Now that I’ve got your attention, let me announce that, after tomorrow, I’ll be exiting the Deflation vs. Hyperinflation debate for a while. I’ve concluded there is little to gain arguing on the one hand with a guy who turns rabid whenever someone contradicts him, even in a friendly way; and on the other, with a preening narcissist who comes to argumentation in the same state of sexual arousal that Jeffrey Dahmer must have experienced hovering over the fresh corpses of teenage boys. These guys are bad news, as lacking in civility and manners as buzzards in a scrum, and you’d do well to avoid them both. You might try tuning instead to the hyperinflation arguments of Steve Saville, Peter Schiff and a few others who seem less concerned with trouncing, slicing and dicing opponents than with presenting facts that might better prepare you for the financial crisis ahead. The very best of them, in my opinion, is FOFOA blogspot, where the essays are erudite, the discussion elevated and the arguments as knowledgeable as any you will find on the web. ZeroHedge can be pretty informative too, provided the hairy-knuckled provocateurs who hang out there have been fed red meat within the last 24 hours.
Not that FOFOA — or anyone else, for that matter — has won me over; for I remain convinced that deflation, not hyperinflation, will do in the economy. To understand why, I’d suggest following the mile-deep discussion thread that my commentary on the topic generated last week at Rick’s Picks. You’ll discover that there is no point on either side of the argument that is airtight. Hyperinflationists can make you doubt most anything I might say, just as I can stir doubts about anything they might say. That said, my biggest doubt concerning their side of the story involves mortgage debt, since hyperinflation will be impossible as long as tens of millions of homeowners are yoked to $250,000 mortgages on homes worth perhaps half that or less. Also, hyperinflationists assume that a worthless dollar implies hyperinflation. Maybe not. I would argue that the rate at which the dollar falls to worthlessness is crucial (a point explicitly addressed at FOFOA). Were the dollar to collapse overnight, for example, we might find that suppliers of crude oil, rather than demanding $1,000 per barrel, would require payment in gold. You can dispute whether this is likely, but you cannot argue that it is impossible.
$10,000 Gold?
And how about all of those dreamers who think gold will soar to $10,000 an ounce or more when the financial day of reckoning arrives? I used to believe this impossible, but the forum discussion got me to thinking: Suppose the dollar is falling apart one day and all of those who hold paper gold in the form of futures contracts determine to take delivery? Would gold get short-squeezed into the ionosphere under such circumstances? Or would the futures exchanges simply change the rules, letting those who are short contracts slip the noose? No one can say for sure.
Nor can anyone predict how politicians will react if and when the financial system collapses. Will they push the Fed to hyperinflate, effectively bailing out homeowners? And if they do, will the legislated action succeed? One thing’s for sure: hyperinflation cannot possible occur by accident; it can only be enabled by political decision. Under the circumstances, it is impossible to predict exactly what will happen if the dollar crashes. On this point, I will feature the sage thoughts tomorrow of blogger Charles Hugh Smith. But the final word will go to a Wyoming rancher who, in the forum, reminded us that there are certain things of greater concern, even, than how gold, silver and dollars act in the coming financial collapse.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
FOFOA has a new post out today on this subject and it’s great as usual.