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Jan
23
If This Isn’t Inflation, Then What Is?
Over the last year, I have written extensively about the economic crisis on The Bottom Violation. I’ve positively flogged the proverbial dead horses of quantitative easing and impending dollar collapse to the point where my arm feels like it’s going to fall off. And many of you have politely — and sometimes not-so-politely — offered to tell me just exactly how wrong I am.
So the debate rages. Are we in an inflationary or deflationary environment? Are asset-classes rising in price, or falling in price? Over the last couple of years, so many of you have taken the time to remind me that the collapse in housing prices alone mandate that we are experiencing massive global deflationary price pressure.
I still disagree, of course; the increase in the money supply — coupled with the lowest interest rates the globe has ever seen — conspire to create an extremely dangerous setting. Perhaps it’s true that some asset-classes have fallen in value — but that isn’t universal by any means. And perhaps the prodigious increase in the money supply and easing of credit offset some of the falling asset prices, but even if that is true, the balance certainly isn’t sustainable.
And then there’s the velocity of money. “Sure,” you say, “the government is printing more money than ever, but it’s not getting into the economy, because no one is lending.” And that’s true too, but it doesn’t change the fact that banks have to make money somehow, and the way they do that is by lending. Eventually they will have to start lending, and when that happens, it’s not going to be a quiet slow process; it’s going to be like a tsunami of cash hitting the economy.
Have a look at this sweetheart of a chart:
Or maybe this one, that’s a little longer-term?
YEP. THAT LINE IS VERTICAL.
And just in case you thought this was just a “U.S. problem:”
Theoretically, the Fed could pick the precise moment to reverse policy, taking dollars out of the system. But economic indicators are almost universally lagging, and by the time the Fed does realize it’s time to get dollars out of the system, it will be too late. Beyond that, the Fed is now, more than ever, a political machine. Even if Big Bad Ben Bernanke knows the precise nanosecond he has to turn the train around — and even if he were that skilled a conductor — do you think he would really do it? The absolute best-case estimation of unemployment is still over 10%, and most private-sector economists agree that it’s much higher than that (probably more realistically over 20%). Do you really think Barack is going to allow Ben to raise rates?
The answer: hell no. And it doesn’t matter anyway, because this week it has started to look like “The Helicopter” is going to get fired. Or at least not get re-hired. At any rate, you should get used to hearing the word hyperinflation, becase that’s what we’re about to experience. And it’s going to be as ugly as your wife’s fat cousin.
Here are my final thoughts, for all you pundits and naysayers who accuse those of us who believe such an unprecedented increase in the money supply, along with such easy credit are going to cause hyperinflation: we know the hyperinflation of the Weimar Republic happened. We know it happened in Argentina. We know it’s happening in Zimbabwe right now. It has happened countless times — to countless empires. Here are the real questions:
If printing and easing aren’t the causes of hyperinflation, then please do tell us, what is? If Argentina, for instance, didn’t destroy its currency by printing, then how exactly did they destroy it?
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Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
10 Comments so far
Partners
My wife doesn't have a fat cousin– most of them are hot.
Do any of them know about inflation? And are they single?
Does your wife know that you admire her cousins? That's weird. But then I think about it, and I wonder if she knows you admire your own cousins. And then I think about that a little more, and I think about buying a plane ticket.
“Money printing” in the sense of QE did not do for the currencies of Weimar Germany, Zimbabwe etc.. What killed them all was debt monetization. That's different. Only when a country gets in to the position of having to repeatedly monetize deficits does hyperinflation become a real possibility. That may happen to us too, but it is a different issue. The difference is small but critical.
Meantime, the graphs of M1, M2 and M3 continue to head south like an express train.
Paco is certified clueless. I guess he missed the day in geography class when they talked about Japan.
Where is Japan's hyperinflation?
Right. Clueless.
An isolated island in the Pacific has no real resources to speak of. After decades of manufacturing and selling to foreign nations, it experiences an unavoidable economic collapse. It battles said collapse by lowering interest rates and living off the carry trade benefits of an exploding global economy.
I'm clueless? Japan is about to be hurt more than anyone else. I'd rather be an octopus in the Sahara than Japanese right now.
The United States, Europe, and Asia are NOT Japan, and this is NOT the 1990s.
Paco is certified clueless. I guess he missed the day in geography class when they talked about Japan.
Where is Japan's hyperinflation?
Right. Clueless.
An isolated island in the Pacific has no real resources to speak of. After decades of manufacturing and selling to foreign nations, it experiences an unavoidable economic collapse. It battles said collapse by lowering interest rates and living off the carry trade benefits of an exploding global economy.
I'm clueless? Japan is about to be hurt more than anyone else. I'd rather be an octopus in the Sahara than Japanese right now.
The United States, Europe, and Asia are NOT Japan, and this is NOT the 1990s.
The Cato Institute explains why Obama can blame Bush all he wants, but his budget is even worse than George Bush's.
http://www.cato-at-liberty.org/2010/02/01/obama…
The Greatest Tax Haven? Nathan Blevins on the Isle of Man.
Freedom isn’t some fanciful creature of the imagination, like Bigfoot. It actually exists, and I’ve seen it.
http://www.lewrockwell.com/orig11/blevins1.1.1….
All of these posts above will be non-topics when we realize the decline of petro-man. Peak oil is coming or it is actually here. Pay attention people!! The DOD (Joint Operations Environment report , the DOE, and the UK government are currently monitoring the situation. These last two months (March April 2010) are water shed moments. If you don't know what the hell I am talking about, this link below will rock your little "NOT IN MY BACKYARD" "Tea baggin", "what's in it for me" mentality.
Now is not the time to continue throwing stones.. We should have been paying attention to this a long time ago (like 1970 when the US peaked in oil production…. predicted by Geologist M. King Hubbert of Shell Oil.
http://www.energybulletin.net/52509
Let us cycle back to the "we generation" instead of the "me generation". It is only way we are going to survive the coming decade. List to the DATA. Ignore this post at your own peril.