Take a listen to this Bob Chapman's interview. [youtube]http://www.youtube.com/watch?v=uMew3XBgFWk[/youtube] According to Chapman, 3 major things will happen in the second half of 2011 (starting July or August). 1. US Treasury need to raise $3.8 trillion. To do that they're going to sell more bonds to foreigners. But foreigners won't be buying much of any US Bonds, China is not buying, Europe won't be buying because they have their own debt problem which lead to second point... (If they can't get foreigners to buy their bonds, then Uncle Ben Bernanke will always be a buyer of last resort... QE3 anyone?) 2. Europeans must raise $3 trillion Euro to bail out PIIGS. Germany, France, Holland, Austria, Belgium and other solvent EU countries have to come up with 3 trillion more to bail out PIIGS. Therefore the money which suppose to go to US Bonds will go towards bailout package. 3. US States won't be getting more loans or help from Federal government. Which means many states will have to cut government spending and lay off civil workers. 100 US cities is projected will go bankrupt this year. US Congress already trying to put a bill together which make at the event of Municipal bankruptcy the losses will be passed on to the bond holders. The above 3 problems will lead to more (BIGGER) problems in second half of 2012 (snowball effect) which will be the climax of economic collapse. If US and EU manage to come up with the monies... The Fed will have to come up with QE4 to keep economy going, which by this time the amount will be so gigantic inflation rate will jump to 14+%. Then game over... investors will have enough and start dumping dollars thus triggering Hyper-Inflation. My guess is economic condition in 2011 will turn from Bad to Worse, but the climax will have to wait for second half of 2012 (Maybe the Mayan is right...!?).
Bob may be correct, but if 100 US cities go bust this year, then that is EXTREMELY deflationary. Commodities will fall precipitously - especially silver, cotton, and soy. Make no mistake about it. The only way hyperinflation can occur is after deflation has already destroyed recovery capacity. That is years away.
Probably deflation will appear to be winning for a while, but make no mistake Bernanke is determine to combat deflation by creating counter balance inflationary force to combat deflationary force. If the Fed monetize $3.8 trillion US bond market, that is EXTREMELY inflationary. We'll just wait and see. Hyperinflation usually ended in deflation.
Actually "usually" is not the word, the correct word is "always". In the wake of Hyperinflation Weimar Germany, when Deutsche Mark collapse German treasury to stop hyper-inflation created Rentenmark and chopped off 000,000,000,000 (12 zeroes) off Deutsche marks. This is when a country chop off Zeros off the currency. Like what happen in Zimbabwe dollar, the treasury created a new currency called Zimbabwe Third Dollar and Chopped 0,000,000,000 (10 zeroes) off the currency. This is deflation. No hyperinflation will last forever! Eventually government will have to do drastic measure and deflate the money supply by chopping off zeroes.
we will know when we are in hyperinflation when we switch on the telly to watch "who wants to be a trillionaire"
No deflation comes first and then hyperinflation is the extreme reaction to it. There are fundamental differences between the US and those other countries, I just don't see hyperinflation on the radar. A 30's style deflationary depression will be the order of the day.
That event is a deflation. What is a deflation? Contraction of money supply. After a severe hyper-inflation when there are Quadrillion of dollars circulating in the system, rising interest rate will take too long. The only way to deflation the money supply is by making a new currency and make the old currency exchangable with the new currency, eg. 1,000,000 unit of old currency for 1 unit of new currency, etc... as a mean to deflate the money supply. Go read up about Zimbabwe dollar http://en.wikipedia.org/wiki/Zimbabwe_dollar#Introduction_of_the_third_dollar
Inflation can exist with or without deflation. In case of US economy, deflation comes first and the Fed try to counter deflationary force by printing money (inflation). If my prediction play out, the Fed will QEs to oblivion, eventually the Fed will print TOO much money to counteract deflation. US dollar holders will dump the currency over the fear of inflation. One thing for sure, every hyper-inflation will always end with severe deflation (hyper-deflation). No country stay in hyper-inflation situation FOREVER! At some point they have to deflate their money supply, quickly! Every hyper-inflation will end in an extreme deflation (hyper-deflation), that is when million of units (or whatever the exchange rate is) of the old currency exchanged with 1 unit of new currency. This is how 1920's Weimar Germany could get out of their hyper-inflation, by stop printing the hyper-inflated Deutche Mark and create a new currency Renten Mark. Then they make Deutche Mark exchangeable with Renten Mark with ratio 1 billion Deutch to 1 renten mark. That way they could shrunk their money supply quickly by 1 billion fold. How different US money policy than Zimbabwe's 2005 monetary policy? The Fed is pursuing the same monetary policy as Zimbabwe back in 2005's with the endless QEs.
My view on hyper-price-inflation is that it is uncertain to occur. The only reason why hyper-price-inflation will occur is due to the lost in confidence on the dollar and its rapid velocity of everyone trying to get rid of it. There is a few points to remember, today's money supply has grown based on debt. The M3 money supply is contracting at the moment, it will continue to contract in a deflation scenario. What the Fed is doing now is actually just filling the holes by printing money. So they are pretty much increasing the M0-M1 money supply at the same time M3 is contracting. The net result is should a stable supply of money. Hyper-inflation and hyper-price-inflation in the past relied on the money supply growing, back then in the 1930s. Debt created money was not a major amount, as the currency was backed in gold. Today nearly 85% of currency is created by debt. In the near future, hyper-inflation rests on whether we take the M0-M1 and continue to borrow again thus creating more debt money. We are not sure that people will borrow as recklessly as in the pass. So I am not sure how the money supply can grow without people taking on more debt. I guess what Ben Bernake is doing is actually just filling up the holes in the M3 with M0 money. Ie. Monetising the debt proportion of money. Everything will unfold soon, a deflationary spiral is on the cards. We are unsure what actions Ben B will take yet. My guess is they will keep printing. Slam
Actually Hobo, it's more common than you might think mate http://en.wikipedia.org/wiki/Hyperinflation Link shows 34 examples in the last 100 years alone. Kaboom!
I remember the hyperinflation in the former Yugoslavia during the late 80s, and than at start of 90s the currency was restructured and equalled the Austrian Schilling so it was roughly around 7 Yugo Dinars to 1 German Mark, people at the time were jubilant ( as the currency seemed to be stable and people didnt need to hoard Deutschmarks - the DM was good as GOLD in the former YU ). During and right after the wars in the Balkans, Serbia ( which didnt have a War in its territory experienced hyperinflation - you needed a bagfull of money to buy an egg) The serbs even had a joke about it, goes something like this. Man walks into a coffee shop and orders a coffee, and when the waiter comes, the man would 'boastfully' produce a 1 Billion Dinar note to pay for the coffee, and the waiter would say 200 million more please !
The Porter Stansberry vid on another thread on this section goes through the Yugo-flation and the absurd top-down measures the government implemented to wring every last drop out of the workers. Hyperinflation Hypertaxation Price controls Appropriation of bank accounts and private property Making it illegal not to accept a cheque New currency etc The general argument of the vid is that once oil is no longer priced in USD, an event which is in place between some countries and gathering pace, then the jig is up, as everything made of oil will soar. A key event, rising yields on bonds, is happening right now with the muni bond crisis. Once it extends from long term into short term T bills, we are entering a time when nobody wants US Tdebt and at that time, the presses should be adding zeros like a carrier off Pearl Harbour
The key to all this is that the current QE1,2 etc are invisible to the people, who ultimately drive hyperinflation. When deflation becomes manifest in the real world, you can bet your last dollar that QE2,3,4 will lose the whole facade of being some inert debt buying exercise. Zimbabwe and other countries who had hyperinflation dont start from the position of strength the US did. There is no preliminary periods of QE there. They dont have the luxury of being the world reserve. In the case of manifest deflation, you'll see money flowing copiously into the economy in direct ways. Right now the hope was for the sequestered money to be borrowed into th economy via a hoped for recovery. Thus the money is made into debt once again. But this will not happen. You'll see traditional Weimar style printing any day now in the next year or two imo. It's inevitable.
I think the meeting of China and USA in the last few days included a big stick from China about USA debt and action. I would lay a bet that USA asked China to accept a devaluation of the US dollar and the USA's biggest debtor said 'Sure, provided that .... " GIve it a month to be massaged and we'll hear the news. I heard Obama's standard 'thanks fruitful talks' speech and I have never heard his voice sound so defeated and tired. I think he finally learned his fate and place in history. btw, socially, the spread of wealth in USA is now the same as China - but the USA have much higher aspirations and expectations. USSR style breakup is definitely on the cards.
