muses of the moment

May 6, 2010

hyperinflationary depression

Filed under: DOW and S&P500, Gold and Silver Investing, Hyperinflationary Depression, Martin Armstrong — Tags: — totallygroovygirlfriday @ 1:22 am

The day-to-day economic news can really mess with your head. The economic data is filtered through a lens that believes we can return to previous economic activity. We can not. Thus most commentary from F-TV will confuse you. Data stats that are observed through a lens from 1999, will not get you real economic information.

Therefore, let’s look at the big picture.

We are being set up for a hyperinflationary depression triggered by a world-wide fiat currency crisis.

Our current global economy that is built on debt and leverage must have large amounts of credit and liquidity just to maintain the status quo. Right now, the powers that be are sustaining the economy by printing money. In this environment investments are only as solvent as their ability to roll over their debt. There is too much debt in relation to the economic activity to sustain it.

More and more money must be printed. This money is sustaining what economic activity is already there, keeping it from imploding. It is not going into economic growth that will produce credit availability or liquidity for capital investment. Thus the economy is at a complete standstill, debt is deflating, credit is frozen, even while mounds of paper money are being injected into the world economy.

Soon, some of that printed money will make its way into prices for real things. Note that debt is deflating, not prices. (Prices are staying the same or inflating, depending on what it is.) Too much printed money will chase too little goods, since the economy is currently at a standstill not creating more goods.

When goods are too expensive to purchase, the economy will then implode again. This time, even if credit is available at a low-interest rate (which is highly questionable), the cost of real goods will make it too expensive to grow the economy.

This is the cycle of a hyperinflationary depression. Deflation in debt, then too much printed money to “fix” deflation, then too much money causing inflation (and at the rate we are printing) hyperinflation in prices. Thus a contraction in the economy or what we call a depression.

This is a catch-22 situation (caused by an imbalance between real economic growth and debt): death by fire (hyperinflation) or ice (deflation). The powers that be have chosen death by fire.

Hyperinflationary depression: deflation in debt (frozen credit) and inflation in prices that cause a contraction (of at least 25%) in economic activity.

Physical gold and silver are good investments because the price of “real things” (or a currency backed by real things) will go up in relation to the amount of printed money. Then the investor may sell those real things to get capital and purchase sound businesses to get the economy moving again. Only then, will we be able to grow the real economy and move out of a depressionary cycle.

There have been many hyperinflationary depressions in history. The most recent was in Zimbabwe in the last decade. Germany had one during the 1920’s. And the United States experienced a hyperinflationary depression during the period before and after the Civil War.

This is a cycle. Prepare for it, since you now know it is coming. Like all other hyperinflationary depressions before, it will end.

I am 100% sure that the U.S. will go into hyperinflation. Not tomorrow, but the problem with the government debt growing so much is that when the time will come and the Fed should increase interest rates, they’ll be very reluctant to do so and so inflation will start to accelerate.

Marc Faber, Bloomberg, May 2009

Rebuttal from Marshall Auerbuck here.

The inability to tax and dependency on foreign currency are central to hyperinflation or national solvency.  Moreover, in Zimbabwe and Weimar, it was the trashing of productive supply that created inflation (think supply versus demand).

Groovygirl’s comments on the rebuttal quoted above.

Groovygirl would suggest that the lack of national productivity (i.e. all hard production moved to China/India/Mexico) is/will close that loop. In addition, a main difference between Zimbabwe and Germany and the US is that those countries started out with actual production. The US “produces” financial services and healthcare services. Those services will contract/disappear/move as the economy contracts. There is no production to lose, it’s already gone.

Tax revenue is already down. The government is setting up a scenario in this baby boomer majority where they pay people medicare, social security, and unemployment and those people just return a portion of that money in taxes. That is not real tax revenue. That is an inability to tax.

In addition, if the USdollar is not the global reserve currency (which it will not be at some point), US Treasuries in USDollars all of sudden turn into a foreign debt obligation problem.

Hyperinflation is coming.

Comments later in the day:

Side musing: for those short-term traders out there, Jesse confirms sell signal yesterday in US stock markets. Click here.

It looks as if Martin Armstrong’s April 16, 2010 turn was spot on (again). Gold has been up and stocks sideways or down since then. It looks like we can continue to expect uncertain markets with the Euro crisis and GS legal turmoil.

From Jesse’s Cafe Americain, click here. The programs can drive the market up…..and down 🙂 It is pretty clear that this drop was driven by the HFT programs. It can and probably will happen again.

Someone was asleep at the wheel in NYC and let stocks fall below the 3% stop/loss that has been government mandated since 2008. Oops. Anything that even acts like it is dipping below the 3% drop looks like a panic. But then a drop below 3% uncontained (DOW was down 1000 points for a while), looks worse….uncontrollable.

Groovygirl is beside herself in unbelief as all the F-TV anchors play this 1000 point crash as  “fat finger on Procter and Gamble”…It’s a glitch in the Matrix. Click here for direct action from the pit. Click here for some charts/commentary reflecting the action.

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