, and then a 1000 years more? People do not ‘have’ to spend.

The basics of Life are subsistence, gathering & taking.

What can one do for themselves, that they now find security in others doing?

JJ April 6, 2011, 10:37 pm

Yes they have to spend because 90% are not able to provide the basics for themselves. 100 years ago we were agrarian and self sufficient. Today, 50% of the people have no useful skills at all related to survival. People will spend 100% of their disposable income on food if they have to because they don’t know another way.

JJ April 6, 2011, 7:17 pm

All cycles are inflationary at first, then deflationary. The fed has tried to pump up several bubbles already only to have them crash and deflate. Thats their game and thats what they call an economy. In 2000 it was tech and people were touting it as more important than anything, so money rushed in but didn’t last, now tech is a deflationary cycle. The fed then tried to pump housing figuring that people would fight to make mortgage payments no matter what. Money rushed in, then crashed when they found out that people can walk and rent.

Now they are trying to inflate the final bubble, commodities figuring that no matter what, people will have to spend on food and fuel, gas and electricity, the basics of life. They may be right this time.

Steve April 6, 2011, 7:26 pm

How old is this ? Back to Tulips, and then a 1000 years more? People do not ‘have’ to spend.

The basics of Life are subsistence, gathering & taking.

What can one do for themselves, that they now find security in others doing?

Reply

pointsman April 6, 2011, 6:59 pm

“Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.” Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and we differ only on the question of who, borrower or lender, will take the hit.

The ignorance of history in this statement is astonishing. Germany’s post-WWI debts: never repaid; Lend-Lease ; debts: never repaid; shall I go on? How many countries have defaulted on their debt? WTF?

Steve April 6, 2011, 7:20 pm

OKay, pointsman – so you, or your dad, or your grandad paid the debts either directly through illegitimate taxation to the feds, or through forced usury via a bankster. The fiddler was paid one way or another.

Most WWI debt was a con on Germany that brought about WWII.

Most important pointsman – the American was at Liberty in 1910, and now the U.S. subject is born into slavery.

Who paid pointsman – you with your Liberty.

bill April 6, 2011, 7:20 pm

pointsman,

when a debt is defaulted on then who gets screwed? The lender who didn’t get paid. Therefore the lender lost the funds (digits) he lent, in essence then he iw the one who “paid” the debt by not getting paid. The saving doesn’t mean litterally that the lender has to pay off the debt just that him being “stiffed” didn’t get paid

hans wurst April 6, 2011, 7:21 pm

you didnt get the point i think. the debt is payed by the debtor which extinguishes the debt. or it is payed by the lendor (he looses 100% of his investment) so debt is always beeing payed. by whom is the question. if the lendor defaults or not by taking the hit is another question.

Rich April 6, 2011, 8:32 pm

70 M paid with their lives during WWII.
Another 100 M during Mao, Hussein, PolPot, Stalin.
Savers and workers paid, as the dollar lost 98.7% of its value in gold from 1913 until today…

hans wurst April 6, 2011, 6:48 pm

real estate as inflation hedge is a misconception. in weimar real estate was a very bad investment. “lastenausgleich” forced upon the people a state mortgage on their real estate investment. payable for the next 20 years. i am sure should hyperinflation hit something similar would be in the making for the real estate holders, forcing the price of real estate down as soon as the crisis is over.
the second misconception is about this discussion hyperinflation or deflation. hyperinflation is ALWAYS deflationary. the price is rising sky high, but there is always less money than needed. there is never “enough” money. and hyperinflation is deflation in real wealth like gold for example. so both are right hyperinflation in cash and deflation against gold (real wealth) Stories from weimar: you could buy one house in middle berlin for one ounce of gold. if this isnt hyperdeflation then what is? while at the same time cash was getting worthless by the minute.

Steve April 6, 2011, 7:14 pm

Great insight. In the U.S. there is a general and paramount lien for ‘use’ of federal reserve notes. The 450k slice of the forced debt is already a lien against the house via the Banking Act of 1913. For a family of 4 there is a 1.8m lien against all property discharged via federal reserve note.

Rick Ackerman April 6, 2011, 10:12 pm

Farm-able real estate was the best investment you could have made before the Weimar hyperinflation went parabolic. I have mentioned here numerous times that Germans who borrowed 100% to buy farmland at this time were able to retire their mortgages with proceeds from the first harvest (of potatoes, for one).

Robert April 6, 2011, 5:55 pm

Great article Rick-

so, let’s summarize:

1) If a hyperinflation occurs- Bullion is necessary to preserve purchasing power (or even gain wealth)
2) If a deflation occurs, bullion is necessary as the “currency of last resort” to expunge oppressive debts.
3) If a slow, grinding stagflation occurs (my personal viewpoint of choice), then bullion is necessary to again preserve purchasing power.

So, under what circumstances would bullion not be a great asset?

Anyone?

I still grind my gears incessantly on the question of what percentage (measured in Gold ounces) of one’s net worth should be in physical bullion?

example, if my current net worth divided by a Gold price of 1450 equaled 1000 ounces, then how many of those ounces should be coins and bars?

10%?
50%?

I think my current number hovers around 15-20%, and I debate with myself about whether or not to visit the coin dealer more often…

Steve April 6, 2011, 7:09 pm

Robert, how much can you grab, run with, and protect during deflation, or inflation disorder?

Gold has no value when grain, or water is more important. Gold has no value when the skill to gather and preserve is more important. Gold has marginal value when the government demands back their property, ie; gold, from the enfranchisees created legislatively. Gold has no value if one does not have enough of a necessity, or believe he can get more of the necessity at gain.

Robert, think about what one intends to purchase – is it Cars, or Houses with one piece of metal ? What will one need the most and what is the most likely ‘value’ of a single piece of metal to obtain that single item? One does not want to go to the ‘market’ with a bar and a hatchet and begin chopping off chunks of metal. (has been done, but very dangerous). If I grow excess grain, I may take a dime if I might need to run, or get something else I need from someone who has excess, but does not want grain.

Think of it in two ways. What if I am stationary and need to buy single items. And what is best if I need to run. Will I need to buy a house, land, or a machine. Or, will I need to buy a loaf of bread, or measure of wheat? It is hard to run with a sack of junk. And, its hard to buy a loaf of bread with an Eagle. Igots, of what value if one has to have a hatchet and a scale to trade ?

Inflation/deflation a Dollar is still 371 4/16ths grains of fine silver in a Coin struck as Legal Tender.

I guess the saying is very boring – an Eagle in 1840 bought a suit, and today an Eagle buys a suit. A 1/10 Dollar got a loaf of bread in 1840, and today the same. There is some short term variation because of greed speculation, but; over the long haul. . . .

Rick J April 6, 2011, 5:49 pm

I think we are all agreed that the house is going to burn down, so this inflation/deflation debate amounts to determining how the fire will manifest. If we have an inflationary depression style hyperinflation the risk of a complete breakdown in social order is higher than if we have a deflationary depression. But to think that any outcome which is best for the people is in any way foremost in the thoughts of those who control the script is folly. Those who have the most power, which would surely be those who can issue money out of thin air and those who make huge amounts of money by facilitating that process…aka banks, will do whatever they need to do to maintain that power, that right, that control. To do anything else would amount to our leaders in these fields admitting they were wrong and surrendering power, money, livelihood.
Can you imagine the head of a major bank calling a press conference and admitting that derivatives were an evil tool they used to declare whatever profits they wanted in order to collect whatever bonuses they wanted? Or that derivatives were an ideal garbage can which used to collect losses forever, called the “that doesn`t count fund?”…….that he was sorry he took Tarp funds and QE5 funds in a hapless attempt to rescue his bonus, his job,his reputation and shareholders, followed by an apology and resignation?
Can you imagine the President offering a Churchill style speech, offering nothing but the financial equivalent of blood,sweat and tears? I cannot.
I think those in control will choose the path of least resistance and maximum hope (at least in a sale-ible sense) The hope that they can get the economy going again with some demand pull inflation. If that means sending checks to people instead of banks, maybe they will try that next.

Steve April 6, 2011, 6:44 pm

Its easy. Every day there is an AP article saying so and so got 20m this year. The middle class is getting less and less, while the top 10% feel no pain. This will not go on forever, and the “They” know this.

The fed has already sent checks to individuals – it didn’t work. The U.S. does not have a real economy – it is smoke and mirrors and selling banking or I.P.

Rich April 6, 2011, 8:26 pm

“So, under what circumstances would bullion not be a great asset? Anyone?”

Well, in 2008, gold fell – 31% from $989.60 in July to $681 in October.

From 1980, Gold fell -75% from $1050 in January to 255.80 in late 1999, 20 years later.

“Do not save riches for yourselves here on earth, where moths and rust destroy, and robbers break in and steal.”

“Don’t put your confidence in powerful people; there is no help for you there.”…

occam's razor April 6, 2011, 5:32 pm

‘Myers stated, with elegant simplicity, that “Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.” ‘

All debts WILL BE payable @ USDX .01, and your precious law will remain immutable.

Steve April 6, 2011, 6:40 pm

Really ? .01

The boyz are going to emancipate everyone from slavery for 1 penny on the Dollar fiat ?

Rick Ackerman April 6, 2011, 10:08 pm

One–cent dollars wouldn’t remotely begin to cover it, Occam. Remember, it is a quadrillion-dollar credit edifice that would need to be redeemed. Better, perhaps, that each household be able to gin up its own money, using notepads and rubber stamps with lots of zeroes.

Chris T. April 6, 2011, 5:19 pm

“Try to withdraw $25,000 from your own branch if you want to find out the truth”.

I have (not really intending to, but you get their reaction PRIOR to them checking your balance!), and you are right.

“Oh no, we don’t keep that amount on hand, but we can give you a cashiers check”.
Then you are told to pre-order, or go to the headquartes, etc. And of course they give you the scare of the reportability, and so on.

AND, that is in a no-bank-run situation.

This is to Rick’s long term point, that there is a limit to the physical printing capabilities, and in those situations, short of getting the people to accept multiple “0” bills, where paper-money will be a limited supply good, as opposed to the digital entry “money”.

There is clearly a push to get us ever more away from physical money, period, even the one-ply-one-sheet only kind.
In NL, they are already well on their way, large stores accept no cash, banks dispense none, other than tiny ATM amounts, and so on.

The Bundesbank as of this year is distributing all coined money only in tons-heavy master cases worth hundreds of thousands of EUR, closing its local branches, so that stores other than the big box ones have almost no affordable way left of obtaining (or returning) coinage.
The paper bills will be next.

Brave new digital world.

Carol April 6, 2011, 5:46 pm

What am I missing here? Why do you all keep saying that hyper can only happen with physical pieces of paper? Why can’t hyper happen with digital plastic money?

I am a software engineer and I have written lots of software for many applications including the space station and banks – Big Banks, including at least 2 of the top TBTF banks. I can tell you it would take 1 day to create the software required to handle “old USD” and “new USD” accounts on one card. Even with paper money there needs to be some mechanism to swap the currency from “old” to “new” this could happen simply and even automatically using digital money. Actually it would even be easier with digital money.

We do NOT need to have physical paper dollars to facilitate hyperinflation .. period. That is a totally incorrect assumption.

Steve April 6, 2011, 6:38 pm

Yes, but; there must be credit to borrrow with, or value to extend in purchase. Where am I to get the 10,000.00 note if all I make is 1.00 an hour? Wages must drastically increase, and if the ‘they’ think they are going to get screwed there will be no wage increases. Are your wages going UP, are you in the top 10 who can say yes ?

Carol April 6, 2011, 7:10 pm

Steve,

understood. No my income has gone down by over 50% since the year 2000 (tech bubble days).

My point was ONLY that this argument that we need to use paper money and that only the use of paper money would allow a hyper inflation is INCORRECT.

Yes there are many other sundry arguements that are not address.

If anyone cares to state the “fact” that paper money is needed to have a hyperinflation let them explain WHY that is so.

&&&&&&

Oh, please. I wish you would start thinking this stuff through, starting with the fine print in your bank’s disclosure statements. When you’ve gone over the rules that the bank’s lawyers took six years to draft, modify and perfect, decide which of them need to be broken. Then play it all forward: add three hypothetical zeroes (five zeroes? eight? ten? rationed according to your last tax filing?) to your credit limit (raised by Congressional mandate? by Presidential edict? by papal edict? on the basis of your credit score?); and assume, as you continue to argue your case, that millions (tens of millions? hundreds of millions?) of Americans have been similarly endowed overnight (through luck? a lottery? House/Senate committee design? worthiness? branch-bank policy? zip code? net worth? average income for the years 2005-2010) RA

Steve April 6, 2011, 7:53 pm

Carol, all that is needed is money in excess available to the people who then chase too few products (does not matter what the money is, as long as it is available). U.S. subjects have tons of debt, and no viable credit left. China, Japan, and other countries are shoving product out the door too fast because they have excess money, and now look like they are going to fuel their inflation with 30% a year wage increases. China will feel huge inflation, and the cost of goods will go up in China, and the U.S., where wages are not going up.

Who has the credit in the U.S. to chase products ?

Fear of the loss of electronic clicks will send people running for paper as a tangible thing to feel secure. The paper is then shoved at product.

Our problem is that Americans have no credit to obtain product, and wages are falling except for the top 10%. Ben cannot inflate at over 2% a year without getting singed. Ben now uses lies to deny that inflation, and still keeps downward pressure on wages to put profits into the hands of the top 10%.

Money is anything two people agree it is. And too much money and too little product will inflate. As I read it, the German hyperinflation was caused by government intervention to drive wages up. The main cause was the abuses of the forced treaty to end WWI.

The result was WWII. Where are we going ?

Carol April 6, 2011, 11:16 pm

Steve and Rick,

neither of you has addressed my point. My point was simply that paper money OR electronic money can BOTH be used equally during a hyperinflation. Sure paper money seems prettier for the pictures of kids holding gazillion dollar bills (vs a kid holding a debit card).

Neither of you showed my WHY we could not use electronic money in a hyperinflation scenario. Really I am just trying to understand this point being made that we would need to be on a paper system inorder for hyperinflation to take hold – I just don’t get that point at all.

Benjamin April 6, 2011, 11:22 pm

Carol,

You make a very broad assumption that digital will somehow change the minds of the Masters. In fact, it would be much easier for them to control against HI using digital. See my first post.

And again, as Rick pointed out, employers were allowed to print during the Weimar fiasco. I have serious doubts such privilege will be allowed again. For one, unions are not as powerful as they once were. Two, letting private employers with such a need
to print/enter at will are large corporations that can and will keep wages low enough. Still, any that key in digits without autorization will, as now, be guilty of hacking and counterfeiting.

Carol April 6, 2011, 11:39 pm

Benjamin April 6, 2011 at 11:22 pm

Benjamin -> ” You make a very broad assumption that digital will somehow change the minds of the Masters. ”

I assumed no such thing. My ONLY point was that paper or electronic is the same. Paper is what was predominently used in those economies that have experienced HI. Paper did NOT cause the HI it just facilitated the transactions. Electronic will ALSO faciliate HI in just the same ways as paper did in those economies.

Benjamin -> “as Rick pointed out, employers were allowed to print during the Weimar fiasco. I have serious doubts such privilege will be allowed again. ”

in weimar they HAD to keep the presses printing because paper was the only mechanism to pay anyone with. I can’t see why employers today would not be able to make “direct deposits” into employees account twice a day or ten times a day if that is what they wanted to do. Now how are the employers going to get the money to put into those accounts? Well that is a DIFFERENT issue all together. I am NOT guessing I am not saying we will or won’t have HI ALL I am saying is that electronic money would work just the same as paper money IF HI was to come.

Benjamin -> “letting private employers with such a need to print/enter at will are large corporations that can and will keep wages low enough. Still, any that key in digits without autorization will, as now, be guilty of hacking and counterfeiting.”

NO they would ONLY be guilty of check kiting and since the whole money system is promulgated on check kiting (by the fed) that would not really be a crime (lol just kidding). But seriously check kiting is the proper “crime” that they would be committing.

Benjamin April 7, 2011, 12:53 am

Carol,

“I assumed no such thing. My ONLY point was that paper or electronic is the same.”

Alright. And how does that change anything? How does that make it so that HI is inevitable, a natural occruance over which the bankers have no power to prevent?

It doesn’t. About the most your inquerry (no offense) reveals is why we don’t use dung for money. Everyone would then be out of debt, and up to our startosphere in… EWWW yuck! With central bank currency, wheather digits or papers…

While I can write checks that amount to 1,000 times greater than what my account has in it, I’ll not get away with the crime for long. By the same token, I cannot log on to my old forex account and trade dollars for dongs, then dongs for Mexican, Mexican for Zimbabwe, then, finally, Z$ for USD. I don’t remember the exact order, but prior to trading currencies, I saw that for every 10 USD I could make 700 back on such a trade. But that is forbidden, for obvious reasons.

What you speak of is a world without rules. And without them, yes, there is no difference. But that’s not how it is. And if the rules are tossed out, heck, we won’t even have to bother with printing/entering.

And therein lies a key flaw of the hyperinflationist argument. HI happened in Weimar, and everywhere else, precisely because the masses still saw the currency as valuable. They wouldn’t allow it to be over-issued if they didn’t see value in pursuing that course. Put another way…

HI is when the issuer loses advantage in their issued currency, not the masses losing faith in it. Once J6P (cousin of C3P0) has enough to pay off his debts, there is nothing more to gain for the bankers; no debt = no demand for their money. So they start over again. And therein lies another blow to the hyperinflationists’ points: How does it always manage to start over again even after people “lost faith”?

Simple. Faith in their currency is not lost. THEY lose advantage. However, it serves them better to keep it going. And right now, in the U.S., cutback is the name of the game. Not only that but as those set in and increase, those “betrayed” by their government will join in, if only out of spite. HI will result only when the banksters have no other choice. Right now, they have a choice and have the support. Therefore, they choose depression.

PhotoRadarScam April 6, 2011, 5:14 pm

Still waiting for someone this answer the response to: “Someday very soon, following the precipitous failure of the world’s banks and securities markets, we will all be too broke to push the price of anything sky-high.”

I am not an expert on Zimbabwe, but how did the common folks of ZMB wind up with $1M and $1B (ZMB) notes if they were all broke? How did the ZMB populous manage to push prices (in ZMB) so high?

Rich April 6, 2011, 8:08 pm

The common folks did not, unless they worked for the government or stole them, same difference.
They bartered a piece of fruit for a bottle of Coke beyond government control, why Uncle was so eager to put Bernard von NotHaus away for good and confiscate Hawaii Mint and Liberty Dollars.
Zimbabwe actually has deflation now after relying on, dare we say it, the almighty dollar…

http://www.aleablog.com/deflation-in-zimbabwe/

PhotoRadarScam April 6, 2011, 9:59 pm

Deflation will always come after inflation, and inflation after deflation, as neither can go on forever.

But do you mean to tell me that if I were to have gone to a restaraunt in ZMB at the height of inflation, and they charge me $20Mzmb for my burger and fries, that the restaurant employees aren’t earning perhaps 10% of the cost of a meal per day (equivalent to $1/day in the US if you figure a burger & fries meal costs $10), in this case $2Mzmb? I’m not buying that the whole economy was barter-based (although I’m sure a large part of it was) and that common-folk never touched the 7 and 10 digit notes. If you have personal experience or a reference please share it.

Desert Dan April 6, 2011, 5:11 pm

If you follow the deflationist’s logic (Prector Dow 600) Harry Dent (Oil $10-20 for the decade of the 2010’s) then the dollar will become like a precious egg. So the typical social security recipient getting $1100/month will be in hog heaven; taking vacations to Europe, getting plastic surgery, buying monster RV’s, paying for grandkid’s college….think about it…

Rich April 6, 2011, 7:58 pm

Or Medicaid, Medicare and Social Security may default, as governments always did, according to Adam Smith, Scottish Customs (Tax) Commissioner and author of The Wealth of Nations in 1776, an auspicious year for freedom and prosperity…

http://en.wikipedia.org/wiki/Adam_Smith

Benjamin April 6, 2011, 10:56 pm

Social Security payouts, as far as I know, have always or almost always been below the rate of inflation. This will not change. Why would it, when, from the perspective of the Masters, $1,100/mo in deflationary times is about right for a modern day mortgage and CoL?

All SSI will do is see more retirees having to make very tough choices in their “golden” years. And if they don’t, well, there’s always other places said retiree can go (or be put) that isn’t vacation paradise.

Cam Fitzgerald April 7, 2011, 6:43 pm

First Dan, Social security is indexed to inflation and thus the amount the government pays out would fall during a deflationary period. Indexing swings both ways.

Second, as Government began to seriously grapple with the debt bomb going off it’s own resources will become strangled and eventually its hands will be forced to simply reduce payments to retirees.

Not only that, but it will very likely make bitter cuts in most social programs, in health care spending, in major cherished programs and perhaps even the military (eventually).

As government becomes a smaller part of the spending machinery that makes up such a huge part of the economy then the real pain begins to kick in for everyone else and real wages begin to fall as unemployment rises to unimaginable highs. You cannot remove 20 or 30% of Government spending from the system without raising unemployment rates.

Surplus labour in turn, generally drives down wages. Property values and the values of a wide assortment of assets can then plummet leaving nothing but debt for the survivors to pay off. If nobody has much in the way of cash then suddenly that prize antique car in the garage is little more than a heap of metal. This is already hapening in fact.

When you look at the response that some States and Municipalities have taken to managing their own debt crisis you can well imagine how this same kind of scenario will play out from the Federal level too. Cuts become widespread and everyone takes a haircut.

Look to the Austerity programs in England for a perfect example of how the pain is being spread around. How retirement ages are being increased or under review, where social spending is being reduced, childcare programs axed or severely curtailed, military spending put off to the future etcetera. All this on top of several hundred thousand layoffs in the public sector. Whew!!

For the US the experience will be similar. It could entail deep cutbacks too in some areas and new sets of priorities as the money dries up. Rising interest rates only make this situation much more difficult to bear as a growing percentage of tax revenue and national income must be used to service debts.

This is why I believe that should we enter a major deflationary cycle that it coulds easily run more than a decade as squabbles over setting priorities just push solutions off to later dates and the electorate use their vote to try to win the concessions they seek for themselves. Seniors for example are a big voting bloc and can easily sway government to their own priorities above those of others.

Won’t help though. Pensions and health care are two of the biggest budget items and both will have to be pared to make ends meet.

And that is why retirees will not be living the good life under a deflationary regime Dan. On the contrary they should be quite miserable.

Chris T. April 6, 2011, 5:07 pm

Rick writes:
“Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?”

Good point
If that situation could cause them real harm they certainly would not.
But, is it conceivable, that if they found a way not to be harmed by that situation (let alone a way to benefit from it), then they would let it (cause it) to happen?

One way would be for them to have no hyperinflation exposure, by being in all those real assets that do not suffer from h-i (PMs, certain real estate, etc).

This is not be read as taking a side on this argument, just a conceptual scenario for this question.
Regards.

Steve April 6, 2011, 6:30 pm

Everyone is forgetting class warfare, and I mean real warfare should the ‘haves’ get away free and easy. The “They” all know this which is why there are so many lies being told via accounting. The “They” have invested in the beasts of the field, and the credit represented by work of the hands. The “They” want to own YOU, and they DO. For security have Yee given away your credit to others who now hold title to you, who are the most valuable of all things. Everything is relative, only having to sell or buy right now causes pain. The “They” are able to weather the storm in their castles, and with their stores until a balance is found, and a number assigned to the ‘value’ of the life/work of a beast in the field. I do not care if it is 10, or 100000000000000000, it is simple zeros in a balanced field of play, if that be a value fixed upon a Man’s work during his lifetime.

zbd352 April 6, 2011, 4:43 pm

Hello Rick, whatever the result, we are awaiting to get the name of the asset that you talked about at the beginning of the week to buy before the big jump. Which one(s) is/are it/they ? And you said they were cheap… don’t tell me gold/silver otherwise you’d see them skyrocketing !

Rick Ackerman April 6, 2011, 9:52 pm

Stay tuned, Zb. The promised revelation was pushed back a couple of days by the deflation date, and now by a piece on the bee die-off that I have been holding for too long and which is set to run on Thursday.

Cam Fitzgerald April 7, 2011, 2:20 pm

Good to hear Thursday is Bee-Day.

The one objection I had to the article did not come through in the end. He just did not like my references to chemicals being a hazard but offered no conclusive evidence for his case. Nothing came of it.

So let her rip. I won’t send you an e-mail now that I know all this hyperinflation discussion is starting to wear thin for you. Your family problably misses you while all of us strangers out in electronic world each take a sliver of your time.

Peter April 6, 2011, 4:19 pm

Jim Richards has made it clear that M2 is big enough to make gold reach how much? $3000/oz or $5000/oz, and at that price gold is only accounted for 30c on each dollar in circulation.

Rick I think you are wrong.

Steve April 6, 2011, 6:22 pm

Peter, a Dollar is 371 4/16ths grains of fine silver in a Coin coined by the Mint as Legal Tender. Eagles are valued at 50 Dollars.

The rest of what you are saying is high doctorate garbage via the fraud that enslaves.

Rich April 6, 2011, 7:51 pm

American Gold Eagles have a $50 Legal Tender Face Value.
American Silver Eagles have a $1 Legal Tender Face Value.
Both may be used to fund IRAs.
http://en.wikipedia.org/wiki/American_Silver_Eagle

Martin C April 6, 2011, 4:17 pm

Makes me wonder if USA’s incredibly backward approach to Credit card security (Magnetic Stripe and signature transactions) are virtually unheard of in Europe now.

Steve April 6, 2011, 6:20 pm

Martin, how is Europe providing ‘security’ and at what cost ?

Zeus Yiamouyiannis April 6, 2011, 4:11 pm

Both Rick and Gonzalo left out the obvious third way– debt forgiveness. No… debt does not have to be paid by someone; it can be absolved, especially debt created upon fraudulent and/or counterfeit-ridden practice.

We already know, as Rick implies in the above article, that derivatives are simply 100’s of trillions of dollars of worthless private scrip, traded and valued as if it were real wealth. Well, derivatives are not real wealth, and neither was the ostensible climb in the values of housing resting in large part on those phony-wealth derivatives.

The only “real wealth” here revolves around ability to produce real and needed goods (to allow us to survive), and the ability to create something that increases one’s quality of life (to promote our thriving). Precious little of the present global economy involves either one of these.

We have got to simply clear out the junk in our attic. Yeah, if we use FASB standards and Goldman Sachs accounting, we can pretend our worthless junk is all really simply very rare, “unique condition” collectibles worth trillions of dollars.

I’ve got a better idea. Take our financial junk out of the global attic in boxes, put them out on the front lawn, and see if anyone wants to pay a few bucks for the various items, give away the leftovers to anyone interested passing on the sidewalk, and recycle, donate, or dispose of the rest.

It’s a moving sale, and if our economy is going to get moving, maybe we ought to have one.

Steve April 6, 2011, 6:19 pm

This ‘debt’ you speak of is control by slavery. The great “They” is not going to unslave you, and that is all the debt is about. Everyone must be sheared, and the few who really know are not going to let you go. Even now there is a problem because the “They” need more wool than you can give.

fallingman April 7, 2011, 3:19 am

Debt = Slavery…exactly. The new feudalism.

How often does the master voluntarily free the slave? Come on.

Joe C. April 6, 2011, 4:08 pm

Forget Gonzalo Lira’s reply to Rick.

FOFOA does a far more effective and thorough axe job on the deflationist nonsense. And FOFOA is civil and a gentleman while doing so.

DiverCity April 6, 2011, 4:38 pm

Quite correct, which is why I haven’t even read Lira’s reply. Rick was probably much too kind to him.

&&&&

Yes, Diver, I was much too kind. My model for gentlemanly behavior in argumentative discourse is William F. Buckley, as civil and polite a polemicist as ever there was. However, he was on record — just once! — as having lost it, after being called a “crypto-Nazi” by Gore Vidal on the Dick Cavett Show. Lira didn’t go that far, but he was definitely wearing his anus on his sleeve. RA

Steve April 6, 2011, 6:12 pm

Pray tell, an explanation in real terms. House behind me, nice white thing on 5 acres. B of A holds it as an asset at 700k. It will not bring 200k, and B of A is not trying to sell the house.

Is the 500k vapor inflationary, or deflationary?

Since the major asset of all Americans is a ‘home’, what is the possibility? Commodity prices are going up. Wages are going down in America. Jobs are disappearing in America. American businesses in China are facing wage increases of 30% a year for the next 5 years = more individual Chinese to buy Chinese products, that Americans cannot afford because of ‘debt load’.

The reason for disappearing jobs in America is because of stupid/ignorant corporate practices allowed by the legislative branch, and the people who wanted ‘cheap’ from China/Walmart. The U.S. cannot get high paying jobs back into these states until something drastic happens. Without high paying jobs, in relative terms, there isn’t going to be the ability to inflate housing. There isn’t any means to ‘loan’ to other than the top 10%. Interest rates are already near the bottom.

If the C.E.O. of Microsoft continues to make 17m a year, and Joe is making less and less – class warfare at the legislative level, or in the streets. Everyone at Microsoft is in the top 10% and never felt a recession, have no idea there is hard times for anyone.

The major asset class in these states is a home in FEE, tenant in fee. The government does not count increasing, or decreasing housing prices in its inflation/deflation debate, yet; other words can be heard and understood by Ben. Ben is worried because of accounting fraud in housing.

We had our hyperinflation in housing, and it pumped bucks into the economy on individual terms as new loans were taken by individuals, and given out by ruthless banks and banksters, and especially pushed in fraud by the likes of BIG Barney and his committee.

We are all ‘loaned up’ people. The hyperinflation of housing, the greatest American asset class, is still on the books, and unrealised (federal accounting fraud) because no one is selling (so few it doesn’t matter) their home. Good ole’ B of A holds a mortgage for 200k against your house which might be sold for 140k, and B of A tells a bean counter to put the asset backing the loan at a value of 295k. B of A owns the 295k asset ‘house’ claimed until the debt is paid in full. Yet, B of A cannot make housing loans so is investing in the stock market – yes ? A small percentage have ‘paper wealth’ in the stock market, based upon a hyperinflationary binge (QE —-+) by the banks, and the fed – which has not worked very well – leaving more debt via forced loans by the legislative branch.

We had our hyperinflation in housing via a debt binge. Who is going to borrow to inflate the accounting deflation that is as of yet unreported? The inflationary binge of easy credit by lie is over.

Most of the rest of the arguments are High Powered, Brain Washed, Higher Education garbage. It seems as if a Doctorate Degree has become a sign of inablity to think outside the social scheme of mobocracy and self serving control of others taught by about 5 University presidents.

Rien April 6, 2011, 3:50 pm

Rick, what do you think of the argument that a hyperinflation is only possible if there is at least one foreign (outside) currency available to swap your local currency for?

Rick Ackerman April 6, 2011, 3:58 pm

Eliminating currency swaps wouldn’t suppress hyperinflation, which would begin anyway with soaring prices for domestic goods. At that point, prices for “illegal” foreign goods would rise whether we could buy them or not.

john brefeld April 6, 2011, 3:23 pm

I had to read all the way to the bottom to find the correct ‘answer’. Congrats Mike L.
Most people think HI is an extension of inflation when it is just the opposite. Another ‘theme’ I see while reading is the notion that the world consists of the USA…period. Sorry, Charlie, it is when the rest of the world decides to act that we will finally settle this issue.

Steve April 6, 2011, 5:25 pm

Nuclear intervention, who’s the biggest bully, and who will be tried in what court for war crimes ? Today France is trading war crime for Oil on the front. But, the U.S. is still the biggest bully who has not seen the master’s switch in punishment. Wars start for economic reasons, and economics between Nations is just war.

Waterman Jim April 6, 2011, 3:17 pm

Rick,

I think one the best arguments beside housing and wages is, as you said,
Why would the Fed spend the last 100 yrs working to put America/The world into debt, to then just let us off the hook with hyperinflation?

Consider this half baked scenario i’ve been working on for the introduction of a world currency i’m calling the “Worldo”, a quick outline..

They create the problem-
-When TPTB are ready, they let/make the market crash.
-The dollar soars as everyone panic sells (buying dollars).

then the predictable reaction-
-other currencies drop compared to dollar
-Inflation runs wild overseas forcing nations to cry out for a stable world currency.
-If you hold lots of dollars(fed, China, Russia, banks) you are happy and going shopping.
_If you owe lots of dollars – you are hating life.

and a ready made solution-
– IMF/UN Introduces the “Worldo”. The new world currency that will fix our world currency crisis.
-Offer a very a attractive exchange rate to dollar borrowers like 2:1 dollars/Worldos to seemingly lessen their debt.
-Force the laws thru while america is held hostage by a crashed market and voila.. the top of the pyramid falls into place.
-Start reflating the Worldo

Rich April 6, 2011, 7:43 pm

Bilderberg Soros working on Bancor/Worldo this weekend at Bretton Woods II. Good luck with that…

fallingman April 7, 2011, 3:15 am

Compelling.

garylee April 6, 2011, 3:13 pm

You should read Don Wolanchuk for awhile, will make Jim Willie look like child’s play

Valence Tech & Market Talk With Don Wolanchuk
http://siliconinvestor.advfn.com/subject.aspx?subjectid=52296

MikeL April 6, 2011, 2:43 pm

Hyperinflation is not an extension of inflation.
It is the extension of deflation and the governments attempt to inflate a way out of that deflation.

Rick Ackerman April 6, 2011, 3:53 pm

Right, sort of. But when was the last time the sovereign author of the world’s only reserve currency tried to hyperinflate the whole friggin’ world out of deflation, including attempting to reverse the collapse of a quadrillion-dollar derivatives bubble denominated almost entirely in the reserve currency?

MikeL April 6, 2011, 6:19 pm

Rick, in answer to your comment below.
Respectfully I think you are confusing the issue.
The FR are not trying to hyper inflate, they are trying prevent the economy from deflating (even though economy is inflating at between 6-8%).
The true money supply is climbing but the velocity of that money is dropping giving the appearance of deflation.
As confidence in the USD declines and no one wants them, interest rates must rise. This will require more QE to cover greater deficits hence reducing the value of USD.
This vicious circle of declining value and increasing inflation will continue into hyperinflation.

Steve April 6, 2011, 7:32 pm

Still not explaining how the money is going to get into the hands of Joe Sixpac via wages, or outright handouts. The housing bubble handout has failed.

Rich April 6, 2011, 7:41 pm

Annual change in Adjusted Monetary Base, and hence, all other monies, has a long way to catch up to inflation, let alone hyperinflation:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=BASE&s1transformation=pc1

Waterman Jim April 6, 2011, 1:56 pm

Yeah Rick!

You Da Man!

BP April 6, 2011, 1:54 pm

Both of you guys are wrong. Stagflation and nothing happens. Muddle through economy.

Bold predictions never play out well, but they do sell!

DG April 6, 2011, 3:26 pm

ding, ding, ding……we have a winner. Very economical I might add.
There must be hundreds of thousands of words burned up on this discussion. It is tiresome – it wore out poor Rick! Get well, buddy!!
Years ago, having the same discussion in this chatroom, and at that time Rick simply stated, I paraphrase, “Inflation, deflation, matters not, we will trade it hidden pivot point by HP,” arriving at price discovery.

Carol April 6, 2011, 4:45 pm

I have to agree here. This argument D vs HI is getting to be like the agrument between God created man and evolution made single celled organisms into complex human beings! Hey maybe it is not either of those but is a third option.

We keep looking at Weimar as if it was the only possible outcome. How about Argentina. Better yet how about Iceland, what happened to their economy when their currency collapsed? It seems that such a situation is much closer to ours than Weimar was.

Cam Fitzgerald April 7, 2011, 2:01 pm

Right Carol. Or for that matter what about Israel. They had a hyperinflation too and it is rarely ever talked about. Like it never even existed. The event fell somewhere between 1975 and 1981 and I lived it first-hand.

On the issue of stagflation and rising commodity prices I continue to maintain that this is just a form of taxation on essentials and does nothing to boost wages or generate significant economic activity.

Ben April 6, 2011, 1:11 pm

it seems to me one of the ways that it seems hyperinflation could be set off would be the USD losing it’s status as world reserve currency. This could be caused by oil no longer being traded in USD, international trade being settled without the USD as an intermediary, and the unloading of US treasury and other US based debt obligations from central banks and other foreign holdings. If those USDs come flooding back into the US economy couldn’t that create a surge in money supply?

Steve April 6, 2011, 5:18 pm

Ben, who of the individual middle and lower caste in america are going to get those incoming federal reserve notes?

rmsimc April 6, 2011, 8:34 pm

Ben,
I agree that the biggest tangible risk to the dollar is exactly what you point out…losing it’s reserve status. Not to reiterate many sound arguments put forth on this site recently, lets just say that TPTB would not find that a very appealing quantum change. But, if such a happening did actually occur, it would stress the dollar…probably halving its value…it would NOT, however, lead to true HI in the historical sense. Like most here, I cannot see the fundamental driver that could produce systemic HI in US terms. Over the coming years, things will definately change but I have a sense its not gonna fall off a cliff…unless its a rip in the derivitives market which would ultimately cause a HUGE SUCKING SOUND that produces deflation in its purest sense.

Harry April 6, 2011, 11:31 am

Nobody actively seeks hyperinflation – they all think it won’t happen to them: Mugabe, any number of S American dictators and now Bernanke.

And hyperinflation doesn’t mean the workers get any of the newly-printed cash. Like Mugabe, the Fed is printing money only to hand out to its cronies – on Wall St.

Like Mugabe’s subjects, Bernanke’s subjects will suffer hyperinflation without ever getting even nominally rich.

Cam Fitzgerald April 7, 2011, 1:45 pm

Not sure about that Harry. The hyperinflation in Zimbabwe went on for quite some time, certainly long enough for the Government there to intervene and squash it with policy tools if they chose. Little was done. Mugabe was too proud and too arrogant to admit the error of his ways.

Problem is that it suited the goals of the regime to sqaunder everyone elses wealth. It was no accident when they went out and deliberately printed up mountains of 50 Billion Zim-dollar notes that could not even buy you a cup of coffee.

That hyperinflation was something closer to financial revenge than a true failure of the economy and its currency. It was the deliberate arrogant act of a madman who would have his own way over any advice given from any quarter whether the IMF, the Governments own Finance ministers, bondholders or foreign governments including the US and EU.

Rich April 6, 2011, 11:08 am

Perhaps picking up some slack with a bone to pick about the new SEC 10% limit down/limit up proposal that may kill equity market liquidity, which, unlike futures markets, does not have other months to offset trades. Might benefit CBOE or stock futures somewhat.
Re deflationary ruin, Rick may have meant inflationary ruin.
There were plenty of bubbles to rival and exceed the housing bubble, ags, energy, PMs, for example.
What goes up must come down.
Plenty of things have not gone up lately, namely anything that requires credit.
The Volt sold less than 1000 cars in three months.
BYD Electric even less.
Facts can be unpopular things.
Re the politics of deflation, DC and Wall Street may have no choice, as Irving Fisher delineated debt default deflation in the 30s, after he missed the 1929 inflationary top in stocks. Now we have derivative debt default deflation. Why are politicians like Jesse Ventura, Michele Bachmann, Rand and Ron Paul more popular than ever except for the monopoly media?
It ain’t because they are for borrow, spend and tax.
The Fed and Treasury did not dupe the world into lending the USA money. Countries had trade surpluses with the USA as buyer of first and last resort and wanted a chance to foreclose on America, which, rumour has it, occurred with Hillary hypothecating America to China to keep the trade going and prevent distress sales of Treasuries.
As for no one wanting a dollar and everyone wanting gold, who hasn’t seen Mark Dice @ Taco Bell and elsewhere?
http://www.youtube.com/watch?v=Ef0VG1WEP10 2:58
Can we all agree we have neither hyperinflation nor hyperinflation now, but mixed stagflation?…

Benjamin April 6, 2011, 11:50 am

“The Fed and Treasury did not dupe the world into lending the USA money. Countries had trade surpluses with the USA as buyer of first and last resort…”

The dictators and socialists of the world knew darn well what supporting The Policy meant for them… which is why there’s so many angry yet impotent people in the world today.

It never ceases to amaze me that so many still think China, for example, will drop our debt/currency. I mean, I used to think so myself, but not in a good long while. That is against the communists governments ultimate aim, though, which is to keep a firm grip on things in their part of the world; if they drop the U.S., then the there is a too-large risk that the U.S. rises from the ashes of debt and revolt to become what it was always meant to be. And iron fists cannot keep up when the competition is so great.

“Can we all agree we have neither hyperinflation nor hyperinflation now, but mixed stagflation?…”

Whatever ‘flation it is, it stinks. I think we can all agree on that!

PhotoRadarScam April 6, 2011, 9:10 am

Still not addressing the (lack of) demand side of the equation. What’s a dollar (backed by the full faith and credit of a government) worth when no one wants it or believes in the longevity of the fiat issuer any longer?

“Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?”

The question itself is flawed, because it presumes that those who control the FR don’t know what they are doing and wouldn’t prepare for it, which is nonsense. They would fully prepare for such an event (and I’m sure they have) and would ensure that they benefit from the scenario to the fullest extent.

The other way the question is flawed is that it ignores what the FR has already accomplished and what its goals may be. The US/FR has duped most of the world into lending it money. It’s not just J6P who gets to pay off his mortgage with “confetti money,” but the FR gets to pay off its treasuries in the same manner.

And while a deflationary path may be less ruinous or more preferable to an inflationary path, the deflationary path is political suicide for elected officials. Does the American voting public have the guts/brains to elect those who will “bring the economic pain (deflation)” over those who keep the dollars and easy-money flowing thus keeping the economy running full speed ahead and high employment numbers? In the end it’s not the FR but Congress who still has the overriding power.

Finally, Rick continues to trot out home prices as an example, which is the only thing that hasn’t gone up lately, completely ignoring the numerous factors that affect a market and pricing and the fact that housing is an aberration for the time being and probably for at least a few more years while housing stabilizes. Similarly, during 2004-2005, no one would point at housing prices and claim great inflation while prices of everything else remained fairly flat even while “commoners” were flush with cash from re-financing their houses. All markets will take time to re-establish a mostly-balanced supply & demand scenario after being knocked wildly off balance and until then the affect of some market forces, like inflation and deflation will be muted or over-exaggerated. Markets in this state are not valid examples.

Rick Ackerman April 6, 2011, 9:32 am

Your arguments are s-o-o-o tired. And wrong, too, since even for Masters of the Universe, as for the rest of us, there is only ruin in deflation, not opportunity. As for housing being an “abberation,” surely you are joking?

I’ve worked a 20-hour day so-far, what with responding to Lira, to 116 e-mails, and everything else, and I am just plum worn out. I’ve got messages on my phone that have been blinking since noon. This will therefore be the last response I make to those whose arguments aren’t up to snuff — especially arguments that are nasty, patronizing, condescending or even ever-so-slightly irritating.

I’m going to take a rest Wednesday after the tutorial session. My gratitude to anyone who can carry the ball for a while. You can probably recite my arguments word-for-word, as I hope you will.

10-4, over and out.

PhotoRadarScam April 6, 2011, 9:43 am

How can the current housing market NOT be an aberration? Has there ever been a bubble the likes of 2004-2007?

Benjamin April 6, 2011, 11:34 am

“They would fully prepare for such an event (and I’m sure they have) and would ensure that they benefit from the scenario to the fullest extent.”

Right. Which means keeping their currency alive. Why?

The central banking system has in it’s possession such a large number of assets, which are more securely in their hands due to mass ignorance and/or pacifism than they are not.

But if they didn’t keep the world saddled with debts that saw people craving little peices of paper in an attempt to retire those debts, the CB would at some rate lose what they’ve been storing up over the past few centuries. So their currencies have value to them, and therefore the world, no matter how well-prepared the bankers are. The institution did not rise to where it is today by the sudden awareness of the mortality its employees are prone to.

So they’re being and going to continue being as ruthless as they are greedy. Now that they’ve got it so much of it, keeping it while accquiring the last remanents is the game. And even when they have it all, their own currencies will still have as much value to them as the very first day they started this scam.

“Does the American voting public have the guts/brains to elect those who will “bring the economic pain (deflation)” over those who keep the dollars and easy-money flowing thus keeping the economy running full speed ahead and high employment numbers?”

Yes. It will happen. It IS happening already. For example, even as union thugs have stepped up their threats against one governor, they just aren’t gaining any ground. People have figured out that they need whatever money they have so they can pay off their debts and/or manage to save and get by. It’s them or the moochers, so off the life-boats the moochers go. And the more depressing this gets, the more willing and able government will become to make those “unthinkable” cuts.

The best part is, all these cuts (and more to come yet) are going to have the necessary backing by the majority. Couldn’t ask for better than that if you’re running this game. Mobs would hang the bankers so high as to decapitate them if they knew what they were doing. But instead, the mobs are on their side.

Carol April 6, 2011, 4:31 pm

Photo ,

you stated “It’s not just J6P who gets to pay off his mortgage with “confetti money,” but the FR gets to pay off its treasuries in the same manner.”

Well from what you said you think the FR is a debtor and the US is the creditor? I believe you have it backwards, the FR lends to the US guvmnt so in a hyperinflation it would be the US guvmnt paying confetti money to the FR to pay off US debts. Since the FR is owned by the Masters of the Universe (MOTU) I would have to agree with Rick here; why would the MOTU sit by and allow themselves to be transformed from creditors (owners) of the world into losing that position (by being paid off) AND losing their strangle hold over mankind by way of confetti money?

PhotoRadarScam April 6, 2011, 5:09 pm

Sorry, it was late when I wrote that. Still, the FR-insiders’ interests are now more global than local, and more power than monetary. The next step to global domination involves subverting the USD so a new global currency can be created. The MOTU will come out of this transition just fine, don’t worry about them.

GrahamR April 6, 2011, 9:00 am

Very interesting debate….but I think you’re missing a crucial point Rick…

Hyperinflation doesn’t have to happen through supply / demand of currency….it can and usually does happen when there is a loss of faith in the currency..

That loss of faith has already started to happen with all currencies, especially the dollar.

Interesting article last year posted on Zerohedge that you might find interesting:

http://www.zerohedge.com/article/perspectives-rosenberg-hyperinflation-loss-faith-currency

Rick Ackerman April 6, 2011, 9:27 am

I’ve explicitly addressed exactly this point numerous times, Graham.

Rich April 6, 2011, 8:51 am

Rick et al
Came here immediately upon seeing GL’s ZH post:
http://www.zerohedge.com/article/gonzalo-lira-vs-rick-ackerman-slicing-logic-behind-no-hyperinflation-argument
His Inflationista claim to fame was being from Allende Chile and Dartmouth, taking Logic Courses, writing books and making Movies. Bully, but not finance.
He got a lot of posts from the I side of the I/D debate, was ridiculed off ZH for not knowing what he was writing about with Banking, the Fed and hyperinflation, after ZH featured him as a Contributor.
Too, his ultimate logic was ad hominem attacks.
I was struck again today by the difference between financial markets, opinions about markets and reality, as I saw all the empty buildings, homes and stores.
How many armchair analysts actually get up and walk around downtown or across America to see what’s really going down?
We have a stock market supported by little beyond Fed liquidity, which so far worked for REIT stocks, but not real estate itself.
We have St Louis Fed charts openly graphing deflation, yet the majority think new highs in gold are inflation, while the 30s when gold soared were deflationary.
We have Congress debating about closing government down over $64 B in cuts, when the budget deficit is $1.4 T.
As the story goes, Plato theorized how many teeth the horse had, while Aristotle looked inside his mouth.
Methinks some people may be sorely surprised when the denouement comes, as surely, eventually it will, and wipes them out…
Regards*All

Andy B April 6, 2011, 8:49 am

Rick,
Thanks for this detailed follow-up to your last post. You also directly take on Gonzo’s points I saw in Zero Hedge today. Both of you provide a valuable discussion.

I think precious metals are part of the “answer” no matter how the cookie crumbles. The metals occupy an important space between the poles of the (semi-symbolic) US Dollar, and the irrefutably valuable (like farm land or food.)

&&&&&&&&

I have personal e-mails from Jim, and, trust me, he is a died-in-the-wool inflationist. RA

Benjamin April 6, 2011, 8:34 am

This is a gem with many sparkling points, Rick. But there is one that I can’t tell from a flaw or a trick of the light…

“Try to withdraw $25,000 from your own branch if you want to find out the truth. He’ll probably say that the banks, with a nod from Uncle Sam, could refill everyone’s account with digital money overnight. I say, think about that for a moment – about the economically fatal traffic jam this would create instantly in the world of real transactions.”

Okay, I’m drawing a blank. Instant and fatal traffic jams, world-wide? Do you mean hyperinflation? I’m inclined to think so, since a nod from Uncle Slimeball would be the political action you’ve so often refered to as necessary to trigger HI. Still, I’m not sure what you’re getting at, so I have to ask.

But if that is it, I think there is a way they could get away with refilling accounts: Ration cards of digital cash, aka national ID. Uncle will fill up your bank account to the extent that you need, but only for the things Uncle approves of. I think that is where we’re headed because if that isn’t done… Well, forget bank runs. It would be more like bank riots. There’s just no way the masses are going to stand for having the banks rob them. So free refills (with restrictions) it may well be. If they don’t keep tight control on what the digits are spent on, KA-BOOM!, which is what TPTB don’t want.

Not that this would be hyper-inflationary. Nor even inflationary as we might expect; inflation in the price of necessities would likely be hidden by price-fixing. Those would be accomplished partly by what the rest of the itching-to-riot world would bear, with the rest absorbed by the prices of non-essentials (plus a hefty luxury tax slapped on; do as Uncle says, kiddies).

Rick Ackerman April 6, 2011, 9:05 am

Yes, right: Not that digital ration cards would be inflationary, let alone hyperinflationary.

Benjamin April 6, 2011, 11:12 am

Thanks for the clarification, Rick.

Rasputin_007 April 6, 2011, 11:26 am

Rick ! I am not sure if your criticism of Jim Willie is correct. Maybe you misunderstand him. He says that a deflationary spiral in an inflationary money environment emerges and this is not a contradiction. The real economy shrinks but the financial monetary output has multiplied in the past years driving up hard asset prices while interest related assets collaps. I enjoy all the time these debates but the result is desastrous for most people in the world. Anyway. I like your analyses. Arnd / Germany

Bed Rock April 6, 2011, 8:00 am

Rick,
Thanks for starting this debate (again). I think all of your, Willie’s, and Lira’s readers (many of whom are the same, I know that I am) are not really concerned about whether it will be inflation or deflation but what to do to prepare themselves to survive or prosper from whatever is going to happen. Gold, silver, cash (US and other currencies), mining stock certificates in your hand, food, water, gun & ammo, generators, close friends with deversified talents, things to use as barter, etc are what I been loading up on for years. Do the same and you will be prepared for what ever comes our way. Sleep well and enjoy your family & friends. So keep posting the photos of pretty girls and enjoy your beverage of choice !!!

Bc April 6, 2011, 7:50 am

Excellent post. I would add that what is coming is bankruptcies. Lots and lots of them. Cities, states, individuals, companies, are going to restructure debts on the way into bankruptcy and then again by a federal judge
Skilled in bankruptcy proceedings. We can and should deficit spend to help the poor and infirm per Keynes. There is no way to save the middle class from severe stress. The FIRE sector will shrink from forty percent of private sector profits to less than five percent. On the bright side we should see schumpeter’s creative destruction on steroids aided by 3D CAD and CAM products and the Internet. It won’t be all bad but it will be
hard times.

nobull April 6, 2011, 4:26 pm

The premise of this argument – that the rich and powerful men of the Fed would be wiped our by hyperinflation – is clearly patently false. Guaranty you they own gold, silver and other hard assets. Alan Greenspan is on John Paulson’s payroll as an advisor, and almost certainly is a proponent of Paulson offering investments in his funds denominated in gold. In a hyperinflationary event, the unprepared rich (i.e. most ostensibly wealthy people) will be wiped out, while the PREPARED rich (i.e. the few who own gold, silver, and other hard assets) will be much wealthier on a relative basis……

&&&&&

Begging your pardon, but the super-rich whom I know personally — one married a childhood friend owns a major league baseball team and dozens of tall office buildings — don’t give a hoot about gold and silver. Even Soros is not 100% in bullion, and who can say what his exposure is otherwise? Anyone with billions to diversify has a very, very difficult problem since, these days, there is no defensive asset — other than bullion — that can be bought-and-held. Those who went into Treasurys, munis, and other supposedly rock-solid defensive assets found this out the hard way. RA

roger erickson April 6, 2011, 4:59 pm

> gold, silver and other hard assets

The hardest asset of all is return-on-coordination, otherwise social species wouldn’t dominate the earth, humans wouldn’t be balkanized into competing nation-states, and those practicing military science wouldn’t hold the master key to our particular fortress-state.

Deflation/Inflation are the tolerance limits set by producer/rentier contributors to a scaling population & economy.

If we don’t stay within tolerance limits, there will be a pushing match and a slow series of negotiated settlements between these vocal segments, each backed by supporters recruited from the general populace.

Or, we’ll sit arguing too long and then get run over by some other nation keeping their eye on the prize.

Robert April 6, 2011, 5:42 pm

“The hardest asset of all is return-on-coordination”

I agree, because those who would choose to “coordinate” others are overwhelmingly NOT QUALIFIED to do so.

I work in Corporate America- I see the number of key, strategic decisions made everyday by people who do not understand the basic underlying criteria of what constitutes the right thing to do given the circumstances… so they make blanket judgement calls that amount to an intellectual flip of the coin.

The higher you go, the more clueless the decision process becomes, until you get to governmental regulators who fail in understanding even the fundamental foundations of the industries they are charged to over-look…

There are other key metrics that are missing on a global scale:

1) Return on personal incentive
2) Return on entreprenuerism
3) Return on intellectual discipline

Rich April 6, 2011, 7:27 pm

Murphy’s Law at work…

Steve April 6, 2011, 7:29 pm

Thank you Robert !

Paul April 7, 2011, 3:54 am

Roger

“If we don’t stay within tolerance limits, there will be a pushing match and a slow series of negotiated settlements between these vocal segments”

This negotation is continous, and is normally apparent in various yields, most notably govt bond yields. What happens in a hyperinflation, is that the tolerance has been pushed so far, the “language” of the negotiation changes. In Weimar, this language changed fairly slowly, from Marks to Dollars/Gold. In a breakdown, the language changes abruptly. Rick is confusing a fast language change with a fast negotation.

RR April 7, 2011, 6:31 am

Rick – while off topic, I must ask…Lew Wolff?



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