Sunday, December 13, 2009

Forget the Savior of Hyperinflation; Bernanke a False Profit

Anon wrote: "Isn't it possible, even remotely, that the dollar might fail? If the government can't sell bonds to anybody and can't pay the bills--declares bankruptcy-- wouldn't that destroy the dollar?"

I hate to be so black and white, but the answer is no, it isn't remotely possible. Cashzilla is back from the Sun, fully recharged (or was that Ultraman?).

The reason is this: in a debt based monetary system, crises strengthens the currency because less paper can be issued upon less credit.

Catastrophe = stronger currency
Prosperity = weaker currency

That is a far worse outcome, a crushing outcome, for most Americans. And that's really why deflation happens, it is an equal and opposite natural reaction to financially whack people who've left themselves exposed to too much debt.

Does it make sense, on any rational level, that a nation drowning in debt would magically be relieved of all private and public obligations? Hyperinflation? All debtors, dream on. Your debts are about to expand in a way you never dreamed possible, as your creditors intentionally cut off your income lifeline, slash the price of your collateral assets, and force you to sell under duress to meet an unmanageable margin call.

Is our government having trouble "selling" bonds? People are lining up to pay negative yields to hold our paper. Demand has never been stronger. Ever. The only time demand for US Treasuries was remotely close to the crises of today was in 1939, when Hitler rolled over Poland. The 3-M Treasury plunged to .04%, its lowest-ever reading until 2008 and 2009, when it registered negative-0.005% at auction.

Do the American people really understand that we are embarking on a journey that our bond market has, by method of global free market auction, determined to be an order of magnitude worse than WWII?

The ONLY way we'll experience hyperinflation is if the U.S. government re-embraces its constitutional responsibility to issue our own currency AND we reject the very same Constitutional mandate to back that issue with copper, silver, and gold. The reason I think that's impossible is because the U.S. doesn't govern itself, private banks, who DO issue our currency, govern every aspect of the United States of America but for a pathetic congressional circus act side-show. Congress is too dumb to understand what currency is, let alone who issues it and how.

Once again, the Lizard ...on the loose.



  1. It's funny how there can be such polar disagreement on what should be a well-understood topic: I guess that's what makes markets!

  2. "It's funny how there can be such polar disagreement on what should be a well-understood topic: I guess that's what makes markets!"

    Yep, for every winner there has to be a loser (during the negative-sum game of deflation, anyway).

    Let's look at the socialist silliness:

    1. the FED is 100% in control over the size of M1.

    (The Fed has 0% control, because they cannot create a borrower. More importantly, the author doens't seem to comprehend that the Fed's singular goal is to ravage US citizens, smash their lifestyle, rape their children in in perpetuity. The king's bank HATES Americans, they always have, and they always will. America is the Great Satan to the facscist-socialist international owners of the Federal Reserve system. These people are crazy, they think international banks exist only to give away cash to make them rich. What??)

    2. The FED has chosen to imitate post-1990 Japan.

    (That's 25 years of massive defaltion. 90% stock loss. 95% real estate collapse. Duh.)

    3. Japan has has not had a year since 1990 in which consumer prices fell into negative territory by as much as 2%.

    (That makes Japan's mega-defaltion that much worse.)

    4. The money supply shrank in the Great Depression because 9,000+ banks failed.

    (Perfectly true reason we have worse deflation now, including higher unemployment than they had during most of the 1930s)

    5. The government passed the FDIC law in 1934.

    (The FDIC, encouraging wild bank-government real estate speculation while the people pay their losses, is exactly what created then caused the Great Deflation of 2012.)

    6. The money supply has not shrunk since then.

    (M3 is in utter collapse. All prices are plummeting. Deflation has ALREADY won and ravaged America. UE is already at the Great Depression's peak rate. Our megadeflation is ALREADY worse than the 1930's.

    I remember when their were no deflationists except me and about 5 other people at Dow 14,000+. These guys are way late to the party. Deflation ravaged our economy long ago, but amazingly, has yet to get started.

  3. The only difference between now and the great depression is that walking outside now you still see everyone shopping and having a good old time. The mall today had lines around the store. Maybe it is because everything is on sale, but what I am sure of is people still have plenty of money to burn. If this is a depression then we have nothing to fear. New flat screen, 4.90% mortgage, new car, even a 20k Christmas bonus to a secretary at a real estate firm, money is everywhere! Maybe it's debt, but all currency is, right? So as is the American way, kick back, watch football and crack open another beer, Greenspan was just on saying jobs will come flying back faster than anyone thinks because everyone over reacted. JPMorgan calling for a 30% rise in corporate profits next year. The odds are that no one here is correct and we end up in the middle just muddling around. If deflation were this obvious we would all be rich

  4. "The only difference between now and the great depression is that walking outside now you still see everyone shopping and having a good old time"

    That's exactly the same as the 1930s. American life was completely normal in 1930-31, through the stock market had crashed 25%, from 385 to 295, more slowly than ours is crashing.

    It took until 1932 for Americans to realize that, what every leading economist agreed was mega inflation and the return of booming prosperity, was actually a great deflation and a terrible depression. Their recovery was squashed by massive government stimulus, stimulating the richest men in the world with an export of American money. Same as tonight.

    The second depression within the Great Depression, caused by the second New Deal which was another massive transfer of public money to the world's wealthiest bankers, brought the American life style to rock bottom in the late 30's to early 40's.

  5. Doesn't Gary North disprove his own thesis? For a so-called "expert" his arguments support the deflationists.

  6. As long as people keep loaning the government money for free, the goverment will keep spending, and the fed will keep running the presses to pay the interest. Deflation will offset the inflation of printing and eventually we all work for the government. Hillary pays off private debt with tax payer funds and we line up and give Obama more of our hard earned pay. Work all day and then send your pay to Washington to blow on whatever, Washington pays you back with crisp clean Freshly printed bills backed by freshly sold bonds, in the largest ponzi scheme ever, and whalla, economic perfection. How does the government plan on paying back all the debt? If everyone is unemployed and homeless due to inflation, there is no tax revenue. Once people need there currency to actually eat, they will sell their bonds. Once they sell their bonds the government will not be able to roll their debt. You never mention when this occurs, if things are so bad there won't be currency to buy bonds with.

  7. Read Gary North's predictions about Y2K. Reading his work, I've come to the conclusion that he hates paper money because it isn't in the bible.

  8. The Arabs are beating back Cashzilla. Pretty pathetic that Cashzilla can't even get up for a pultry $10 billion bail out from the arabs.

  9. "Pretty pathetic that Cashzilla can't even get up for a pultry $10 billion bail out from the arabs."

    California real estate would have to go up 300% to beat back Cashzilla. Stocks would have to go to an S&P P/E of 250 (currently 150).

    Neither is gonna happen.

    Just when you thought you could sell the old house for a couple hundred million, deflation sets in ...of all the bad luck!

  10. FDR- I was under the impression that as paper assets fetch higher prices they require more and more currency to keep the price elevated as it costs more to bid up something $100 vs. $20. This extra currency is currency created not destroyed. It seems that higher paper asset prices would not be possible in a deflationary environment, but only in an inflationary environment. Where is all the currency coming from to bid up paper assets if the FED is not able to print money. Someone has a lot of extra currency to be buying higher and higher paper asset prices, someone is trading currency for paper assets at an unbelievable clip. Who has this much currency? The banks? The FED? All the primary dealers? If the FED gives the treasury currency and in return gets bonds, with which they in turn give to the banks, which they in turn print money and buy equities, which they in turn give to the fed as collateral for more bonds, and on and on. The treasury pays the newly printed cash to more and more government workers and in raises. All of this seems very inflationary and it seems evidenced in the price of paper assets, which in deflation should not be able to rise. What are deflationists missing. They hang on the, can't find willing borrowers argument, but currency is obviously flooding the system via another pipeline? If you need proof, just pull up a 6 month chart of any paper asset. You can't say pull up a 2 year chart because I will say pull up a 20 year chart. We had deflation last year and have inflation this years

  11. With everyone paying back TARP, the treasury obviously thinks that the loan losses are done, as far as the big banks are concerned. So, the government no longer fears deflation. We should see rising bond yields soon if the " free " market agrees with the treasury. The equity markets have been telling the bond market they are wrong for 6 months, usually the bond market is smarter, but the bond market is not a free market anymore, with the FED the main buyer skewing the yields to below free market levels. It will be interesting to see in 2010 whether the equity market was wrong or actually right for the first time ever. The equity market could be right because of the fact we don't know what the free market bond market looks like. If C and BAC don't need to come back to the government for more aid by summer then I suspect the FED can claim victory in stopping the loan losses and thus halting deflation. If this is the case, the equity markets may be the place to be. Unfortunately, GS has a head start as they knew deflation was not going to be a problem and bet the farm on it. So far, they are spot on as is evidenced by their profits in calling the right side of the trade.



    Hyperinflation makes all your debt go away, thus it would represent booming prosperity.

    Americans, keep dreaming...


    Your debts are about to become several times the burden as deflation robs your income and stronger dollars make your inflated debt notes impossible to pay off.

    Mother Nature can be a cold, heartless beach.

  14. "Someone has a lot of extra currency to be buying higher and higher paper asset prices"

    Paper assets are down about 80%, average, some 99% (like MB CDOs).

    Don't confuse paper assets with stock indexes that are only down 40%. Stock indexes always rotate-in the highest price companies and throw out the dogs.

    The Dow 30 of last year is probably under 5,000 with AIG, GM and, C all going to $0. Who else went broke and got kicked out of the index? I know I'm missing a few.

    And even with the broke dogs punted, the best we can do is an major index P/E of 150, a price so unheard of, the Dow could drop to 500 points and be 25% overvalued for your average recession low P/E (assuming earnings stay inflated, which they won't).

    But this deflation is just getting rockin'...

  15. "With everyone paying back TARP, the treasury obviously thinks that the loan losses are done"

    Just the opposite, it's obvious they want to sell high.

    Remember, teh TARP deal was that the "taxpayers" get preferred stock in the companies to reap the capital gains if the prices went up.

    That TARP got purged from memory like a bad dream.

    The "new" TARP idea, since the stocks did go up, is that the banks keep all the capital gains and pay back the principle with market rate interest of 0%, and keep the taxpayers capital gains for themselves.

    They want out of TARP now, because if they don't sell hig, they'll lose the taxpayer-funded few hundred billion they can pocket and run.

    It's just taxpayer fleecing before the Dark Age they see coming better than most.

  16. I see your DOW 5000k post. I agree, but things like GOOG that are advertising based and AMZN which are sales based are through the roof. Do economically sensitive companies like this rock in deflation? So buy GOOG, make 400% on your money then hoard the cash and maybe reinvest it in CREE ( high priced light bulbs) and triple your money in a year, then re-invest it in MMM for another double. Strange that deflation causes one to be so easily rich, what is the catch?

  17. I thought C was selling common to raise money to pay back TARP?


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