Posted on 08/28/2010 4:52:55 AM PDT by GonzoII
Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.
To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears. But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending. For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”. The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.
But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects
(Excerpt) Read more at seekingalpha.com ...
So the best strategy is to put your assets in cash during the deflationary period, purchase commodities at the bottom of the deflationary trough, then let your commodity value ride the hyperinflationary wave up.
Excerpt:
Like Rothschild said, “Buy when there’s blood on the streets.” The thing to do to prepare for hyperinflation would be to invest in a diversified hard-metal basket before the event—no equities, no ETFs, no derivatives. If and when hyperinflation happens, and things get bad (and I mean really bad), take that hard-metal basket and—right in the teeth of the crisis—buy residential property, as well as equities in long-lasting industries; mining, pharma and chemicals especially, but no value-added companies, like tech, aerospace or industrials. The reason is, at the peak of hyperinflation, the most valuable assets will be dirt-cheap—especially equities—especially real estate.
Just when I’m beginning to think that maybe I’ve gotten a little carried away and bought too much ‘stuff’, I read an article like this, lol.
You aren’t alone I added stuff just yesterday!
I just read the whole thing. Fascinating.
But the guy forgets one key thing: This sort of thing can cause rather large wars. I used to argue back in 2007 with guys about the collapse and they said it would just allow them to go to wall street and make a killing afterward.
I told them it might be rather difficult if wall street is a radioactive sea of glass.
>>Why not the stock market? Stocks have real value.<<
If they pay dividends, yes. Otherwise, they are basically like poker chips.
The author dismisses way too casually the possibility of a post apocalyptic disaster outcome. Government and civil society could easily collapse and/or America’s enemies could choose this moment to attack. There could be no operating mechanism to buy real estate cheap or trade in commodities, for instance. The metals most in demand might be steel, copper and lead.
All you need to do is wait until Israel attacks Iran. That’s the signal to buy commodities.
Perhaps I do not understand what you mean, but there should not have been a stimulus at all. They should have cut taxes and spending, and the economy would have taken care of itself. All government spending is a drain on the economy, even though a certain amount is necessary.
U.S. Treasurys are not at all like Greek debt. The U.S. Treasury doesn't have a fairy godmother.
Do not expect the COLA index feature to save you. How do you think the COLA will be funded? It will be funded with worthless currency. Indexed pensions (federal, Social Security, and state/local) will not be honored. Do you think that COLA indexing has saved other countries whose currency has collapsed?
We are headed for a currency collapse. The rest of the world is quietly preparing to replace the dollar. If the dollar collapses, it is unlikely to regain its value quickly, perhaps never. Right now, we may seem too big to fail. Currency traders are looking for opportunities to attack weak currencies. I see no reason that currency traders will not attack the dollar.
Well, I joined the federal government in 1981, so it was after Carter.
You left out two important “benefits” of hyperinflation. First, it enables the government to tax the productive activity of the poor whose incomes are so low that it not cost-effective to tax them. That’s why hyperinflation has been particularly popular among Latin American and
African governments. Second, it enables the government to tax economic activity in the underground economy.
WRT to the nomenklatura’s immunity to hyperinflation, not only are their cash salaries and pensions indexed to inflation, much of the remuneration is in kind. That is, they receive free health care, transportation, luxury accommodation, security services, and a host of other VIP treatments regardless of cost.
WRT destabilizing civil society, Keynes put it pretty well:
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Very well put.
He’s talking pension - not social security... but you’re right - they can use the same tactic against him they used against seniors.
It already belonged to the taxpayer. It should have never been taken. That, along with budget cuts (as you said) would been a much better fix.
Then, the Congressmen who created this problem should have all been charged criminally, tried, convicted and incarcerated.
Unfortunately, Republicans (Bush included) were enablers or accomplices.
I added more “stuff” and “stuff” to go with “stuff” last week .
That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop.I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011.
Interesting.
It is not necessary to seek the bottom. Go ahead and invest now. Take a long view and ignore short term variance.
Well unfortunatley it was already in the governement’s hands so should have been returned so that the economy could have recovered in the manner in which it should be run as a free market!
Cheers
Mel
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