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Thread: Depressionary Hyperinflation

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    Default Depressionary Hyperinflation

    http://mat-rodina.blogspot.com/2009/...rmageddon.html


    "In a hyperinflationary situation, one usually created by a hyper expansionary government, a debt loaded economy or some catastrophe such as a major war, the money supply is rapidly expanded. The economy continues to roll along, jobs continue to exist as demand also continues to exist. At first, the workers are freed from their debts, as the amounts owned literally melt away in the face of larger and larger pay checks. Of course, as is usual, salaries rarely stay up to date with prices, which are much more agile and elastic. Soon the worker finds that while debt free, he can afford less and less to buy with his ever more worthless money, but at least, ground under the heel of hyperinflation, he is still employed and remains fed, even if on bread and processed meat rather then on croissants and steak."

    "Then there is depression, something that most of you know little about. First spending falls, then output falls to match the new lower demand levels. Of course excess employees are laid off. These in turn spend little if anything and their employed brethren also spend much less, in fear of losing their jobs. Less spent means less produced and the cycle repeats. Debt become overwhelming and crushing, as the value of the dollar becomes greater, again, adding to the cycle. Of course, for those tens of millions unemployed, at least what few savings they have and what little money they get from their governments, will now buy them more then it did before.The pricing levels of the system are reset and will be kinder to future generations, but like most such things, it is painful and a nasty, if not necessary a long, process."

    "But how does this link back to Depressionary-Hyperinflation?" again that doubting Thomas. Enough of this, time to learn fear.

    "Well," I begin, in an quite, almost gentle voice, "you see, the people fear this painful process of depression and they call upon their betters, their masters to do something, anything about it. Of course the Monetary Interventionists know only one thing to do: lower interest rates and print money. At first, this makes the pain less so and easier to bare. The problem is, especially for you millions and millions of unemployed, it is rather hard to propagate. Each easing requires more and more cash, sorta like a drug addiction. But once the cash hits the system it propagates inflation. This of course takes time to appear, so it is rather hard to guess when to much is to much and out of fear of not being enough, that gut feeling is ignored. Then comes the Hyperinflation!" I feel satisfied in my explanation, but still there is hope in their eyes!

    "So..." again that voice, though this time a bit more hesitantly.

    "So!" I begin, "for those 15 to 30% of you without jobs, on meager fixed government monies, on pensions and savings...hahahaa....it's over, in days and weeks, your money buys nothing as the fires of Depressionary-Hyperinflation burn it all away! You will beg, you will steal, you will burn in rage and hunger and as the living dead, you will fall upon those who still have jobs but are to poor themselves to help you and you will consume them to! Fire and flame, hunger and despair! Then you will, in your orgy of despair and destruction, turn to the saviors who will come to you, the demagogues who will enslave you! Then and only then, will you truly know suffering!"

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    Default Re: Depressionary Hyperinflation

    Hyperinflation requires not only a great increase in the money supply but also a great increase in that supply flowing through the economy, and the latter is not occurring, proof being the return of the TARP funds and the rise in mortgage interest rates.

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    Default Re: Depressionary Hyperinflation

    ^^^ arguably, the FED and Treasury no longer need the 'domestic' economy in the money flow loop ... 50% of US dollar currency flows already occur OUTSIDE of the USA. And arguably if the FED and Treasury need even more currency to circulate, they can simply flow newly printed currency between themselves i.e. 'quantitative easing'.

    Back on the 'globalization' aspect ...

    (snip)"So, where are we going next? If we want to understand, we should not look for the stock market's price in the next few days or the price of gold in the next week, but the operations of the world of money in the future. If this goes anything like 1929-1932, a period in which the Fed increased its purchases of government securities rapidly while individual and business borrowing plummeted, then we are likely to see this thing we call "money" change drastically. The up and down volatility we have seen in the last 2 years is not going away anytime soon. When the strains on the current currency regime reach a plainly unsustainable point, we will see more policies like the one the G-20 presented on April 2:

    The summit of many of the world's leading economies in London announced a tripling of the lending power of the International Monetary Fund to around $750 billion.

    They also unveiled a $250 billion expansion in the IMF's reserve currency -- the special drawing right -- to boost liquidity in the global financial system by expanding member countries' foreign exchange reserves.

    The Special Drawing Rights page of the International Monetary Fund's website, informs us that we have had a small amount of an international currency, not a national or regional currency, since 1969. On April 2, 2009 the number of units of that currency expanded 8-fold from a value of about 21.4 billion units to 250 billion in US dollars. A quick visit to the IMF website, where the SDR is valued weekly, shows that currently, as of May 28 2009, 250 billion in US dollars is equivalent to about $163 billion in SDRs. When we consider that fact that this newly printed international currency, outside the sovereignty of any nation or its voters, was granted the authority to issue a fresh batch of international loans to the tune of $1 trillion dollars, we begin to grasp the enormous power shift that was begun two months ago.

    Now I can only speculate, but wouldn't it make sense that if things got really bad out there in the future that, at some point, our illustrious leaders would tell us that, for our own good, they have decide that a new global regulatory structure is needed, which will be established alongside this new global currency? I know it sounds crazy. Maybe I've just watched just one too many science fiction movies. Then again, many of our government's actions almost appear to be scripted."(snip)

    from

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    Default Re: Depressionary Hyperinflation

    China is buying gold. The message here is China has too much forex and not enough gold:

    "China announced in April that the country had increased its gold reserves by 454t, to 1,054t. The news has rekindled gold market hopes that China is to become a large purchaser of bullion. How much more gold should China acquire now?

    Here is an analysis from Fortis Metals Monthly

    The advanced economies in Europe and North America (here termed .advanced economies excluding Asian 54), hold most of the world.s official reserves of gold (20,541t out of a total of 29,602t) and that makes up a high share of their reserves (47.5%).

    No other region holds more than 10% of their reserves in gold, with the Middle East next highest at 8.7%. If we look at it on a per capita basis, it is reasonably similar. The advanced economies (excluding the Asian 5) have vastly more official gold than any other region, at 26.4g per capita, with the Asian 5 next on 6.3g per capita and then the Middle East at 3.6g per capita. China has just 0.8g per capita, the world 4.5g.

    When looking at forex reserves, things are somewhat different, with China having $1,463 per capita, and three other developing country regions having more than $1,000 per capita. This is more than the advanced countries, which have $843 per capita. That excludes the Asian 5, who have a huge $8,805 per capita. The world average is $1,022 per capita."

    and this:

    "China would need to acquire nearly seven times more gold than it has currently, about 7,500t. To match the world average in terms of grammes per capita, it would need just under six times as much, at about 6,000t. To match the global average of gold as a share of GDP it would need a smaller amount, about 2,100t to 2,400t."

    The question is why would China need to match the world average in terms of gramms per capita if dollar as a RESERVE currency is SUPPOSED to be as good as gold? My interpretations is dollar will soon be LOSING it's RESERVE CURRENCY status, and it's already in the works. Where GOLD will be REGAINING it's status as a monetary instrument.

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    Default Re: Depressionary Hyperinflation

    (snip)"Markets and investors still do not grasp the problems facing the US economy. The stock market bubble of the 1990s, the housing bubble and the more recent Treasury bubble were not the real bubbles. They were all offshoots of the main bubble, which is the US Dollar. That bubble is now bursting. The US Dollar is falling against every currency in the world. This is not because of quantitative easing or our weak economy, as many countries are facing similar problems, but rather because so many US Dollars are held abroad by individuals and central banks. For example, the US Dollar can fall against the Korean Won, despite Korea being an export-dependent economy because the central bank in Korea and so many Korean investors own US Dollars. As their holdings lose value, the temptation to sell increases dramatically. On the contrary, relatively few Americans own the Korean currency and thus there is virtually no selling pressure.

    There is no doubt that the US benefited during the 1980s and 1990s from foreigners accumulating US Dollars. Interest rates, commodities, and consumer prices were kept low, which helped to propel asset prices higher. However, there is no such thing as a free lunch. Most informed people knew by the end of the housing market that the flurry of activity was unsustainable. However, where views differed was the extent of the damage of the correction. The key was understanding that housing was a bubble and bubbles end disastrously. Today most people know that the policies of the US government's stimulus and bailout plans, not to mention Social Security and Medicare, are problematic for the US fiscal situation and US Dollar yet have not accepted that the US Dollar is a bubble. When the market fully recognizes the Dollar bubble, the outcome will prove disastrous for anyone holding US Dollars.

    The losses that foreigners are suffering on their US Dollar and Treasury holdings are rapidly accumulating. Even more so, the Fed is now trapped. The Fed was hoping to hold down Treasury rates by announcing the purchase of $300 billion of Treasuries. However, Treasuries are falling despite the Fed's intervention. If the Fed increases its buying there is no telling how far the US Dollar may fall. If the Fed does not increase its purchases, Treasuries may fall even further, sending home prices spiraling downwards. When combining the Fed's precarious position with recent fears about the credit rating of the US, the unlimited downside potential of all US assets is becoming clear even to the greatest of bulls. Despite waiting for so long for these events to unfold, it now seems as if the end is near."(snip)

    from


    It would appear that, among the 'tin foil hat crowd', the only open question is whether or not the US dollar's reserve currency status will be replaced by a different existing currency ( Chinese Yuan ? ), a new world currency (based on IMF SDR's), or a return to precious metals.

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    Default Re: Depressionary Hyperinflation

    and ... duhhh ... Washington is just now starting to wonder why the long end of the T Bond yield curve is at a record 'spread' vs the short end ?



    and ... by the sheerest of coincidences ... Treasury Sec Tim Geithner is off to China at this moment to attempt to convince them that Obama is genuinely concerned about the rapidly widening US budget deficit i.e. that the US isn't planning to just keep printing up dollars to pay for stimulus spending / gov't bailouts and takeovers of troubled US banks and unionized businesses - thus the Chinese won't continue to eat huge losses if they hold / buy more US Treasury bonds ! Unfortunately, compared to his predecessors, Turbo Tax Tim lacks 'gravitas' !

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    Default Re: Depressionary Hyperinflation

    my 'friend' Elaine has posted some excellent commentary on this very issue, totally devoid of sugar coating ...


    (snip)Treasuries fell for a fourth day amid concern record supply will overwhelm investor demand as the economy begins to show signs of stability. –In other words, the Chinese won’t buy this stupid paper money. I suspect, they have plenty of toilet paper already.

    The U.S. will likely sell $3.25 trillion of Treasuries in the fiscal year ending Sept. 30 to fund bank bailouts, stimulus spending and a record budget deficit, according to primary dealer Goldman Sachs Group Inc. It is nearly impossible to get straight numbers these days. $3.25 trillion is a LOT of borrowing! And we want it at ZIRP rates, too! Only, we won’t get this. Amazing, isn’t it? Who would want to do this? No one, of course.

    Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. Two-year notes have gained 0.2 percent…. The sole and only reason Japan and China bought up and held so many US dollars and Treasuries is very simple: they wanted to run immense trade surpluses with us and this was the best way! Otherwise, forget about it.

    The Treasury plans to increase its debt sales after selling $1.9 trillion securities maturing in one year or less in the fourth quarter. Officials have boosted the sizes of all auctions and moved 10-and 30-year bond sales to monthly from eight and four times a year, respectively. Classic deadbeat nation: have more and more sales of debt. Make the loans longer and longer in duration. Have more and more short-term loans that turn over rapidly and beg for cheaper rates, while doing all of this. Another trick all deadbeat nations and NYT reporters resort to is to outright lie about finances. For example, tell everyone, ‘Inflation is good! See how people spend money faster and it is cheaper, paying off debts if you cheat your creditors!’

    President Barack Obama has pushed the nation’s marketable debt to an unprecedented $6.36 trillion and raised estimates for the deficit this year to a record $1.84 trillion. So, here is the number, $6.36 trillion! This is NOT on our budget deficit since this is NOT US government spending, this is US government BAILING OUT of the very richest Americans, the very same crew that destroyed our economy in the first place. If this immense sum of borrowed money were to not be paid back, in full, where does it go? "(snip)






    OK: Obama wants the world to buy over $6 trillion in new US IOUs while our FDIC is now at only $13 billion for the impending collapse of more US banks? Actually, if the Bank of America went under as it should have, the FDIC would long ago, run out of funds. Ever since Lehman Brothers went belly-up, the US government has capitalized the biggest banks and AIG via selling massive debts to foreign powers. This ’solution’ means, we will kill the US rather than let our bankrupt banks die.





    IMHO understanding Elaine's points, and taking appropriate action before it's too late to do so, are key to Americans who wish to avoid major personal economic damage over the next couple of years. And in case the main point is still eluding you, Elaine sends this 'reminder' from the African news page of the UK Telegraph !





    from

    ~
    Last edited by Melonie; 05-31-2009 at 10:33 PM.

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    Default Re: Depressionary Hyperinflation

    Melonie, do you think it makes sense to be completely out of the market? If one is positioned long OR short and the dollar collapses, wouldn't any gains be wiped out by hyperinflation even if one is one the winning side, at least in nominal terms?

    Besides, having one's money deposited at ANY financial institution (bank, brokerage, insurance co) is a risky proposition considering the fact that the financial system overall may collapse. Do you agree?

    Although the bankers don't want us to know the system is imploding since a run on the banks would cause DISTRUST in the banking system, and it would greatly damage their plans for a cashless society...
    Last edited by Adelina; 05-31-2009 at 11:29 PM.

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    Default Re: Depressionary Hyperinflation

    ^^^ well I'm certainly not going to give specific investment advice, but I will state the following ...

    the 'tin foil hat' crowd would tell you that the only reason that US stock markets continue to levitate is that the US dollar denominated prices of US stock shares are being counterbalanced against a loss of 'value' in the US dollar. This is happening because the vast majority of newly printed US dollars are flowing straight to the US stock markets via the in-house investment activities of major Wall St. banks that are the first recipients of those newly printed US dollars. By that theory, the minute that new US Treasury bond sales start to falter ( due to reluctance by foreign investors to risk investing Euros / Yen / Yuan against US dollars over the lifespan of the US Treasury Bond ), in the same minute foreign investors in US stocks will attempt to seek out a new 'safe haven' investment for those Euros / Yen / Yuan. Some would argue that this is already showing signs of happening.

    As to the safety of US banks, well ... the FDIC has a whole 17 billion dollars remaining in it's deposit insurance fund. One major bank failure would erase that. Beyond that point, I can only paraphrase Alan Greenspan ... " the US gov't CAN guarantee the repayment of a certain number of US dollars. However, the US gov't CANNOT guarantee the 'purchasing power' of those dollars" !

    I would speculate that the larger issue stems from the vast majority of Americans being too young to remember the impact of Carter StagFlation. Put another way, most Americans have lived their adult lives under financial conditions where the 'price inflation' of US dollar denominated goods, and where the 'value inflation/deflation' of US dollar denominated investments, has moved at a low single digit pace. As a result, way too many Americans tend to view the US dollar as a stable store of value ( a.k.a. purchasing power ) as opposed to the fiat paper currency it actually is. Thus those Americans really have no conception of the possibility of receiving 3% interest / dividend earnings and 8% increases in US dollar denominated stock valuations versus a simultaneous 20% real loss in US dollar 'purchasing power'. In other words, they have been suckers for the 'frog in boiling water' principle.

    Foreign investors have no such visibility problem, since they calculate in terms of their home currencies and can thus immediately see the results of the US dollar 'purchasing power' loss as the US dollar exchange rate moves in the wrong direction versus their home currencies. Thus they can check the share price of their US stocks as measured in say Euros on a daily basis ... and it's no secret that a Euro denominated S&P chart looks DAMN ugly !!!

    Last edited by Melonie; 06-01-2009 at 12:36 AM.

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    Default Re: Depressionary Hyperinflation

    more bad news for the dollar?:

    http://www.forexlive.com/29122/all/k...world-currency

    "The leaders of the world’s biggest emerging markets may discuss the idea of a supranational currency this month when they meet for a summit in Russia.

    President Dmitry Medvedev’s spokeswoman said “I do not exclude that the Russian president’s idea about the creation of a supranational currency and the rouble as a reserve currency will be discussed.”

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    Default Re: Depressionary Hyperinflation

    ^^^ the proverbial handwriting was already placed on the global trade currency 'wall' by China ... in the form of proposing that IMF SDR's being used as the new official 'reserve currency'. However, since SDR's are partially backed by precious metals, their adoption greatly helps creditor countries ( like China, Russia, India) and greatly hurts debtor countries ( like the UK, US and southern Euro countries).

    Here's a brief put out by ( surprise surprise ) the Council on Foreign Relations !

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    Default Re: Depressionary Hyperinflation

    This TA video says dollar index chart showed a double top, and the dollar's slide down will be retesting levels 74, and possibly 72 in the near future.

    http://broadcast.ino.com/education/dollar_index_200906/

    Where will it go if it breaks 72?
    I'd think TPTB will need to engineer a massive stock market crash some time in the next few months (taking commodities down with it) in order to force money back into the dollar and treasuries?

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    Default Re: Depressionary Hyperinflation

    only problem is that the old 'powers that be' may be running out of 'ammunition', while the new 'power that be' have a huge stockpile of raw materials, precious metals, and debtor nation foreign exchange surplus money piles.

    However, a nasty 'shooting war' would probably do the trick on fear factor alone ... North vs South Korea ? More likely Israel vs Iran !

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    Default Re: Depressionary Hyperinflation

    possible scenario in the Israel vs Iran situation: dollar up AND gold up?

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    Default Re: Depressionary Hyperinflation

    ^^^ yup that would be the logical result of a new middle east 'shooting war'. Of course oil would also be up. While gold, oil and the US dollar all moving in the same direction is counterintuitive, it could very well be the result of 'shellshocked' Arab shieks and European investors choosing to quickly 'run for cover'.

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    Default Re: Depressionary Hyperinflation

    accompanied by stock markets crashes world wide? Looking at charts, the "timing" would be "convenient" right around when DOW reaches above 10000 AND enough bulls are suckered in...

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    Default Re: Depressionary Hyperinflation

    ^^^ check the 'max pain' point on US stock index futures / options !!!

    then enter SPY or a different index symbol. Also enter various expiration months.

    This is where the 'smart money' thinks the index is headed WITHOUT any 'Black Swans' appearing ... which in the case of the S&P indicates the probability of a June pullback, followed by a 'suckers rally' through the summer, with a retracement in September back to June levels. But also keep in mind that in terms of 'purchasing power loss' a US dollar in June will be worth more than a US dollar next September !

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    Default Re: Depressionary Hyperinflation

    Notice GLD is 88 in September?
    http://www.optionpain.com/MaxPain/Max-Pain.php

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    Default Re: Depressionary Hyperinflation

    yup - ! This tends to report a 'tea leaf reader' theory that the gov't can keep the economy / markets 'papered over' through the summer, and that a 'reality attack' won't begin taking place until september or so.

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    Default Re: Depressionary Hyperinflation

    do I understand this correctly that the dollar will strengthen and US treasuries will be in "demand" again when the market sells off (in fall?), and the commodities and gold will follow the market down?
    Thus the period of "deflation" (if this term can be used, of course gold has rose from 250 to almost 1000 in the last few years, but gold at 880 is still lower than it's at the current level) is not over yet? How does this correlate to quite straightforward statements by China and Russia that the alternatives to dollar as the reserve currency are being considered?

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    Default Re: Depressionary Hyperinflation

    Quote Originally Posted by Melonie View Post
    and ... duhhh ... Washington is just now starting to wonder why the long end of the T Bond yield curve is at a record 'spread' vs the short end ?



    and ... by the sheerest of coincidences ... Treasury Sec Tim Geithner is off to China at this moment to attempt to convince them that Obama is genuinely concerned about the rapidly widening US budget deficit i.e. that the US isn't planning to just keep printing up dollars to pay for stimulus spending / gov't bailouts and takeovers of troubled US banks and unionized businesses - thus the Chinese won't continue to eat huge losses if they hold / buy more US Treasury bonds ! Unfortunately, compared to his predecessors, Turbo Tax Tim lacks 'gravitas' !
    Apparently the Chinese see it as the Geithner Comedy Tour from the audience laughing out loud. (Which says a lot in a culture that values social respect.)

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    Default Re: Depressionary Hyperinflation

    do I understand this correctly that the dollar will strengthen and US treasuries will be in "demand" again when the market sells off (in fall?), and the commodities and gold will follow the market down?
    if you're talking about this scenario ...



    ... then the tin foil hat crowd would probably tell you that equities and risk based investments of any kind (including developing countries and their currencies) will take a beating - that money will again seek out the perceived 'stability' of the US dollar and US Treasuries - and that 'smart money' will again seek out the REAL stability of precious metals and essential commodities.


    Apparently the Chinese see it as the Geithner Comedy Tour from the audience laughing out loud. (Which says a lot in a culture that values social respect.)
    ... the tin foil hat crowd would tell you that the Chinese ( and Russians, and Brazilians, and Indians etc.) see Geithner as a 'silver spoon' ex Wall Streeter who is now following his boss's instructions by lying through his teeth about his boss's REAL plans for the US dollar, the US budget deficit etc.

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    Default Re: Depressionary Hyperinflation

    then the time frame for this scenario would be in fall, September-October? Based on GLD Options Max Pain supposedly at 88 (pullback before a major event) and SPY Max Pain of 80 at the end of September.

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    Default Re: Depressionary Hyperinflation

    well, it's tough to fight a ground war in the desert during the heat of summer !!!

    On the other hand, if the US winds up being an 'outsider' in any Israel vs Iran conflict, it's nowhere near as likely that Jewish / Arab Oil Sheik money will seek 'safety' in the US !!! This would be 'uncharted territory'.

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    Default Re: Depressionary Hyperinflation

    have you seen the chart of SHY? What happened?

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