muses of the moment

June 5, 2012

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.

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9 Comments »

  1. No Hyperinflation! That is good! … I think. I do remember the Stagflation of the Carter era … that was not fun. I was in high school at the time and wondering how I would ever be able to afford a house with an interest rate of 20%!

    Anyone else want to take a stab at what this would mean to us as investors?

    Comment by MikePhila — June 5, 2012 @ 12:38 pm

  2. GG,
    I what Martin is saying an indication to BUY stocks & bonds from now till 2015??? Thoughts?

    Comment by MikePhila — June 5, 2012 @ 12:44 pm

  3. MikePhila,

    Honestly, I don’t know. Although I think having a small portion of your investments in (good) stocks is a good idea, this 1970’s inflation-adjusted S&P 500 chart doesn’t make me feel good about stocks in general.

    Whenever I think of stocks and bonds (or any investment in a debt implosion), I always start with where is the currency now and which direction is it going in the future. It is the “purchasing power” of the underlying currency that is going to determine the best investment when all global central banks are printing money.

    Right now, dollar is hovering around .80-.82. (30% below the high last decade.) We have been bouncing between .72 and .82 since the 2008 Crash.

    Having said that, it is clear that banks are using the Fed window of free money to plow into stocks and derivatives.

    gg

    Comment by totallygroovygirlfriday — June 5, 2012 @ 1:05 pm

  4. about Hyperinflation: http://fofoa.blogspot.se/2012/05/inflation-or-hyperinflation.html

    Big Danger in a Little Marginal Flow

    What do I mean by “marginal flow”? Well, first there’s something you need to understand about flow. Stock and flow are not directly comparable because while stock is a measure of units, flow is a measure of units per time. We can look at the ratio of stock to flow over a period of time, but I’m not even interested in that in the case of the dollar. With dollar flows, we have the prices of goods and services which are far more relevant to the marginal (deficit) flow of dollars than any measure of the total stock of dollars.

    I’m also not really interested in the flow of dollars within the monetary plane of “investments”. Investments within the monetary plane change price regularly, sometimes with great volatility, yet without crashing the entire global monetary and financial system. But that real stuff in the physical plane, stuff like food, energy, medicine and industrial inputs, is (remarkably) relatively stable on its dollar price tags over time (at least compared to currencies going through hyperinflation). So we don’t need to picture the dollar flow as a portion of the entire dollar stock, we can instead picture it as a flow of real goods and services as long as we focus on the goods and services portion of the BOP. And we also know that government spending (the federal budget) is all on goods and services in the physical plane, not on “investments” in the monetary plane.

    So what do I mean by “marginal flow”? The US is the dollar’s home, its creator and its legal tender zone. Most everything here carries a dollar price tag. But the US also trades with the world outside of its own currency zone, and in so doing it emits dollars. Last year the US spent $2.66T abroad, but we also took back most of those dollars by selling our stuff abroad. In fact, we took back $2.1T of the $2.66 we sent out. So netting it out, we net-emitted $560B last year. That’s 560B dollars created here in the dollar creation zone and sent out into the non-dollar (homeless dollar) zone. That’s marginal (deficit) flow. But there’s more.

    Before I get to the “more”, let’s reduce this to an easier time-frame. In a stable currency (like the dollar), the prices of necessities like food, energy, medicine and industrial inputs don’t change much over a one-year time period. But prices can change overnight, and that’s what I’m predicting. So I’m going to start quoting these annual statistics in daily flow amounts, by dividing the annual number by 365. That, of course, includes weekends and holidays. And while our beloved monetary plane closes down for weekends and holidays, the physical plane of necessities runs 24/7.

    So looking at it as a daily flow, last year the US in aggregate emitted about $7.3B per day to the world outside of its boundaries and took back in only $5.8B. So the US is a net-emitter of about $1.5B per day. But there’s more. In 2009, the federal budget deficit overtook our trade deficit in dramatic fashion. As I said earlier, in 2007 the federal budget deficit was only 23% of the trade deficit. In 2008 it was 63%. And in 2009 it jumped to 367% of the trade deficit. In 2010 the federal budget deficit was 259% of the trade deficit, and in 2011 it was 232%.

    You don’t see this comparison very often, budget deficit to trade deficit. And the actual percentages don’t really matter much. What matters is that it went over 100%. What matters is that, since 2009, the US government (USG) is a net-emitter of more dollars than the US in aggregate emits to the outside world.

    So what? Well, the USG emits about $9.8B per day while it takes in revenue of only about $6.2B. So the USG is a net-emitter of $3.6B per day. That’s the marginal flow I’m talking about. And there’s big danger in that daily flow of $3.6B.

    In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it’s now spilling out here at home, on our own front lawn!

    The USG today is spending $3.6B more than it is taking in, each and every day. That’s a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

    Don’t be fooled by the misdirection. QE, twist, whatever; it’s not about interest rates or helping the economy recover. It’s 100% about disguising and managing this uncontrollable, unstoppable mess. It’s more like a broken sewer line than a water main now that I think about it.

    Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn’t want that, so don’t bet on them letting interest rates rise. But as I said, I’m not worried about the stock of dollars. I’m worried about this broken sewer line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.

    And if prices start to rise as they do in a ‘hot’ inflation, I propose to you that the USG will not cut back in real terms. So if prices were to rise by, say, 10%, the USG net-emittance of dollars would rise by 10% to $3.96B per day. And because the trade deficit is 100% attributable to the USG ever since 2008, the trade deficit would also rise 10% to $1.65B per day. The USG will not be outbid for goods priced in dollars. Price is what determines who gets a scarce good, and the USG will not be deprived. They even said so in a recent Executive Order! And where are goods and services prices discovered? In the minds of investors with pensions and IRAs, or at the margin where dollars flow?

    “Supporting foreign dollar settlement with CB storage”

    For decades up until today, foreign dollar settlement has been supported by foreign CBs storing the glut of dollars emitted by the United States, just as FOA said. And by “support”, he meant keeping dollar prices stable in the face of a glut of dollars coming out of the US, but to the detriment of the living standard of their own population.

    This lack of dollar price inflation to match the monetary expansion of the dollar over the last 30 years has fostered many crazy economic theories to explain how the dollar can’t collapse. In fact, most all economic theories today have some explanation or another describing the miracle of the magical dollar. But what they all miss is the political component which supported the dollar for all these years by mopping up that marginal (deficit) flow.

    CB storage works, surprisingly, by duplicating the glut of dollars abroad. The CB mops up the dollars and then duplicates them by sending them back to the US public and private sectors (in proportion to each sector’s deficit attribution, today 100% USG, 0% private sector) so they can be spent again, and also keeping those same dollars in CB reserves as a debt of the United States. Since 2009, it’s all attributable to the USG, so every day, as a billion-plus dollar glut piles up, the foreign CB sends it back to the USG and also stores it in its own vault with a new billion-plus in Treasuries.

    But in order to do this, that foreign CB needs to duplicate it again in its own currency. So the foreign CB prints an amount of its own currency needed to buy up the dollar glut, thereby transferring the monetary inflation to its own population and keeping the dollar price tags from changing. No (or low) dollar price inflation. Foreign dollar settlement continues. Support!

    Not understanding the political element of foreign CB support is why low dollar price inflation has confounded an entire generation of hard money thinkers. And yet, again today, having finally given in to the miracle of the magical dollar theories, they will be once again confounded as the dollar collapses in hyperinflation upon the removal of that support. But fear not. FOA and I are here to help!

    FOA 10/3/01 – For decades, hard money thinkers have been looking for “price inflation” to show up at a level that accurately reflects the dollar’s “printing inflation”. But it never happened! Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles. We gasped in horror at these numbers, but these rates never came close to reflecting the total dollar expansion if, at that moment, it could actually be represented in total worldwide dollar debt. That creation of trillions and trillions of dollar equivalents should have, long ago, been reflected in a dollar goods “price inflation” that reached hyper status. But it didn’t.

    That “price inflation” never showed up because the world had to support its only money system until something could replace it. We, as Americans, came to think that our dollar and its illusion of value represented our special abilities; perhaps more pointedly our military and economic power. We conceived that this wonderful buying power, free of substantial goods price inflation, was our god given right; and the rest of the world could have this life, too, if they could only be as good as us! Oh boy,,,,,, do we have some hard financial learning to do.

    Over the years, all this dollar creation has stored up a massive “price inflation effect” that would be set free one day. Hard money thinkers proceeded to expect this flood to arrive every few years or so; the decades passed as those expectations always failed. Gold naturally fell into this same cycle of failed expectations, as the dollar never came into its “price inflationary” demise.

    A number of years ago, I began to learn from some smart people about the real political game at hand and how that would, one day, produce the final play in our dollar’s timeline. Indeed, you are hiking that trail with us today; us meaning Euro / gold / and oil people. All of us Physical Gold Advocates that have an understanding about gold few Americans have ever been exposed to.

    Our recent American economic expansion has, all along, actually been the result of a worldly political “will” that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

    The relatively small goods “price inflation” so many gold bugs looked for will be far surpassed and the “hyper price inflation” I have been saying is coming is now being “structurally” set free to run.

    Why “structurally”, why now?

    For years now, “politically”, the dollar system has had no support! Once again, for effect,
    “Politically NO”, “Structurally Yes”!

    For another currency block to be built over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained; with its IMF agenda intact, gold polices followed and foreign central bank support all being part of that structure. Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar’s illusion value brought us yesterday and today.

    Now that the Euro block is passing a point where the Euro currency is viable; this same past dollar support that built America’s illusion wealth will now fall away. In its place we will see the beginnings of a currency war like no other in our time.

    This very change in structural dollar support is the same change that has been impacting our fed’s actions for over a year now. This change is the difference between my call for super price inflation and the endless calls past hard money thinkers have made. Their on again / off again goods “price inflation” outlook is based on the same failed analysis that expects price rises because the fed was into another “printing money faster” cycle. I point out that that cycle has come and gone many times without a price inflation anything close to our total, long term, dollar creation.

    Further

    To this end, I have been calling for a hyper inflation that is being set free to run as a completed Euro system alters Political perceptions and support. That price inflation will be unending and all encompassing. While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!

    Comment by Anonymous — June 5, 2012 @ 7:13 pm

  5. http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/
    June 2 commentary by Soros on Europe. Bottom line…gig is up and Germany might be in a mess as the Bundesbank is owed over 500 billion from the peripheral central banks. As money has flowed into Germany, it really hasn’t flowed. The banks in the EU set up debits and credits and settle once peryear or something like that. So if Greece goes under, then Germany is looking to collect on dollars owed to Germany by Greek central banks. Germany does not like being in this creditor position. The current credit balance is est to be 20% of Germany’s GDP
    How about them apples!

    Comment by Anonymous — June 5, 2012 @ 11:38 pm

  6. Excellent points to be aware of. Since Europe can’t “print” money like the Fed, they are doing things a little differently. Therefore, the domino fall could look different. End result the same though….

    gg

    Comment by totallygroovygirlfriday — June 6, 2012 @ 11:28 am

  7. I think it is well worth spending some time to understand hyperinflation.
    http://pair.offshore.ai/38yearcycle/#hyperinflation

    Comment by Vincent Cate — June 7, 2012 @ 12:03 am

  8. GG,

    Strange. Martin’s 2012.43 turn date came & went yesterday without a report.

    In one of his reports a year or two back, he mentioned an interval that sometimes occurred before the actual “event” generated by the turn (3.14 weeks?).

    Do you remember what it was?

    -Lemming

    Comment by Lemming — June 7, 2012 @ 9:59 am

  9. No, but I do remember reading that as well. Let’s see where we are in 10 days in several key markets like dollar, euro, gold, oil, stocks.

    Clearly, Europe is a power keg.

    gg

    Comment by totallygroovygirlfriday — June 7, 2012 @ 10:55 am


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