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On Hyperinflation (Dire predictions. Be forewarned.)
The Market Ticker - Commentary on the Capital Markets ^ | 1/12/09 | Karl Denninger

Posted on 01/12/2009 10:10:30 AM PST by randita

On "Hyperinflation"

The Market Ticker

Monday, January 12. 2009

at 09:44


On "Hyperinflation"

Let's put this to rest right here and now.

"Hyperinflation", or even "Serious Inflation" (similar to what we had in the 1970s) is impossible without a means to transmit the rise in prices into wages.

In today's United States that simply cannot happen for two reasons:

  • The union representation of workers has been eviscerated due to their own idiocy over the previous thirty years. In effect, they have no power to impact economic or labor policy - no matter what Gettlefinger thinks.
  • Outsourcing of work to China, India, Mexico and other nations makes wage demands impossible for American workers to enforce. Such demands simply result in the loss of the job to overseas workers.

As a consequence a hyper-inflationary or even seriously-inflationary spiral is impossible to sustain.

Think about your associates, people who you know in the middle class.

Now consider that a 10% inflation rate (moderately bad "serious inflation" ala 1970s) goes on for four years.

This raises the cost of living for everyone by 46%.

How many people who you know are saving 46% of their income? How many will survive a 46% increase in their cost of living?

Such an outcome will result in half or more of America becoming immediately homeless, hungry, and as a consequence out of work. It will as a consequence crash GDP by 50% or more immediately which in turn will crash income tax receipts by a like amount at both state and federal levels.

This will in turn crash prices, but at that point it's too late as now the price crash in turn destroys what remains of the business community and further crashes tax receipts, while at the same time foreign bond investors throw up their hands and say "screw you!", cutting off all foreign capital inflows to the government.

Down that road lies immediate insurrection - that is, the violent overthrow of the government. You are delusional if you think the military could stop such a thing - 150 million Americans, maybe even 200 million of the 300 million in our population? Not a prayer in hell, even if all the Americans had was pitchforks, torches and a gallon of gasoline, and they don't - they have firearms, and lots of them. Even the Chinese, who are (by demonstrated act) willing to roll tanks over their own people would have no chance against 100 million of their citizens if hunger ever trumps fear.

This didn't happen in the 1970s because we had vastly more union work representation and they were able to force wages to keep pace for the average working man. While the pinch was bad (I grew up in it and remember it vividly) society never degenerated because the self-reinforcing crash of production, jobs and tax income never happened, and as a consequence the sort of mass-unemployment, disenfranchisement and loss of essential human needs did not come about.

Today the average working man works for WalMart or some other non-union shop and has no wage pricing power; ergo, there is absolutely no way to prevent the implosion from initiating.

The government must not engage in any sort of policy that could lead to this outcome. Absolute protection at the top levels of government must be put in place to prevent it, because if this occurs then everything - absolutely everything - that we know and love about America disappears.

This is where the Peter Schiffs and McHughs are wrong in their hyperinflation thesis and their "defensive" measures to try to do something about it (or worse, McHugh's belief that not only is this inevitable but that the government should intentionally cause it through something like a "money drop" to households.)

They are wrong because if this outcome occurs there will be no United States of America, your gold will be confiscated and/or rendered worthless by executive fiat, and at approximately the same time an angry marauding mob consisting of half the population of the country will literally loot and burn everything to the ground.

Vengence inevitably follows when justice is denied for a long enough or in an egregious enough fashion. We have seen this with Rodney King and now with the apparent BART assasination of a suspect in Oakland, and that was one man who was abused at the hands of government. Make the abuse half the population and there is a zero chance that civil and political order is maintained.

Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control".

Time is running out to demand and obtain justice folks. America's clock is literally ticking towards zero.

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TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: banglist; cwii; economy; government; hyperinflation; moneylist
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To: randita
"Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control".

Anybody get a warm fuzzy when reading this statement?

81 posted on 01/12/2009 3:13:12 PM PST by Gritty ( On a long jog in the hour before dawn, San Francisco reminded me of Calcutta - Ralph Peters)
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To: MittFan08
bond purchasers tend to be saavy folks.

There are some bond buyers that are afraid their CDs, money market and investments accounts might go south, so their thinking is better US bonds at little or no interest, than no money at all. Madoff has scared many investors.

82 posted on 01/12/2009 3:46:25 PM PST by razorback-bert (Save the planet...it is the only known one with beer!)
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To: Leisler

Gold is a pain and you have to pay people to store it.


I don’t see anything painful about it, and you can store it yourself. A small box holds enough to pay off a typical mortgage.


83 posted on 01/12/2009 3:51:57 PM PST by Atlas Sneezed (Guns don't kill people. Criminals and the governments that create them kill people.)
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To: adm5
That is a very sobering video!

$53,000,000,000,000 deficit! Did I get that right? $53 Trillion?

Our family share is $350,000 Forget it fellas, I don't want to play anymore. You guys can pick up our share.

84 posted on 01/12/2009 3:57:13 PM PST by An Old Man (Use it up, Wear it out, Make it do, or Do without.)
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To: wizr

A water well with an old fashioned hand pump could make you the king of your block.


85 posted on 01/12/2009 3:59:58 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Publius
to couteract a Kondratieff Winter event, which is something we've entered

Cue the scary music and screams. I wish this were a joke. It's not. It's deadly serious. Just damn.

86 posted on 01/12/2009 4:02:15 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Tublecane
I don’t understand this point. FDR did not put roofs in over the heads and food in the bellies of the general population any better than did Hoover. What worked for Frank, in my opinion, was the beginning of “identity politics,” and the creation of coalitions of voters who depended on a particular candidate to get them goodies. But perhaps that’s what you meant in the first place.

That is SUCH a prescient and insightful comment! I wish I had thought of it in those terms. Spot on, IMHO.

87 posted on 01/12/2009 4:03:34 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Publius

65 is brilliant. I am on my feet applauding.


88 posted on 01/12/2009 4:06:34 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Travis McGee

Thank you, Travis. You’re the first person to get it.


89 posted on 01/12/2009 4:06:45 PM PST by Publius
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To: hiredhand
By the time we get to that point (regional secession, even “virtual” secession) the USA won't even be recognizable.
90 posted on 01/12/2009 4:10:57 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Gritty
"Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control."

Anybody get a warm fuzzy when reading this statement?

I get more of a feeling like drunken pyromaniacs on crank are in charge of the fireworks factory.

91 posted on 01/12/2009 4:12:44 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Hacklehead

Outstanding analysis, and exactly right.

UNLESS China planned on wiping out the USA in a military strike, they have to live with the current situation. If it’s even conceivable, the Russians and Chinese were even MORE STUPID than the financial geniuses in the US. As our financial titans were galloping over the cliff, the Chinese and Russians arrived in busses and sports cars to take the plunge.


92 posted on 01/12/2009 4:13:08 PM PST by RinaseaofDs
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To: Publius
No, hardly. Remember, there are 15 lurkers per compulsive commenter like moi.
93 posted on 01/12/2009 4:14:01 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Beelzebubba

Boy, if I ever have enough gold to need to pay people to store it!!!!!!!!!!

An ammo can would contain.......


94 posted on 01/12/2009 4:16:27 PM PST by Travis McGee (www.EnemiesForeignAndDomestic.com)
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To: Arthur McGowan
I remember magazine ads in the mid-70s (under Ford) showing a worker, a housewife, and a storekeeper as PIGS, with copy saying, “We all need to be a little less piggy.”

We need a new set of ads with people appearing hoarding nuts for the winter, "We all need to be a little more squirrely."

I'm composting absolutely everything to improve my soil for all the food I intend to grow. No few little salad tomato plants this year - gotta get serious.

95 posted on 01/12/2009 4:21:04 PM PST by nina0113 (Hugh Akston is my hero.)
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To: yefragetuwrabrumuy
Even today, pig farmers will tell you that they always walk the razor’s edge with pork prices. A few pennies in the wrong direction could wipe them out.

Raising them as a cash crop, yeah. One nice clean pig in the backyard's been a literal lifesaver for many many families.

96 posted on 01/12/2009 4:25:45 PM PST by nina0113 (Hugh Akston is my hero.)
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To: Publius

I had to go and look:

The phases of Kondratieff’s waves also carry with them social shifts and changes in the public mood. The first stage of expansion and growth, the “Spring” stage, encompasses a social shift in which the wealth, accumulation, and innovation that are present in this first period of the cycle create upheavals and displacements in society. The economic changes result in redefining work and the role of participants in society. In the next phase, the “Summer” stagflation, there is a mood of affluence from the previous growth stage that change the attitude towards work in society, creating inefficiencies. After this stage comes the season of deflationary growth, or the plateau period. The popular mood changes during this period as well. It shifts toward stability, normalcy, and isolationism after the policies and economics during unpopular excesses of war. Finally, the “Winter” stage, that of severe depression, includes the integration of previous social shifts and changes into the social fabric of society, supported by the shifts in innovation and technology.


97 posted on 01/12/2009 4:29:14 PM PST by razorback-bert (Save the planet...it is the only known one with beer!)
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To: randita

The next crisis is the Credit Card crunch. It has already started to a small extent with the cutting/suspension of credit lines to those with good credit. When it becomes full blown, it will make the housing crisis look like child’s play.


98 posted on 01/12/2009 4:32:30 PM PST by Thunder90
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To: adm5
Exchanging something with no inherent value(paper) for actual goods and services is called Fraud... when the layman does it.

So in essence the US Government is going to perpetrate the largest fraud in the history of the world by Hyperinflating our currency to pay these suckers?

Wars have been started for less.

99 posted on 01/12/2009 4:36:49 PM PST by Xenophon450 ( The stain of freedom, he's washed it out... whoÂ’s rocking the cradle? I have no doubt...)
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To: razorback-bert

100 posted on 01/12/2009 4:43:57 PM PST by razorback-bert (Save the planet...it is the only known one with beer!)
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