Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com’s Pater Tenebrarum),
Divided Opinions
We are not the only publishers to offer opinions. And not the only ones with alternative points of view. So, to answer these questions, let’s look first at the range of opinions on offer…
First, there is “the authorities must know what they are doing… besides, I have more important things to think about” camp. This is by far the largest group: hoi polloi. The masses. The lumpenproletariat.
Saved by the border collie
There may be some grumbling and kvetching. But most people count on the feds to manage the economy, foreign policy, the future, and the government. They expect mistakes from time to time. But they also believe the system can be trusted to produce an acceptable, although perhaps not always ideal, outcome.
And if not, God help them. Because the difference between the outcome if they bothered to think about it and the outcome if they didn’t is the same. They have no ability to influence public policy… and not much room to maneuver in their private lives.
They get salaries, pensions, Social Security. They need jobs, mortgages, student loans, and medical insurance. They have little capital to invest or protect. They depend so heavily on “the system” that they can’t afford to believe there is something deeply wrong with it. They go along. They get along.
Going along, getting along…
At the other end of the idea spectrum, there are the edgy, malcontent, and extremely marginal opinions. A man, sitting in his double-wide watching TV can come to hold all sorts of wacky views. There is an entire infotainment industry that provides screwball opinions.
You want to believe Obama is a Muslim? You want to believe the Bilderbergers, the Rothschilds, or the Rockefellers run the world? You want to know about GM’s perpetual-motion engine that – if the secret got out – would put the entire auto industry out of business?
We always knew it….
Well, that is a market. But it is not ours. Let others fill that demand. There used to be a tabloid newspaper called Weekly World News. You would see it at the convenience store, right in front of the checkout with enticing headlines such as: “Garden of Eden Found”… “Obama Adds Himself to Mount Rushmore”… or “150-Year-Old Man Finally Graduates from High School.”
There was a second pope hiding under the pope’s hat! More popes to come?!
Our favorite was a front-page photo of an airplane crashed on the surface of the moon. “WWII Bomber Found on Moon,” was the headline. “Pilot Error, Say Experts.”
Finally found on the moon! Needless to say, this was quite a significant pilot error
Terminal Problem
But it is the far-out world of money, economics, and finance that interests us. We try to figure it out. We try to understand. We try to see what’s coming before it arrives. And we try to be serious about it.
Apart from the mainstream view – that the authorities have things under control – almost all serious analysts see a terminal problem developing. The current situation (with zero and even negative interest rates… and debt expanding much faster than GDP) can’t go on.
It had a beginning, in the early 1980s. It must also have an end. Most of the guesswork is now focused on when and how that end comes.
The real reason why the end is near: Elvis told Bigfoot to shut us down!
Recently, one of our dear readers summarized the three major points of view, along with one minor one:
Deflation Camp
Harry Dent is in line with the Austrian Business Cycle Theory: Money printing causes financial bubbles, distorts the economy, and is therefore counterproductive. Like Bob Prechter (I don’t follow him closely, but his argumentation sounds similar), Dent bets on deflation and depression.
Fighting debt deleveraging and demographics is like putting yourself in front of a tsunami. In such an environment, the U.S. dollar would gain purchasing power, and gold would underperform significantly. (Harry sees it back to $700 in 2018-19.) Cash/T-bills/short-term Treasurys are the place to be. Rates will stay low for very long.
Inflation Camp
Jim Rickards’ thesis – “inflate debt away via a massive issuance of SDRs after China has joined the club” – is also very credible. World currencies are massively diluted via issuance of SDRs, which serve only the powers that be. Rather than a new gold standard, this is the solution to Triffin’s dilemma (more flexibility for the elite).
[Triffin’s dilemma describes the constant need for the global reserve currency issuer – in this case, the U.S. – to supply the world with reserve currency by way of a long-term trade deficit. Eventually, argued Yale economist Robert Triffin, this would lead to a loss of confidence in the reserve currency.]
Citizens are excluded/not allowed to own SDRs. Their purchasing power shrinks. They don’t know who to blame. The IMF does not consist of elected officials, and the majority of the population doesn’t even know it plays a role in creating inflation. And they can pretend that they have to save the world, too. (Remember the Greek bailout?)
Hyperinflation Camp
Shadow Stats’ John Williams is having a really hard time fighting for his ideas. He is right about the “CPI-CP Lie” and the current true state of the economy. But whoever invests along his ideas is running out of capital to stay in the game.
Peter Schiff and Mike Maloney are on a similar line. The problem with them is that they have a conflict of interest with their businesses. But I have no doubt about their integrity: They do/live what they say.
Deflation to Hyperinflation Camp
I recall an interview with Nassim Taleb on Bloomberg TV in 2009 when he said, “We will go from deflation to hyperinflation without seeing inflation.”
Nassim Taleb, from one extreme to the other …
Tokyo to Buenos Aires
Our view is that Taleb will be proved right. Back in 2009, we predicted “Tokyo… then Buenos Aires” – a Japan-like deflation, followed by Argentine-like hyperinflation. Most likely, there will be no stop in between for moderate levels of inflation. Inflation, as economist Milton Friedman observed, is “always and everywhere” a monetary phenomenon.
But hyperinflation is a political phenomenon. It is caused by those same authorities the masses think they can trust. When they are threatened, they will protect themselves by printing money on a scale we haven’t seen since the War Between the States (consumer prices in Richmond, Virginia, had risen 6,700% by the end of the war).
100 dollars printed by the Confederate States in Richmond, Virginia
There are times when printing money seems like the best course of action – especially for the people running the printing press. It may not do the common man any good, but it gets the feds out of a jam. But that is a long story… and one for the future.
We’re still in a Japan-like long, slow slump. And it looks as though we’re going to be there a while longer.
Stagflation. Declining asset values and rising costs.
I’m in the gold camp. Mentioned buying my son his first gold a while back…this is him showing it off
[img]SAM_1067.JPG[/img]
Everything you need will hyperinflate and everything you have will deflate.
I actually own examples of the Confederate 100 dollar note- Please understand that the south had a Joo named Judah P. Benjamin in charge of the Confederate money supply. Some things never change, Har, Har!! (See photo of note at bottom of article)
Just as the south experienced 6700% inflation, so shall the US in the not too distant future.
Joo control of money supply= Hyperinflation at some point (Why do we keep playing this game ?)
The fed fights deflation while they hide inflation, leading to stagflation, that morphs into hyperinflation.
Or to summarize
Hey baby, I’m gonna go down on you, you’re gonna love it, but it’s only going to be long enough for you to relax, and just when you really start enjoying it I’m gonna come back up again and fuck you big time.
All my love,
Your fiat dollar
[img
[/img]
The money will simply be replaced by new money.
Money that will be restricted to use in electronic banking only with no other currencies available.
@RHS jr….YES! The big Catch 22.
So, the way I’m visualizing the situation is this: We’re standing in the middle of a field. From the east, a herd of starving wolves is racing in our direction; from the south, a similarly nutrition-deficient group of lions approaches; and from the north and east we see two different tribes of starving cannibals running toward us, bearing an assortment of kitchen implements and pots.
While we’re arguing over which group is going to eat us.
Perhaps we should be preparing to dispose of all of them, instead?
I loved Weekly World News–it was like a comic book for adults. The adventures of Batboy…science discovers the cure for death….reptile invasion attacking people as they sit on their toilets…..hilarious in its absurdity.
Oh–and I really am aging myself–but I also loved those old Far Side cartoons…Gary Larson was genius with a truly unique way of looking at the strangeness of our world and behaviors.
@RHS Jr: I meant to give you a thumbs up, but my phone was being temperamental. Ignore the accidental downward thumb, please.
There appears to be no escaping the deflationary squeeze on the horizon. Now that the Fed has achieved some unknown level of financial loss replacement, further attempts to reflate the economy will cause interest rates to rise, which will choke of economic growth and money supply expansion.
Hyperinflation may happen for a brief period of time on the edges of the world economy, but the more likely outcome is some sort of historical rhyming with the 1930s – 1940s.
One final note to contemplate — look at all the charts of the US dollar over the past 100 years or so. The ones that show it has lost about 96% of its purchasing power. Consider what the that tells us in terms of the likely direction of the trend from here…
U-Numb, done my good man; probably just NSA messing with us.
I would like to see historical evidence of a major (in the top 3) world currency hyperinflating. I just dont think it is possible. The money has to go somewhere. In order for money and credit (in USD) to increase 20+% per year, there needs to be an exit path.
What we will get is basically what we have been getting. Inflation in food, energy, education, and health care. The energy inflation has been on hiatus but it will return after this business cycle bottoms. Contrasting all that inflation will be deflation in technology. Look what you can buy for $100. My phone is more powerful than a $5000 desktop from 2005. What that means is that basically all the $billions that were spent on computer technology 10 years ago have a value of basically nothing. Poof. Gone. Technology has also crossed the threshold of actually beginning to reduce electricity consumption. This is a major turning point in history. Gone are the days of using 800 watts to light a home. I’ve replaced 10 incandescents this year alone with LED bulbs that were on sale at Home Depot for $2.50 each. That is right around $150 per year in energy savings. These bulbs have finally crossed the threshold where even the stubborn old fogies approve of them. Highly deflationary.