Posted on 09/15/2010 2:45:14 PM PDT by blam
Hyperinflation and Unemployment Two Signs of Serious Trouble
By Bill Bonner
09/15/10 Paris, France – The big news from yesterday was the rise in the price of gold. It went up $24 to a new all-time high. The stock market was just about flat.
What does it mean?
Well, the dollar is going down, for one thing. Bonds too. Has the long-awaited turnaround in the bond market finally begun? We don’t know. We really didn’t expect it so soon.
John Williams, who keeps track of what is really going on in the economy at his “ShadowStats” outfit, says to expect hyperinflation within 6 to 9 months.
Seems too early to us.
But a major turn in the bond market…and much higher inflation rates…are coming. And you don’t want to be holding US bonds…or muni bonds…or any kind of bonds when they arrive.
What then?
Cash and gold. Those are the only reasonably safe positions now. Your gold will go up. Your cash will go down. You’ll come out even. That will be a lot better than most people.
One thing John Williams is probably right about is that when it comes, it probably won’t be led by a gradual, orderly increase in consumer prices. We’re still in a de-leveraging cycle – with plenty of spare capacity and little excess purchasing power. Which means, normal demand will not push up prices.
Take the labor market, for example. There are millions of idle hands available… Labor is a big part of business costs. Until unemployment goes down and employees have some bargaining power, there shouldn’t be any inflation coming from that front.
This will be a different kind of inflation…much more violent and dangerous. Prices will shoot up suddenly, quickly – as people lose confidence in the dollar. It will not be gradual, but shocking…turbulent…unexpected. Gold will hit $1,500…then, $2,000 just a few weeks later.
This hyperinflation, along with high, long-term unemployment rates, will set the stage for serious trouble.
Unemployment peaked out in the recession of the early ‘80s with the average jobless person out of work for a little more than 20 weeks. Today, the average jobless person is out of work for more than 35 weeks. We haven’t seen anything like this since the Great Depression.
But our message today is that this is actually worse than in the Great Depression.
In the words of Dominique Strauss Kahn, who heads the IMF:
“We are not safe.”
What haunts DSK, as he is known in France, is the French Revolution. People like DSK lost not only their jobs…but their heads.
Here’s the report from The Telegraph:
“The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment,” said Dominique Strauss-Kahn, the IMF’s chief, at an Oslo jobs summit with the International Labour Federation (ILO).
He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. “We are not safe,” he said.
A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. “The Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies,” it said.
The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the “employment intensity of growth” as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water.
Olivier Blanchard, the IMF’s chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.
“Long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression,” he said.
John Williams Sees The Onset Of Hyperinflation In As Little As 6 To 9 Months...
Hyperinflation is a loss of confidence in the currency.
:-)
Hyperinflation is not caused by loss of confidence. The timing and speed of price increases is affected by loss of confidence but not caused by it. Inflation is simply more money being issued than the economy can absorb without nominal prices going up. When that happens the government can use tricks and ruses and sleight of hand to hide the inflation for a while but when the government can hide it no longer people lose confidence, sometimes really fast. People losing confidence does not, however, cause the over issuance of money.
yes we have all the signs for a real mess....
When it happens it’ll be all “Bush’s fault” and MSNBC will tell us why. lol
Obama was the end of any semblence of pragmatism in policies, reason in dealing with moral issues, or even just the application of sound arguments when dealing with the public..........
Martial law is around the corner to save us from ourselves.
I don't know why we can't just build some roads and stuff, give away cars, guarantee free health care and then print some money to pay for it.
Seems pretty simple to me.
“Hyperinflation is not caused by loss of confidence. The timing and speed of price increases is affected by loss of confidence but not caused by it. Inflation is simply more money being issued than the economy can absorb without nominal prices going up. When that happens the government can use tricks and ruses and sleight of hand to hide the inflation for a while but when the government can hide it no longer people lose confidence, sometimes really fast. People losing confidence does not, however, cause the over issuance of money.”
You are confusing hyperinflation with inflation. Hyperinflation is not “a really bad case of inflation.” It is an entirely different animal, and has different causes. Inflation is too much money chasing too little goods. But hyperinflation is the collapse of a currency — people no longer want that currency. While in both cases, prices rise, that is where any similarity ends.
Hyperinflation is actually poorly named, since many people have this same confusion. In fact, there is absolutely no reason for hyperinflation to not occur simultaneous with a shrinking of the money supply (at least in theory). And, also possible is a severe deflation (lowering prices, and shrinking money supply), followed by a sudden move out of the currency, resulting in near-immediate hyperinflation. IIRC, this is what happened in Chile, but I am going off of memory here.
Buy some auto parts if you want to see inflation. The government price index misses the items going up. Buy a college text book.
I expect martial law and severe travel restrictions coming to your neighborhood soon. I give you a 60 % probability of it within a year.
LOL. Richard is always funny.
Hyperinflation is STILL too much money chasing too few goods. Were it not then it would not exist. Hyperinflation is the repressed inflation suddenly being realized. Trying to make it into a different animal is a Keynesian tactic for pols who want to say that it takes experts to fix it or prevent it. When the money reaches a point that it is losing value faster than people cn keep up they refuse to hold it at all, thus the sudden apparent jump in the rate. The hyper is an effect of the increased money supply cause the same as slow inflation is.
And yes we have very learned Keyenesians on these boards, too. They think they are conservatives because they want the outcome that conservatives want but they think that it takes experts operating the levers and buttons to make it happen. GWB is one such. They think if they don’t operate the controls just right the sun won’t come up.
The simplest definition of hyperinflation is ‘rejection of the currency’.
If no one wants them, it will take a massive amount of dollars just to buy a loaf of bread.
And the more the government tries to ‘fix’ things, the worse it will get. And, imagine the idiots in Washington ‘acting on your behalf’ in such a situation.
God help us.
Hyperinflation...? The dollar may go down internationally (foreign prices up) while staying about the same domestically (few jobs, little consumerism). Well, yes, oil will probably continue going up in the long run to support continued increases in foreign manufacturing. Globalist interests have denied those trends for several years now.
“Hyperinflation is STILL too much money chasing too few goods. Were it not then it would not exist. Hyperinflation is the repressed inflation suddenly being realized. Trying to make it into a different animal is a Keynesian tactic for pols who want to say that it takes experts to fix it or prevent it.”
I agree with you 100% that it is not controllable. But it is not necessarily the result of repressed inflation. People can abandon a currency regardless of how much money supply is out there. Remember that the famous German hyperinflation was preceded by deflation. They just reached a point where nobody wanted their currency.
As far as “saying it is a different animal is a Keynesian tactic for pols who want to say that it takes experts to fix it or prevent it”: nonsense. I really don’t know what to make of what you are saying. These are basic economic principles. The Keynesians are wrong, but not because of this.
They are wrong because we have reached a point where no amount of borrowing will stimulate the real economy. But it has nothing to do with hyperinflation. Hyperinflation may or may not occur, but not as a result of “too much money chasing too few goods.” It will result from the fact that at some point it makes no sense for people to participate in a dollar-backed economy. In other words, prices will go so low that sellers will no longer accept dollars.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.