Posted on 05/01/2010 10:33:11 AM PDT by Errant
...if you start to see a great depreciation of the U.S. currency or a tremendous increase in lack of confidence in the soundness of the government's fiscal condition, there is a problem. You mentioned Greece, for example. The sovereign solvency issues there are minuscule compared to what we have with the United States, which is the elephant in the bathtub. The markets know it's there. The central bankers know it's there. Again, with the downturn in the economy, all the issues are going to be brought to a head. As they come to a head, there will be that effort to dump the dollar...
(Excerpt) Read more at marketoracle.co.uk ...
Thank you for that. I saw that the inflation for food in March was 2.4& (FOR THE MONTH). I’ve seen food prices in some areas double and triple in the last two years or so. Some have fallen, but a ton have gone up, they hide it with sale stickers and smaller boxes, but it’s crazy. (The tactics don’t work as well on us penny pinchers).
I’ve done my best to buy in bulk when things are on a really good sale, and cut out what I don’t need, but the squeeze is getting tough.
Your graph is misleading. Why don't you show it going back to the 2007 - 2008 timeframe when silver was over $21/oz.?
Silver is a commodity, and will be dropping in price moving forward when we have our next major downturn. Look for it to go sub $10/oz.
Thank you for that explanation. Do you think then, that the banks will hold onto the money forever, and wouldn’t that kind of inflation (even if not called hyperinflation) lead to countries dumping the dollar, causing us to default or hyperinflate, and would the dollar devalue a lot in either case? I’m new to macro-economics, and trying to understand what I’ve read by asking those who might know more.
"Things people already own, depend on for a private-sector livelihood, or do not really need, are falling in price. Things people need to buy, such as health care, are not.
"This is neither inflation nor a symptom of inflation, but rather a symptom of an overwhelming deflationary trend coupled with foolhardy government regulation in a completely unbalanced economy." -- Mike "Mish" Shedlock
"Things people already own, depend on for a private-sector livelihood, or do not really need, are falling in price. Things people need to buy, such as health care, are not.
"This is neither inflation nor a symptom of inflation, but rather a symptom of an overwhelming deflationary trend coupled with foolhardy government regulation in a completely unbalanced economy." -- Mike "Mish" Shedlock
That's simply not true. Hyperinflation is generally thought of as at least a 50% increase in prices PER MONTH.
Any standard business dictionary will tell you that.
We will not be having hyperinflation. The only countries that suffered that did so because they had foreign denominated debt. We have lots of debt - but not foreign denominated. It's deflation that's destroying our economy.
Boy O Boy.
You’re exactly correct.
Nixon helped a lot in getting us where we are by fully unpegging what little pegging to gold the dollar still had.
And we should keep in mind that some deficit spending is helpful for an economy.
As any business owner knows, some times you have to borrow to expand. If the borrowing eventually increases productivity and you are able to pay your loan off without impacting your operations and financials, then it is a net gain over time.
The problem with deficit spending is when your financing of the debt starts to eat away at your profitability and/or you roll your debt over with a new lone and extend the payments and interest rate. The mathematics will never fail to prove that bankruptcy is at the end of that route.
Incidentally, Karl Dennninger on his Market Ticker has been hammering away this past week that our deficit spending has now reached 10% of our GDP. That is a critical level from which no nation has ever survived without a major depression. Other nations that are currently playing with that deficit-spending (Keynesian) nitro are the PIIGS.
We’re not in very good company.
The sooner you can establish a network the better. You'll be a pioneer in the new underground economy. Also keep in mind that underground may be the prime property of the future.
Hopefully I'm wrong about that.
I won’t say we won’t have our issues,i firmly believe we will. Europe,bailing out Greece to be followed by Portugal and perhaps Spain and possibly some other smaller countries is in worse shape. They will be in worse shape because Greece’s aid and eventually Portugal’s will come with conditions that the countries very well may be unable to fulfill. That is where the pedal will hit the metal. Large unions,communist influenced,will probably not go along meekly with the austerity program. I think you have to watch there. If its bad enough there then hopefully we learn a lesson and manage to avoid the worse of it.
The Fed will probably try to sell the toxic Mortgage-backed Securities (MBS's) to the various retirement account managers - cancelling the money on the Fed's balance sheet and transferring the toxic waste to the American citizen. This would create no new money and would definitely not be hyperinflationary.
In fact, the Fed put the groundwork in place this last week to do exactly that. The retirement funds would be enticed into it by the Fed offering a fixed interest rate to the brokers.
The US dollar is not going to collapse - in fact, it has been strengthening, and will strengthen even more as Europe continues to implode. Look for the US Dollar Index to go into the mid 90's - and possibly go over 100 if/when the European Union collapses.
10 year. Is that better? I disagree.. Silver will NEVER go back to $10/oz. Future values are arguable, but the two factors that I believe will cause silver to rise are: 1) more people buying it with pending inflation fears, and 2) Distrust in the stock market. You can't overlook the importance of having something tangible that can be used to purchase goods if and when paper currency is devalued and potentially worthless.
You could be right or wrong, but.. That's investing.
There's no such thing as a "deflationary inflation" period. It's just economists trying to be cute.
If you're referring to wage deflation vs. price inflation then that's wrong as well. Yes, there has been some price inflation in a few things, but it has been very minimal and is an effort to drive revenue to avoid bankruptcy. It will ultimately fail and prices will all drop - just like in Japan.
The problem is deflation: falling home prices and fewer jobs, not inflation.
Much better.
Now, here's an exercise. What happened to the price of silver according to your very own chart around September 2008?
It dropped to a price of $9/oz. Why? because silver is simply a commodity, and commidities drop in price when deflationary waves hit.
The deflationary wave that we saw from September 2008 to March 2009 was only the first one - and wasn't the major one. What do you think will happen to the price of silver when the next, bigger deflationary wave slams into our economy?
The point I was trying to make is that just about everyone discussing the economy are dickering over whether we are bound for inflation, hyperinflation, or deflation. You can find evidence to support any of these trends.
My worry is not so much the macroeconomic impact of the “cost of things.” My concern is whether most people will be able to afford the essentials. My concern is with the purchasing power of the dollar.
By the way, other economists define hyperinflation as a 5% increase, inflation as anything up to 5%.
If we reach 50% price increase per month (as hyperinflation is generally measured, not annualized because hyperinflationary periods are so destructive they are usually short-lived) it is far too late to dicker about foreign denominations. We will be toast at that point.
Thus my focus on destruction of the currency.
Having foreign-denominated debt is fairly irrelevant when the value of your currency is measured as a percentage of a basket of currencies.
Our currency is already tanking. It is difficult to know this because the strength of our currency is compared to a basket that contains the GBP, JPY, and the Euro.
When three planes are falling out of the sky at 1000-feet per second, none of them appear to be falling when you look at the others. And if one of those planes is falling at 2000-feet per second, the other pilots/passengers are going to feel undeservedly safe. But if you are on the ground watching the planes falling, it is easy to tell what is happening.
It is also difficult to see what the purchasing power of the dollar is when the cost of things is not changing drastically. Right now gas is increasing slightly. Some would say that is inflationary, which it is. But if you check the records on how much consumption is down and what a glut of supply there is currently, those “slightly-higher” prices (which should be tumbling) are indicative of very high inflation.
When the cost of energy really starts to increase (because other nations buy off the surplus of petroleum or some black-swan event occurs) the cost of producing the essentials will skyrocket. That is when we will feel the true burn of inflation.
If the world dumps the USD as the world’s reserve currency, the dollar will be toast. Purchasing power will be crushed. Call it whatever you want, the dollar will be dead.
I am saying that not only are we bound for a hyper-inflationary period based upon the destruction of the purchasing-power of the dollar for the essentials, but that we have already embarked upon it.
Some times a deer can run for a hundred yards after it has been shot through both lungs.
By the way, I’m not a gold-bug or precious-metals bug. I think it could be possible to have a fairly sound currency with no precious-metal backing, even if it would be more unstable. But a nation has to have either solid manufacturing or outstanding credit. We have neither.
So, I’m not telling people to buy gold or silver, though I think it is important to stock up on the essentials (see my tag line). I’m simply analyzing the economy from the tenets of the Austrian school.
My guess is that it comes after November.
I have a question. Do you think that PM’s only preserve wealth, or that they’re value is actually increasing? I know it may be a simple question, but I’m new to these types of things.
And thanks, I was looking for that graph.
What is your evidence of macro-economic inflation?
Remember, this means an increase in the overall M2 money supply in relation the level of goods and services available.
I think that you might be focusing too much on minor price inflation that always presents itself when companies try a last-ditch effort of raising prices before they throw in the towel and head for bankruptcy.
What rate of inflation defines "hyperinflation"?
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