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 ...
I agree. If we were not so interconnected economically an inflationary depression might be possible. Since we are, I think your position is correct.
The only inflation we are receiving is from imported goods that cost more due to the weakness of the dollar, or commodities with production failures. The weakness of the dollar issue is even changing as the realization that NO CURRENCY has stability. Individual commodities have had recent large increases in price (onions, tomatoes and oil.)
Here's the scenario. The international banks control the entire monetary economies of the entire industrialized world. The central banks are their "pipelines" to the various governments - and are controlled by the bankers.
The two central banks that control the actions of all other central banks are the Fed and the Bank of England - with the Fed having gained more power than the BOE.
All of our economies are based on the principal of debt. Even gold and silver transactions in our economy are debt-based. What I mean by this is that all of what we call "money" can also be thought of as a "claim on someone's future labor".
What happens if you hire yourself out for a job and you are paid with five ounces of gold. That gold has no meaning in our economy unless it is translated to its current worth in some recognized currency - we'll use US dollars. That five ounces of gold is worth approximately $6,000 (based on $1,200/oz).
So now you have the equivalent of $6,000 of debt - meaning that the LABOR behind the "money" hasn't yet been completed. You own $6,000 worth of "somebody's" future labor.
What happens when you go to the furniture store and pay for your groceries with one ounce of gold? You are trading the store owner approximately $1,200 worth of "somebody's" future labor for your furniture. That $1,200 is not based upon anybody's COMPLETED labor.
We need to stop focusing on the "form" of what we call "money" and start focusing on what it truly represents - Labor. Then we need to begin asking ourselves if our economy is based on COMPLETED LABOR (freedom and liberty) or CLAIMS ON FUTURE LABOR (servitude and slavery).
The US dollar is not going anywhere as long as the bankers are in control of the economies of the industrialized world.
Where is Galt’s Gulch? I’m going.
I’m leaving for my Gulch in the next few weeks. Dunno how good it will be, but it’s in an economy that is less wrapped into the economies of the West than some.
People make the mistake of only looking at "one side of the coin" so to speak.
There are a lot of things that constitute "money" in the M2 money supply (our general money supply). These can be "printed money", "loans", "credit", etc.
We see the Federal government creating all kinds of new debt ($2 trillion this fiscal year). That equates to $2 trillion of new "money" in the M2 money supply - and would seem to indicate large inflationary pressure.
HOWEVER, every time a loan or credit defaults it causes "money" to be destroyed. Just think about all of the destruction that has taken place in this area over the last few years. Add to that fact the problem that international banks have stopped lending (creating new "money") that could have been used to replace the destroyed "money".
What does this cause? A reduction in the overall M2 money supply with respect to the overall level of goods and services creates DEFLATION. Each dollar ends up having more purchasing power, which is one reason we see the US Dollar Index rising.
The Federal government can't have massive deflation. It creates unhappy voters, massive job losses, reduced government power, and a harder time to "pay off" their existing debt. This is why the traitor Obama keeps literally begging bankers to begin lending again.
What has the Federal government done to try and "paper over" the problem? They have undertaken an effort to create new debt "money" as quickly as they can by selling new Treasury securities. This still can't create enough new "money" to "make up" for the destroyed credit "money" so they have instituted all kinds of "incentives" to encourage the public to help create new debt - "cash for clunkers", "first time homebuyers", "long-term homebuyers", etc. People take the incentive of $8,000 for a new house and then proceed to take out a $100,000 loan on top of that (new "money").
The international bankers and the Federal government are at opposite ends of the economic spectrum. They are not friends.
Here's the big question: Can the Federal government keep creating new debt fast enough to keep going until the international bankers decide to open up the "credit valve" again? This could easily be another 10 years. I don't believe they can - which is why we will see economic devastation hit us.
People should be as "debt-free" as possible and as "liquid" as possible with their investments (my opinion - I am not a licensed advisor).
Seems to me that this approach is doing nothing but increasing the problem and pushing it into the future. At some point, the government itself will default. I mean, who wants to take their hard-earned money and invest in a guaranteed loser? Right now, I increasingly see our government as a loser.
In the meantime, banking in general has closed the valve especially for formerly-unqualified borrowers, to which it should never have opened the valve in the first place (Paging Mr. Carter, Barney Franks, Chris Dodd, etc.).
People should be as "debt-free" as possible and as "liquid" as possible with their investments (my opinion - I am not a licensed advisor).
I have no idea where I stand as far as getting a loan at this point. I've carried 800-ish credit for quite some time, but I paid off the house last year and my most recent real estate transaction involved cash. So yes, I'm debt free and somewhat liquid.
I think that we all share a great concern for the future - what will be of value in the worst-case scenario - and that is where most of us want to protect ourselves. The problem seems that there are a few differing opinions as to what that future looks like. I think a lot of us agree that the future looks grim for the next several years, and I think it's sensible to make ones' self as self-sufficient as possible because that will potentially be the only way to survive.
I don’t buy the gold theory. Who’s going to give you food for gold in a broken world? Gold will only have value if there’s pretty substantial civilization about. Anything less and it will just slow you down.
Bingo.
And when the Federal government can't kick the can any longer we will see the full impact of massive deflation, since credit and loans will still be defaulting (in fact, picking up speed on default) and the banks will still have the "credit valve" shut off.
Hopefully this shows why inflation of any sort is not going to be happening.
The GBP is not heading for a good place. Their social spending is hurting them just like the other PIIGS.
I have a headache from too much yard work. I’ll read this post later. I saw your question about the amount of currency. The amount at the end of 2008 was app. 900 billion. They have printed up to 1.3 trillion in addition. But, as I said, that has not been released as currency-on-the-street. The way they unload that is through the banks and through loans. People and businesses are not borrowing. And the banks have been using that money to invest to recoup their losses. So, there is a flood building behind the dam.
My fear is that Obammie and his Commies will figure out a way to release that dam this summer, to spike the economy (which it surely would do), to win seats in the midterms.
If they do that, the hangover will probably hit 12-18 months after that, all other factors being normal.
I’ll read the rest of your post later. I have to get over this headache for now
This money is not being unloaded anywhere. It is just sitting at the Fed as computer entries, and the Fed (controlled by the banks) is paying interest to the banks on that money - plus the fact that the money was used to buy absolutely toxic MBS from the banks at 100 cents on the dollar. Travesty.
According to the Fed's H.4.1 report there is $895 billion in physical cash right now. This compares to $792 billion in January 2008. That's not hyperinflationary.
Is there a generally agreed upon number for hyperinflation? You're saying that 200%-300% is major, not hyper.
I also think that all this money being printed is going to get out there. It's not all going to bank vaults, so to speak. Plus, a complete collapse of the dollar will cause hyperinflation by making the dollar worthless followed by commensurate rise in commodities.
The point is that we have a fiat currency based entirely on perception of stability, confidence in the government issuing that currency. When that is gone, that's it. And that is fading rapidly.
A general definition is 50%+ price increase per month (600% annualized)
I also think that all this money being printed is going to get out there. It's not all going to bank vaults, so to speak. Plus, a complete collapse of the dollar will cause hyperinflation by making the dollar worthless followed by commensurate rise in commodities.
The "money" created from buying MBS from the banks is not in circulation - nor will it likely ever be. The dollar will not collapse. It's controlled by the international banks - and it would be very stupid of them to ever allow that. If the dollar ever did collapse (which it won't) then, yes, commodities such as gold and silver would rise dramatically and inflation would be a major problem.
The point is that we have a fiat currency based entirely on perception of stability, confidence in the government issuing that currency. When that is gone, that's it. And that is fading rapidly.
Everyone focuses on the fact that we have a "fiat" currency, but in reality it is just a representation of debt (claims on future labor). Gold and silver are also debt-based in our economy (claims on future labor)since they're just commodities that are purchased with dollars and sold for dollars.
The reason that a lot of precious metals have been coming onto the market is because they are really no longer needed in order for the international banks to accomplish their thievery.
Why would the Fed try to steal assets from anyone?
The key word that you're missing is "jobs." If the jobs are gone, prices don't matter because people are broke, anyway, long-term. Short-term, people can cope only briefly, and low prices only prolong that coping mechanism by a small amount. "Low" prices but no jobs makes everything seem expensive...which is why *all* unemployed people kvetch about the price of groceries.
Which is to say, it is falling prices and fewer *jobs* that present the real threat. In contrast, rising prices can be coped with because wages will rise with them, screwing only the retired and lazy.
With inflation, the buy and hold business model remains viable.
With deflation, a fellow can't buy and hold a rental house because rents keep falling and the value of his property keeps falling...the buy and hold business model breaks down.
Inflation may be bad, but deflation is worse because it destroys jobs, asset prices, and entire business models.
“HOWEVER, every time a loan or credit defaults it causes “money” to be destroyed.”
Same result?
Same result?
Yes.
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
Worth repeating. Contemplating selling my house as the DC area is doing fairly well for obvious reason, then renting until the market shakes itself out.
Silver to gold ratio at 10/15 to 1
You heard it here first.
Nam Vet
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