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Inflationistas Have Been Mighty Quiet Lately

By Rick Ackerman Posted on May 20, 2010, 12:01 am EDT Last Updated June 2, 2010, 1:13 am EDT

We backed off the inflation/deflation debate a few months ago when we started feeling sorry for the inflationists, who seemed hopelessly out of touch with the real world.  As far as we were concerned there was nothing to debate, since, other than what we’ve referred to as grocery-store inflation, no evidence existed that prices were about to rise, let alone explode. That is still true.  What on earth could they have been thinking? It should have been clear enough that the monetarists needed to revamp their outmoded theories after rampant easing in the wake of the S&L debacle 20 years ago failed to generate any meaningful inflation at the consumer level. What we got instead was a new strain of “good” inflation that seemed to benefit everyone.  Indeed, few complaints were heard from homeowners whose properties were increasing in value by 15% or more per year, nor were financiers whining about the soaring collateral values that made it possible for them to leverage $60 trillion worth of global GDP into a derivatives edifice with a notional value exceeding $600 trillion.

The supermarket: One of the few places we find inflation lately

And now we’ve got the “bad” kind of deflation, with a moribund housing market that has so far failed to respond to trillions of dollars worth of intended stimulus, either direct or indirect. Freddie Mac, for one, has nearly tripled its book, filling the shoes of all the profligate subprime lenders who nearly took the financial system down a couple of years ago. Thus, rather than gearing the mortgage market toward precipitous failure, the government has been dribbling out subsidies of $10 billion to $15 billion to the GSEs each quarter that we hardly even notice any more.

Hyperinflation, But Too Late…

We’ve made this point a hundred times, but we will make it again:  Hyperinflation is coming, for sure, but it will not likely come in time to bail out the scores of millions of homeowners in the U.S. whose mortgages are underwater. So any time you hear an inflationist blather on about how the Fed ultimately “won’t let deflation happen,” make him explain what the implications are for mortgage debtors.  For if borrowers are to skip and go naked, so to speak, that implies that the likes of Goldman Sachs, J.P. Morgan, B of A, Wells Fargo and their respective bondholders and shareholders will take a bath. Somehow this doesn’t sound quite right to us.  In any case, with reports yesterday that consumer inflation hit a 44-year low, and considering  Europe’s ongoing deleveraging of their books into a deflationary bog, we can appreciate why the inflationists have had so little to say lately.

  • Jeff Kahn June 3, 2010, 12:46 pm

    Actually, to the average human being in the USA inflation is horrible. It’s not just food, it’s education, healthcare, gas, electricity, heating, repair work – and even with this downturn, housing is still historically very expensive. If you have 3 kids in NYC it will cost close to a million dollars to send them through private high school/ When I went to Yale way back when, it was the most expensive college in the US at 10,000 dollars a year. Now you can’t find a kindergarten for that in New York. Generations of kids graduate University hundreds of thousands in debt. No doubt we are now in a devastating ASSET DEFLATION that will wreak havoc on our economy, but only the very rich don’t understand the devastating PRICE INFLATION in this economy..

  • Scott May 22, 2010, 5:07 pm

    Deflation? Rents are NOT going down. The Wall St Journal has increase 200% in price in the last few years, gotta love seeing the price with a deflationary article under it, ha! “we started feeling sorry for the inflationists, who seemed hopelessly out of touch with the real world” Who’s out of touch here? Gold at all times highs in most world currencies, no? Gov residential rents at $875-$1050 not being lowered. So food, energy, rents, metals all at all time highs but you say inflationist are hopelessly out of touch??? I will give you the obvious point of housing deflation but as stated, rents have not decreased. A new Toyota for $25,000. Yep, deflation haha, oh my. McDonald’s fry for $3.50, yep, deflation all over that one for sure, hahaha.

    &&&&&

    What planet are you living on, dude? Do I need to listen to this factually challenged drivel yet again? How would an alleged increase in the price of the Wall Street Journal begin to offset the delevering of America’s and Europe’s economies and of an $800 trillion global derivatives bubble? In which city, pray tell, are rents at an “all-time high”? And, do you really want to include fast food outlets — and cars — in your dimly conceived index of inflation indicators? RA

  • Rich May 21, 2010, 8:19 pm

    Some great market dialogue here.
    Argentina an interesting case, ultimately quite different from the USA, as Mexican, Russian and Asian hyperinflationary devaluations were.
    Blessed by the 8th largest land area in the world, with many abundant natural resources, including vast arable land, hydro, minerals, oil (Falklands), plus the largest educated middle class in Latin America (40%), Argentina was one of the largest economies in the world, growing at 8% a year with a gold peso, currency pegged to the Pound and Dollar and significant capital markets including bonds.
    Defaults on these bonds nearly took down Barings, Merchant Bank for the Royals, a century ago before the Singapore rogue trader did with the Asia defaults.
    Then national socialism plundered Argentina with taxes and domestic violence, destroying capital markets, bringing 40% and higher inflation rates, with defaults, devaluation and pension confiscations PRECEDED by interest rates going up tenfold.
    Of course all this destroyed the middle class and Argentine prosperity, putting Argentina on sale to the IMF and rest of the world.
    Predicting impending hyperinflation may be problematic at best. While this may be the ultimate destiny of America and the Almighty Dollar after we are dead and gone, and we do have runaway deficits with income and hidden health care and financial red tape and taxes driving the 10% shadowstat.com CPI, we do not (yet) have runaway interest rates sucking the life and cash out of everything as they did in Argentina, Asia and Russia. Who would buy Treasuries if they thought they were going to go down? Right now they are enjoying the tectonic titanic trillions of Euros headed our way as safe haven sovereign of last resort.
    We do have $106 Trillion in unfunded government agency mandates and $212 Trillion in American banking OTC Derivatives overhanging the economy. Government may of course have to default on these promises and face defenestration.
    If the trains stop running on time, the pipelines, refineries or transportation are sabotaged by terrorists (again) or we bomb Iran, we may see supply bottlenecks driving food and oil prices into the stratosphere like Icelandic Ash. This may be polkadot inflation, while the rest of assets and economy continue to head south.
    Who really thinks the consumer corporate government debt derivative obligation bubble will be repaid on time rather than defaulted, creating overall deflation rather than inflation?
    Inflationistas extrapolate the generations since 1913 with the Private Fed Central Bank continuing to engineer fiat money debt usury inflation with the help of a willing government Treasury. Congress derailed the Fed Audit yet again, but the Tea Baggers will be out to vote and remove incumbents this Fall.
    The record of history going back to Old Testament times shows usury always sows the seeds of its own destruction. It’s not every day we have both chairs of Pimco on CNBC talking up bonds.
    Service on the national debt is the fourth largest budget item anticipated to quadruple in coming years. It steals money from other assets. Long inflationary financial forces peaked in real terms in the 2000 Jubilee and are now deflating.
    All the hedge fund risk assets bought with borrowed money, including casino commodities, houses, precious metals and stocks, are deflating, gold going from $1249.70 to $1166, -6% in a week as a bellringer.
    Money supplies including shadowstat.com M3 since 2008 have been contracting, not expanding.
    M3 correlates with Gold and a lot of other assets.
    Bottom line – the Fed foot is on the brake, despite misguided claims by the gold bug religion.
    Even if the Fed wanted to, it cannot engineer any more inflation by pushing on a monetary string when anyone with a brain wants to get out from under crippling debt.
    The Fed, having loaded its balance sheet with monetized assets including Forex currencies, mortgages and Treasuries, doubling the monetary base two years ago, had to stop that or face inflation. Since then it has slowed monetary base growth -90%. If there is indeed another dip, there may be no more TARP and TELF Fed bank bailouts. We have no financial lifelines left.
    (While 1000 Fed economists may make no more accurate forecasts than most, the idea that today’s gold bugs are smarter than Fed Chairs, one of whom was a gold bug in 1966, is preposterous and may be dangerous trading capital or wealth.)
    Now what the Fed may face is the inability to stop deflation, with the urgent question of where to pass defaulting and deflating assets on their books.
    FDIC, FISA, FNM, FRM, HUD, OPIC, PBGC and many Federal Agencies seem a little too upside down at the moment to bail out the Fed.
    Billionaire vulture capitalists may not be interested until much lower prices.
    Thus, we see more deflation, with much lower asset prices.
    We face the interesting possibility the Dollar may of necessity return from Federal Reserve Note to low interest Treasury Note Greenback as it was under Lincoln, zero interest Silver Certificate as it was under JFK or even non-usury Copper Currency under Solomon.
    Larry Silverstein completing his World Trade Center rebuild by September 11th 2010 is remindful of the Empire State Building and Rockefeller Center finished during the last Depression.
    Markets may now be holding their collective breath for the next sovereign default, Greece perhaps the Bear Stearns before Lehman.
    Meanwhile, the Euro/Yen swap did a pretty good job of calling roller coaster market moves.
    Re the dollar recovering much of its loss since 1913, that’s what deflation does.
    After the largest debt ratios since 1913, we are overdue for the largest debt default deflation since 1913.
    We have elections this Fall that may determine whether we go further down the road toward National Socialism devaluation and theft or return to the productive policies and values that made America great…

    • Richard May 22, 2010, 5:03 pm

      Great article! The insight and detail are exceptional, however, the dollar will fail. Has any fiat currency country that has ever defaulted seen its existing currency maintain or increase in value?? So the dollar will stop falling because Bernanke has applied the breaks to money supply? They’re into unlimited swaps, SDRs, off the books accounting, buying US Debt, holding worthless assets, the FDIC has ($ 20 Billlion) of insurance for $ 4.5 trillion of Deposits, and on and on and on. Can’t see it, but I am listening.

      Respectfully, Richard

  • gary leibowitz May 21, 2010, 8:15 pm

    Reply to Richard,

    Sorry i am a bit late to respond.

    The argument on where the dollar goes has been argued years ago when the past administration decided to trash the dollar to support the stock market and earnings.

    I will give you the same argument I gave back then. The dollar’s value is relative against all others. All others are in the same boat we are. Thats why our dollar is strong now. Others have caught the debt contagion later then us.

  • DG May 21, 2010, 6:06 am

    http://www.americanthinker.com/blog/2010/05/one_financial_doomsday_scenari.html

  • DG May 21, 2010, 4:27 am

    In 1972 the Fed saw absolutely no threat of inflation on the horizon. Their prediction for 1973 was 10% GDP growth and very modest 2.5% inflation, 4.5% unemployment….oops.

    The data we have, not the hyperbole spoken, is that the last decade was the worst on historical record for stocks. Thats the facts, jack. At the same time we saw commodities rise 4, 5, 6 times plus….or currencies fell, take your pick.
    The comment about the dollar regaining the value it has lost since the inception of the Fed is senseless. Is this a trend? How? The bounce we have seen so far is like the Yankees losing a game and dooming them forever. (I can’t stand the yankees, btw) Is BS Bernanke going to demolish his money helicoptor? He will fight the obvious deflation with more dollars. He has stated this, and acted on it. I have spent some of those phony dollars with silly tax credits. I am pretty sure that even his econ 101 class stated that increasing supply in the midst of decreasing demand caused prices to drop…

    I think you keep dancing with the one that brung ya. Sell stocks, buy gold. That ratio has been a near straight line from upper left corner to lower right. Today, for example. When that trend changes, change. Until then, see you at one:one. When? Who knows. I guarantee you when it gets here it will be big doom and gloom. Big. Frightening.

  • gary leibowitz May 20, 2010, 11:10 pm

    Inflation in the future? Absolutely not! The CPI has shown more negative readings month over month this year then all 50 years prior.

    With governments finally forced to reign in their spending and make job cuts th idea that Uncle Ben can prevent deflation is a joke. Lets not forget the readjustment of the ARMS going forward.

    If you saw Gold get spooked by deflation wait till it really kicks in.

    Global debt contagion is no longer a qustion of when. My 7 year mantra has been Debt, Deflation, Depression.
    Looks like my 7 years are up.

    The 50 year experiment to prevent deflation by controlling money supply and easy credit has created such a monster debt load that it is imposible to fix. Lenders have already figured this out.

    I finally timed my option bet with that nice spike last week. If the 1221 top was “the” top we should see a breakdown starting tomorrow. The SPX should hit a tad below 1040 -35 before rebounding. If it never gets there then we should have yet another new high before the fat-lady-sings. I suspect we hit the targets on the low side tomorrow and have one final mini-rally before the whole thing crashes down below last years lows.

    Exciting times to bet.

    • Richard May 21, 2010, 4:32 pm

      You believe the current CPI ??? Go to Shadow Statistics and get the real numbers. The value of a currency determines hyperinflation. Tell me where you see the dollar going? Look to Argentia’s history and you will find the answer.

  • Antonius May 20, 2010, 9:23 pm

    Of course hyperinflation wouldn’t save the common man. That’s not the point. The point of hyperinflation is to save the government. The government needs to get money (i.e., wealth) from somebody. What easier way than taking it from the populace through the destruction of the currency? Currencies can be always replaced.

    You might argue that this couldn’t happen because it would also mean the willful destruction of the financial system, but when push comes to shove, the banks will find out that the government is nobody’s friend; it’s interested only in self-preservation, and if its friend the banks have to be sacrificed so the government can survive, then so be it.

    This brings up the most important point: Hyperinflation is a political act. Hyperinflation is never accidental — it’s a deliberate choice made by politicians. And faced with the dawning realization that a deflationary scenario of crushing debt will mean a certainty of being thrown out of office, the choice is clear: It’s safer politically to hyperinflate. After all, the Weimar Republic didn’t collapse in 1923, and Mugabe is still in power today.

    &&&&&&

    Well said, Antonius. You are right — hyperinflation cannot occur other than by political design. However, even our terminally corrupt, failing government will not come easily to the decision to destroy all savers and lenders, pensioners and retirees, the banking system and the bond markets as will occur when the Fed goes into high gear, buying virtually all Treasury debt.     RA

    • Rich May 21, 2010, 1:25 am

      The Third Reich replaced the 1919 post WWI liberal democratic Weimar Republic in 1933 after a decade of unemployment and wheelbarrow money with the fire in the Reichstag Parliament that led to Adolph Hitler, Hirohito, Mussolini and WWII.

      The historical lesson may not be lost on dis-elected politicians reaping the harvest of their deliberate inflationary neoKeynesian borrow and spend policies since 1929.

      Markets have a way of fixing excesses.

      When government kills the middle class goose laying the golden eggs, Big D Big G goews out of existence.

      IRS individual revenues plummeted the last two years. Only Pelosi and Reid refused to acknowledge what Obama said:

      “We are out of money.”

      “Money is the mother’s milk of all politics” said Big Daddy Jesse Unruh, CA Speaker of the House.

      The FDIC is upside down, depending on a bogus $500 B credit line from the Treasury that can be revoked when tax revenues disappear and Treasury rates rise with default risk.

      The Fed could go bankrupt like member banks with upside down assets dwarfing deposits and reserves.

      Weiss is begging the other ratings agencies to lower the USA Credit Rating from AAA to reflect reality.

      There’s ash in the sky, blood in the streets and crude in the water.

      How anyone gets hyperinflation out of that is beyond my ken….

    • Richard May 21, 2010, 7:12 pm

      Hyperinflation (one definition of which is consumer prices increases of more than 50% per annum). Peter Bernholz (Professor of Economics at the University of Basel) studied the world’s 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.
      For the United States last year’s deficit of $1.4 trillion amounted to 40% of the $3.6 trillion in expenses. And deficit for first two months of the current fiscal year (Oct/Nov) is running higher than the same period last year….
      Rather than a crisis of confidence, hyperinflation results from a crisis of credibility. Hyperinflation results when the social, legal and political structures that create the value of paper money break down. When a government borrows excessively and its promises to repay are contradicted by mathematical realities, the value of its currency cannot be maintained. If a government so lacks credibility that it cannot issue bonds because there are no buyers other than its own central bank, the value of its currency declines faster than money is printed to cover its obligations. Perhaps the most important indicator of impending hyperinflation is whether the statements of a government or of its central bank, e.g., with respect to the government’s budget or the central bank’s balance sheet, are evidence based or ideological. If they are not evidence based, the credibility of the government or central bank, and its currency, will weaken and eventually fail.
      Ordinarily, supply and demand factors govern the value of money and the prices of goods, but money has another, deeper level of value apart from its role as a medium of exchange and unit of account. When money is not redeemable, it is, in effect, a contract and, as such, it can instantly become more worthless than the paper it is printed on if the agreement that gives it value is null and void.

  • KEVIN May 20, 2010, 9:04 pm

    MONEY PRINTING = INFLATION

    03/19/2010 12,661,039,727,506.65

    05/18/2010 12,984,666,665,110.57

    THE EFFECTS OF INFLATION ARE LAGGING BUT THIS IS STILL INFLATION. I’LL COMMENT WHEN IT STOPS. IN REGARDS TO EFFECTS, MEDICLE UP 17% THIS YEAR. WHY HAVEEN’T I HEARD THE DEFLATIONISTS ON THIS THE LAST FEW MONTHS. IF TIT FOR TAT IS THE GAME – NOT INTERESTED.

  • wiggins May 20, 2010, 8:12 pm

    the dollar is hope and the root of the problem-the world has been dollarized since bretton woods and since nixon shut the gold window on august of 71′

    no fiat currency has ever survived-the past 39 years have been an anomaly-not the norm.

    all paper monies are losing purchasing power against real goods-merely at different rates. Smith is right-the prices seldom drop.

    unpayable debt has two solutions-default and debase-both are possible, the inflation deflation debate is a staw man for your amusement-I wish rick would stop indulging it.

    both are possible at the same time-and we have it now-oil remains higher than it was 10 years ago, gold is higher (and will go far higher still as smith has read roy jastram’s (UC Berkeley rip professor “the golden constsnt”)

    home prices are collapsing food remains high, (compared to the bubble peak) oil is high, but moswt importantly-all money has lost purchasing power despite the deflationary pressures at work, wages are being pushed down-but the debt remains oversized and truly beyond payment short of higher taxes-which one gets nothing for-just sent it straight to iraq, social security and medicare-forget about your schools-now 19th out of 20th with the uk dead last, your healthcare and your kids future-the only jobs will be in the army.

    in short, the only asset that will survive and thrive is gold-it is the only real money universally trusted and more and more are realizing it. Paper money and debt are the root cause and the size of the debt will be the undoing of paper money as sovereign debt goes the way of CDO’s

    “gold will be a part of the monetary system in the 21st century” I will simply add-whether they like it or not.

    robert mundell 1997

    • Rich May 21, 2010, 12:54 am

      USA still with more economic and military power than any other nation or region on the face of earth.
      When we sneeze, China, Germany and Japan catch cold.
      This awesome power defends US dollar and global oil supplies, one of the reasons China and Russia covertly arm revolutionary insurgent proxies in Africa, Asia, Cuba, Iran, Venezuela and elsewhere to grab natural resources.
      Fortunately, many neighbors in those volatile areas learned the folly of broken Big Brother promises disguised as fraternal Socialism and began to protect lives, property and prosperity per the Bill of sovereign Rights in our Constitution.
      Fall elections may get US back on track by getting rid of Big Deficit Government Red Tape incumbents.
      Maybe they could exhume the spirit of Maggie Thatcher and Ronald Reagan.
      The dollar was around in six centuries, before the founding of this Republic, in various forms, some fiat, some species, like the Spanish Dollar.
      Longer than most of us live.
      To think this century may see the destruction of the dollar goes against the long-term trend to be sure.
      Speaking of Roy Jastram’s Gold, the Eternal Constant, first read in ’77, would we rather have XOM with dividends or gold with costs to grow and store our wealth?
      Gold went from $850 in 1980 to $255.80 in 1999 to $850 in 2007, a 27 year sideways recovery, hardly constant profitable most of the time.
      Putting faith in gold after a double top at $1226.40 and $1249.30 may be akin to faith healing.
      It may feel good, but the margin calls, risks and costs can kill you as surely as the housing hype about the American Dream.
      When Nelson Bunker Hunt bankrupted themselves in 1980 with silver, their sister Caroline did fine keeping her money in cash.
      Since the American Gold and Silver Eagles Bullion Coin program was introduced by the US Mint, every year of record peak production marked a top.
      Guess what?…

    • Richard May 21, 2010, 7:09 pm

      Economic power based upon its debt being purchased by the Fed?? Helicopters are outdated in true modern warefare and Bernanke’s ‘money-model’ is disfunctional. $ 7 trillion of debt to fund/rollover in next 3 years. I am not sure this includes all the deficits, but it definitely doesn’t include trillions of dollars of future liabiliaties and all the bankrupt GSEs and FGCs. Paying Debt with Debt, tell me how that works!!

  • Rich May 20, 2010, 6:49 pm

    Late billionaire international fund manager and philanthropist Sir John Templeton said that all assets decline the amount they were borrowed. Even with today’s -303 point drop in the Dow and -18.40 gash in gold, we have a long way to go. Will not be surprised to see the dollar recover much of its -98% loss since $20 an ounce gold…

    • Richard May 21, 2010, 4:26 pm

      The dollar will not recover most of it 98% loss. No fiat currency has ever done this and the largest debtor in the world can’t make this happen. The US currently has the best cash/trash, but it all goes in the dumpster eventually.

  • TahoeBilly May 20, 2010, 5:47 pm

    It seems to me as a laymen that hyperinflation must be in a large way connected to the breakdown of goods being distributed for any length of time. If their was say a major upset in the system of payments between trading parties, you end up with shortages. Shortages for too long obviously turn into sky rocketing demand. I am sure this nothing new, but it seems to me to have hyper inflation you would really only need a major distruption of the payment system for goods or a serious drop in production of those goods.

  • warren May 20, 2010, 5:28 pm

    Benjamin has it nailed, and the deep end is very, very deep indeed. Today’s market action is just another warning. Step back, take a deep breath, and hang on for the ride.

  • Rich May 20, 2010, 5:11 pm

    How would hyperinflation save anyone? Property taxes ,
    local government services, food , fuel and everyday needs would skyrocket and eat up any minimal savings people had quickly.Very , very few have significant amounts of metals.

    The only people it would benifit would be someone sitting on a pile of gold and silver and not just hundreds of ounces. And who really would want to live in the disgusting environment of hyperinflation. Anyone who could leave would do so faster than you could utter CDS.

    I think most hyper-inflationists fear it not relish it.

    • Richard May 21, 2010, 4:09 pm

      I don’t say that hyperinflation is good and of course economic gravity will prevail, but look to Argentina, it has all happened before and does so there about every 12 to 14 years.

      Richard

  • BDTR May 20, 2010, 4:48 pm

    This I/D debate is a diversionary exercise. There’s no real debate about the long term consequences of central bankster control of the money supply, the history of fiat is what it is. As Rick, ‘the deflationist’, says, “hyper-inflation is coming”. It’s clear what the global, de-facto monetary reserve is.

    What confuses both the policy perps and their consumer/citizen/investor marks is the timing in expectations of relative price impacts on any given market segment. Extremes in relative sector ‘value’ occur at irregular intervals months or years after injections of stimulus work their mal-investment distortion magic. As witnessed with the recent “flash panic’, resulting ‘value’ is increasingly unreal in the paper chase. Timing a short term, vastly institutional trader/tech manipulated market is a roulette game for most, (except for those with tools like proprietary ‘hidden pivots’;) juxtaposed against the engineered uncertainty of big money, propaganda driven markets and the diversionary politics of fear and hate.

    Volatility is a friend only if you’re a disciplined trader able to distinguish the short/intermediate term technical probabilities from the long term trends, have a long term core investment in gold and silver, and are intent on capital preservation through reasonable risk management.

    All will suffer the socio-economic ravages of the prevailing corruption into the foreseeable future. But as in all cycles, laws of physics will apply to a restored equilibrium for the survivors of a storm of greed, fear and ignorance.

    Let’s hope that we’re the better for it.

    • Rich May 20, 2010, 11:37 pm

      First deflationary defaults, then very slow reinflation?
      It took FDR neo-Keynesian bankers and World War II over three decades to get the Dow back to where it was in 1929 in real terms. The 1933 -75% devaluation of the dollar from $20 gold to $35 gold was only a brief blip in the CPI and GDP, which then went back to deflation and deleveraging. That’s why the American Dream worked for those who saved and paid cash…

    • Richard May 21, 2010, 4:20 pm

      Respectfully disagree that I/D debate is a diversion as it is what will drive everything back to equilibrium. I don’t claim to have anything new to say, just trying to make it clear that the world is bankrupt when the ‘truth’ is understood. I can’t predict the the exact consequencies, but history and reality always help to provide a clearer perspective of the future possibilities.

  • Other Paul May 20, 2010, 4:30 pm

    When our credit/debit cards are not accepted, the ATM machines are not working, and we can’t cash checks at the bank, then we’ll see results from the “final exam” for what is inflating and deflating in terms of fiat currency, hard assets, and barterable goods and services.

    • Richard May 21, 2010, 4:14 pm

      Look to Argentina. You just described what happens there about every 12 to 14 years. The Argentinian currency went to the value of ‘dirt’. Look to Germany after WWI and how debt destroyed their currency. Debt eats all fiat.

  • Richard May 20, 2010, 4:11 pm

    Ooops! We forgot the Monster from the Id, DEBT! DEBT is definitely hyperinflation and it can only be paid with more make-believe fiat currency. Inflation is in the value of a currency and fiat failure is accelerating more rapidly every day. Unfortunately, most only look at the surface of the world’s economic problems and fail to investigate it to any real depth. Default or inflate, there are no other answers as economies around the world continue to kill themselves with electronic zeros and let’s pretend accounting. Forget those phoney Government GDP, CPI, Unemployment, etc., etc. statistics and understand that steal, spend, and tax is a dead-end.

    FACT: Even the U.S. Government Accountability Office (GAO) — the auditing arm of the U.S. Congress — warns that the nation’s deficits and debts are now so overwhelming, America may face fiscal Armageddon. America’s gold reserves, if it still has them, no physical audit since 1954, would only barely cover the January 2010 deficit and are worth less than 1/5th of this year’s deficit. Unfortunately, the possibility of fiscal Armageddon is now everywhere and unstoppable. GAAP accounting reveals most Governments, including the USA, are Bankrupt already.

    • Rich May 20, 2010, 11:31 pm

      US gold reserves valued at $42 an ounce.
      Insolvent defaulting debt definitely not hyperinflation, but a scramble for cash…

    • Richard May 21, 2010, 4:02 pm

      Rick. I valued Gold based on the current market and the amount of suppossed Gold the US has, about 8,300 tons. Also, when the US leases its gold, it doesn’t do it based on $ 42/oz, that’s just a number that is certainly not relevant to anything. Using the ridiculous $ 42 number doesn’t even provide enough money for the US to pay its bills for a single day. The US deficit for January alone was over $ 220 Billion and all of the US Gold is worth only about $ 300 billion at $ 1150 per oz. The Gold reserves of Cetral Governments, at their current value, have no ‘ju-ju’ for paying off debt.

      You and I differ on the definition of inflation. I would call current events perhaps a false search for what is ‘trash’ vs. real money. Currencies/Fiats always fail and they have all been failing since their inception. Real money, not currency, has intrinsic value and is not based on the ‘full faith, the false promises, and false accounting of any Government. There isn’t enough of this ‘cash’ around to pay off the world’s debt, so inflate or default remain the only ultimate solutions as no government can figure out how to stop the electronic zeros or reduce impossible built-in future liabilities. What happens to trash/cash when governments default? Look to Argentina!

      Respectfully Richard

  • Zgartz May 20, 2010, 3:07 pm

    I guess Rick hasn’t received his property or auto insurance bill this year. Or perhaps even his health insurance premium.
    Not to mention the price of vegetables.
    Some processed food is the same price or lower than last year but don’t forget to check the quantity as packages now contain less product while the price stays the same.
    One mitigating factor is the price of fuel. Once 12 months have gone by we will be comparing today’s price to a market price that hedge funds don’t control.

  • smith May 20, 2010, 2:53 pm

    The thing we forget about inflation is that it seldom reverses-has Starbucks dropped the price of coffee, Yale the price of admission-your doctor bills?
    No, they have not gone down-despite the US dollar index hitting 87-and will not go down for a long time.

    Western debt is un-payable-but that does not mean he things you need will drop in price anytime soon-houses being an exception but remember-they outpaced your income in the appreciation phase by an order of magnitude. A starting engineer makes not much more than he did 20 years ago but his money buys far less-and that is true everywhere in the world. The system is inflationary by design-to a point.

    Gold is about confidence-not about inflation or deflation-or the US dollar. It about confidence in a fractional reserve, fiat monetary system where more debt creation (bailouts, etc) are now crushing the real economy and income is being destroyed faster than the debt load.

    As the debt is unpayable the system will default-it simply cannot be bailed out fast enough. We are seeing signs of that and what comes with it in Greece, the EU and in the US as well.

    • Rich May 20, 2010, 11:30 pm

      “Gold is about confidence”

      How then to make sense of 1249 gold going to 1175 in a week plus?

      Perhaps asset defaults, liquidity preference, margin calls and risk reduction not so good for gold?

      Lots of people extrapolating from 1923 In Weimar Republic to 1933 in USA to now. We were on the gold standard then; not now…

  • mario cavolo May 20, 2010, 2:09 pm

    Celty, your thoughts and approach appreciated very much and now to be shredded 🙂
    ….atrocious that people are walking away from their mortgages?….nah, that’s way too high and mighty my friend, people are getting with the reality that they’ve been hoodwinked, played, screwed, raped, pillaged and now they are realizing it and making new choices accordingly…its nothing to do with morals, its a realistic “financial and consequence” decision, plain and simple, because the rule of the game is to know the rules of the game, and within those rules of that game, you play your hand, you pick your strategy.
    …a socialist agenda is not realistic?….again, line of thought appreciated, but reality doesn’t match…a socialist agenda IS the agenda, like it or not the leaders have carved out the road ahead…indeed huge nasty change coming down the pike for the state of global socio-economics all geared for the rising elite to be able to cover their own asses and that means the unequivocal need to provide social support to the masses they’ve fleeced, and so in the future, more and more the world will look like a global two class system of haves and have nots…Cheers, Mario

    • Celty May 20, 2010, 11:51 pm

      Benjamin, Mario,
      Thanks for the comments, and the sandbags to keep me grounded to what IS happening vs what I think should happen.
      Yes, I can get a bit High and Mighty, but that is easy to do since I was smart enough not to get hoodwinked into a bad mortgage, and not take advantage of interest only loans, or variable rate mortgages. Too bad many stupid Americans were fleeced by those banking Hucksters. I just don’t buy it, but as you said the rules of the game dictate it as fair and morals have no place. Maybe that is part of the problem.
      If hyperdeflation hits, what will have value? I get confused here. How can the Euro crash, and then the Dollar crash, and then everything crash. If everything from paper monies to all commodities drop in value, then aren’t they just staying in a sort of equilibrium?
      I know I am treading wate rhere in the deepend when I really should just try and find my way back to the shallow end and keep quiet. lol

  • Josh May 20, 2010, 11:40 am

    When I speak of “hyperinflation”, I am talking about 20-50% per year for a decade or so, not the devaluation by trillions that we saw in Wiemar Germany or Zimbabwe. In other words, the U.S. dollar will be worth, maybe, $0.20 in buying power, compared to today, by, let’s say, 2015. Then, maybe $0.10 by 2020. The banks are greatly benefited by this, especially if they speculate in commodities. That said, I believe we are about to see another bout of deflation evidence itself in the stock and commodity markets. This is necessary for the PPT conspiracy to reposition its holdings in preparation for the intentional hyperinflation that is being planned.

    &&&&&&

    The hundreds of trillions of dollars worth of debt needing to be discharged is vastly too large to permit a “moderate” inflation of 20%-30% per year. Also, there is no reason to think that a dollar that is absolutely worthless already will retain any value. RA

  • Celty May 20, 2010, 8:54 am

    Benjamin,
    I am hoping that the crumbling Socialist Model of the European Union comes as a quick wake up call to the US and it’s voters. Since the Soviet Union, it is a failed program no matter how it is sold. The simple fact is that Governments just cannot make money of worth out of thin air to take care of it’s population’s bills.
    The US was birthed out of a call for Independence. The definition of that word alone should be promoted through out our schools and Nation.
    It is the Nature of Gvts and it’s officials to want power and stay in power. People want the gvt to serve them. And that is where the perversion starts. We think the Gvt is serving us, by giving us Health Care, or Welfare, or Social Security, but in reality, it only gives Gvt power over us. Once we are on the Dole, we are hooked. Look at Greece. The Unions are protesting because they want to retract a deal that paid Union workers 14 months of pay for 12 months of work. Uh, what?
    The Gvt is bound to collapse under it’s own weight and debt, and chaos will reign.
    Thomas Jefferson where are you?
    The whole World will soon be buying Gold as insurance against fiat currencies. I hope the US has been secretly building inventories.
    I think the US is messed up. But I think the rest of the World is a total wreck.
    Africa- Mired in political corruption and Religious/Tribal unrest. A Total Black Hole for the most part.
    Europe/Russia- Prime example of the failure of Socialism, (possible) collapse of Gvt, and the corruption that could fill the void (Russia).
    Middle East- With out oil prices to support corrupt Gvts, Religious Fanaticism boils over.
    South America- Cuban Communism must fall. Hugo Chavez in VZ and his 21st Century Socialism must be outed. Countries like Brazil, Chile, Argentina, and Colombia are on the brink of success.
    Latin America- Can’t we just make Mexico a 51st state? I have no problem learning Spanish if need be.
    Japan/China/S Korea/Asia- What are they without the American Consumer?
    No matter how I look at it, the value of the US dollar to the World, will be greater than the Debt if we can control it better than everyone else, but our Gvt officials and the American voters must realize that a Socialistic agenda is not realistic, no matter how feel good it is.

    • Benjamin May 20, 2010, 4:57 pm

      South America beating a new path is news to me, as I don’t really keep up with the goings on down there. I know that fairly recently one of those countries came out of the hole, but I don’t recall hearing anything about any meaningful changes. I suppose anything could be possible. Some proof would be nice though. Some nice, enduring proof for a change, rather than promising signs and indications. If they aren’t circulating hard money, then I see them as boomeranging back into the insanity they came from.

      And speaking of going back to where they came from, I’m awfully suspicious of all this talk of immingration reform. When considered next to the current reality that nothing is really changing anywhere, and therefore falling apart, I get the impression that the U.S. is going to be a place where all the various “ist” countries are going to dump their excess expenses (read: people) so that their most precious “isms” don’t have to face failure that they think they can avoid. They aren’t just talking about amnesties. They’re talking about just granting illegals full citizenship, no questions asked. Heck, what have the Greeks to worry about? They can get their entitlements here. Mexicans? That was always a given. The question is: how much debt can we get to dance on the head of a pin?

      Same old crap, different day. Only the crap is crapier. In other news, most unemployed Americans can’t find a job because they don’t know how to write a resume’. Ask me for a dime for everytime you’ve come across a story like that since this recovery started.

  • Benjamin May 20, 2010, 5:49 am

    I’d like to put forward an idea that I had after I read this Daily Bell article the other day…

    http://www.thedailybell.com/1048/Antal-Fekete-Hyperinflation-or-Hyperdeflation.html

    You can read my comment there, third one down the list.

    I came to that conclusion when thinking about the possibilities of social unrest in Europe becoming a full-fledged repeat of the world war era. They’ve largely demilitarized and if it really came to war, then I suppose the euro would be toast, as would domestic currencies that sprung up in it’s place. The U.S. by comparison already has it all built up. So I don’t think war is a possibility for hyperinflation of the USD.

    And do lenders really want to be paid back in a currency that would become worthless overnight? What a bind they’re in. Either let it go or let it go. Hmm… I wonder what they’ll choose. In the meantime, government is ramping up to take over everything. The socialists rejoice because this looks to them like the victory they’ve sought for so long, which “proves” that supposedly free markets can’t do the job.

    I guess it could happen, but it’s all so illogical no matter what way I slice it. Oh, and lest I forget… Maybe natural disaster could do it. Maybe that’s why 2012 and every little disaster is trumped up the way it is and why so many have reduced their credibility to claiming that the earth will melt soon. Maybe it serves as a psychological balm to the suicide they know that the resulting hyperinflation would cause. But maybe it’s somehow better than drowning in depression?

    Interesting times hardly begins to describe it. Gone off the deep end is what we’ve done.

  • Celty May 20, 2010, 5:18 am

    Houses are still too expensive. Why has no one figured out the reason that average Americans have been defaulting on loans, is not because they shouldn’t have gotten tthe loans to begin with, but because the price of the houses was above that of what Average Americans could afford. Think about that. If an Average American cannot afford a house, then what is the American dream?
    On the opposite side, buy what you can afford, and honor your contracts. I find it atrocious that many are walking away from houses that they are under water on, EVEN though they can make their payments, but it is a bad investment and the penalties for walking away is minimal if any at all. Those actions hurt us all and further damage the system.
    As American’s our psyche must change. Houses and the land you live on is not a short term investment to FLIP. Your house is your HOME. Your SANCTUARY. You fight to keep it. Unfortunately, the majority that understand this have been priced out of the market by Investment home buyers, and flippers. Now, take out the defaults by these reckless investors and let’s see where we really stand. Who fueled the housing booms in Florida, Nevada, and Arizona?

  • VegasBob May 20, 2010, 3:19 am

    Inflation at some point, yes. Hyperinflation, not likely. The reason is that hyperinflation would destroy the very banks that Bernokio & Co. have worked so hard to protect.

    Think about it for a second. Can you imagine receiving a credit card statement with an APR of 2,149.50%? Of course not! The banks would have stopped extending credit and gone out of business long before that.

  • Leaf's suck May 20, 2010, 1:50 am

    Up here in Canada, I haven’t seen any ‘deflation’ at all. House prices are still way too high IMO, food prices are up in the store, we are paying $1/liter for regular gas (when oil is $71 barrel and exchange is 0.97), taxes have been going up, etc, etc. All when wages are not going up at all (or even going down slightly). So where’s the deflation? To me it certainly looks and smells like inflation….

    &&&&&

    Ahhh, Canada, ever mysterious! Does coffee up your way have an aroma? RA

  • FranSix May 20, 2010, 12:56 am

    These are the consequences of the low yield environment, where anything and everything that requires a subsidy no longer can depend on largesse, therefore prices go up at the grocery store, or airline tickets rise in price, but oil prices, and copper prices collapse.

    As for hyperinflation to occur, it will more than likely appear in the Pacific Rim first.


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