What did a lot of us say? Deflation followed by inflation, followed by hyperinflation. This is why PM’s have always been my fallback (other than real estate and durable goods). And I mean PM’s of which I have physical possession.
With Global Warming, they should be buying property in Canada and Siberia. /sarc/
Thanks for the post. I will add it as a link to my fiscal essay; a portion of which is attached. However, I am with Georgia Girl 2 about deflation also. The idea that central banks will engineer a soft landing is pure fantacy.
Remember the U.S. unilaterally abrogated the Bretton Woods agreement in August 1971 and allowed the dollar to float in relation to the trading whims involving all paper currencies. When the Treasury in 1964 began producing dimes through dollars without silver, silver coins disappeared from circulation. Until about 1968 people could still trade their Federal Reserve notes for Silver Certificates and trade those for packets of silver from a Federal Reserve Bank. At this time the working careers of a single generation comprise the totality of comprehension for how the international community was to function economically without currencies emerging from things people can touch and see. We are toast.
One analogy to explain the looming inflation might be to consider a flood control dam. The water that builds up behind it during the winter and spring could be considered QE1, QE2, QE3, etc. The face of the dam would be the current moribund economic activity indicating a very low velocity of money as exampled by such questions as “Why do I want to borrow if no one wants to buy? or “Why do I want to buy when I don’t have a job?†Now stagflation happens when the reservoir gets so full with QE’s that some water just has to go over the top, even though economic activity remains anemic.
But when the economy picks up money begins to circulate actively. Now the increased velocity of money because of our fractional lending system exponentially multiplies the money created by the QE’s. The increased economic activity fueled by huge quantities of money becomes erratic, excessive and unsustainable with price inflation affecting all sectors and providing an appearance of prosperity. It would be like water by its inordinate pressure intruding into the face of the earthen dam agitating the rock and soil causing the face swell and heighten as water intrudes ever further into the dam face. The intrusive water (money) reduces the ability to withstand the increased pressure which shatters the face of the dam. Just as a wall of water scours out the stream bed and washes all before it, inflation now rages through the economy and destroys people’s financial asset values and their purchasing power.
This may seem fairly insane, until you realize that every member of the G-20 behaves in much the same way, and do understand their precarious situation. With the recent debt ceiling deal the accumulated obligations of this country exceed our GDP, allowing us to share the dilemma Greece presently faces. By 2037 the CBO reports national debt will become 200% of GDP. Since all currencies have about this same connection to reality, finding one or several of sufficient magnitude and viability to replace the dollar as a worldwide medium of exchange and store of value becomes perplexing.
An individual country might think they have a solution, but they know they must also survive during the resulting chaos as all countries seek similar solutions. They see the daunting specter of disaffected holders sending 10’s of billions of dollar denominated bonds to the marketplace when there are no buyers unless prices are severely discounted. They are also frightened by the image of a devastated U.S. economy, because feeding the insatiable desires of U.S. consumers has been a mainstay of their prosperity. I imagine something like the final scene in “The Good The Bad and The Uglyâ€. The members of the G-20 are standing in a circle with open graves behind them. They are all contemplating how they are going to successfully outdraw the other nineteen members and survive the resulting mayhem, which Lee Van Cleef’s character did not. The only thing needed now is a typical expression of human frailty to commence the cascade to catastrophe.
The Good, The Bad and the Ugly: http://www.youtube.com/watch?v=sXldafIl5DQ
Tax Rate to Balance Budget: http://www.taxfoundation.org/research/show/25985.html
Fy2010 Spending by Category/Department: http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg
FY2010 Spending by Function: http://en.wikipedia.org/wiki/United_States_federal_budget
Policy Basics: Where Do Our Federal Tax Dollars Go? http://www.cbpp.org/cms/index.cfm?fa=view&id=1258
U.S. Funding for Future Promises Lags by Trillions http://www.usatoday.com/news/washington/2011-06-06-us-owes-62-trillion-in-debt_n.htm
What if the Treasury Defaults: http://online.wsj.com/article/SB10001424052748703864204576317612323790964.html?mod=WSJ_Opinion_LEADTop
CBO outlook on long-term debt worsens: http://thehill.com/blogs/on-the-money/budget/167781-cbo-outlook-on-long-term-debt-worsens
U.S. Debt Clock: http://usdebtclock.org/
Understanding the Budget Control Act: http://keithhennessey.com/2011/08/01/bca-understanding/
S&P Downgrades the U.S. Debt Rating: http://www.housingwire.com/2011/08/06/full-text-sp-downgrades-the-u-s-debt-rating
Cut, Cap and Balance: http://conservativedailynews.com/2011/07/cut-cap-and-balance-full-text/
Federal Budget History: http://www.whitehouse.gov/omb/budget/Historicals
S&P Downgrades U.S. Debt Rating — Press Release
http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/
Baseline Budgeting
http://en.wikipedia.org/wiki/Baseline_(budgeting)
ADDED 8/9/13
Fed Balance Sheet vs. Stock Market; Will QE Cause Inflation? US in a Minsky Bubble?
http://globaleconomicanalysis.blogspot.de/2013/08/fed-balance-sheet-vs-stock-market-will.html
Some thoughts on ‘international reserves’
http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=216
Disconnected Central Banks Can’t Last Forever
http://finance.townhall.com/columnists/mikeshedlock/2013/08/09/reflections-on-paper-reserves-of-central-banks-n1660091?utm_source=thdaily&utm_medium=email&utm_campaign=nl#
Money Morning Interview with Jim Richards
http://www.bing.com/videos/search?q=money+morning+interview+with+jim+rickards&FORM=VIRE1#view=detail&mid=696ACDBB0651B4D766F2696ACDBB0651B4D766F2
Unemployment
Alternate Unemployment Charts
http://www.shadowstats.com/alternate_data/unemployment-charts
Table A-15. Alternative measures of labor underutilization (U-1 through U-6)
http://data.bls.gov/pdq/SurveyOutputServlet
Table A-1. Employment status of the civilian population by sex and age (Total)
http://www.bls.gov/webapps/legacy/cpsatab1.htm
Wonkbook: The real unemployment rate is 11 percent
http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-the-real-unemployment-rate-is-11-percent/2011/12/12/gIQAuctPpO_blog.html
Can America regain most dynamic labour market mantle?
http://www.ft.com/intl/cms/s/0/6327a7f4-21bb-11e1-8b93-00144feabdc0.html#axzz1hD2P3dzq
Business 50 Facts About The U.S. Economy That Will Shock You
http://www.theblaze.com/stories/50-facts-about-the-u-s-economy-that-will-shock-you/
Central Banks Have Become A Corrupting Force — Paul Craig Roberts and Dave Kranzler
http://www.paulcraigroberts.org/2015/08/23/central-banks-become-corrupting-force-paul-craig-roberts-dave-kranzler/
This is why I’ve said over and over - for YEARS - tha5 they can’t raise rates. All they have left is to attempt to stimulate the economy by THREATANING to raise rates. They are the boy who cried wolf.
We will test my theory next month. And yes; if they really do it things will get even more “interesting.”
