Friday, March 13, 2009

Inflation vs. Deflation

In my previous article, I examined the unprecedented amount of money President Obama, Bush, and Congress have stolen from our children, the withering American middle class, and the burgeoning new class of American destitute over the last 12 months:

Click to Enlarge


One could be forgiven for reasoning that the greatest daylight robbery in human history might be inflationary, but there are three primary reasons that these deeply evil and criminally foolish acts are overwhelmingly deflationary, in order of precedence:

1.) What little initial bang comes from taking out trillions in new high interest credit cards, to make the minimum payments on congress's existing mountain of debt, can never outpace the quantity of existing bank leverage that is imploding. The same bankers who rake in virtually limitless profits by financing the new debt, have lost our collective bank deposits to high stakes compulsive gambling. As their wild speculation swings to a total loss, not only do they lose everything we've deposited in banks, but also the leverage they've applied. True, our government promises our first born to reimburse the loss of basic deposits via the FDIC, but the 40 to 1 leverage these broke bumbling bankers bet still brings down the currency house.

2.) Congress long ago abdicated their constitutional duty to coin American money. According to the unconstitutional Federal Reserve Act, congress must now finance new spending at a whopping 230% service charge over the life of the loan. The approx. $13T service charge on the $10T in "Old Deal" debt is collected by uber-wealthy, mostly non-citizen international financiers, at the direct expense of American children. Given that a private central bank corporation currently owns our president, congress, and our judiciary, any government "spending" quickly morphs into a long term drain on the money supply; another wealth sucking black hole.

3.) As President Obama and congress struggle to export our remaining American wealth before a taxpayer revolt can take shape, the amount of commercial credit available is intentionally rifled. This is by design, as it exponentially increases the value of future interest installments paid by our children. In other words, companies and individuals can't borrow more to expand the currency supply, because the U.S. government has already borrowed and spent on their behalf beyond any logical credit limit, as well as exhausted the future earning power of our children and our grandchildren. Banks cannot lend to exhausted creditworthiness, our government has removed that option, making any inflationary currency expansion an impossibility. This sharply increases the value of each dollar our children have been obligated to pay back to non-citizen bankers.






















Never has so much been paid by so many to so few.

13 comments:

  1. very smart analysis

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  2. awesome post. where did you get the 700 Trillion number in the bar graph by the way?

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  3. BIS estimates $700T minus an guesstimate of what has already imploded. Anyway you look at it, it's a lot.

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  4. At 700 trillion even inflation wouldn't be a path to equilibrium. A series of offsetting defaults might unwind a good portion of it, but some currency revaluation or substitution may finally be more effective.

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  5. My understanding is the $700 trillion figure is mostly comprised of derivative contracts that are hard to price as either assets OR debits because they are so financially interwoven.

    Bottom line is the US govt. is on a never-before-seen spending spree and if foreign investors are unwilling an US investors are tapped out on buyinig more Treasuries to support our debt, T-bill yields are going to rise.

    I still think they will and soon.

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  6. FDR:

    If they change the market-to-market accounting rule do you think banks can reflate their leverage?

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  7. "If they change the market-to-market accounting rule do you think banks can reflate their leverage?"

    No, because junk hidden in L3 is legally self-valued, as the rules stand.

    For example, if you apply the known market valuation, the actual trading price for securities in Goldman Sach's L3 portfolio, you come up with a loss of $125 per share.

    Accurate writedowns have not been an option since "banks" like GS lost all of their operating capital and much more, so changing the rule will change nothing--it's already being ignored.

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  8. "Bottom line is the US govt. is on a never-before-seen spending spree and if foreign investors are unwilling an US investors are tapped out on buying more Treasuries to support our debt, T-bill yields are going to rise."

    Hi Jayhawk1,

    Is something outperforming T-bills?

    Why would anyone stop buying the only 0% performer of the depression?

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  9. FDR - I find it hard to refute anything you have posted and your track record has been spot-on. So I can't disagree with you that Treasuries will most likely outperform almost any other investment for the forseeable future.

    However, two things: 1) I believe that Treasuries yields are going to rise OR the Federal Reserve is going to buy Treasuries to cap the yield rates if yields start to go too high. Either is inflationary.

    2) I believe precious metal prices will continue to rise, and certain commodity prices will also rise - perhaps not industrial metals or natural gas (too abundant), but I'm betting on agricultural products and oil. These will outperform IMHO.

    This having been said, I watch things closely and realize I may well be wrong. I truly appreciate your blogsite, and have learned alot from following your postings.

    Who knows - I may be in line for T-bills soon.

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  10. FDR we started this debate a year ago and I think in the end inflation will prevail. It's the only way out.

    Leonidas from MW.

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  11. "However, two things: 1) I believe that Treasuries yields are going to rise OR the Federal Reserve is going to buy Treasuries to cap the yield rates if yields start to go too high. Either is inflationary."

    I agree that the Fed wants interest rates to rise. We pay them about $350B per year in non-negotiable interest, and for people who think it is their birthright to own all the productivity of every American, that's peanuts. They simply can't live the life they want at 0% and without counterfeiting U.S. dollars by the trillion.

    The Federal Reserve literally has no idea how to make an honest dollar. They are completely helpless when it comes to making real money, they wouldn't even know where to start.

    "2) I believe precious metal prices will continue to rise, and certain commodity prices will also rise - perhaps not industrial metals or natural gas (too abundant), but I'm betting on agricultural products and oil. These will outperform IMHO."

    I agree on your outperform call, but outperform can be a huge loss in this environment.

    "This having been said, I watch things closely and realize I may well be wrong. I truly appreciate your blogsite, and have learned alot from following your postings.

    Who knows - I may be in line for T-bills soon."

    Barring new American currency shenanigans (which could happen), everyone should have a large stash of cash and T-bills. I recommended 100% cash/T-bills at the top of the market, and I still do, because big picture, we are still at the top of the market.

    Thanks for the nice words and best of luck to you and your PM (get that heavy metal in a safe, paper gold certs are no different than owning penny paper stock in dead-as-a-doornail Citi).

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  12. "FDR we started this debate a year ago and I think in the end inflation will prevail. It's the only way out.

    Leonidas from MW."

    Hi Leonidas, I completely agree with you.

    Where we disagree, is that there is a way out.

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  13. So how do we best survive the upcoming Amragetton?

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The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

 
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