Propaganda

Once again, Charles Hugh Smith of Of Two Minds, explains the facts beautifully.

Click here.

If you want to know what will happen and why, this is it.

Examine point three very carefully.

3. Since the only endgames to ballooning debts and declining household incomes are runaway inflation or renunciation of debt, the Status Quo has only one choice left to preserve its neofeudal arrangement: do more of what has failed spectacularly, i.e. inflate more asset bubbles as a way to mask the system’s phantom collateral for a few more months or perhaps years.

Unfortunately for central banks and their politico cronies, serial asset bubbles face the headwinds of diminishing returns. All the Fed and Federal agencies had to do to launch the first housing bubble was lower interest rates and encourage subprime mortgages.

Take a look at that Case-Shiller House Price Chart, can you say unsustainable? The Fed is purchasing billions in mortgages each month and the US government is insuring any and all new mortgages and it is still a basic flat line. Spending lots of money just to stay in place….unsustainable.

And take a look at that stock market chart, adjusted for CPI (which is the lowest inflation indicator), stocks have not rebounded. But you would never guess that from listening to the financial talking heads. With this chart in mind, there is still movement up for stock prices, but just keep in mind that is up just to get where you were in 2007. And look at the scary volatility in the stock market since 2007. Bumpy ride.

But the scariest chart, the one that will ensure an economic depression for the next 20 years (whether that is a deflationary depression or a hyperinflationary depression or both, one after the other). It is the spread between real income and real expenses and the widening of that gap that will keep the US in a depressive economic situation for years to come.That spread can happen in a deflation or hyperinflation, same outcome for Main Street. And Main Street, the consumer, is 70% of GDP.

That increasing spread will make sure more defaulted consumer and mortgage debt, lower GDP, and more bail outs and bail-ins for entities holding that debt. Add to this an aging population those income naturally declines after retirement.

These charts tell the whole story.

It’s all about the spread

This link describes why a debt collapse, whether it errs on the inflation or deflation side, always creates an economic depression, no matter what the currency’s real value is.

Side musing: remember this link is using the official CPI, which is not the real inflation rate.

It is about the widening spread between wages and living expenses. And of course, when wages fall, income taxes fall, and then government raises taxes, causing the spread to widen even more.

And then, factor in wealth, it all just gets worse. Click here.

Hyperinflation by end of 2014

Groovygirl just finished reading John Williams’ (shadowstats.com) latest special commentary with an update on the coming Hyperinflation. It was 49 pages. Lots of good info, his real graphs are the best info! You pay for the detail. Physical gold and silver and strong currencies (such as Canadian, Australian, and Swiss) still the best hedges.

But here is the summary:

- Hyperinflation by End of 2014
- Heavy Global Selling of U.S. Dollar Could Hit With Little Warning
- Don’t Blame Intensifying Economic Downturn on Sandy or the “Fiscal Cliff”
- Physical Gold Remains the Ultimate Hedge

900 Days and Counting

Goldsilverworlds.com talks about the coming hyperinflation. Click here.

Good article and good links to more information.

A quote:

I would like to clear up probably the most common misconception about hyperinflation. What most people believe is that massive printing of base money leads to hyperinflation. No, it’s the other way around. Hyperinflation leads to the massive printing of base money.

Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government’s reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

You see, hyperinflation is exactly like deflation. The only thing hyperinflation has in common with inflation is part of its name. It looks just like a deflationary depression. In fact, it IS a deflationary depression, with a different numéraire, being GOLD.

There is still a debate in gg’s mind that hyperinflation in the dollar would have less of an effect on the core (US) vs. the rest of the world dealing in dollars. However, in this global economy, any effect outside, leads to an effect inside. In addition, trade wars, currency wars and, of course, the dreaded petro non-dollar will have a negative effect on the US economy, inflation in prices, and jobs. The question is how bad an effect? 100% increase on prices? 200? 500? In a jobless recovery, any increase is extreme pressure. gg thinks it is a question of will we meet the “official” percentage of hyperinflation or will it just feel like it? Does it really matter?

Mr. Rubino comments on the K-Wave

Excellent article over at MarketShadows. Click here.

gg agrees with this article.

It might be a loss of confidence in the dollar, euro and yen, manifesting in hyperinflation. It might be the bond markets discovering they’re being conned, “pushing interest rates up in a spasm that’s too fast and widespread for central banks to counter…” We don’t know, we can only watch and try to prepare for the most salient risks.

John Williams with USAwatchdog.com

Click here for summary and interview. Excellent interview from John with shadowstats.com. Ben’s announcement yesterday certainly caused a pop across the board. (h/t to RS and Anon.)

Williams predicts, “Hyperinflation is virtually assured because the Fed doesn’t have any options left.”  Williams says people should get prepared because we are facing a “man-made disaster.”

Interesting exchange

Interesting exchange of ideas in Jim Simclair’s website. Click here and scroll down to Dear Jim.

Groovygirl’s comments:

A currency crisis (like what Jim is describing by using the words “currency-induced cost push inflation”) and inflation are two different things. A currency crisis is caused by a loss of confidence in the currency. It happens quickly, weeks and months, not years.

The reader seems to suggest that the velocity of money and inflation or the velocity of money and the loss of purchasing power of a currency are inversely related. They are not. If that were true, the real inflation rate and value of the dollar, as stated by John Williams of shadowstats.com, would suggest the trend line of that chart should be up, not down, since 2000.

A currency crisis (and the resulting extreme high inflation in prices) is a confidence event, not monetary process.

Hyperinflation vs. High Inflation

Click here for an excellent interview with Eric Janszen as he explains the difference. Very good information here, listen twice. Groovygirl has stated before the reasons she feels that a hyperinflation is still possible. Those items still apply.

groovygirl also disagrees that a hyperinflation is the only financial scenario in which an entire generation’s wealth can be wiped out. The implosion of debt  is another scenario. Click here. The average American lost 40% of their un-inflation-adjusted wealth in 3 years. Factoring in the loss of purchasing power of the dollar, gg would estimate the real loss at 60-70%. If dollar goes to .60 and housing doesn’t recover, which it won’t, we are quickly nearing a 100% loss.

groovygirl believes that what Eric outlines is the best case and most probable with a severe bond crisis and the dollar at .60 around 2015 (which agrees with Martin’s timing as well). But gg doesn’t discount a hyperinflation before or after Eric’s outline of events, (brought on by a collapse of the petro-dollar or the creation of a world trading currency or a combination of those two under the umbrella of a severe global debt default). She also is not confident that the Fed can control that dollar fall and she is not confident that governments’ policies will not stay out of the way.

Eric does address the petro-dollar issue. Good info there.

Side musing: physical gold (and silver) are good protection in a high inflation or hyperinflation situation. GG has at least 10-20% of her total wealth in physical metals. Eric also is calling a possible top in the gold cycle near to 2015, which is in agreement with Martin Armstrong.

John Williams with shadowstats.com

John Williams has just released a 32-page special report. You pay for the detail. Well worth the money.

Here is the summary:

- Economic and Systemic Crises of 2007/2008 Continue
- Don’t Blame the Economy on Europe
- Global Markets to Turn Against U.S. Dollar
- Hyperinflation Outlook Updated
- Gold Remains the Ultimate Hedge

John is still calling for the start of a hyperinflation in the US by the end of 2014. However, he states that several factors could provide the opportunity to see the beginning of that process prior to 2014.

John may have more free info from this report on KWN later this week.

Side musings: John’s inflation-adjusted charts are the key. They are extremely enlightening. When you factor in the real inflation rate or loss of purchasing power of the USDollar; every chart, and gg means every chart, shows a decline since 2000, a fall off the cliff in 2007, and basically flat since then. No, it’s not your imagination, there is no recovery. And since this trend has really been going on since 2000, not 2007; a political party is not going to fix it. You must protect your own financial investments.

Latest Release from Martin Armstrong dated June 1, 2012

Did I miss this one from Mr. Armstrong? Click here for Chaos Around The Corner (7 pages). Seems like familiar material.

groovygirl’s comments: gg would like to comment about Martin’s thoughts on hyperinflation and the fact that he states that hyperinflation can only happen when there is a reserve currency. It never happens in the core currency (which is currently the USDollar). He suggests that this means the USDollar will never go to hyperinflation. (Although his descriptions of stagflation and higher taxes doesn’t sound much better. As I remember, the 70′s weren’t that fun.)

And again: high inflation feels like a hyperinflation to Main Street.

groovygirl has long thought and stated on this blog that hyperinflation could/would occur when USdollars came flooding back to the US. Over 60% of dollars are held and traded outside of the US (could be higher now).

There are a few scenarios in which that could happen. USDollar is supplanted as the oil trading currency by another or basket of other currencies (including gold). Global powers create an alternate global trading currency, and dollars remain as the US national currency. There are created 2-3 international trading currencies, divided along global economic lines by Asia, Europe, and US. The USdollar is hyperinflating in the rest of the world and they don’t want dollars, sending them back to the US.

Any one or a combination of these scenarios could/would cause USdollars to flood back to the US. That could/would be a hyperinflation at the national level.

Groovygirl has a hard time getting around any new global/regional currency that takes the overabundance of dollars out of the world system effectively without causing some sort of hyperinflationary backlash to the US (and any other holder of dollars). I also have a hard time believing that the first new reserve global currency will work. Nations seem to have no problem creating new and more fiat currencies, but have a hard time dealing with the global debt that goes along with it. GG believes that the US dollar will create a hyperinflation in dollars either in the direct blowback from a new reserve currency or indirectly in a drastic increase in all import costs (oil) or a combination of both.

One reason it is so hard to navigate this global debt crisis is because it is a toss up of what will happen first: a breakdown crisis in global economic banking system that requires reworking of all fiat currencies or a reworking of global fiat currencies to “solve” a coming a banking breakdown, that “causes” a flood of USdollars back to the US.

The banking crisis is a debt deflation crisis, and the flooding of USdollars on the national level is a hyperinflation. And then, for those in-between times when the government is printing to try and plug the debt implosion, we might have what Martin says we have now: stagflation. Gold/silver is a good long-term investment for all those scenarios. And that is why I prefer to have it as part of my portfolio. Because, gg really doesn’t know what will happen.

Martin also states that there must be an alternate currency to the one that is hyper-inflating. Although, Martin dismisses alternate e-currencies, gg doesn’t, especially in a crisis. You can hold other fiat currencies in a pay-pal account. Bitcoin and other e-currencies are gaining popularity and use. Yes, the government can shut down e-currencies, but new replacements can pop up in an instant. And during a hyperinflation situation, everyone will risk a shutdown to protect what little money they have. The rich will move their money off-shore and/or buy tangible assets. The poor will barter locally. Business can hold and trade money in other currencies. Local communities can create their own currencies (which they already have.)

Groovygirl agrees that in theory, the e-banking system can be potentially controlled. However, groovygirl also acknowledges that e-banking can disappear and reappear somewhere else faster than the government. With the internet, we have lots of potential options for an alternate currency(s) to compete with a hyperinflating dollar.

Disclaimer: groovygirl is not speaking in any professional way. She doesn’t have an economic model of her own and doesn’t have any affiliation with Martin Armstrong. She agrees with almost all of what Martin’s says, particularly his cycle theory. This is just her completely unprofessional and personal opinion on hyperinflation in the USDollar at the national level.

Update 6-11-12: here is an article about fearful Greeks stashing savings in Bitcoin.