Posted on 10/14/2008 12:18:31 PM PDT by Freedom_Is_Not_Free
Lot's of whiners out there blaming the government for their individual problems.
The whiners here in local government are crying about the holds being put on new school construction, state employees retirement fund losing $ billion in the stock market, etc....
Next thing ya know Jan, Julio, Hugo,Fernando, etc., will be crying because the government freebies ain't enough.
I give it a 3.
When Soc Sec / Medicare / Medicaid become insolvent, Congress, the President, the Fed and the Wall Street Elite will all agree to rev up the printing presses rather than address the structural problems.
I’ll guess that will translate into a persistent 10% inflation rate in perpetuity (until demographics shift dramatically). That penalizes the competent saver, capital formation, asset holders, and U.S. dollar holders, essentially inflating their assets away for the benefit of the welfare recipient (Soc Sec / Medicaid / Medicare).
I’m going to structure my portfolio accordingly to minimize the effect. I can’t afford to fund everyone forever.
Over the next decade, I do not think that there is a risk of Zimbabwe inflation, because our national debt is still only something like half of our GDP, so there is no risk that we will be unable to pay the interest on Treasuries.
Only when the debt is multiples of the GDP does the risk of default or hyperinflation become serious.
To correct his we must monetize enough of that debt that it ceases to be a problem. Furthermore, we need to enable the reallocation of resources and people to productive enterprises from the current paper shuffling (regulation, banks, finance and trade).
So, if we need to monetize 1/2 of the oustanding debt over ten years that is $2.5T a year of debt liquidation and retirment. Doing that without creating new credit means expanidng current money in circulation which is $1T. That suggests that money, and therefore price levels will need to rise by a factor of 3 or so over the next few years.
In fact, however, it could be worse. Suppose that we decided we needed to retire $5T of the $53T in credit in very short order. That is a lot of money to print in very short order.
The second part of inflation to retire debt is that while you are printing money, you need to raise interest rates to high levels to encourage retirement of old debt without the creation of new debt. It also encourages savings.
I put Zimbabwe on the scale because Schiff mentioned that in the Glenn Beck video I linked. Schiff also said real inflation would go to 20% to 30%, but the government would hide the truth from people.
So Schiff confused me. I wanted to get a sense if it was even possible the US could go Zimbabwe. Hence my question.
All other comments are welcome, of course.
Having said what you said about 20+% real inflation that is unacknowledged by the government, which is exactly what Schiff gave as a “best case scenario”, I can only ask...
Are you Peter Schiff???? Inquiring minds want to know. LOL.
Which do you think it will be from what you know at this time, recession or mild depression?
Frankly, I am in the mild depression camp because I think the scale of the combined NASDAQ/housing bubble was too large and the scale of deflation is more than the world has to backstop it with.
If you think we are due for a shorter, milder recession, I would be interested in knowing your reasoning why. Not that your opinion is not at least as good as mine.
Care to elaborate, please?
I agree. The entitlement lobby is going to go absolutely ape when the cutbacks come in. There will be riots.
As right as you likely are, I’m not yet convinced that the US government will print their way out of the unfunded liabilities that are Medicare and SS.
I think there is a very strong possibility they will renig on their promises. I can see SS minimum age going to 70, and only for those under say $40,000 per year, with those over $40,000 getting some minor bogus tax write off. So if you should get $5,000 a year in SS, they will give you a $5,000 tax write-off instead, but if your tax rate is only 10% you will only get back $500 on that $5,000 income?
Have I confused you?
My point is, they will eventually renig on their promise and turn both Medicare and SS into welfare only for those who can’t afford their own retirement and medical needs.
The rest of us will get a big “thank you for playing” from Uncle Sad. There is no money to pay for Medicare and SS, and there is not money, and printing too much is out of the question.
The government will renig. I won’t see a penny of either plan when I retire in 12 years or so. Just MHO. You may end up being right.
Sorry for going so far afield my own topic of inflation and hyperinflation, but it is great to have a forum where we can flesh out all of these possibilities.
Deflation and hyperinflation are not polar opposited, but the two sides of the same worthless bogus wooden nickel.
Depending on how a govt tries to save a busted financial system, it could go either way, or we will see both, one after another.
I REALLY value this place as a way to get information and as a way to formulate my own vision and strategy. In the old days, all I could do was scream at my TV set...
Actually, what we’re getting now is fairly extreme, but seems to be cancelling itself out, thus far. Unprecedented destruction of untold billions, with unprecedented money being thrown at it worldwide. Deflation seems to be holding its own, in the face of such an onslaught. But, one or more of the various central banks will overplay their hand, eventually.
So, I’d say a mix of deflation in big ticket items and inflation in basic necessities will continue, until somebody makes the big mistake, then we’ll slide into one or the other in earnest. Circumstances at the time will dictate which; I can’t tell from this vantage point.
70s inflation is a 2 on my scale. Not even 20% inflation.
I’ve long felt this would be worse than ‘70s inflation.
The point of this exercise was to see if I could find any of the Freepers I trust who are level-headed, knowledgeable and were ahead of the curve on this credit crises that thinks there is any remote chance of having a true hyperinflation occur as the result of any amount of printing by the collective world governments, primarily US.
That was the point. Schiff knows his Sch_tt and I was thrown by his reference to Zimbabwe in the Glenn Beck video. He also made a reference to 20%-30% inflation. So maybe Zimbabwe is code to him for 30% inflation, which would STILL BE DAMN BAD, make gold golden to own, and make you want to dump all your dollars for real assets like commodities or real estate.
So the point was less about coming bad inflation, which is coming, but could the Bernanke chopper fleet really lead to a true Zimbabwe hyperinflation.
The answer looks to be no. Thank you. And the reference to debt as a percentage of GDP is compelling, as this was a point JasonC was constantly trying to make.
So are you still a very pessimistic bear these days, or are you growing vealish in the least.
I still feel we are heading toward a mild depression, but I am constantly updating my view as I get better intelligence.
FWIW, today is a very weird day. After last week’s collapse in equities that exceeded the 1929 collapse, and after yesterday’s bear market rally, the mood in the nation seems to be “calamity averted”.
I think this slid into mild depression will be long and relentless as unstoppable deleveraging continues. The sudden complacency in the nation, as if we had a close call and are now in the clear, is mind-boggling.
Structurally, nothing in banking has changed. The capital infusion announced today is a good start, but a drop in the proverbial bucked of write downs, liquidity shortages, reduced economic activity and those pesky $62 Trillions of derivatives.
What has changed?
Maybe I should stop saying “mild depression” and start using the term “very severe recession”. The term depression implies EOTWAWKI, which is not what I see on the horizon. Then again, with Obama been Lying in the White House, it well could become that.
5 on a 10 scale! Wow! You are the most bearish Freeper on the thread yet. And you are not a know-nothing loudmouth but a level-headed thinker.
OUCH! I didn’t see that coming.
So should I just sell out and put everything into gold now? LOL. In your scenario, $5,000 gold would not be out of the question. It wouldn’t be used as currency in a currency collapse, but you are talking about 3-4x devaluation of the currency, meaning $1,000 an ounce for physical teases $5,000.
OUCH! If your scenario plays out, the goldbugs are going to be in the catbird seat.
I’m heavily leveraged in lead and brass.
More.
Consider; we've already been experiencing around 18% (by one estimate), over the last year. And in my never-to-be-humble opinion, we've had a cumulative loss of value of over 100% over the past 15 or 20 years.
I think when folks begin to "feel" it, they're not going to be very happy, and they will demand that the government DO SOMETHING! Which is what they've already been doing, of course.
That's when we will see the "solution" of "new money" being offered.
I agree. As Fascism and Communism close the circle near each other, hyperinflation and catastrophic deflation close the economic circle near each other. They are both way out on the extremes and therefore close the circle as, like you said, two sides of the same Krugerrand.
That said, I was asking for your opinion what you think will be the outcome of this entire episode. When you say we will see both, one after the other, than are you voting “10” on my scale.
Speaking just about hyperinflation, and not discussing deflation at the moment, are you convinced it is coming, no ifs, ands, or buts?
Are you voting “10”.
Always a good position to hold, as that investment pays off big in so many different scenarios.
But..but..Uncle Miltie; I thought..you and me, Uncle Miltie, just like the old days, right?
(choke) ..(sob)..
Say it ain't so, and you were just kidding, right?
Wow! I’ll put you down with AndyJackson and Travis McGee as the big bad grizzly bears on the thread. We are all bearish on the economy, but that is BEARISH.
Thanks for elaborating. I appreciate it.
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