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Finally, a Hyperinflation Argument That Persuades

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[Responses to this commentary have been so illuminating and provocative that I am going to let the discussion run for another day.  If you read them all, you may come away believing, as I now do, that neither the hyperinflationists nor the deflationists can claim to know for certain how things will play out. That said, I consider FOFOA’s hyperinflation arguments to be the best offered by either camp. RA]

So, it looks like I’m a hyperinflationist after all.  Reminds me of the joke about the cowboy who chats up a woman at a bar – a lesbian, as it turns out. She tells him she spends her days thinking about nothing but women. “As soon as I get up in the morning, I think about women,” she says. “When I shower, I think about women. When I watch TV, I think about women. I even think about women when I eat. It seems that everything makes me think of women.”  The cowboy goes home that night thinking that maybe he’s a lesbian too.  Another tavern, another night:  A stock broker strikes up a conversation with a stranger who seems obsessed with the idea that hyperinflation is about to wreck the economy. “From the moment I open my eyes in the morning, my head is filled with worries about how the financial system and the world’s currencies are hurtling toward disaster. Watching the stock market rise relentlessly, I grow more certain each day that it can only end badly.  I think the real estate disaster has barely begun and that, for tens of millions of us, the American Dream is about to turn into a nightmare.”   “Hmmm,” says the stockbroker.  “I guess that makes me a hyperinflationist too.”

And so it goes. A conversation between a hardcore inflationist and an equally hardcore deflationist might meander for hours without generating much argumentative heat.  That’s because both see the financial system in smoldering ruin after the smoke has cleared; it is only on the matter of how the disaster will unfold that they disagree. I’d thought until yesterday that deflation was far more likely to do us in, turning an endless Great Recession into a Second Great Depression. My scenario called for falling prices and wages, imploding asset values and an economy drowning in bankruptcies. Hyperinflationists are expecting a quite different endgame — one in which prices soar relative to fiat money, debtors pay off loans with confetti, creditors and savers are wiped out, and hoarders of bullion live like kings. I am now convinced, after stridently arguing the case for deflation since the late 1970s, that the hyperinflationists will be right.

Stunning Insights

Why have I changed my mind?  For the answer, you’ll need to read FOFOA blogspot‘s latest essay, Deflation or Hyperinflation? Nothing I had read before it even came close to making the case for hyperinflation, since the arguments seldom went beyond nebulous theories and shoot-from-the-hip speculation.  This one does, though – and brilliantly: first by deconstructing my strongest arguments with great care and refuting them one by one; then by explaining how human nature itself, impelled by self-interest, will push our debt-addled financial system toward a hyperinflationary dénouement. There are some stunning insights along the way, the moreso because FOFOA is able to bring them to readers by making some heavy ideas go down like a soufflé.  One of them, debated endlessly, questions whether the Powers That Be would “allow” a hyperinflation to occur, since that would render their financial assets worthless.  FOFOA prepares us for his counterintuitive answer by recalling the joke about how, if you want to survive, you don’t actually need to outrun the bear that is chasing you and your friend.  This could be said of the Masters of the Universe: They won’t have to outrun hyperinflation — only to outrun the madding hoards who will be as eager as they to unload dollars in exchange for real things.

FOFOA’s logic has extremely bullish implications for gold. I’ve always been bullish on the stuff myself regardless of whether it is hyperinflation or deflation that gets us. But I was never entirely comfortable with my own arguments, since deflation in theory would render hard cash more valuable than other assets, including bullion. Reading FOFOA’s essay, however, I had an epiphany when he cited a 2002 quote from inflationist Gary North:  “I remember in 1975 hearing C. V. Myers tell attendees at a gold conference, ‘If you get this one wrong, you’ll lose everything.’ He was predicting deflation. He got it wrong. He didn’t lose everything.”  The reason Myers didn’t lose everything was that he owned gold up the wazoo, even after it peaked at $850 in 1980.  I know this because Myers wrote about it in his newsletter, but also because when I interviewed him at his Spokane home for a freelance article I’d pitched to Barron’s, he let me fondle the largest solid-gold nugget I’ve ever seen outside of the Smithsonian.  It was sitting on his desk, along with rolls of gold coins that today would be worth as much as a house.

C.C. Myers’ Dictum

Some of you will know Vern Myers as one of my guiding lights.  It was his 1977 book The Coming Deflation, with a logic that seemed immutable, that made me a deflationist. He argued, simply, that “Ultimately every penny of every debt must be paid – if not by the borrower, then by the lender.”  This implied, for one, that if debtors walked away from their mortgages, it would reduce the wealth of their creditors by exactly the amount that had been owed. Deflationists would logically infer from this that a nearly quadrillion-dollar derivatives bubble that has yet to implode will shrink the world’s wealth by that amount when the collapse finally comes. However, FOFOA (whose identity apparently is a well-guarded secret) explains how all of the hyper-leveraged paper underlying the bubble is likely to be redeemed at face value. That would be hyperinflationary, of course, but those who are able to get their hands on the money first -i.e., the Masters of the Universe – will have a chance to spend it before it becomes completely worthless.  This has implications for the mortgage debt that I have always insisted the Masters would not forsake by promoting a hyperinflation. More likely, explains FOFOA, is that home prices will go “hyper,” and that if you are prepared to swap gold for dollars at the perfect moment, you may be able to pay off your mortgage with proceeds from the sale of just a handful of gold coins. (To access timely and precise forecasts for gold, silver and other investment vehicles, click here for a free trial subscription to Rick’s Picks.)

This essays deserves to be read by the widest possible audience, since it explains so clearly why we must hold gold in preparation for the dollar’s collapse. As far as I am concerned, a more compelling argument for hyperinflation has yet to be made.

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  • John Ryland April 30, 2011, 2:31 am

    Dear Rick,
    The deflation argument is far from over.
    Just look at some of the charts in Gordon T. Long’s latest essay (right above yours on today’s Goldseek tableau), especially velocity of money. I’m writing from your old home town, and still miss your trenchant articles in the Examiner.
    All the best to you,
    Senor R

  • Mark Uzick April 29, 2011, 7:43 am

    Steve: “We/I speak of hyper-inflation, not the normal inflation definition of the fed. I can agree as long as the funds end up in the hands of the workers in the form of wage increases for inflation, and radical wage increases on a daily basis for hyper-inflation. My debate is not about inflation, but; hyper-inflation.”

    I think you’re looking at it backwards: spiraling wage increases are not the cause of inflation, but the symptom.

    Just imagine, for example, the Fed printing $100 trillion/month for the United States to spend on anything but wages; would it be possible for there not to be a resultant hyperinflation and, as a secondary result, wages that spiraled higher daily in order for workers to compete with the state for the goods they needed for survival?

  • Mark Uzick April 29, 2011, 7:24 am

    Rick Ackerman: “The Tea Party could push things toward deflation, as you say. Concerning the bankers, deflation would in theory allow them to manage the disaster, allowing them, for example, to take possession of physical property in liquidation.”

    The people who lose their homes for defaulting on no-recourse loans will escape bankruptcy, but how do you expect the banks that are liable for retiring these loans to escape bankruptcy by taking possession of real estate worth only a fraction of the loan value?

    In a deflation, the banks are out of business and their remaining assets would be liquidated to pay off a fraction of what they owe; or maybe the Fed would end up owning a lot of real estate.

    Rick Akerman: “In a hyperinflation, however, they could “manage” a financial collapse perhaps only in the way FOFOA suggests: cashing out of paper at 100 cents on the dollar and deploying it in hard assets.”

    Is either deflation or hyperinflation inevitable? How about “normal” inflation or merely high inflation. Might not some reforms be made, but not to the extent that would cause the needed healthy cleansing of a good deflation?

    “Normal” inflation might not be sufficient to bail the bankers out of their insolvency; I wonder exactly how much inflation will be needed to save them; any ideas?

  • Stew April 29, 2011, 12:13 am

    Merrill Lynch seeks to calm the waters:

    {BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
    may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
    investment decision.
    Refer to important disclosures on page 6 to 7. Link to Definitions on page 5. 11043680}

    Economic Commentary:

    The ultimate end game?

  • Chris T. April 28, 2011, 11:58 pm

    Robert:
    “Here is one of the best theories I’ve heard on how …”http://www.youtube.com/watch?v=YPXncTuwFIE

    Very interesting link.
    This is really what Antal Fekete has been saying for quite a long time, when he talks about governments “opening their mint”.

    You may want to look in his archive for articles about it.
    He has also made the point, that China has traditionally been (for hundreds of years) a SILVER country, not a gold country.

    So, quite possibly they could also focus on the former instead.
    One of his points has been, that the first to do this “wins”, so let’s hope they don’t do it (because it will never happen here).

  • Alex Bond April 28, 2011, 11:25 pm

    Rick – Instead of being a hyper-inflationist, you could simply accept bifurcation: significant (but not hyper) inflation in consumer goods, and deflation in non-essential goods purchased with credit (such as real estate).

    For example, an average $200,000 home today sells for that price because interest rates are very low. For most people, homes are purchased based on the payment, not on the overall price. Raise interest rates to 18%, with the second coming of Volker, and the house will be lucky to sell for $60,000. Eliminate residential credit and the house would sell for $25,000 in an all-cash transaction.

    Inflation not only destroys the value of current debt, it also destroys credit. As the Fed’s QE policies drive consumer and commodity inflation, credit will suffer; things driven by credit will deflate.

    Bifurcation is the future…

  • Jim April 28, 2011, 7:03 pm

    Dear Rick,
    I’ve been reading your missives for many years. I too am a deflationist. After reading what you currently post, I was unable get myself to accept that you actually have defected.
    You have a way with words and are often “tongue in cheek”, but in this case I am not sure.
    Hear’s my take on the inflation/deflation debate. As is the case with many competing theories about the markets/economy, we will probably get both.
    In the short term QE2 runs out soon, but quietly, without fanfare. What happens next is a game of chicken. Ben must wait until there is a groundswell demanding more funny money. Its anybody’s guess what happens then.
    In the simplest of terms, we get what’s left of QE2, then deflation. To what extent? Then panic creation of trillions to generate inflation. Will it work? If it does it will give new meaning to the word volatile.
    You are too smart to switch to inflationist. Maybe both sides get what they think is coming in the ultimate cocktail, monetary frenzy.
    Whatever. It all leads to a mess beyond anybody’s imagination.
    Jim

    • Rick Ackerman April 28, 2011, 7:24 pm

      Very astute, Jim. I will qualify my “conversion” in a forthcoming commentary, but for now let me say that neither side of the argument has a claim on certitude.

      RA

  • RichardB April 28, 2011, 5:58 pm

    Ebear, I liked your comments very much.

    Traders are used to being wrong and hearing opposing views. IN fact, confusion is what makes a market. Certainty can not create a market. Traders will hold their own convictions until convinced otherwise by sound counterpoint. They will also turn on a dime if they change their opinion.

    Words on paper do not threaten me, instead they help me strengthen my own trading positions if I merely search for the truth or soundness of the debated points. If I feel any emotion by someone else’s points, for me personally, I look inside and ask why that is. One can really learn things about one’s self.

    FOFOA and Rick do us all a favor by debating key points. We should respect both and look beyond mere human failings and concentrate on the argument only. Let he who is without sin throw the first stone.

    Remember, a wise trader once said, there is no bull side or bear side, but the right side. Keep those counterpoints coming and help us all make money on our opinions and limit our risk!

    • ebear April 29, 2011, 6:35 am

      Why thank you RB!

      I have 3 rules I try to follow:
      1. Keep it simple (which is why there’s only 3)
      2. Stand on the shoulders of others.
      3. Know yourself.

      One thing I try to avoid is “nodding head syndrome” – basically a “camp” where everyone’s in agreement. Even if I do agree, I’ll often take the other side of an argument just to see if I can make the opposing case. It’s good mental exercise which sometimes leads me to change my mind, if not on the entire issue, then at least on points where my own thinking is weak.

      One thing I’ve noticed about debate on economic or political issues is that the argument usually proceeds from a point based in some economic or political theory. This seems obvious on the face of it, but is often the source of error. The reason, I believe, is that these theories are just instances of more general principles which can only be discovered by stepping outside those disciplines.

      Some authors who’ve had a profound affect on my thinking would be Marshall McLuhan, Douglas Hofstadter, Marvin Harris and James Grier Miller. None of them are economists, and yet their work is fundamental to an understanding of that domain.

      Why do we believe the things we believe? This is central to my work – epistemology actually – but then people are all like “oh… you study insects!” so I usually keep quiet about it. Of course you can’t practice this discipline without asking yourself the same question, which I notice not many people do. Funny though, when there’s money at stake, the ones that succeed are the ones that ask themselves exactly that. What I find fascinating about traders is they are always questioning their assumptions. Alas, if only those who made economic and political policy would follow their lead!

      ebear

  • Mark Uzick April 28, 2011, 9:00 am

    @ben:
    >>I knew Rick would eventually have to concede the hyperinflationary argument.<<

    Rick didn't have to concede the argument, only his flawed version of it.

    I'm sure he would agree that if the Tea Party gains control they would bring about an economically healthy deflation.

    There is also a faction of the leftist political class that would happily destroy the corporate and banking plutocrats with a surprise deflation to wipe them out, followed by nationalization of industry and finance.

    It was only his argument that the bankers favored deflation that didn't make any sense.

    • Rick Ackerman April 28, 2011, 7:31 pm

      The Tea Party could push things toward deflation, as you say. Concerning the bankers, deflation would in theory allow them to manage the disaster, allowing them, for example, to take possession of physical property in liquidation. In a hyperinflation, however, they could “manage” a financial collapse perhaps only in the way FOFOA suggests: cashing out of paper at 100 cents on the dollar and deploying it in hard assets.

      But that scenario implies that the banksters will be granted enough time to do the exchange. Keep in mind that the face-value payoffs made to the banks so far have proceeded at the speed of a political process. Can anyone predict how quickly the dollar will fall to worthlessness when it finally does? This is a crucial concern, and because a flash crash cannot be ruled out — one seems ordained, doesn’t it? — there can be no certainty about whether the rats will escape a sinking ship.

  • ben April 28, 2011, 8:50 am

    PROOF that Barack Hussein Obama was born in Kenya, East Africa…it says so right on the birth certificate (lines 8 and 11):

    http://www.whitehouse.gov/sites/default/files/rss_viewer/birth-certificate-long-form.pdf

    However…
    the President is Barack Hussein Obama, II…and born in Hawaii…

    I think people had the right to have doubts about his fitness to be President based on place of birth….but the issue is now moot. We should instead focus on his friendships and loyalties to those who despise America and capitalsim…as well as his curious refusal to go against the Iranian lackey, Assad, in Syria…while bombing our “kind of” ally in Libya, and tossing our long-time ally in Egypt under a bus.

    • Steve April 29, 2011, 12:02 am

      Never should have been a question about Obama being born in Hawaii, does not matter, only the citizenship of his mother and father matter. O’Bammer could have been born in Kenya as long as his mother was a corporate U.S. small “c” federal citizen, So would O’Bammer find his citizenship through her womb “born” 14th Amendment. (there are legimate questions about Pakistan, and application for college loans as a foreign citizen)

      Obama is a Harvard graduate. Obama is an attorney in constitutional law. Obama was a constitutional law professor. One should assume Obama knows the definition of the word “is” as did Clinton, yes ?
      @
      SONYA ROSS
      From Associated Press
      April 28, 2011 4:20 PM EDT
      WASHINGTON (AP) — Shortly after President Barack Obama declared himself an American-born citizen with papers to prove it, Baratunde Thurston declared himself a disgusted black man.

      American born is not Natural Born American, and Obama knows exactly what he said when he said american born. Natural Born means of naturalized state Citizens, or Natural Born parents; both parents.

      The reason is that one born to two nationalities has split loyalty. The Framers know this, and set the Constitution with Natural Born of two Naturalized, or two Natural Born Citizens so there would be no split loyalty, no serving two nations.

      A Navy Seal taught me how to forge a document like the one just released, you could too. The little tiny black ink foot print would have been better, but; it wasn’t on this birth certificate like it is on mine. Not even that matters, only the citizenship of O’Bammer’s mother, and dad is to be considered. If mom is a U.S. citizen O’Bammer is a U.S. citizen no matter where he was born.

      Like Clinton on the definition of the word “is”, O’Bammer testifies NOT being Natural Born as required by Article II of the orignal Constitution. As a second point, I do not doubt for a second that O’Bammer was sworn in to serve the UNITED STATES as 28 U.S.C. 3002(15) a corporation named and created by the congress in A.D. 1872. All I ask is that Congress and Obama tell the truth about corporate reality in practical application in political democracy as opposed to the Republic for Which It Stands

  • Mark Uzick April 28, 2011, 8:37 am

    @ Steve:
    >>The debate is hyper-inflation, not stagnation where prices for goods goes up because of speculators in the top 10% driving oil and other necessary earth produced products. There are two things that can drive hyper-inflation based in too much money chasing too few goods:

    #1 Savings (the U.S. corporate enfranchisee doesn’t have any)
    #2 Radical wage increases on a daily basis chasing too few goods exterior of the “base” oil/earth items.<<

    When the Fed prints money it can be directed toward business expansion and stimulus checks or it can be spent by the state on "services" on the behalf of the people and foreign intervention. Either way is inflationary, but as I already explained: it's when the money is spent by the state that spending is most inflationary:
    "1) When wages rise, people may save more, invest in productive enterprises or pay down debts, but Q.E. is always spent completely, wastefully and, worst of all, in a counterproductive manner. It’s far more inflationary than rising wages."

    Why do you believe that consumer spending is inflationary but that state spending is not?

    BTW: Don't blame speculation for rising prices; it serves a vital economic function as a market signal to producers to ramp up production and to consumers to conserve or find alternatives before disastrous shortages can disrupt the economy.

    • Steve April 28, 2011, 2:34 pm

      We/I speak of hyper-inflation, not the normal inflation definition of the fed. I can agree as long as the funds end up in the hands of the workers in the form of wage increases for inflation, and radical wage increases on a daily basis for hyper-inflation. My debate is not about inflation, but; hyper-inflation.

  • ben April 28, 2011, 8:31 am

    I knew Rick would eventually have to concede the hyperinflationary argument. Not much choice given that precious metal prices are at all time highs, and the Fed is showing no indication of slowing down the money printing presses, or holding back credit. No need for anybody to pay the price for a bad debt… all the debt can be piled into Maiden Lane until that small Manhattan street becomes so infused with negative equity that it turns into a black hole that swallows up the entire Earth.

    Now…the trillion dollar question is…does the day Rick joins the hyperinflationist camp the day precious metals top out for a while?

    • SD1 April 29, 2011, 2:32 am

      Gold at all time highs? Only in number, certainly not in worth. Figure out what you could have bought with an ounce of gold at its highs back in the 80’s, and what you can buy with that same ounce of gold today.

  • Chris T. April 28, 2011, 8:14 am

    To mario c. and easyEE:

    “Are the “Illuminati elitist banker rich folks” so influential that they orchestrated the Middle East unrest? I mean, perhaps the CIA made a secret payment to Qaddafi…”

    SURE go ahead, make light of something absurd! Stupid conspiracy curmudgeons out there.

    BUT SERIOUSLY:
    Get real!
    Have you seen the pictures of the armed democrats (LOL) and their weapons fighting Qadaffi?
    They just happened to have those weapons lying around…
    NOT.

    Where do you think they come from? And isn’t it convenient how this spontaneous uprising just happened to break out when we needed to distract from the quashing of protests in our real puppet clients, like Bahrain, and crackdowns in Saudi Arabia?

    This is just more of the CIA orchestrated color-revolutions, be they orange, or red, or green, or yadda, yadda.
    And France and Britain those humanitarian do gooders, selflessly helping the poor democrats in the oil-rich part of Libyia.
    SAS, French Spec. Forces have been operating in the no-like-Qadaffi east for many months.
    Muammar even caught 6 of them, and let them go.

    OF COURSE that whole thing was orchestrated by the West and its particular interests, NOT least of which is to keep China away from those resources (shades of the Japan economic blockade orchestrated by UK, US, Netherlands in the early 30s)
    You have heard that China had 100s of millions of infrastructure projects under way right now, and they were trying to secure for themselves access to some of the best quality crude in the M.E.
    Do you think the new Libyan government will honor all that, when they OWE somebody who also wants access to that same oil something?

    Just another western puppet being installed.
    Look at Egypt: how quickly they groomed our lap-dog Baradei to be the next Assad.
    And if the election in Egypt goe the way Algeria did years back, you’ll see their shut mouths too.
    (Other example, did you know that much oil was discovered not THAT long ago in Darfur, and the Chinese were working towards access there with Khartoum? Gee, guess who controls Darfur now? Oh, just pure coincidence…)

    But, don’t take this consp-nuts word for it, go inform yourself.
    The best informed source to access easily is Eric Margolis, he knows that part of the world like his own hometown.
    See his recent articles at the columnists archive at lewrockwell.com

    • mario cavolo April 28, 2011, 8:44 am

      Hi Chris, love your weighing in on this. I much wonder about an accurate percentage of truth on these issues versus Hollywood-style plots. I sure as hell do feel like a pawn on somebody else’s chess board more than I wish was the case.

  • Alex Bond April 28, 2011, 7:55 am

    I cannot believe Rick has been swayed by weak (and long-winded) explanations offered by FOFOA. I cannot understand how anyone who proposes that the Fed will simply print $168 Trillion, to buy the financial instruments owned by the banks and “the elite”, can be taken seriously.

    There are three components to FOFOA’s $168 trillion figure: $14T in mortgages, $55T in “other” debt created in the bubble and the huge “unfunded liabilities” category, weighing in at roughly $99T. This last component is simply absurd: it represents an extrapolation of current benefits projected over the next 30-50 years. It isn’t actually owed to anyone – it is a promise, not a contract, and as such the so-called “debt” cannot simply be tendered to the Fed in exchange for $100 trillion of spending money.

    To think that the Fed will also underwrite the $55 trillion in “other” debt (consumer loans, credit cards, business loans, etc.) is absurd. Any attempt to buy all of this at face value will be seen not as saving the system, but rather theft from the citizens. Pitchforks will be bandied about and debt holders will be allowed to fail.

    It is possible that a very small percentage of the “other” debt could be redeemed by the Fed — but only by very well connected players (such as Goldman Sachs). The less connected will be allowed to fail, if only to set an example, or to put up a show for the taxpayer. One only needs to look at the blatant bias the Fed showed when it bailed out Bear Stears (and subsequently delivered it on a seven-cents-on-the-dollar platter to JP Morgan), and then allowed Lehman Brothers (who was much more deserving of a bailout, in my opinion) to fail in a very sloppy, public manner.

    It is entirely possible, both financially and politically, to have the Fed conspire to monetize all residential mortgages. The banks could be made whole, and use the cash to repair their balance sheets. The taxpayer would readily go along with this $9 trillion giveaway if the Fed simply declared a Jublilee and forgave all of the residential mortgages it purchased.

    Even with these extraordinary scenarios, the Fed could only get away with printing $10 trillion. Even if this were added to our monetary base in a single stroke, it could not trigger hyperinflation — since it would disrupt the credit markets to the point where all business would be transacted in cash — instead of our $14T economy running with $3T in cash and $20T+ in credit, we’d be running with just $13T in cash. Less money overall in the system necessarily points to general deflation.

    FOFOA also throws out the absurd idea that $168T in fresh money could simply be spent before the rest of us figured out what was going on. China can’t figure out how to reallocate even a small portion of its $3T in reserves without distorting the markets — so how could it be accomplished with $168T ? As the money was spent, hyperinflation would be instantaneous. The assets purchased by the first trillion would be greater than those purchased by the next $100T, because it wouldn’t take long for the system to recognize the hot money and bid prices up accordingly.

    In the end, FOFOA ever mentions what kind of assets the “elite” would purchase with their $168T in fresh money, but simply alludes to a supposed 40X increase in the price of gold, and assumes that the $6T in gold (supposedly held by these elites) will suddenly become worth $240T. If that’s the case, why even bother spending the fresh money? The mere act of printing the $168T will yield the same result in the gold price, so why bother trying to spend it? It simply doesn’t make sense, and is nothing more than a contrived scenario.

    In all of the rambling ideas in FOFOA’s article, no mention is ever made about the $14T that the US Government owes. Is the Fed supposed to bail out the large banks, pension funds and the “elite”, and simply leave Uncle Sam in a lurch? If the Fed is going to print the cash to buy $9T mortgages, it might as well print the $14T to cover the national debt. Of course, doing so will destroy the credit markets and the ability of the US to borrow money, and subsequently, will destroy the government’s ability to spend. Less spending = less money in the system = deflationary forces, yet again.

    For the record, I believe we will have significant consumer inflation in the prices of things we need on a day-to-day basis (food, fuel, clothing, electricity and water). This inflation is driven by easy money, growth in Asia (causing competition for resources) and an unfortunate lack bumper crops in the agricultural sector. I believe the increase in prices for necessities will destroy demand for any non-essential goods and services. As things we need get more expensive the economy will slow futher, allowing the Fed to pursue its constant inflation policy. This will drive the price of gold to levels much higher than it is now.

    Eventually the economy will reach a bottom, and things will settle down. The dollar will have suffered significant devaluation (instead of being close to par with the Swiss Franc, it might be $20 to the Franc), but nowhere near the 1,000,000,000 to 1 valuations typically seen in hyperinflationary blowoffs.

    The things you need will become more expensive. The things you merely want will become cheaper, relative to gold. The Fed might print a few more trillion before they’re discredited, but there’s no way they’ll get away with $168T. Hopefully I haven’t made the FOFOA mistake of quantity over quality with this posting, but this is my opinion…

  • A. Rand Fan April 28, 2011, 7:26 am

    Rick,
    It seems Gary North is a bit miffed with you. “Rick Ackerman Defects to the Hyperinflationist Camp After 30 Years”
    http://www.lewrockwell.com/north/north973.html

  • easyEE April 28, 2011, 7:18 am

    Mario,
    I really enjoy your posts and forgive my familiarity, but I think you’ve been reading some Tom Clancy. Manipulating the weather patterns and the middle east for the benefit of the uber class? Certainly there are those who would love to do that, but no way they can pull it off. They just got lucky this time and from left field too! Altering the landscape of the middle east, facebook, who da thunk?!

    I came on line to post a question about china and, great, I see you are the last poster, how appropriate. Here is one for you on the conspiracy theme.

    America has had the luxury of being the world’s reserve currency. There is a pool of us dollars that has grown over the years, (euro dollars, petro dollars, African loans, etc, etc, etc, ) into an enormous pool of money that is used for international commercial transactions. This money is largely outside of the US internal system, and the US has a real luxury of having the world cash float tied to their printing press.

    The Chinese would love to have that privilege. What empire doesn’t?!

    How could they engineer using their 2-3T of USDs to obtain the reserve privilege?

    Any ideas?

    • mario cavolo April 28, 2011, 8:36 am

      I can’t give you an exact answer. However i can tell you that the Chinese are doing exactly the same thing with the RMB, in that they are massively increasing and allowing the RMB money supply which exists outside of mainland China for international transactions, starting with Hong Kong, and even more recently, allowing an ICBC bank to open in New York (planned or opened yet I’m not sure). In doing so, they are effectively bypassing the need for the dollar swap.

      I also understand that their currency somehow falls under the guise of the Special Drawing Rights domain of the IMF, but I quickly point out I am not up to speed on such matters.

      Does anyone think China has a genuine interest to become the world’s reserve currency? I doubt they are even interested and I don’t see any such possibility on the horizon considering the political issues which exist that would for eons block such a development.

      The dollar has yet to hit its previous low around 71. We’ll see what happens there. I’ve suggested before that with the U.S. dominance waning for various reasons including the rise of Asia led by China, ultimately it will drift down toward 60. I don’t at all comprehend all the silly, theoretical talk about a dollar becoming worthless relative to other currencies, but that’s another subject. Meanwhile, a lower dollar makes investment in America more attractive in many ways and the Chinese will not hesitate to take advantage of that in every way possible. I read Nadeem Wayalat suggesting that China using some of those reserves to hold U.S. equities could be a wise move, and such a move would continue supporting U.S. equity markets.

      Cheers, Mario

    • Robert April 28, 2011, 9:11 pm

      “How could they engineer using their 2-3T of USDs to obtain the reserve privilege?”

      Here is one of the best theories I’ve heard on how China might accelerate the yuan’s assent onto the world stage- and, not suprisingly, it involves using Gold to increase the chinese money supply without having to create more inflationary yuan credit in the system…

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

    • Robert April 28, 2011, 9:15 pm

      “Does anyone think China has a genuine interest to become the world’s reserve currency? I doubt they are even interested and I don’t see any such possibility on the horizon considering the political issues which exist that would for eons block such a development. ”

      – Mario- I agree completely. I think the Chinese (and Russians) are only positioning themselves to be financially strong enough to strong arm the west (Keynesian Anti-Gold) to yield to the monetary philosophies of the East (Austrian Pro-Gold)

      The next Reserve currency will be a basket, and it will maintain commodity exposure to maintain discipline within the issuing authority. Bank on it

  • mario cavolo April 28, 2011, 6:52 am

    As I was reading through news headlines and stories this morning, a set of provocative questions popped into my mind.

    What would agriculture commodity prices be if the harvest because of weather problems hadn’t been so lousy last year across several agricultural markets?

    While at the same time:

    What would agriculture commodity prices be if Asia wasn’t rising led by China, greatly increasing agriculture demand across the globe?

    Best Answer: prices would be a lot lower than they are.

    Where would oil prices be if there was no historic outbreak of unrest across the Middle East?

    Best Answer: priced a lot lower than it is.

    We could dare to ask if those rising prices are the fault or not of the evil banking Bernanke clan’s economic policy and shenanigans so beautifully outlined in the movie The Inside Job, which we have come so much to enjoy blaming? Doesn’t seem so.

    Are the “Illuminati elitist banker rich folks” so influential that they orchestrated the Middle East unrest? I mean, perhaps the CIA made a secret payment to Qaddafi with a note saying “shake things up a bit because we really need higher oil prices to get richer and cover the coming, rising expenses of the oil industry companies because the days of easy oil are over.”

    I think we had a year of bad weather for farming at the same time we had unprecedented rising demand from the rise of Asia which more than offset any reduction in demand from the economic softness in the western economies. At the same time, those rising daily food prices finally brought the oppressed lower classes of people in the Middle East to the breaking point.

    Take those realities, plus the Fed’s interest to devalue the dollar as one piece of the strategy to 1) inflate away excess debt and 2) to compensate for China’s stubborn refusal to reasonably adjust the yuan/USD peg.

    Maybe that’s all the explanation we need to understand what’s going on around us.

    I’m not suggesting that such a straightforward, practical and obvious explanation for high ag and oil prices precludes the ponzi scheme shenanigans which have made the wealthiest richer at the expense of everyone else, as well explained and discussed here at Rick’s. We have seen and suffered the tyranny of the elite throughout world history. This time no different.

    Cheers All, Mario

  • ms.deflation April 28, 2011, 6:22 am

    i cee a big contraction in the next few years, read FOFOA
    disclaimer

  • JohnJay April 28, 2011, 5:09 am

    Speaking of the Dollar, someone please call Timmy G and ask him about his “Strong Dollar Policy.”
    He must be refering to the tensile strength of the paper the FRNs are printed on because the BP, SF, AUD, CDN, and EUR are all screaming higher tonight.Gold and Silver are moving up again too.
    And crude is at 113.45.
    Ben plans to continue with ZIRP forever in spite of that fact.
    The problem with lunatics is that they keep bumping into reality.
    Gasoline is closing in on $5.
    To be continued………………

  • Steve April 28, 2011, 2:43 am

    Chris T, well thought out and well explained.

    The elite in 1740 were the Royals based in the British Isles under a feudal system. The higher ranking subjects on the Americas were still subjugated under feudalism to the Royal Caste across the ocean. So, I disagree in part because the scheme was greater and wider than expressed in the thoughtful writing presented by you. The educated and landed people here were willing to give everything, and live life into Liberty even if that meant sprinkling the Tree of Liberty to keep it growing. There is your difference, not explained, to express the distinction between then and now.

    It was indeed the need for the Royals to increase taxation that was irresponsible in colonialism, imperialism, and overstretching reality creating “Rebellion” by wars everywhere. That is just like today. More than that the Royals refused to listen to the Americas and ignored the will and needs of a People that brought about the desire for leaders to stand up. This is begining to occur again, and here ‘in the now’ as democracy O’Bammer/Ried/Pelosi do not care what even the democracy mass is saying to them, “NO HEALTHCARE”, no more illegal lying wars, no more bailouts, no more illegal criminals crossing into our Nation. Class envy is building, and it is against the Royal Court who is so disconnected from the People they think they shite in plastic bags – the upper 10%.

    As to the Civil War, or War of Northern Aggression. It was a battle in a 5000 year old war, not the end. The united States of America was defeated and supplanted with a tyranical democracy, or corporate reality 28 U.S.C. 3002(15). You are correct Chris T. in all of that, except the War is not over, only the Second American battle lost.

    I am beat up, worn out, used and abused in this engagement, so you are correct Chris T. I am financially beaten because I do not believe in the Bull because it is not right. My business of creating is nearly gone because of copper speculation by bankers and fiat fraud that has driven my costs through the roof, and so you are correct Chris T, they have won this battle. In 1791 king George III admitted that the People, all People of the several States were Sovereigns in Common, having Common Rights, Lansing v. Smith 21D.89. I live like that Chris T. I will live into my grave like that Chris T. I will have won the war, even if others win the battles Chris T. because I will live Liberty into the ground you cover me with. I will be at Liberty Chris T., and that is the War to be won. Who are the defeated, well, they are the members of democracy and the Great Senate Rebellion of 1861 who still practice rebellion today – Bernanke. These are dead before they find the ground Chris T. Better to live for something in Liberty, than to find one’s self in the ground having practiced mobocracy in decayed flesh walking dead while alive.

    Am I scared Chris T. Damn right I’m scared because I know pain, and I know death, and I know the loss of one’s youthful strength. But, Chris T. I am at Liberty to choose not to do evil, and I will live Liberty until someone shoves me into the ground. Everyone is at Liberty to believe and to act by living into the posibility of doing.

    I agree with many parts of what you have written, but; disagree in regard to who was King, and who was subject in 1740-1787. I strongly disagree about the People not being at Liberty to choose Right from Wrong because the war has not been won, only a battle fought in 1861-
    This bondage may last 500 years, but; it only becomes a lost war when I no longer believe I am at Liberty to do something about it.

    • Chris T. April 28, 2011, 5:25 am

      And I think that was well put too.
      Both these posts, yours and mine, may appear defeatist to some, maybe mine much more, but I sense hope in yours.
      You know, whether or not one agrees on the more intricate parts of these causes/effects, is not relevant, as long as one has at least the ability to perceive and hopefully also to comprehend the overall issues.

      I am waiting for the jolt to cause the perception to increase, and you still believe in people being able to comprehend. So, that’s a good thing.

      Only detail quibble I’d mention is that in your list of
      the annointed one/Reid/Pelosi, a few red-pols ought to be included. I couldn’t pick the proper names, THAT odious list is a long one, too.

      BTW, just now read Rick’s introductory italic comments, and that too seems to place a good wrap-up on this article and all the posts.

  • Chris T. April 28, 2011, 1:46 am

    Steve:

    “And this is exactly why they will win Chris T. First one has to be willing to LIVE what one believes even if that costs one their . . .(what was it the signatories of the Declaration said ?)”

    While I have much sympathy for your thoughts, and wish it were true, then and now need to be distinguished for very crucial differences.

    a) First, and lets be heretic from the start, the Revolution was about principles yes, but first and foremost about money. To some extent, the British were merely trying, in an inept way perhaps, to recoup (some) of the costs of the 7 years war by their increased taxation schemes, feeling that it was a benefit to their colonies, thus the beneficiary ought to contribute.
    It was a part (not ALL) of our ELITE, that was most affected by this, and they were able to rouse enough support by the non-elite to attempt the revolt.
    The principles that were being fought for, were only things violated by the Brits in order to get the taxation felt appropriate. Thus the principles-violations were not the root cause but mediatory.

    The outcome is known, but, see the PRIMARY AFFECTED group at the heart of the revolt:
    the Elite.
    Today, you are calling for a revolt not BY the elite, as then, but AGAINST the elite.

    b) Those you wish to rise up, are by far less able to comprehend (via propaganda, welfare coddling, miseducation, and the Norman Mailer thing) that they ought to revolt, far less able to do so (lack of training, knowledge, weaponry that can compete), and faced by a much better equipped enemy than back then.

    The actual weapons on both sides were quite comparable in 1776, even the Brits manpower nunmbers far less superior, rel. to a modern situation..
    Today? The purported revolters have machinge guns against tanks, helicopters, etc.
    Numbers: add the DoD to all states Nat. Guard, add all police, etc and compare that with what the Brits could muster against their opponents.
    If you think of major dissent within the fighting tool of the elite, I will only put one name here:
    Bradley Manning
    Look at how he is treated from within the system, bottom to top.
    The more and more sociopathic element populating the elite’s tools (see all the very very recent atrocities and warcrimes of “our” forces, the ever increasing police violence documented on youtube, and hundreds of websites, the arrogant TSA goons, etc) will not cross massa.

    But, by and large, repeat:
    Then, a revolt by the elite, today one against the elite.

    c) Leaving aside ALL of point a):
    It worked in 1776.
    When it was tried again (with at least as much justification) in 1861, look what happened to those that LIVED their principles.
    Who won?
    And look at those who didn’t live their principles did do! Abe , the tyrannical is enough said.

    d) “Democracy” vs. tyranny

    Those that you want to revolt, believe they have a say, believe in democracy.
    Where was the last (or first) popluar revolt against a democratic regime (that was of course ruled by the elite we are discussing here)? Has never happened.
    Every one you can cite was against a generally perceiped tyranny of one form or another.
    Its only the perception by those that should revolt that matters, not what actually is.
    (see my propaganda comment in a) )

    So, not my attitude, just realism with respect to what is extant around us in terms of the human potential on both sides.
    That is what breeding ala “Idiocracy” does, when there is an elite able to control.
    They have learned that the best system to maintain control, and the one most easily to subvert to get that control is democracy.
    The names you cited from back then knew that, which is why they DIDN”T IMPLEMENT a democracy and kept the system for a chosen part of society, sort of a broadened elite. Most readers here, I wager, would have belonged to that broadended base…

    What could change the above? Some form of utter collapse, making revolt the only obvious way out for most. Would we really want it? Who knows, scary thought.
    Which is why the elites will do their best to prevent just that utter collapse. Not saying they will prevail, but they will try.

  • Robert April 27, 2011, 9:03 pm

    Still following this thread, still reading the amazing comments and dicsussion.

    Still very little to add or debate, but I will applaud Cam’s comment about inventories and values… however, there is a logical gap in my mind between the concept of “deflation” (a monetary phenomenon) versus “depreciation” which is a value driven phenomenon.

    Crafty new age economists poured from the Keyenes mold are highly skilled in criss-crossing the usage of these terms.

    If the price of new shovels is going UP at the neighborhood Home Depot (as they are) while the cost of used shovels is going DOWN at neighborhood yard sales (as they are) then I must ask… is this disparity due to inflation? or deflation?

    You tell me what you think. I already have it organized in my mind, but I want to know how many of you can understand the dynamic of the principle in “non-flationary” terms.

    When it comes to price aligned with value, Gold is Gold, Silver is Silver, yet shovels are (seemingly) not shovels…

    And if anybody chimes in with “you can’t eat shovels”, I swear I will hunt you down, and hit you over the head with a shovel (just to prove that shovels have wide ranging value in usage regardless of price). 🙂

    • Steve April 28, 2011, 1:49 am

      Wow Robert ! The price of a brand new Chinese shovel purchased with credit card debt is going up for the humans who don’t have the will to do anything except go to L’s, or HD’s and use their credit card.
      These would appear to be the haves, with both partners working the government job. Does not include the 20% unemployed, or the under-employed, or inferior employees of Mc D’s 50k new hires, Mc’D not paying O’Bammer Care.

      The yard sale crowd are the barter/trade People who are paying in hard cash, and only willing to buy something of value at an honest price. Prices are deflating because there are more and more yard sellers selling more and more shovels and price pressure is not there because there is too little money chasing more and more shovels which are being sold of necessity.

      Then we have the crowd who steals from both and justifies that need by excuses that fiat is the only way, and they don’t have any fiat because that bad guy talked them into lying to get a loan, or they elected rep/him to do what rep/him wants, and everyone knows political hacks lie. So steal the shovel at Lowes causing losses to increase, (great write off like an earth quake) causing prices to go up, and sell that sucker for cash at a garage sale (Bernanke speak), except competition at yard sales is heating up.

      Use the small end Robert. It swings faster. It creates more pounds inch squared on impact. The small end is a much better counter-punch to what would be expected under the circumstances, lol. Grab ahold low on the steel where it is curved for a better grip with one’s power hand. Keep your non-power hand about 18″ up handle. Use the principles of leverage to pivot against your strong hand as you thrust straight in to the center of the target with the little pointie end – LOL ! Swinging to the head is a low percentage target.

  • Rick Ackerman April 27, 2011, 8:31 pm

    I am posting the following, which I received in the form of an e-mail, in behalf of its sender, Ted Solley:

    The FOFOA blog makes some great points, and I can see why you were swayed by it. But you should have stood your ground, or at least continued the debate.

    In my opinion, FOFOA makes a simple and crucial mistake: even though he acknowledges the history of class warfare between the debtors and the savers, with each side taking turns in power, he blindly assumes that today’s elite (the debtors) will remain in power long enough to hyperinflate, which of course they prefer to deflation. (This is where I disagree with Charles Hugh Smith, and agree with FOFOA.)

    FOFOA further notes “we are at the end of one of the longest-running ‘easy money camp’ regimes. And these things usually swing back to the other side. But history has taught the world that while easy money regimes end in financial collapse, hard money regimes usually end in bloodshed. ”

    I think this is correct, but the financial collapse of easy money regime will be identified as deflation.

    Hyperinflation is a political, not monetary, event. Today, where is the political will to carry through on this plan? Witness the Tea Party’s “unforeseeable” rise in the 2010 elections (after a 2008 consensus that democrats would control congress indefinitely). Witness Obama acknowledging that we must live within our means (not because he believes it but because constituents want to hear it). Get ready to witness the fights over the debt ceiling and budget. All the political elites want to inflate to infinity, but not as much as they want to get reelected.

    In sum, the mood of the populace is turning against the easy money regime just when that regime most needs the populace to remain docile. If enough Americans decide that socializing losses doesn’t sound palatable, it will not happen.

    Keep up the good work.

    • ebear April 28, 2011, 4:01 pm

      I’m ready to debate FOFOA too, but on different grounds. Trouble is it took so long to get through it that it’s now 6:35 am and I’ve been up all night. I’m not even sure it’s worth the effort though. All this stuff disappears down the memory hole anyway. In truth, we learn nothing – just keep repeating the same mistakes. This applies equally to our so-called elites who aren’t half as clever as we credit them, or we wouldn’t be in this mess to begin with. I’ll just say one thing before I stumble over to the couch (so’s not to disturb my long suffering wife) – these dichotomies – capitalist vs worker, rich vs. poor, saver vs. debtor, are all false. They are mere artifacts of the way our minds work. The ultimate conceit of humanity is the belief that being sentient, we somehow perceive reality as it is, rather than through a veil of myth, superstition and self-delusion, of which this deflation/inflation debate is just one more shining example.

      And on that note, I bid you all good night!

      ebear

  • Bc April 27, 2011, 8:20 pm

    @Roger and Tictawk. I agree. Steve Keen lays out the same dilution math. Credit collapse is equivalent to money leaving the economy. The fed is trying to countervail over this and losing the battle. Soon they will face this defeat and the Fisher debt deflation process will be revealed to have never stopped. It was hidden by sovereign debt expansion which will now slow. The forecast is a hard rain that’s gonna fall like the song says.

  • roger erickson April 27, 2011, 6:45 pm

    mean to say “the hole in any projected policy presumption”;
    every context is shaped by infinite options for indirect tuning; there is NO simply presumption that can be projected

    we’re dealing with tracking a unpredictable, meandering survival path, not any collection of linear tangents to that path;

    the one thing you can rely upon is constant tuning, and our ability to do exactly that;
    we have no predictive power, but infinite adaptive power

  • Tictawk April 27, 2011, 5:38 pm

    What FOFOA is really talking about is monetization AFTER the credit collapse and Rick has bought into this idea. Here is what is relevant. The debt balloon has sprung a leak and credit/debt is SHRINKING. The Fed is pumping furiously i.e. monetizing bad debt. But that is just a TINY FRACTION of the collapsed credit. That collapse has already occurred. The Feds monetization has NOT increased property values, or raised employment. They CANNOT print wealth. Once the debt balloon has a leak, no amount of pumping can bring it to its original size. The economy will NEVER be the same as in the days of easy credit. The balloon must DEFLATE COMPLETELY and repaired before any pumping (expansion) to take hold. That means a CASH AND CARRY MARKET.

    Cash in circulation $3 trillion? debt balloon size $150 trillion? By suggesting HYPERINFLATION, are proponents are saying the FED will print $150 trillion? The collapse in CREDIT will drown any pickup in the pace of monetization and the FED’s ability to print. Remember that CREDIT AVAILABILITY was the key ingredient in price INFLATION. Once CREDIT collapses (and it has already started) every available credit source will DRY up AND CASH and CARRY will rule.

    Our economy is largely credit based and it is only AFTER credit collapses, that the FED can selectively monetize debt to its favored interests. The game has not yet played out. After credit collapses in a big way, the financial landscape will be vastly different than today. Rules for GOVT AND THE FED will change. People run the bastards out of town.

    • roger erickson April 27, 2011, 6:40 pm

      > People run the bastards out of town.

      Exactly. The whole in any projected policy presumption is that policy won’t change. It’s always a political decision – and the masses can always just make a political decision to run any/all re-labeled out of town.

      As many keep saying here, any response, including deflation or inflation, is always a political decision.

    • Steve April 28, 2011, 1:20 am

      Same ole democracy, will of the masses to overcome the Right of the Individual.

  • roger erickson April 27, 2011, 5:13 pm

    There can be no “standard” for money.

    We are a social species, with the moment of adaptation currently occurring between social entities called nation states.

    What binds any social aggregate together is the group return-on-coordination. That return scales beyond anything an individual can achieve alone.

    Even in small groups, diverse data patterns fluidly combine to produce real-time fluctuations in affinity. With scale, diverse value propositions fluidly combine to set the perceived value of a public currency monopoly – but those valuations always must be fluid.

    The only “standardization” that offers survival value is convergence to recognize the primacy of return-on-coordination.

    All fluid definitions of the “value” of commodities, money or currency are simply tools to be artfully used in group strategies and policies.

    Don’t forget that, and we’ll be fine.

    • Steve April 27, 2011, 6:01 pm

      There can be no “standard”, only anarchy in the moment ?

    • roger erickson April 27, 2011, 6:36 pm

      > There can be no “standard”, only anarchy in the moment ?

      Absolutely. You wan’t inability for anything to change, be a rock, not a human. We’re here to surf dynamic contexts. Surfing is fun. Rocks are boring.

    • Steve April 28, 2011, 1:19 am

      And there we have it. An anarchist by admission. Change is the Freedom to do as one wishes, not what roger wants to force on me. Same ole’ Marxism stuck in a rock trying to accomplish that which has already failed. I just cannot help sticking my hand into the tar.

  • Chris T. April 27, 2011, 4:07 pm

    Gary L:

    “…even before the debt debacle the talk was about how true inflation was masked by the government. I don’t buy the conspiracy argument.”

    There is NO conspiracy here.
    What the MSM loves to call conspiracy, is really just public domain information, that is not know by the average ignorant Joe.
    Thus, because of the general apathy, ignorance you name it, people generally buy into the notion of a conspiracy.

    THIS was done out in the open in full-view, best example:
    hedonic price adjustment.
    You surely can not be ignorant of John Williams’ Shadowstats!
    He simply calculates CPI, and other major metrics the way they officially done in the past, prior to the implementation of the trickery.

    The only way for you to claim that Williams is wrong is by accepting the validity of the trickery, and accepting the notion that the old way of measuring was flawed.

    But there is no conspiracy in the conventional sense.

    • Steve April 27, 2011, 4:45 pm

      If one believes, then one believes in the conspiracy against Good/Righteousness, and existence of mind-less agents like O’bamer who have no idea what they do for whom. If one believes in the theory of goo, then; one believes whatever their own self is able to produce in the mind. Hard to have a discussion between two individuals with different g-d views. Great arguments, but; rarely a discussion. Got Immutable?

  • Chris T. April 27, 2011, 3:51 pm

    Photoradarscan:

    True enough, at 10k, the difference between 1K basis or $35, is marginal, BUT:

    If you believe the main point of the argument made by the original post, then $10,000/oz
    IS the then current REAL value of the ounce, hence a ZERO profit.

    If you then pay the collectibles gain tax on the so-called, but of course not actual, profit, you will lose over 40% of that.
    So you still will have left a nominal:
    $6014 ($35 basis at 40%) or $6400 ($1000 basis at 40%), better than paper currency, but still bitter.

    So, bottom line, due to the taxes on a phantom nominal gain, your “investment” in gold lost 40% of its real value. Theft, that’s all.

    BTW, in a cleptocracy state like NJ, it would be much worse, closer to 50%, if you add the just-about 10% tax take by the state on top of the top federal rate.

    My point was, that nothing new needs to be implemented at all by the government in order to implement this theft, its already on the books and settled law.

    And, Steve, you may be right about all that being illegal, against common law, or the constitution, but when they come with THEIR guns, yours will be outmatched, and the only possible outcome is giving in or going down fighting (but not winning).

    • Steve April 27, 2011, 4:15 pm

      A federal reserve note is “valueless” – Call the Federal Reserve. Silver has “value” under the Rule/Law of the People in the Coinage Acts. Gold is valued in silver. One will only be lost in theory when one has no constant. These discussions are in varible theory allowing nothing to be discovered.

    • Steve April 27, 2011, 4:37 pm

      @ Chris T. “. . .And, Steve, you may be right about all that being illegal, against common law, or the constitution, but when they come with THEIR guns, yours will be outmatched, and the only possible outcome is giving in or going down fighting (but not winning). . .”

      And this is exactly why they will win Chris T. First one has to be willing to LIVE what one believes even if that costs one their . . .(what was it the signatories of the Declaration said ?)

      James Madison said in the Federalist Papers that there was no reason to fear a strong central government, for at any moment the People would bring forth 500,000 armed Men to put down tyranny in government. There are 90 million armed Men and Women in these united States. Notice that I said WOULD, not could ! ! ! ! There is no wood in the backbone that will confront tyranny. Start with “use” of fiat fraud, please, as something absolutely WRONG.

      The problem is in the mentality of those people who only look to self, not to Nation. The military is not filled with mindless trained boys and girls Chris T bent on wrongdoing. The they is not as big as the fear expressed by those who have never taken fire. Maybe we all should find some Patrick Henry, and say that nothing gets accomplished unless someone believes and acts. Defeat is in the heart, not in the blood spilled, or life lost for Liberty for the Nation.

      I will speak to the constitution. There are at least (2) federal constititions. One the Original endorsed by only a few men in A.D. 1787. The other is a corporate charter, 28 U.S.C. 3002(15) foreign corporation created about A.D. 1872 because of legislative rebellion endorsed by every 14th amendment . . .subject. . . resident corporate enfrancisee. It is ignorance that is killing us.

      Chris T @ (but not winning). . .” We have seen the enemy, and it is me. I believe this mind set avoids living life in Right, in the Law, and; if that means sprinkling the Tree of Liberty, then I am honored. I want to live for Liberty Christ T because I have been too close to dying; it hurts. Each individual is already dead when they fall into Wrong and fiat fraud justified because someone else does this, or that. It is either Right or it is Wrong. Fiat government, fiat money, fiat voting, fiat subject citizenship, fiat law is all wrong. Success does not exist in doing what is wrong and expecting a Right/good outcome. Thanks for your thoughts Christ T. as your thoughts allow me to sharpen my mind and my own thought process.

  • Mark Uzick April 27, 2011, 1:25 pm

    Two weeks ago I explained why Rick’s arguments for deflation’s inevitability were wrong, but as I also explained, I see two possible ways that the bankers may not get their way; where deflation may still happen; one good way and one bad way.

    I also addressed the issue that Cam brought up today about the lack of demand for goods and the excess of inventories thwarting hyper-inflation:

    “Remember: the lenders are just middle men; they are also responsible for paying back/retiring these loans. If it was only their money on the line, they wouldn’t be facing the extinction that would be inevitable in the event of deflation.

    Also: this notion that wage inflation is required for price inflation ignores the other avenues of price inflation:

    1) When wages rise, people may save more, invest in productive enterprises or pay down debts, but Q.E. is always spent completely, wastefully and, worst of all, in a counterproductive manner. It’s far more inflationary than rising wages.

    2) We live in a world economy, where prices aren’t necessarily correlated with domestic economic conditions like employment or wages.

    3) While lack of demand may cause prices to drop dramatically as inventories of goods are sold off below cost, new goods will not be produced until the subsequent shortages cause prices to rise to a level where they’re profitable to produce once more.

    It’s my opinion that there are only two paths for deflation to take hold:

    1) The Tea Party crowd wrests control of the federal government.

    2) A successful plot by the fascist-left to destroy the financial system, creating a “national emergency” as an excuse to nationalize it.”

    • JohnJay April 27, 2011, 2:48 pm

      Mark,
      #2 has already happened.
      If there wasn’t a plot, there might just as well have been.
      We’ve become the old Soviet Union, complete with oligarchs and a massive State Security Sevice that views it’s citizens as the enemy/terrorists.

    • Steve April 27, 2011, 4:07 pm

      @ Mark “. . .Also: this notion that wage inflation is required for price inflation ignores the other avenues of price inflation:. . .”

      The debate is hyper-inflation, not stagnation where prices for goods goes up because of speculators in the top 10% driving oil and other necessary earth produced products. There are two things that can drive hyper-inflation based in too much money chasing too few goods:

      #1 Savings (the U.S. corporate enfranchisee doesn’t have any)
      #2 Radical wage increases on a daily basis chasing too few goods exterior of the “base” oil/earth items.

      We could throw ‘credit’ in there, but; again there isn’t any real U.S. individual ‘credit’ when each resident is saddled with forced loans “credit for the banksters” that are in essence given to the top 10% by monetary policy. The greatest fear in Bernanke and the central bankers is “. . .wage inflation. . .” which is the only thing these goons label inflation in their vocabulary. Matterial/goods inflation is not hyper-inflation, and the fed has no problem in allowing inflation in goods without wage inflation. No one can argue that the cost of goods is going up. But, there is no shortage of goods, and there is no wage pressure on those goods. If anything there are fewer and fewer notes chasing way too much product all at the expense of more debt via Social Security non-payment. (go figure out stopping money flowing into SS when SSA needs money because of the Boomers) One must examine the reason for material price increases and discover what is causing that. Is it speculation by the top 10% seeking to suck every last bit of Liberty out of those who may have some savings ? You tell me what is driving up prices because it is not increased wages, and it is not a lack of product as Cam so correctly explained earlier. People do not understand the game because they do not understand the rules and the end run of the game. We are all running upon theory with no basis in fact because of dual monetary systems, dual citizenship systems, and a G7/G20 mentality that no one even understands. What is the END GAME? Is it more Freedom/Liberty for the People, or is the end game control in the hands of the few? Inflation/hyper-inflation; we cannot have a discussion if one is talking about true hyper-inflation when in fact the evidence establishes the reality of STAGFLATION.

      What have the People lost this past 70 years? If one cannot address what has been lost, then in fact; one cannot understand what the end game is.

      Everywhere I look there is a loss of the “Rule of Law” whether in Libya, or in the banks. Everywhere I look certain persons only want someone else to provide them with security. This is a basic reality, as persons have given up Right and Wrong to seek what makes them feel good in the moment, whether that be Joe drunk in front of a TV so he doesn’t feel anything, or the coward who will not stand for what is Right by the Immutable Law.

      It appears Chief Justice John Marshall was correct; ‘If one does not believe in an Immutable Law he will change the rules and change the rules until we all shall loose.’ There is an answer, and it is not about hyper-inflation, or deflation, or stagflation. The American People have lost to debt, and putting their security in the hands of government goons who use monetary policy to accomplish their goals.

      I cannot argue against the fact that the American People have given away their inheritance and it may well be the Chinese who buy it up from the federal reserve bank who owns the soul and hearts of a onced proud Nation. The piper wants to be paid, and there is no credit available as material prices increase, and wages go down. Imagine yourself working 16 hours a day in a Chinese owned factory sweeping the floors because the good jobs are in the hands of the Chinese worker. That is a possible reality and outcome.

      We are just getting poorer, and the ones who know how to squeeze the last drop of blood are squeezing harder. What have we lost this last 70 years ?

    • Robert April 27, 2011, 8:47 pm

      JohnJay: “We’ve become the old Soviet Union, complete with oligarchs and a massive State Security Sevice that views it’s citizens as the enemy/terrorists.”

      -But, isn’t this GOOD news?

      Did the Oligarchs in Rome win?
      Did the French Oligarchs win?
      Did the Oligarchs in The British Empire win?
      Did the Oligarchs in the Soviet empire win?

      Will the Oligarchs in the US Empire win?

      Will the “Shadow” Global Oligarchs (NWO, Illuminati, Bilderbergers, Trilateral Commision… just pick your favorite ” organized enemy of the people” )

      I ask you – will they win?

  • J April 27, 2011, 11:29 am

    Cam,
    A currency hyperinflates when faith is lost in it’s ability to store value. People choose goods over the currency.

    “I don’t care a damn how much money is floating around because that is not relevant when supply exceeds demand by a long mile. We will not desperately seek goods that are in surplus.”

    We won’t seek goods that are in surplus but we will seek currency that is in surplus??

    “We will instead work to increase personal earnings through efforts. We will work towards increasing our savings and seek to reduce our expenses. ”

    It is the form of savings that is going to change!

  • Rick Ackerman April 27, 2011, 4:26 am

    I’ve received an e-mail from FOFOA, as follows:

    Hi Rick,

    I can see from some of the comments on your site that the myriad of questions, thoughts and concerns that I have been addressing for the last two years are bubbling up as they always do when noobs show up to my blog.

    For instance, the questions about confiscation. I wrote two confiscation posts. One in 2009 and one in 2010. I have thoughts in addition to those two posts if you are interested. But they are a good starting point, assuming you even care to know what I see regarding that subject:

    http://fofoa.blogspot.com/2009/08/confiscation-anatomy-different-view.html
    http://fofoa.blogspot.com/2010/08/confiscation-anatomy-part-2.html

    Funny, my stats are rising at the same clip or maybe even faster today. Seems to be a lot of interest in this.

    I also recommend Mencius Moldbug’s latest, if you haven’t read it yet. It links to your “Big Gap” post, and he has a fresh perspective on hyperinflation in it. As he wrote to me in an email, it is “orthogonal” to mine. http://unqualified-reservations.blogspot.com/

    • Cam Fitzgerald April 27, 2011, 8:32 am

      `
      Apologies are extended to all of |Rick’s regulars and to all my friends on this site. I ranted earlier tonight. I never even bothered to address any of Fofoas points head-on because I was so incensed by his/her arrogant attitude.

      Lets discuss just one of the holes in the hyperinflation argument for today though.

      Inventory.

      There is an assumption made in an inflationary environment that shortages will appear. Demand outstrips supply eventually. Too many dollars are expected to be chasing too few goods (especially imported goods) and therefore prices rise. Sharply at times. Store shelves get wiped clean as those with cash rush to unload worthless currency in exchange for hard goods as fast as possible and the poor go without.

      Right?

      Granted, this is a fact in most economies that suffer from serious inflation (hyperinflation especially) and so it is assumed we will all suffer the same fate. But wait. Is that correct? Does it apply to America? Does it apply in a country that has bountiful agricultural resources for example. Enough resources to supply the needs of all its citizens into eternity itself without even a small hiccup?

      The problem with that premise is that we are not actually short of goods in this country. Not food and not material goods either. We are swimming in manufactured goods of all sorts already.

      Look in any basement, garage or outbuilding on this continent and you will know what I am talking about. We have sources of goods to last us all for decades. We bought it, we own it, we saved it and we will utilize it through good times and bad.

      Shoes are a good example. Do you own just one pair like the typical person did in the last depression? Not likely. Most people have four, five and even a dozen pairs of shoes on hand. They have closets filled with good quality clothing too, carports filled to the rafters with house-wares, garden tools, auto parts, utensils and surplus (last-years) electronics.

      That is called inventory in both tough times and good. Those are also barter goods in a pinch. As a consequence, most of us are in a very good position to weather any hard economic storm for a long, long time indeed.

      But why does any of this matter?

      Well here is why. The simple assumption amongst the too-smart hyperinflation crowd is naturally that shortages will quickly come to fruition during a currency crisis. There are too many dollars floating around they shout!! We people cannot contain our natural desires to consume scarce resources and so prices of everything will be driven to the moon. We need stuff urgently and now it is short supply.

      But wait. We already have too much stuff. Everyone else we know already has too much stuff too. This country has food capacity and resource capabilities to the Yin-Yang too.

      So then explain why dollars will chase goods that are actually in great abundance? Hmmm? Something does not add up here.

      I am suggesting instead that what we will experience in a serious economic decline is not the search for scarce resources in a time of surplus dollars but rather the means to develop more productive capabilities and income opportunities. We will work to better ourselves and dig our way out of debts. We will actually become more productive as incredible as that may sound to some.

      I don’t care a damn how much money is floating around because that is not relevant when supply exceeds demand by a long mile. We will not desperately seek goods that are in surplus. We will instead work to increase personal earnings through efforts. We will work towards increasing our savings and seek to reduce our expenses.

      That, in short, is deflationary. That is deflationary because it reduces consumption at the broad economic and retail level while real personal shortages are resolved between neighbours and friends locally. By barter, by trades and by sharing.

      If we do suffer a depression (or a hyperinflationary depression if you like) it will be one that is known for its surplus of goods and not its shortages. This process and its premise is anathema to the whole hyperinflation theory.

      There might be an excess of cash money but it surely will not chase a shortage of goods. I anticipate our experience will be what I refer to as an “inventory depression“. A time when we slowly consume all that we own as we work towards rebuilding our economy piece by sorry piece. We will not want…. and so, by turns ,we will not inflate.

      I have chosen only one small aspect of our economy as a focus tonight. I have chosen to reflect on the existing surplus of goods in our economy and tried to explain why those excesses will defeat the logic that claims to guarantee a trend to a hyperinflation. A trend that some pundits ensure is certain to transpire. It (a hyperinflation) cannot happen while material wealth abounds at all strata of the population. It cannot happen until we are actually short goods.

      We are not short yet though. Not even close. That makes a depression much more likely as physical goods overwhelm needs far into the distant future. We got stuff. Too much stuff. Money will not make it go away unless we deliberately set out to destroy those goods and create the circumstances necessary to make cash flood our markets in search of scarce resources.

      *** Feel free to delete my posts Rick. I really do not care. I am just so pissed at this Faux Faux-Ah (FoFoa) and some of the nonsense he spouts that I could just spit blood tonight ***

    • Steve April 27, 2011, 3:34 pm

      Up not so early. I had a certain respect created from Rick’s words in regard to FOFOA. This all changed and I find FOFOA to be a jerk:

      “. . . assuming you even care to know what I see regarding that subject:. . .”

      Rick has shown FOFOA the utmost in respect, and FOFOA proves he is without honor, or deserving of any respect. It seems to me now that FOFOA is without a stand in regard to inflation, or deflation allowing himself the right to be RIGHT no matter which way the wind blows.

  • Tictawk April 27, 2011, 4:00 am

    Timing is the key. Clearly the Fed is monetizing bad debt via QE type programs but the amount monetized pales in comparison to the debt mountain. I think it is a stretch to believe that when the credit collapse comes, the Fed can monetize it all. Any attempt at a serious printing will result in sky high interest rates and choke off any lending, this will exacerbate the collapse. Without LENDING we have a CASH AND CARRY economy. Future liabilities will be defaulted on too. We are a DEBT JUNKIE nation and without the ability to BORROW, we will have withdrawal symptoms like any junkie. A monetary collapse means economic collapse whether by hyper or DEflation is painful. After 40 years of INFLATION there is a lot of AIR (debt) in the balloon and hyperinflationists believe that the FED CAN blow up the balloon till it explodes and deflationists believe that the air coming out of the balloon is escaping faster than the FED can pump into the balloon. I think it will be politically impossible to bail everyone out and there will be pressure to DEFAULT.

  • cp April 27, 2011, 3:02 am

    I’ve always thought that any scenario involves both deflation and inflation. The market is over extended with too much debt and wants/needs to correct down, into deflation.

    The ptb, want to offset that with creating more money. Most likely, it will end in inflation, as the ability to create more money/credit is limitless, but even if so, what happens AFTER a HI event? It could look very much like a depression.

    I think it depends on the resolve of the people that issue the money/credit. Do they keep the pedal to the metal, or is it possible that at some point there’s just nothing left to push?

    As both Rick and fofoa have said, either way, it’s ruin, and likely looking the same. Also either way, p.m.’s, along with other useable assets, are likely the only smart inverstment by that time. Just my two depreciated cents.

  • Sincero April 27, 2011, 2:52 am

    “Gold is NOT treated as a financial instrument by the US government, which is why it is EXEMPT form declaration upon export from the US even in AMOUNTS greater than $10000. However, I would not try that even so, with a couple kilos in the hand-baggage. The TSA goons would most likely go ape-sh** anyway.”

    I can’t speak to the TSA goons, but, on an international flight, not too long before they became a fixture at airports, I moved several hundred ounces right through the metal detector without incident.

    • Chris T. April 27, 2011, 5:14 pm

      Good to hear it, but would you take that chance now? Hard to say, but who knows what they have been told to look for, etc.
      After all, people with Ron Paul stickers on their cars have been classified as potentiallly haveing “terrorist” leanings.

      Since you were smart enough to expatriate a couple of keys when it was still no problem, you must surely appreciate the value of gold NOT producing any interest:
      No ongoing income to report, hence no I-tax violation.
      And no FBAR report either, if done right.

      Just about the last legal asset offshoring with relative anonymity if implemented wisely!

  • Tony April 27, 2011, 2:19 am

    The entire argument for hyperinflation is based on the premise that the Debt holders will simply sit on the debt and political expediency will prevail to monetize bad debt. The tiny problem with that is the SIZE of the debt balloon. If China or Japan decides to dump their stash, game over. All lending will cease and the Fed will realize that monetizing the debt is impossible because it will spur other holders to dump. In our credit based system, once credit availability seizes up, game over.

    • PhotoRadarScam April 27, 2011, 3:07 am

      I don’t think China or Japan will dump their stash all at once, but they will begin to get rid of it or simply not re-new it as it matures.

      But The fed’s choice isn’t to just default or pay-by-printing. The fed and/or government can offer gold (from Ft Knox, if there’s any left), securitize the debt, or create a new “special” currency (Amero, anyone?). There’s no end to the creative possibilities.

  • Nick April 27, 2011, 12:53 am

    Hi Rick.

    Very nice article. It’s rare in our world today that you find someone educated like yourself that has the guts to come out and say they were wrong when presented with a different viewpoint. Most people can’t put ego aside. The fact that when you were presented with a different perspective (as FOFOA often says) you were able to adjust your viewpoint, shows true intelligence in my opinion. I will continue to read your posts with even more respect.

    Nick

  • bob April 27, 2011, 12:23 am

    Rick, the first thing that I did was check the date, to make sure it was not April 1st. Welcome to the club! Now I am almost sorry I spent sooooo much time trying to understand your stand on deflation.
    Now I can at least focus on the inevetable future.

  • Beemer April 27, 2011, 12:03 am

    Ahhhhhh, capitulation by the master deflationist. Deflation it is… book it!

    • Rick Ackerman April 27, 2011, 6:50 am

      Take the odds and put me down for a C-spot, Beemer, okay?

  • Robert April 26, 2011, 11:46 pm

    I’ve got nothing to add, or to debate….

    Imagine that.

  • C.C. April 26, 2011, 11:28 pm

    Here’s the punchline of that entire ‘treatise’ as FOFOA self-described it:

    “Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!”

    Policy. As in: ‘Poli-tics’. As in: Government intervention. As in: A Highly Politicized Government, which decides ‘Policy’ based upon Politicization – of almost everything – including finances.

    Not to toot another’s horn, but… Another Gentleman who has had this Right for quite some time – and the chops to lay it out as good or even better than FOFOA, is Daniel Amerman. Both men have described the mechanisms by which this even comes about, up there with the best.

    • Steve April 27, 2011, 12:56 am

      Why hasn’t anyone brought up that the Fed cannot push on a string. The Fed must get the money in the hands of the 90% in order to have them pull the inflation wagon.

    • Puddin April 27, 2011, 1:16 pm

      I think the Fed has proven that this is not true. People have less cash than ever, yet prices go up because of dollar debasement caused by QE ‘n’:oil/commodities are the real beneficiaries. Assuming this continues, wages go down or are flat, investments go down, things we need go up. Thats the definition of stagflation but with a twist.

  • gary leibowitz April 26, 2011, 11:17 pm

    Interesting take on the future of inflation. All commodities are acting as if inflation is a given. I suspect the real reason behind the rise is excess money trying to find a speculative home. The QE1 thru XX is definitely helping equities and most commodities. Third world growth is also helping the cause.

    Copper is the one metal that should tip it’s hand on whether inflation is upon us. So far its lagging way behind.

    If inflation was a problem, or soon to be one, why hasn’t it already hit. Heck, even before the debt debacle the talk was about how true inflation was masked by the government. I don’t buy the conspiracy argument.

    Housing, consumer confidence, real disposable cash is falling. Bank debt is not getting cleaned up anytime soon. World debt is also lagging our efforts.

    Nope, I’ll stick to 2 assumptions. One, deflation is inevitable and equities will at the least retest it’s low of 2 years ago.

    One other note: Silver is spiking, in a hyperbolic move. Not likely the start of an accelerated rise.

    I’ll stay stubbornly pat on deflation until real wages catch up.

    As long as the dollar continues to slide equities will be a safe haven. It is getting mightly close to its all time lows.
    This summer should be interesting times.

    • Steve April 27, 2011, 12:54 am

      Absolutely agreed on the wage issue Gary. Absolutely in agreement on the frn note issue. Right On on silver.

  • Chris T. April 26, 2011, 11:01 pm

    “Gold Windfall Tax”

    One thing people forget, its ALREADY there!

    Gold is NOT treated as a financial instrument by the US government, which is why it is EXEMPT form declaration upon export from the US even in AMOUNTS greater than $10000.
    However, I would not try that even so, with a couple kilos in the hand-baggage.
    The TSA goons would most likely go ape-sh** anyway.

    BUT: The IRS defines gold in the same way it does any other collectible, so that the 15% capital gains tax does not apply, rather the MUCH, MUCH higher rates.

    Therefore, ANYONE selling any gold pretty much over the last so many years CLEARLY has made a nominal profit, as the prices have never been higher.

    If they EVER found out any gold one owned having been sold but not on the affected years pers. income tax filing, they would, sadly justifably so, impute an undeclared profit.
    If one were unable to demonstrate what the cost-basis was, or the aquisition time-frame, they could take the lowest price as basis, which would be the $35 price (even if it wasn’t actually legal to buy during that time).

    Of course they would also levy a fine for failure to declare, etc, etc.

    The higher the so-called profit goes, because NO inflation indexing us used, the more windfall profit to the government.

    Sad but true, esp. if physical is only kept stateside, and bought from the most easily seized record-sources.
    If I were the thief here, I would first seize all the records of the large and know PM sellers, and then the most known coin-dealers.
    Presto: you know where the gold SHOULD be. If the purchaser doesn’t show it, then HE SOLD IT, why didn’t you declare?
    And so on.

    So, it’s already there!

    • PhotoRadarScam April 27, 2011, 2:59 am

      If you’re selling gold for $10k/oz that you bought at $1000/oz, but you can’t prove it, paying taxes on $9965 profit isn’t going to be that much more than paying taxes on $9000 profit (~11%). The gains will dwarf the cost basis.

  • mikeck April 26, 2011, 8:40 pm

    “Bottomline, we have no input to that decision. If you think you do, look at who you voted for and their actions.”

    Ha! Very, very unlikely that anyone I vote for would ever be elected…TPTB would never allow it.

  • Bc April 26, 2011, 7:48 pm

    @Chris T. Very good point. This won’t be over until the finance sector shrinks painfully back to about 5% of private sector profits, down from 40% today. The HI believers think financial elites will prevail over the middle class. I don’t.

    • Chris T. April 26, 2011, 10:51 pm

      I hope you’re right.
      We need the days back of the local-banker-afraid-of-the-torch-and-pitchfork brigade.

      If there was EVER an argument for no liability limitation through incorporation, it was for the businesses run by the financial elite.

  • linrom April 26, 2011, 7:42 pm

    I don’t think that people realize how insane FOFOA argument is. Seventy year old debt colossus is merely repriced in terms of gold. LOL! So why pay off debt, just wait another 70 years and re-price all the debt in terms of bat guano.

  • JohnJay April 26, 2011, 7:22 pm

    Carol: re Gold confiscation
    We did not have a Security State set up back in the 1930’s.
    Look at the checkpoints at the airports, slowly spreading to bus stations, etc.
    Do you see any daily, Northern Ireland/London, back in the day, IRA type activity that needs thwarting?
    Do you see any credible threats at all that justify what we have in place?
    The big question is, what will the response of the Federal Government be when the dollar becomes worthless.
    I say, ruthless repression is on their agenda.
    As Gordon Liddy said, “They want you, they got you”
    They will steal, tax, or otherwise confiscate your gold, silver or anything else if they want to.
    They helped set up the housing Ponzi scheme with GS/JPM/C, and then enabled the cover up and no prosecution/bailout.
    That wrecked our economy and is bankrupting us more each day.
    They are capable of anything at this point.

    • Carol April 26, 2011, 8:07 pm

      “They are capable of anything at this point.”

      Only if we let them! We so out number them it is rediculous. They only get away with it because the sheeple let them.

      When are people going to start practiing civil disobedience?

      As for me lol I haven’t signed a government form or bowed down to the slave masters in oh over 12 years!

    • ajobpd April 26, 2011, 8:47 pm

      If Mancur Olson’s “stationary bandit” (see comment above) needs more financing, he may still resort to method #3. : nationalization, confiscation.

      But no outright confiscation à la Roosevelt 1933, that’s Dark Ages…

      Today one of many simple ways to implement it could be to emulate the well received 1980 Crude Oil Windfall Tax Act: just apply the official US 42.22 $/oz gold price and establish, for instance, a progressive Gold Windfall Tax on September 30th, 2011 to dampen the “socially unacceptable” excess profits of the minority that chose to invest in gold. Just tax it, say, 2% for every incremental 100 $/oz profit: first 42,22 $/oz are tax free, next 100 $/oz pay 2 $, up to a maximum of, say, 50% at 42.22 + 2500 $/oz and above. All legal, democratically approved, IRS collected, etc

      I let you imagine the evolution of the gold price between today and September 30th…

      You may also have a gold black market, with all the associated new “needs to control” the gold market…

      &&&&&&

      Very unFDR-like, but it sounds like a plan…

      RA

  • walter fields April 26, 2011, 7:18 pm

    pardon, c’est les deux..w.f.

  • walter fields April 26, 2011, 7:14 pm

    you poor Aristotelian..the French have a profound expression to help solve you quandary: ‘c’est deux’ .

  • Other Paul April 26, 2011, 6:57 pm

    Rick,
    Thanks for the great forum and the discussion about FOFOA’s views.

    To build on ajobpd’s ice race track comments, above, (and my similar, very simple comments here over the past year or two):

    The Fed’s job (or results) since Day 1 (1913) has been a controlled, slow depreciation of the dollar’s value. Sometimes they lose that control for a few years (during wars and recessions/depressions/stagflations). But the big picture is one of steady depreciation.

    The bankers’ playbook is: Pay out interest to depositors/investors of x% and lend out at x% + y. The playbook can work indefinitely until “too many” people stop believing that fiat is valuable.

    When the bank runs start, we’ll know that the playbook isn’t working anymore.

    • Steve April 26, 2011, 7:20 pm

      Mixing Dollars, and federal reserve notes here. The fed’s job has been to trick the people out of using Dollars, and to trick them into volunteering to corporate slavery by use of private federal territorial script called federal reserve notes.

  • Chris T. April 26, 2011, 6:33 pm

    One thing FOFOA makes clear is that he treats gold AS money, not an asset, and then compares THAT form of money to paper money.
    This solves the problem of gold “going up” in deflation that Carol mentions:
    OF COURSE money “goes up” in deflation.

    RICK:
    “…that deflation was far more likely to do us in, turning an endless Great Recession into a Second Great Depression…”

    While I haven’t gotten through all of FOFOA’s blog, so far I have not seen him address one aspect of your comment cited here:

    I used to believe in the consequential outcome you cite too, and of course Bernake does and always will.
    BUT:
    it is a misdiagnosis of what REALLY happened during the “Great Depression”.
    Misdiagnosis actually is too weak a word, wilfully false diagnosis is actually more accurate.

    We have been propagandized by those able to employ the propaganda into thinking that the time between 1929 and 1933 was a bad time for the US as a whole, when in fact, IT WA NOT.

    (specifically excluded is the time after March 1933, post-FDR inaug.).

    In fact, the post-crash time was NOT BAD for the US overall, only for the a small sector of society, the moneyed elite, the one’s wielding the propaganda.

    The following is a point made many times by the late Dr. Katz, and he used facts, not imagery, to back up this argument.

    Even when unemployment hit 20+% during this four year period, that still meant 75+% of Americans had jobs! AND;
    more important, we were a SAVINGS-based society, with most American’s having savings to their name, not DEBT like today.
    Thus, during the INDISPUTABLE monetary appreciation (which is the better word for it than deflation) at the same time, people’s assets INCREASED in real terms, and their lot actually improved.
    The cause for the rising unemployment at the time was simply that, with REAL wages INCREASING,
    they lagged, as wages always do, behind REAL prices. This made labor too expensive for producers, thus lay-offs.
    But, even those unemployed had savings to live, with, again, increasing value, and in addition, the go-home-to-the-farm relief valve (or a still employed family member.)
    Long term unemployment also shows this: The nominal number of unemployed was NOT static, they were not the same pool during the whole time, meaning people still found jobs, having adjusted (because of their prior unemployment) their nominal wage demand down to catch up with the real wage.

    SO: for most (!) Americans things were getting better, not worse, but certainly NOT for the elite.

    In their propaganda, when things get better for the masses (INCREASING REAL wages), but bad for them, its a depression,
    but when things get worse for the masses (the decreasing real wage and disappearing personal savings, the situation since about 1970-1975), but better for them (1981 and on), its called growth and good times.

    That is the propanda we have fallen for, underpinned by pictures of Hoovervilles, “The Grapes of Wrath”, apple-sellers, etc.

    The proof of that can be seen in the physical consumption statistics in the very early thirties, much better looked up in Dr. Katz (hopefully still available) archives, or of course in the Statistical Abstract (because those numbers BELIE the governments propaganda, they can be taken at face value, unlike official CPI today).

    Some ex: consumption of INFERIOR goods declined, their superior counterparts increased; charitable giving reached its highest levels ever recorded, and so on.
    This is NOT the consumptive pattern of a general decline in wealth, on the contrary.
    If forced to chose between the propagandisttic images of a general decline, and facts disproving that, the latter should obtain.

    Not my notion, but one pronounced for a long time by Dr. Katz, and as persuasive to me, as FOFOA’s blog to Rick.
    Hope some of you who may have read this, look into it more, to see for yourself.
    Bottom line:
    Depression = when the financial elite looses, and the masses gain
    Growht, good times = when the elite wins, and everyone else loses.

  • Steve April 26, 2011, 6:16 pm

    When everyone is betting one way. The only sure thing is the masses are on the wrong side of the bet. When the oldest and strongest bear caves, run for the cave because what is not expected is coming. Talk to me when the Dow makes a new all time high. What one does not have in their own hand, is not theirs. What one cannot defend will not long be theirs.

  • linrom April 26, 2011, 6:14 pm

    In his rebuttal to Rick Ackerman and Charles H Smith essay on deflation, FOFOA makes a case of how the Russian Oligarch plan of buying assets for nothing and mathematics of infinite money will prevail, making the elites even richer.

    FOFOA claims that hyperinflation is what the elites will choose over deflation because it’s a less painful path to take and, in fact, it’ll increase the elites’ wealth as they already own all the gold which had been accumulated over the past decade. The value of this gold will increase by more than what elites exchange their notional value of financial assets (debt) for NEW Fiat issued by the FED, which the elites immediately spend.( Is this how NEW currency is supposed to be put into circulation?)

    FOFOA estimates that gold is eventually re-priced at 40x over $6.6T in value that is currently calculated, or $264T( which is more than the $160T held as debt.) This calculation was submitted in reply to CHS argument that elites with $6.6T holdings in gold but $160T in debt holdings can’t possibly favor hyperinflation.

    The question that I have is how is going to be possible for elites to increase their share of wealth form current level of 90% by 2/3rds?

    The argument that FOFOA makes, makes no sense at all in real world physical economy. It boils down to mere financial paper engineering: gold Ponzi asset bubble where wealth is created by financial machinations, that’s par for the course.

  • Carol April 26, 2011, 6:13 pm

    “Where is all the “cash ” that has been printed so far?”

    See this is one of the biggest lies/misunderstandins abounding in the hyper case. NO ONE not the FED not the tresury not the US guvmnt handed out cash to anyone. They ONLY handed out LOANS that have to be paid back. In out monetary system ever $ that is created is issued as a loan. Someone has to pay that back at some point.

  • R Kuester April 26, 2011, 5:52 pm

    Where is all the “cash ” that has been printed so far? not in the hands of common folk? Isn’t it either sitting on Banks balance sheets to avoid them writing down losses& declaring bankruptcy or used by investment banks to trade currencies or other speculative opportunities closed to most people who no longer want to borrow? Yes , as Carol said,Gold seems to be good in deflation AND inflation, but also for SPECULATION!

  • R Kuester April 26, 2011, 5:44 pm

    I like Carol’s questions & practicality about wages & unemployment.Why is no one considering the real possibility ,even likelihood of gold confiscation …and what will we use for a medium of exchange when the dollar approaches zero? will they mint gold coins at 100ths of an oz?…and what about the “new “dollar waiting to be distributed?..and the IMF’s special dwawing rights? & the new world order? It seems there are so many variables it’s impossible to crystal ball it.

    • Carol April 26, 2011, 6:10 pm

      “Why is no one considering the real possibility ,even likelihood of gold confiscation ”

      I would say any one stupid enough to hand over their gold because some “law” (corporate rule) says they have to gets what they deserve. When are people going to take matters into their own hands? Why does everyone complain about the obamacare and other draconian “laws” when no one has put a gun to anyones head and said YOU MUST OBEY! In 1933 when gold was “confiscated” NO ONE was ever jailed for having REFUSED to give up their gold – NO ONE.

    • Rick Ackerman April 26, 2011, 6:21 pm

      Indeed, confiscation will always remain a possibility — even if it is disguised to look as unlike FDR’s edict as possible.

    • Steve April 26, 2011, 7:16 pm

      A very small note Rick. F.D.Roosevelt’s order was executive against ‘persons’ which were presumed to be ‘artificial’ under the Erie Railroad Doctrine (I believe 1934). There is no Authority what so ever to take specie from the Sovereign in Common, Common Man, with Common Rights. We are supposed to know better -which explains why everyone is a corporate enfranchisee under the Colors of the Commander in Chief. In the END, it does not matter when a man has arms and tells one to JUMP!

  • Bc April 26, 2011, 5:44 pm

    There are other scenarioes. Another option is Financial Repression.
    http://www.voxeu.org/sites/default/files/file/DP8310.pdf

    Sent from my iPhone

  • Steve April 26, 2011, 5:14 pm

    I read FOFOA until I observed what I believe to be a flaw.
    And while I have not read beyond that flaw I will do so when I am more awake this morning. FOFOA references the Dollar in terms of gold, which is based in executive usurpation of exclusive legislative authority in violation of the Separation of Powers Doctrine, the F.D. Roosevelt High Treason in 1934, (cite: the Trial of Thomas Earl). In 1934 there were 2 different forms of money both established upon a ‘fixed value’, one Silver Specie, for and from the People, and one gold from and for the executive government in high crimes. It is agreed that the Nixon decouple affected federal reserve notes in 1971 which are only “good for money” unless specially objected to, McLeod v. Hoover (cite ommitted) making them valueless except in private contract. The decouple in FOFOA’s comparitive is in the assumption that a federal reserve note, which could be exchanged for a Silver Specie Dollar prior to 1971, is equal to a federal reserve note having only a preception of value after that date, with a real value as stated by FOFOA at approximately 3.4 cents, the cost of manufacture, or value as wall paper. Silver certicates good for money, are not the same as post-71 fiat fraud/misrepresention. FOFOA does not factor in the present reality that a Dollar is legislatively defined by the Coinage Act of 1792, and 1985 as a silver Specie of Coin struck by the Mint as Legal Tender. The Dollar is only one thing, ‘silver Specie’, and its value is constant for the People. The issue of a weight of gold to establish High Treason by F.D.R. to trick, misrepresent, defraud the People and create a gold money for the executive and a new slave state with the Commander in Chief the new g-d in succession is still an appearing criminal act of High Treason in its succession. (war crimes, high treason, fraud crimes can be tried 90+ years later) I can agree with FOFOA that the executive will attempt to inflate, keep wages low, and attempt to prevent a rapid movement via hyper-inflation, or hyper-deflation. The misunderstanding may be more about what inflation, deflation, hyper-deflation, and hyper-inflation are than the course that will be run in regard to debt, versus credit holders. Once again I agree that if one has property and no debt, and one can feed, water, and house those who are important to them, the external preceived value of a federal reserve note is of no concern in the long term. To a debtor, the matter of preceived value of a frn is paramount. Silver Specie Money in the hands of the People has maintained a “value” in real terms, and is still money for the several States, and the People even if the executive is executing High Treason under standing case Law with executive gold money, which has become valueless. The issue, the value of frn notes is the tally, or score kept against the user of said fiat fraud is what is paramount to the “federal union of states”, where once stood and still waits the “several States” in union.

    The perception that a continued loss of standard of living caused by high treason will not create a rebel force against the high treason is not well thought out. The system of monetary high treason practiced by the executive branch of corporate government cannot afford to allow hyper-inflation to raise its head. It is said that the Nazi took away the arms of the German People, but; that is not true. The German Government took the arms away prior to the establishment of the Nazi, allowing the Nazi full reign without fear of a German People bearing arms against the criminals in government.

    As of this morning real estate is still falling in value. As of this date wages in real terms are falling in value. As of this date spending is increasing only upon use of credit cards. As of this date the same fraud/misrepresenation is being use for accounting. As of this date the congress continues to pile debt upon each individual the second they exit the womb, and become 14th amendment . . .subject. . . of the congress’s legislative process. As of this date the executive and congress are still engaged in High Treason in regard to monetary policy. As of this date the governor of your state is still in full blown breach of fidiciary obligation in breach of Article I, sec. 10, cls. 1 “No State Shall. . .make any Thing but gold and silver Coin a Tender in Payment of Debts.” And, your state revenue department is still making the fraud distinction in misrepresenation between the 2 words discharge, and extinguish, Payment of debt.

    Fact is that the current governmental form of monetary policy appears to be High Treason based upon precident in case law. At a point the inflection of abuse via inflation will cause a legitmate rebellion against the crimes of the executive branch. The persons who are creating the monetary debacle are thin fingered cowards who must use psychology of the masses to keep a force in place; be that deception, or abuse of police powers.

    The cost of food and energy is going up gradually. Wages are falling. Housing is falling. Government forced debt is increasing (high treason). Private credit card debt is increasing(idiotic). Accounting misrepresentation is increasing. The percentage of people not working is increasing because it takes more than 300,000 jobs a month to just cover persons entering the workforce. McDonalds gives forth 50,000 $8.00 an hour jobs in exchange for an exemption to O’Bama Care.

    Show me the mechanics for radical wage increases on a daily basis and I’ll understand hyper-inflation. Maybe that is down wind in FOFOA’s commentary. I just stopped when I saw the same flaw that exists between Men and Women who will obey the Law, and those who will find their merit in inauthenticity and disingenuine comparison of Specie, and fiat fraud. The gold dollar value is utterly null and void in acts of high treason.

    What one really gets down to is the age old argument. Does one believe in the Immutable Law and Right and Wrong. Or, is one a power unto themselves who believes in personal and political anarchy. Sure there is inflation in food and energy. Now, what happens as that inflation creeps into wages, if that is possible with an actual unemployment rate of about 20%, and a corporate welfare unemployment rate of 9%. What will Ben do when wages increase ? And, wages in some form must hyper-increase in my belief to create hyper-inflation. FOFOA seems to indicate that housing will spike higher. Maybe the Chinese will buy those homes with fraud/misrepresentation fiat fraud money. Like written before – a guy has a house, sells it, and buys another. Why ? To downsize ? A house has value to keep one protected. Maybe everyone is confused as the standard of living for the 90% falls slowly, and the top 10% hyper-inflate as the G7 & G20.

    • Benjamin April 26, 2011, 6:14 pm

      Hi Steve. I don’t know if it’s wise of me to go tangling with your post, when FOFOA already has much to tangle with.

      But I have to say, I agree with you because that, after all, right is right; the authority to coin money is ours, exclusively. Anything else, even gold and silver coinage under different authority, may as well be wooden “nickles”.

      There’s two problems we as “free” humans face…

      Getting people to acknowledge gold and silver money, then realizing where the proper authority is in regards to what determines their market value.

      Even if the majority were to just buy a single gram or 20 (or whatever) of both metals, the fact that central bankers would still be weighting currencies (albeit, indirectly) would be a disaster; there would be a lot of nervous holding and irrational selling, as general price inflation policy (in necessities) in these painful parameters would see people doing.

      What people need is _total control_ over how much currency an ounce of silver can create and, as a result, determine the real market exchange rate with gold. Not how much to buy, hold, and sell under the illegitimate authority of the masters. Just buying either/both in response to their existence leaves all exposed to the goals and certain disasters of said false authority.

      Yet, what else can be done than take the chance that people will learn that lesson, and demand their right to currencies in place of a very and powerful banking system? And as it turns out…

      THEY can conceivably make this work to that end. All they have to do is keep a steady increase of Pain on the masses, until they catch on to the enduring gold and silver prices. Once done, more Pain, until they say “enough!” and, rather than demand a hyperinflationary move from government, assert their right to determine currency weights.

      What we are seeing today is indeed depression. An ounce of either gold or silver buys more. This would happen when people weighted currency higher, usually in demanding wide-spread government action (or, ie, the national defense). They would coin more gold and silver, to make the creation of a single dollar
      require more metal(s). Therefore, a single ounce of either would buy more, which is what government would need in order to defend the nation. Call it a power-packed wallop, like Bruce Lee’s “one-inch-punch”!

      Gold and silver are rising in purchasing power, so the question is… Defense/retaliation against whom?

      The answer is simple. The masters are defending themselves against us. They’ve declared war on us and have demanded governments defend them against us. We must do the same. And that can be done peacefuly enough. All we need to do is demand our government make the new Coin Act according to what we think the dollar should weigh, and how much/little it exchanges with gold. But people need to accquire some in order to have something to fight for, as it is highly unlikely they will unless they have the means in hand first.

      And again, the risks of a centuries-long regression are very real…

    • Steve April 26, 2011, 7:11 pm

      Ben, thanks. Yet I do not see in real terms that gold or silver has increased in value. $1500.00 gets a suit, as does 1 oz of gold at $16.00. If one takes into account the speculative spurts, or spikes, there is still a constant value. If one were honestly established as a several State Citizen using fair weights and measures he would not be hurt by federal reserve note fluctuation. The issue always seems to be choice – to immorality, or morality. In this case had a section of society ‘traded’ only in silver Specie there would be no pain from fiat fraud.

      The only base being considered by the powers is a decision in regard to how much wool can be sheared without rebellion.

    • Benjamin April 26, 2011, 8:24 pm

      Steve,

      Can I email you to discuss this more? There is much I need clarify first, but I don’t want to clutter the forum in the process.

      However, put as simply as I know how… He who owns the gold and silver calls the shots. And I’ve near total certainty that those with the greatest hoards is neither you, me, nor any government in the world.

    • Steve April 27, 2011, 12:49 am

      You may certainly email me Ben. I’m easy to find on the web as a bronze sculptor.

  • RichardB April 26, 2011, 5:03 pm

    I found the referenced article difficult to read. I need to read it some more and let the ideas sink in. I appreciate the efforts of the author since it is one of the better articles I have read on the subject since I came to the opposite conclusion in 1998 or so.

    I like the fact that Rick allows discussion unlike the blog. How can one ask questions? If one can’t ask questions, then how can one clarify and learn? Kudos to Rick, baggage and all – LOL!

    My impression is that the writer doesn’t say deflation is off the table but that it can look very similar to HI. I would agree with that comment. The only previous comment I made in this debate was that HI or deflation is not knowable since it is a decision. Bottomline, we have no input to that decision. If you think you do, look at who you voted for and their actions.

    Secondly, I would wonder how the author explains deflation in 1929 or in Japan if he believes it is off the table. We do not have a lot of samples to compare in history. Statistics require a minimum number of samples to have a reasonable level of confidence that we can predict. We don’t have that in economics which is not really a science but strives to be called one as part of our modern day new religious worldview.

    Thirdly, to SD1 (who phoned me about 10 days ago) my recurring intuition reading the essay is that the savers and the spenders is so similar to the takers and givers of Daniel Quinn’s books. The environment and the economic environment are not that far off I guess. I am ruminating on the implications of that. The tragedy of the commons comes to mind.

    The basic problem is that people want to spend without saving. Someone has to put in before anyone can take out. One can’t have a fire unless someone assembles the wood and lights it. Until we learn this fact we are doomed to repeat this scenario endlessly.

    Finally, I was encouraged that the actual practical advice I have written to others about as action items , seems to have merit in either case of HI or deflation. Number one on that list is to enjoy your life to the fullest in the now.

    • Rick Ackerman April 26, 2011, 6:18 pm

      You are right: FOFOA hasn’t taken deflation off the table an neither would I. As you say, it is a decision; and if it were, say, Ron Paul’s decision, it seems unlikely that the Powers-That-Be would get cashed out at 100%, as FOFOA’s scenario demands.

  • dennis April 26, 2011, 4:59 pm

    I have had many disagreements with some of the points of view on this blog, including some of Ricks, but always with a sense of respect for the effort and desire for understanding that lay behind them. Infaltion vs. deflation was one of those issues, and I have always come down on the side of the inflationists. Rick has always injected a healthy skepticism into that view and I am certainly gratified and much relieved that he has changed his mind. More importantly there is nothing deserving more respect than the willingness to reconsider one’s point of view, in light of evidence and solid argument. ……great job Rick..be sure to let us know when and if you see things differently…

  • roger erickson April 26, 2011, 4:50 pm

    besides, Rick, what if it turns out that FOFOA is a relative of Bernays? And is simply engineering your consent? 🙂
    As long as that can be done, a parasite may win in any context.

    http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=engineering+of+consent&qscrl=1

  • ajobpd April 26, 2011, 4:50 pm

    I respectfully submit that the debate above about de- or hyperin-flation looks a bit too “black or white”, and should be widened.

    Apologies for starting below “real early”; you’ll see why in a moment.

    A.
    Some 10k years ago we had nomads, and we had nomadic bandits stealing opportunistically from nomads.

    Then agriculture allowed a capital surplus, some was invested in city walls, and nomadic bandits had to become stationary bandits within a city, or perish.

    Stationary bandits faced a new requirement, the sustainability of their actions: overpreying would kill them too.

    Those who managed to satisfy the sustainability requirement then went on to call themselves pharaos, kings, leaders, presidents… (see Mancur Olson, “Power and Prosperity”).

    B.
    Modern leaders may finance themselves in four ways:

    #1. Taxes (now already near the limit)
    #2. Debt (now already near the limit)
    #3. Nationalization, confiscation (now not à la mode)
    #4. Seignorage (issuing money, fiat nowadays)

    Bernanke is an explicit, selfproclaimed #4. specialist, read him on page 2 in:
    http://www.nightfall.it/wp-content/uploads/2008/02/seignorage-and-inflation-tax.pdf
    where, in 2001, he academically shows that 8% inflation (in real terms) offers the highest seignorage return for the leader (below the 8% maximum the return tapers down fast, above it tapers down slower — it looks safer to exceed 8%!).

    C.
    I respectfully submit that between deflationary and hyperinflationary outcomes there is an (unstable?) middle trajectory whose duration and stability is difficult to predict.

    To understand it, please visualize a Scandinavian ice track car race, and a car racing sideways in a curve: should you only see a few frames of a film of car racing in such conditions, you would reasonably conclude that very soon it would hit & stop against the inside curve barrier (deflation crash) or skid outside off the track (hyperinflation crash) — that is what you, a normal driver, would expect to suffer if you pictured yourself driving that car — a reasonable prediction.

    But a trained ice track driver manages to drive sideways in a seemingly impossible equilibrium, and usually finishes the race and even enters a new one.

    I believe that this is happening now in the “driving” of most world’s monetary systems — we look at it and conclude it should crash soon — but it may go on and on and on, defying our reasonable predictions.

    D.
    Please see gold’s USD price on a semi-log chart since 2001: a straight line with a +17% p.a. slope, more that 90% of the time contained within a +-10% channel — it does look like a carefully managed price evolution! Since 2005 all other main currencies have joined that channel, and only since some 9 months (too early to confirm) the gold/EUR line has flattened (maybe positioning itself as “good as gold”, the next world’s reserve currency?).

    E.
    What does it mean? IMHO, that most central banks have jointly evolved from a “constant value money” to a “steadily depreciating money” concept underlying their monetary strategies.

    If the depreciation is steady enough, all the vital price discovery mechanisms would still work as well as before for those who adjust their economic understanding to include a still stable (i.e., predictable), even if not time-constant money value.

    Like steering a car sideways along an ice track that takes a specialized driver, managing such a monetary policy is neither deflationary or hyperinflationary, and it can be decently carried out for many years — Brazil, pre-euro Italy, Venezuela are just some examples. The risks are higher, but the leader (or his currently respectable faction), using #4., can still function as a “stationary bandit” (in Moncur Olson’s sense, of course…) for an unpredictably longer while.

    So, without detracting from the interesting debate above, I believe it pays also to start seriously learning how to invest & prosper with a steadily depreciating medium of exchange — even for a longer, a priori unpredictable period.

    • Rick Ackerman April 26, 2011, 9:40 pm

      Great post, Ajo. None of us knows for certain how things will play out, but imagining other-than-disaster is an exercise that could pay big dividends.

    • mark April 27, 2011, 3:40 am

      Two thumbs up.

  • roger erickson April 26, 2011, 4:47 pm

    the best investment tool is to speak out & coordinate with family & neighbors?
    that’s the only way to invest in your country, not just commodities or fiat currency; the Framers of the Constitution generated more real wealth than anyone with any amount of commodities or currency did; both commodities & currencies are tactical tools – meaning that there are ALWAYS novel ways they can be combined to outwit emerging contexts;
    all of history argues for investing in design, not tools

    Why, in economics, is it not prominently accepted that dominant national options are not financially definable – by mathematical definition? Almost everything else that fails in economics & group policy flows from that getting that key axiomic conception backwards.

    • Rick Ackerman April 26, 2011, 9:27 pm

      This is the approach detailed in Sean Brodrick’s Ultimate Suburban Survivalist Guide. I highly recommend the book, which has been reviewed here and is available at Amazon.

    • Robert April 26, 2011, 11:27 pm

      That entire premise scares me… save 2 or 3, my friends and family all think I’m a crack-pot.

    • Steve April 27, 2011, 12:47 am

      Robert, good minority to be in.

  • Priscilla April 26, 2011, 4:39 pm

    Here’s some evidence from real life to support Carol’s argument that the rising cost of necessities will stifle consumer spending and potentially rising prices. I am an antique dealer in a prosperous city in the S.F. Bay Area. The retail sales in our collective hit a wall this month because of higher gas, food, and utility prices. Our monthly sales had been robust through the middle of March.

    • Rick Ackerman April 26, 2011, 6:11 pm

      You are closer to the logic of hyperinflation than most, Priscilla. Picture a day when the mere fear of a worthless dollar drives crazy-eyed hoards into your shop, eager to exchange fistfuls of bills for antique rocking chairs, credenzas and such. Whatever transactions you allow to occur will re-establish the dollar’s value on-the-spot, but I doubt you will be wanting to hold a pile of cash at the end of the day, your store emptied of real goods.

  • redwilldanaher April 26, 2011, 4:37 pm

    Assuming that FOFOA’s “figures” are accurate, the essay really does illuminate in a profound way. Like most of us, I’ve long thought that “they’d” do everything they’d need to in the end to serve their own interests and that “they” were doing things on their time line with an intent to “crash” or “meltup” things to retain their lordships but I was never able come close to stitching it all together with a logical(greed) thread in this way.

    My final thought is that the FOFOA essay almost seems to good to be true. I wonder if it is an elegant offering of disinformation! “Maybe FOFOA just wanted to steal our wire cutters. You ever think of that? …”

  • roger erickson April 26, 2011, 4:37 pm

    both Rick’s & FOFOA’s arguments rest on assumptions;

    1) that people in a panic will still stably value precious metals over other commodities (seems stupid to even test that boundary condition; even testing it means you’ve already lost the greater part of potential value)

    2) that the alluded to MotU have the predictive power to pull off their supposed grands strategy (what if there isn’t a grand strategy worth considering grand? what if it’s just monetary feudalism morphed into insipid banking? what if it’s just stupidly narrow lobbying run amok?)

    What if there are other outcomes none of us is prescient enough to anticipate?

  • Carol April 26, 2011, 4:00 pm

    While I agree with many HI position points I also agree with many Deflation position points. The biggest and most glaring HI position points that I cannot agree with is how is all the “new” money going to get into the hands of the people to either drive the prices skyward or even follow the prices skyward as they frantically try to feed, cloth themselves, and get to work?

    What happens to our economy when most people driving their gas guzzlers from the suburbs have to pay $8-$10 a gallon or more? With wages constrained by globalization and unemployment their wages will not be increasing fast enough (if at all). This added expence for gas, food, cloths, etc (things needed to live) will just reduce the peoples overall ability to spend on anything else including RE, ipods, etc. How are they going to service the debt they have now let alone take on more and higher debt? Wages and income are the key to the future of the financial state of affairs I think and I don’t see them rising much if at all unless or until Benny powers up his helocoptor I just can’t see it.

    Also I agree on the gold call. So many deflationist have been calling for gold to go to the sky at the same time that they are calling for deflation. I could never buy into that argument. Gold is great for Deflation and Gold is great for Inflantion in other words gold is great any time and all the time but we know that is not true.

  • Kevin April 26, 2011, 3:19 pm

    Inflation not deflation is coming. That has been my book for 3 years in here and Rick, if you were unable to wrap yourself around my arguements for inflation please do not demonize me as inept because I couldn’t flip the CORRECT light switch in your head. I think it is you that should acknowledge your shortcomings as an economist to intellectually piece it together yourself because lest you forget, we did do it.

    Quite frankly, when one is wrong you should be humble.

    Now I go after MISH.

    • Steve April 26, 2011, 6:04 pm

      Please try some logic and supporting data so that I understand what it is that is being purported. Other than that I seen nothing in the boast. When one is Correct, one does not need to be __. If I get Rick correctly, one needs to understand the story about the les –

    • Rick Ackerman April 26, 2011, 6:06 pm

      Please give him my kind regards, Kevin.

  • BoozeMonkey April 26, 2011, 2:29 pm

    Excellent article. Thanks Rick.

    BTW, I think I may be a lesbian too… 😉

  • Goodsport April 26, 2011, 2:27 pm

    Welcome to the club, Rick. The referenced blog makes some excellent points.

    If they smartened up, the voters could really spoil the party for the banks and the elite, by electing a congress and senate that would legislatively force the banks to accurately value their assets. Hundreds of culpable banks would immediately go bankrupt, well before hyperinflation sets in.

    Let’s face it, since the Fed is completely rebuilding the balance sheets of numerous banks, it would cost less to charter new banks and let the shareholders of failed banks take the hit, rather than the taxpayers.

  • Phil C April 26, 2011, 2:03 pm
  • JohnJay April 26, 2011, 1:49 pm

    I still question how Joe Six Pack will get access to mountains of cash in hyperinflation to support a house price bubble part two.
    Real wages have been stagnant for thirty years, I don’t see everyone getting raises twice a day in the future.
    Soaring gasoline prices, utility bills, property taxes, etc. are already a major complaint with even the well off people I know.
    I read of a guy who moved to Connecticut and almost dropped dead when he got his first $600 monthly electric bill.
    Not to mention what will happen to interest rates on government paper if Benny and the Ink Jets go that route and provoke a wholesale bond market crash.
    I also will continue to argue that as the elite own more and more of the real assets of this country, it doesn’t matter to them if the dollar collapses.
    For simplicities sake, look at it collectively and pretend Warren Buffet ends up owning everything near the end of the Dollars reign.
    He doesn’t care if you denominate his holdings as worth 60 tons of gold, or 60 gazillion dollars.
    He still owns it all and you don’t.
    He has access to the Federal government and you don’t.
    It’s ZIRP for now, no taxes for GE and friends, and amnesty for illegals if wages start to spike.
    I still don’t know why they make such a big deal out of those silly FOMC meetings, when the markets pretend to be surprised when they decide to keep interest rates at zero one more time.
    My prediction: the rich get richer, the poor get poorer.

    • CharlotteP April 26, 2011, 2:46 pm

      We here in the CT/NY area have been paying $600/mo electric for YEARS! nothing new.

    • Steve April 26, 2011, 6:01 pm

      Yep ! CharlotteP; and your wages have always been 10 times higher than someone in the Northwest. Pretty much a relative ‘value’.

    • Wyz April 26, 2011, 7:22 pm

      J6pk gets cash by selling stuff, i.e. his earnings from previous years as FOFOA described. Any cash he converted into stuff and still owns from previous decades. Then he in-turn races to spend what cash he received on something he wants/needs, like food, before the price is bid up by others hurrying, also, to buy the same items.
      As you note this coming HI wages will not keep up. Anyone who doesn’t have stuff, which could be food stores, will go hungry. As they get hungry, they get mean and nasty. Expect food stamp programs and other welfare programs to start quickly increasing their allotments, another method for J6pk to get cash that he must race to convert to stuff.

    • Steve April 27, 2011, 12:46 am

      The majority are in “Debt”, not in savings. Real REAL problem with that.

  • Pat April 26, 2011, 1:46 pm

    Depending on the timeline of the “financial collapse”, I’m not sure the “masters” would be able to get out unscathed. If someone like Ron Paul or even Michelle Bachman were president in 2012, I doubt they would go along with the masters being able to just dump there worthless garbage on the “front lawn” of the taxpayers. Ron Paul is well aware that the bailouts of the last 3 years have done NOTHING for the average guy, but have enriched the “masters” on the backs of the taxpayers. Why would he allow another “gargantuan” bailout for these same criminals?

    Now, if the impending financial collapse occurs under Obamas watch, I suppose it could happen.

    So I suppose the best thing to do is buy as many things as you can now while its still relatively “cheap” !?

    • Rick Ackerman April 26, 2011, 6:05 pm

      Paul/Bachman could surely change the paradigm, since FOFOA’s argument depends significantly on the Masters of the Universe being able to “sell” their financial assets to the government at face value. They might not have much time to get rid of it, as FOFOA would surely acknowledge, but they would nevertheless have the jump on the rest of us. How many minutes does it take to cash out a reverse floater and deploy the cash in a Comex contract?

  • Dave April 26, 2011, 1:34 pm
  • FranSix April 26, 2011, 12:14 pm

    Barrick says they believe in hyperinflation by buying out a large copper miner.

  • Benjamin April 26, 2011, 9:00 am

    I still don’t see that Rick was wrong. The question one must first answer is why they would just start spending all that cash (existing and potential)?

    There is only one reason I can think of. And that is when, if ever, hyperinflation is certain through political action. ie, They will hit the nuke button first if they think the masses are going to demand government seize monetary authority and use it to print like no tomorrow.

    That said, I think the EUR will likely go first, not the USD, but may well be the trigger that fires the shot heard around the world.

    • mario cavolo April 26, 2011, 10:52 am

      ….Hi Benjamin & All, regardless of bantering on end game outcomes, my understanding is that a true hyperinflationary “event” is indeed an “event” brought on only by specific government decisions made and announced, not by free market forces gyrating up and down as they do. This I assume is what you mean by them taking political action or hitting the nuke button.

    • Benjamin April 26, 2011, 5:08 pm

      Hi Mario. Yes and no… Or maybe!

      What I mean is, when (not if) the pain of rising prices, lagging wages/entitlements (not falling), falling home prices, unemployment… When the pain begins to see politics change to… populist? I think that is what it means. Anyway, when that sentiment comes about, the Ponzi masters can just end the game before we get a chance to.

      But I’m pretty sure anyone at/near the top of government must be aware of this. Mutally assured destruction. On the other hand, everyone, Ponzi masters and government, must be aware that the masses are not going to take the pain forever…

      I can agree with FOFOA on one thing, though not 100%…

      Seems this “free gold” idea he is most noted for (which seems similar to if not exactly what I often write about) will come about. And why not? The powers that be have most of it. Yet, they cannot just crash the currencies. That would cost them their heads and their hoards. So what I think might well happen is this…

      They will continue to “speculate” prices higher. As the pain worsens, people will start to start to see gold and silver for what it is. As it were, places like Gold Money and Bullion already sell by the gram, and keep it allocated in 400/1,000 ounce bars. How long before they start allowing milligrams, micrograms, nanograms, picograms… For about what you can buy a gram for today?

      And that is why the majority will flock to them in their own good time. They’ll realize that buying even a little, literally, will pay off. And given everything (and I do mean everything), only currencies that can be weighted very low in gold/silver can possibly get us out of this.

      But that is not guaranteed. Might turn out that they have to hit the end-game button because the masses don’t catch on. Then the pain will become The Pain, through which the lesson will be learned. And that is what worries me most. The last time such a grand collapse came about, it was roughly 1,000 years before
      the Enlightenment that history now knows. And for quite a few reasons besides money/financial issues, I see things heading that way.

    • Steve April 26, 2011, 5:58 pm

      Gold has a “value” set legislatively by the People in Eagles 50 silver Specie Dollars.

      Please give me the “value” of a federal reserve note.

    • Benjamin April 26, 2011, 7:45 pm

      Steve: “Please give me the “value” of a federal reserve note.”

      To one who yearns to commit to crimes against humanity, on the maximum possible scale…

      The FRN is unrivaled in “value”. Gold and silver are “soul”. Fiat is “anti-soul”, a manifestation of pure laziness, dishonesty, and ultimately of malice.

      What I am alluding to in my posts is that utilizing the demons against the demons is probably unavoidable at this stage. Fiat will turn out to have “value” to extent it is utilized by the people to acheive the end-game before They do. Again, this must be accompolished through buying, holding, and then demanding the right to weight currencies on the authority of the market (or, ie, the people).

      Otherwise the ol’ “mechanical bull” will just get harder to ride, shaking the masses off in erratic fits, and all but force them to demand hyperinflationary “escape”.

  • PhotoRadarScam April 26, 2011, 8:13 am

    Welcome to the HI club. However, I would say that I made some of the same arguments here as FOFOA, just not as eloquently and of course I never invested the time to write up an elaborate and lengthy explanation like FOFOA. My comments always seemed to be blown off as “the same old, tired arguments.” I’m glad someone was able to expand on those ideas and make a convincing case.

    • Rick Ackerman April 26, 2011, 8:47 am

      Don’t kid yourself. Eloquence has nothing to do with it, nor does length or elaborateness. I challenge you to produce a single quote outside of FOFOA that explains, for starters, how the Masters of the Universe would be cashed out at 100 cents on the dollar, able to reap a windfall from fiat money that had not yet gone into a death dive. And how about his idea that home prices could hyperinflate without allowing all mortgage debtors an easy out? FOFOA’s ideas are not just gussied up versions of the standard arguments; rather, they have re-imagined the endgame in sufficient detail to take on deflationists point-by-point on their own turf.

    • PhotoRadarScam April 26, 2011, 3:14 pm

      I wasn’t referring to the points you just made which I never really addressed, but rather points that *I* made and FOFOA reiterated. My reply was always that you were ignoring the dollar-demand side of the equation and focusing on the supply side. FOFOA explained this better by saying how people would no longer store their purchasing power in dollars, rather than my argument where I say that people simply wouldn’t want them or would require more of them to compensate for that form of currency. Where you blew off this argument before, you must now finally believe this, right?

      I realize it was the other parts of his explanation, like the one you just mentioned, that ultimately swayed you. But you can’t believe that part of the argument without believing in the ‘lack of demand for the dollar’ argument as well.

    • Carol April 26, 2011, 3:14 pm

      I disagree! I read the post the day it came out and will have to read it again I suppose because I was not totally convinced. I still do not see how all this hi money is going to get into the hands of the people to drive the prices of everything (include RE) into the sky.

      How is that to happen when wages are globally set and unemployment is 20% + right now?

      &&&&&&

      Informed by FOFOA’s logic, Carol, I am now comfortable taking either side of the argument. The question you’ve raised — twice here today — was always one of my favorites. To answer it, try to understand that dollars could be hyperinflated to the point of valuelessness before Joe Sixpack could get his hands on many of them.

      Even when I was make the case for deflation full-bore I allowed for the possibility of a Schiff-style hyperinflation, where the Fed is one day forced to monetize not only Treasury debt, but debt traded in all other securitized markets (as how could the Fed not, since any bond market that perceived itself as “unprotected” would collapse in a day).

      A crucial variable in any ‘flation theory is time, since it matters a great deal how quickly hyperinflation or deflation plays out. My gut feeling — a point that you would probably argue as well — is that any inflation that lies ahead will have a much steeper slope than the Weimar hyperinflation. Theirs was “organic,” in that it grew through wage settlements that kept pace with the printing presses. The dollar faces a far more precipitous washout, since the global derivatives bubble has effectively “spring-loaded” its collapse.

      RA

    • Steve April 26, 2011, 5:55 pm

      Bravo Carol !

  • Cam Fitzgerald April 26, 2011, 7:53 am

    OK, now I can say it on this site. Buy the damn farmland wherever you can find it whether in Canada or the US. It is one of the single best bets you can make before cash becomes utterly worthless. Just make it productive land. Better yet, get the stuff that has water on it or a river running through. It is still dirt cheap but that won’t last much longer with the advent of a major Treasury dump by the Chinese and possibly the Japanese forced to liquidate too.

  • Marc Authier April 26, 2011, 7:40 am

    That being said, what’s the best way for an ordinary person to protect against hyperinflation ? Buying 2 years of food stuff, a lot of gold, silver, oil and gas ? We have our 6 months of food and all the rest. Any suggestions ? Hiding in the woods ?

    • kevin April 26, 2011, 3:04 pm

      When and hopefully for you the PM’s correct this summer, go all in. It will be your second to last chance.

  • youngskywalker April 26, 2011, 7:32 am

    You’re just politely punting the football for being wrong about the stock market crashing into ruin.

    • John April 26, 2011, 1:08 pm

      ys he has correctly predicted several stock market crashes. Where were you in 08? If you know anything about inflation and “real” vs. “nominal terms. We are still crashing. I suggest you look at a S+P/Gold chart and it will be abundantly clear the stock market is still very much in the grips of the father of all Bear markets.

    • youngskywalker April 26, 2011, 3:58 pm

      I realize Rick has been correct many times. I follow his techniques and believe he has one of the best track records out there. Anyone following his recommendations would have been on the long side since 09′.

      Maybe I was brash, but I wanted to make a point that ‘he’ or ‘many’ often times said this bear market rally had no legs to stand on. The people who invested their money with a longer term perspective were highly criticized for being inept.

      I don’t disagree we are still crashing in real terms.


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