Posted on 11/29/2011 8:47:34 PM PST by blam
Stock Market Report Hyperinflation!
Stock-Markets / HyperInflation
Nov 29, 2011 - 01:03 PM
By: UnpuncturedCycle
I read article after article warning us that excessive printing in the western world is going to produce hyperinflation, and I’ve heard good analysts calling for hyperinflation for almost five years now. Lately the call seems to have morphed into a plea. The Federal Reserve Chairman has pledged to do his part, dropping money out of helicopters if need be, so how could we have deflation given such declarations?
We all know that the Fed has created almost US $4 trillion out of thin air over the last three years, so why are the prices of everything from commodities, stocks, real estate and housing on the decline, and why is the US dollar on the rise. It’s a valid question and I want to try to come up with an answer in this report.
Most people including a lot of analysts are convinced that the one and only requirement for high inflation is an expanding money supply, but that’s a dangerous oversimplification. We know that the Fed has been expanding the money supply, but it will surprise many to know that it recently turned down from record highs. Take a look at this chart:
While it’s true that percentage change for M-1 recently made a new high, it’s also true that the broad M-3 measure is a long way from where it was in late 2007 and that may pull the entire base lower.
The last time we experienced a decline occurred when QE1 wore off and the Fed then needed to rush in with QE2. I believe the recent decline is a signal that QE3 is needed but there doesn’t seem to be much political will to crawl out on that limb right now.
The Fed and Congress seem to be playing a game of chicken and the economy is at stake. The Fed does not want to take responsibility for initiating QE3 and Congress doesn’t want to ask for more easing with elections in the wings.
As far as Europe is concerned we can see that the ongoing crisis is having a drastic affect on its money supply:
Europe is also facing elections in the coming months and, combined with growing social unrest, there it little support for another round of quantitative easing although rumors abound. Early yesterday morning it was published that Italy would receive US $600 billion from the IMF and a package was in the works for Spain. The IMF later denied all of that so the problems continue to mount.
So we’ve experienced sharp increases in the money supply it now appears that in both the US as well as Europe supply is on the decline. You’ll never hear this on Bloomberg but there are more important determinants to inflation than money supply. If I want to know whether or not we have inflation in the pipeline I look at first at the money multiplier:
and then at the velocity of money:
With these two charts in mind it is extremely important that you try to understand the following: in no possible world can you have inflation/hyperinflation with these two charts declining as they have been over time. You can print until hell freezes over and you will still be condemned to deflation.
How can the Fed and the ECB print as much as they did and not produce inflation? In very simple terms all that money was not meant for public consumption and it did not produce one bit of growth. It went to a select few and the bill was passed to the many.
Debt ballooned as the economy and the tax base shrunk and that is an untenable situation. More printing, and there will be more, will only serve to crowd the private sector out of the debt markets more than they are today. Today’s banks are like pigs at a trough and they are insatiable. They have over US $700 trillion in derivatives to deal with and it will eventual destroy the system as it stands today.
The only real solution is to write debt off, but again we have no political will for that. The market will not stand still for ever and it will eventually do the job for the greedy politicians who run today’s show.
“all that money was not meant for public consumption”
The ‘money quote’, as it were. Since it is all electronic, it is much easier to ‘print’ and move money.
Go look at shadowstats.com. John Williams calculates inflation and unemployment the way they used to be done by the government before 1990. He’s showing nearly 23 percent unemployment and 13 inflation. You decide.
Stopped reading right there.
OK, can someone please write a basic “deflation for dummmies” so i can read it slowly several times?
What would it look like to a regular guy?
What is the best way to prepare for deflation?
How do you protect savings? (ie,, how does gold fit into “deflation”?)
If you're holding coins, sell 'em.
Isn't this what happened in 1990's Japan?
I posted this article by John Yesterday:
John Williams Hyperinflation Warning, Preserve Wealth Value With Gold
Buy and hold cash, both in the bank and under the mattress.
Deflation is when wages and prices fall at the same time. They will continue to fall until they reach a market value baseline of support. In other words the price of products falls until people start buying. Actually in a deflationary spiral cash is king as you can get more for your money. So if we are moving into a deflationary depression which many economists are prediciting its good to have a lot of cash. Hedge with fractional gold and junk silver. Probably wise to stay out of the stock market. This is a simple explanation that I read a few weeks ago. I am not an economic guru.
My $402.00 Krugerrands and my $11.50 each 90% US silver dollars?
I WAS thinking about you when I read/posted this article.
Nope, keep 1/2 of those specimens:)
Turn the other 1/2 into cash.
The single largest real asset class in the world, by far, is US Residential Real Estate.
Follow it and you will know where the world is going.
Then if i understand you right, it’s better to be debt free, have cash, and wait for lower prices.
Inflation lets a debtor pay off old debts in dollars worth less,, so the opposite would hold true in deflation? That paying old debt would hurt more? Is that right?
What generally happens to interest rates?
“Buy and hold cash, both in the bank and under the mattress.”
Cynically, i notice that the international banking community is flush with cash from all the Fed bailouts. It would make sense that the world will soon be generally structured to the advantage of that position. The oligarchs won’t allow themselves to lose. So on that level, it makes sense that having cash,, in my uber-microscopic version of G/S might work for me as an individual..... i think.
Yes if you are holding cash you would be able to buy things at rock bottom. I would think the interest rates would go up as the Fed would be desparate to try to counter act the deflation.
I worry that you are correct.
As you know, I've been betting (mostly) on inflation
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.