A good article all in all. I do have an issue with the idea that hyperinflation will result from too much inflation. It seems that should be reasonable, but in reality hyperinflation is the reaction to deflation. We are going to see a collapse of debt that will trigger a printing reaction and hyperinflation. So technically speaking a depression is on going and default will ultimately implode the system. The result will be hyperinflation and the failure of currencies. When a new monetary system is rolled out with gold as the primary reserve asset, marked to market, then the resulting economic activity will feel like a depression in that debt liquidity will be essentially zero. What you have is what you get. Many will see this as a depression, but the depression came before when the debt bubble was collapsing.
Unemployment at 22.4% is causing a run on assets of retirement funds. That is probably why legislation is being introduced to limit how much money can be removed from these investment vehicles. About 11% of participants have taken out loans over the past year, up from 9% y-o-y. In overall total 22% have loans out and the numbers are accelerating. Almost all the loans will never be paid back. Hardship is forcing people to withdraw, as well as those who believe that government will try to commander 401K’s and IRA’s to fund a bankrupt government, that wants to replace those vehicles with bogus government guaranteed annuities.
If the extension of the short-term debt is not legislated by August 2nd, we may see legislation regarding a takeover of some retirement plans.
As this possible misuse of Americans hangs in the balance, inflation plods, relentlessly onward and at the current rate of acceleration we could see hyperinflation two to three years down the road. We projected 14% inflation before the end of 2011 just over a year ago, and we have six months to go to make it to that level. There is no way to avoid what is coming whether it is hyperinflation or straight into deflationary depression. Eventually it will be deflationary depression. The very fact that sovereign states are creating money and credit willy nilly trying to avoid financial failure is surely proof that they are unable or incapable of generating sufficient revenue to satisfy their debt obligations. Currencies are inflated and depreciated in order to pay back debt with less valuable currency. This is the mode that the US dollar and many other currencies are in today. All currencies for the past eleven years have fallen more than 20% annually versus silver and gold and there is good reason for that, they are all being deliberately devalued not only against one another, but versus gold and silver as well. That means that if this policy continues the US dollar and other currencies will eventually go into default. The unavoidable conclusion has to be an eventual dollar and dollar related collapse of things denominated in US dollars. What lies ahead has some uncertain aspects, as to which route will be taken. Presently it is inflation that probably would lead to hyperinflation and then collapse into deflationary depression. At first buyers will perceive less purchasing power, then they will be frightened as the dollars buys less and less, then like a thunderbolt hyperinflation strikes. The public will be ill prepared not having listened to those few who predicted such an event. They will generally speaking not be prepared. Once hyperinflation hits there will be chaos just as there was between 1921 and 1923 in Weimar Germany and most recently in Zimbabwe. Markets will be empty of food, clothing and everything else. It all will have been sold or perhaps even looted. This will happen overnight as the dollar becomes worthless and the country’s social fabric disintegrates. At this stage no one will want to accept dollars in exchange for anything. Barter will begin and gold and silver coins and bullion will become the medium of exchange.
The most important aspect of the inflation, hyperinflation, followed by deflationary depression is its effect on prices of things such as goods and services. Financial assets will degenerate in value usually between 70 and 90 percent, as witnessed during the last US “Great Depression.” The only assets that retained value and purchasing power were gold and silver related assets, which rose in value and buying power. By the end of 2011 we should see 14% real inflation as we predicted over a year ago. If QE3 type of polices are followed next year we’ll see 25 to 30 percent and in 2013 50 percent or more. That is the beginning of hyperinflation. This happens due to the excessive creation of money and credit by the Federal Reserve, an entity that represents private banking interests. All currencies in today’s world, except a 5% to 7% backing in gold of the euro, are fiat. They have no backing whatsoever other than the good will of the issuer. What you are about to see is nothing new. It has been practiced by governments and bankers for more than 1,000 years. Mankind seems to learn little from their mistakes, making the same stupid mistakes over and over again. There are always those few who have read history and understand the mistakes of the past and plan for the future. They are the survivors and they are the ones who take the time to read articles such as this and prepare for the difficulties ahead.
Economic and financial recession is a euphemism for a mild depression. To use the word depression is depressing. Leaders do not want their people depressed, so they call the circumstances recession, a receding of conditions. Don’t be misled; a recession is a mild depression from which there is escape. Since WWII that escape has been engineered by central banks inflation. It has worked a number of times, but all things have a finite life of usefulness. This time it is going to be different. There will be no recovery borne by the issuance of more money and credit. The system has and will be damaged beyond repair.
By our standards, and those of John Williams, inflation is currently running at 10.2%, at about the same juncture in 2008, as we approached the beginning of the credit crisis, inflation was about 11.6%. It eventually reached 14.65%. That is why we projected in May 2010, that inflation would reach 14% by the end of 2011. We now suspect it may be higher. These are real rates of inflation, not some bogus numbers out of Washington. The downside plunge in the economy and in the stock market in 2008 and 2009 should be similar to the oncoming correction underway for the second half of 2011 and well into 2012. This inflationary depression began in February of 2009. We are in the process now of experiencing the fallout of QE1 and stimulus 1. Next year we will see further deterioration and 25% to 30% inflation caused by QE2 and stimulus 2. If the Fed increases money and credit from $1.7 to $2.5 trillion inflation will move up close to 50% or what we recognize as hyperinflation. After 2013 it’s anyone’s guess what the next step will be. It could be further hyperinflation or a deflationary depressionary collapse, which in any case is inevitable. There is no question that the Fed and other central banks, particularly in the UK and Europe face the same dilemma. Just because M3, which is not published anymore, is not 17.3% does not mean monetization is not proceeding at a rapid pace. As of late the stock market has begun to tell us all is not the way it should be, as the Dow has fallen from 12,800 to below 12,000. The dollar trades on the USDX between 74 and 76, and we believe that the only reason the dollar doesn’t trade lower is due to the financial problems in Europe.
Financial problems are very similar to the 1930s masked by extended unemployment, Medicare, food stamps and many social programs. If government continues such programs and others, and continues to incur massive debt, it will take more and more deficit spending and monetization to keep the system from collapsing. That means more inflation, a lower US dollar and higher gold and silver prices, a continuation of what you have seen over the past several years.
FDR never was able to pluck the US out of depression. In 1940 unemployment was still 16.2% and only the intersession of WWII saved America from a continuing depression. You ask when are we going to have our war? We cannot answer that, but we can assure you it is being planned and will soon get underway. That is the diversion, the misdirection the bankers, and Wall Street again have planned for you. Just look at history over the past 1,000 years and all the answers are laid out for you in detail. What you are seeing and experiencing is nothing new. Mr. Bernanke is supposedly a student of the “Great Depression.” You wouldn’t know that by his track record. He’s dong something similar to what the FDR administration did and it didn’t work. The elitists that give Mr. Bernanke his marching orders obviously have something else in mind. Thus far true to his word he has monetized everything in sight. He believes that under a fiat paper money system government can always generate higher spending and hence positive inflation. Since when was inflation ever positive? We believe Mr. Bernanke is a charlatan. He and Michael Boskin wrote a paper in 1988 that stated that what Mr. Bernanke is now doing doesn’t work. The question then is why is he doing it? The answer is there is nothing else to do until another war can be arranged.
Leaving the gold standard on August 15, 1971 was the fatal day for the dollar. We have seen the devastating degenerative results. That was also accompanied by the beginning of free trade and globalization, which we wrote about in the American Mercury in 1967. During the 1970s major US manufacturing corporations were setting these plans in motion to move American industry out of the country. In the early 1980s that plan was set in motion. We believe, and did at that time, that the only way that the American economy could be taken down was to ship manufacturing and services out of the country. As it turned out we were correct. These moves along with the falling dollar sealed the fate of the American economy. Today we are witnessing the results of those plans and policies.
These structural changes have contributed to a higher trade deficit and a further falling dollar. Wages and salaries have nosedived, as unemployment has exceeded 22%. Current earnings are lower than they were in 1972 and purchasing power has been decimated. In the meantime debt has accelerated digging the hole even deeper and savings vary from minus 5 to plus 5 percent. Who would be interested as interest rates fell eventually to near zero? The result is what you see today – a country in decline.
The Federal Reserve rescues Wall Street and government temporarily by creating money and credit with the resultant inflation. Zero interest rates over the past three years have not stimulated the economy, they have only increased the profits of Wall Street and banking and allowed government to borrow cheaply and keep the charade going. There has been little or no attempt for three years to address the underlying problems. Generally speaking revenue is falling and if you factor in inflation there are no gains. Taxes have been cut, zero interest rates and two stimulus programs totally $1.7 trillion. What GDP gains we have seen have been fleeting. Even though they talk of a strong dollar most of what they have done has weakened the dollar. How can the dollar be strong with $1.6 trillion annual deficits? There in addition are millions of Americans unemployed, many of them permanently. How can GDP recover when every day unemployment increases and more jobs leave America forever? The middle class is being decimated. Eventually consumption has to fall.
The Weimarization of the German economy in the years 1920 thru 1923 was similar to today’s circumstances, although the basic reasons in the pursuit of hyperinflation were somewhat different. Germany was a planned takedown to put someone like Adolph Hitler into power, whereas today we are experiencing stage two of the Planned destruction in order to bring about world government. The US cannot recover as it is plagued by structural destruction and the theft of its manufacturing base by transnational conglomerates. The propping up of the US dollar ended about two years ago and during that period many nations, central banks and others have withdrawn their support of the dollar. That has forced the Fed to purchase 80% of Treasury and Agency issuance with money created out of thin air. Such actions doom the US dollar just as it doomed the Reich Mark. The only reason the dollar is not declining against other currencies more rapidly is that they collectively have as many problems as the US and its dollar has. The only true guideline of any currency is its performance versus gold and silver.
We hear about the dreaded bank run. It truly is a devastating experience, especially when the Fed and the Treasury today do not have the standby cash to satisfy depositors who want to get their funds out. Two years down the line currency could start to disappear as inflation climbs toward 50%. That is why people should be accumulating gold and silver coins in small as well as large denominations to use as currency when the dollar collapses. Even today, if you go to a bank to withdraw $10,000 or $20,000 in cash they tell you to come back in a couple of weeks, because they have to order it up. They also ask many questions about your desire to want cash. The current currency system is based on electronic transfers and we do not see any changes in the future. That means if there are bank runs you will have little or no access to your funds. The digital system of today is more vulnerable than that of the 1930s. There you have it; this is where we are headed and the outcome is inevitable.
Here we are again at the crossroads overlooking one of the biggest credit bubbles in history. It isn’t only in the US, but American problems will affect the entire world negatively. Eventually the US, UK and Europe will render the global system inoperative, because bankers and politicians do as they please. They have almost put the dysfunctional financial system into bankruptcy. First was the dotcom bubble of the late 1990s, then the real estate bubble, which saw the syndication of debt in the form of mortgage backed securities (MBS) and (ABS) asset backed securities, accompanied by the massive mortgage purchases of Fannie Mae, Freddie Mac, Ginnie Mae and FHA bonds, derivatives and various credit instruments. The final triumph was the Fed’s QE1 and 2, which bailed out Wall Street and banking and then the US Treasury. Then, of course, is the Fed’s interference in the bond market to provide market liquidity and drive interest rates down to accommodate expansion and the mortgage market.
In the background is the Bank for International Settlements (BIS), Basil III, which changes the funds big banks have to keep on hand for emergencies. We wonder when they will disallow, if ever, these same banks to keep two sets of books?
During QE1 we saw major bank bailouts in major US banks and corporations, which discount window documents, released under court order, show the biggest recipients of Fed largess were foreign banks, particularly Dexia Bank of Belgium. Where was the ECB while these loans were being made? We have speculated since the beginning that a behind the scenes deal was made by the Fed. We envision it as the Fed telling European banks, if you buy our AAA rated toxic MBS and ABS we will cover your losses down the road and make sure you remain solvent. The silent kicker in all of this is that no civil action was initiated by any European bank versus the US banks that created this garbage, nor were there criminal charges ever filed. That caper stinks to high heaven, and that tells us why the Fed, controlled by the banks that sold the waste, was lending more in Europe than in the US. What we now know and had to find out through appellate court action is shocking to investors, but we exposed this three years ago. The Fed supplied solvency to insolvent European banks that were in trouble, because the owners of the Fed had sold them toxic waste rated AAA, which in reality was at best BBB. The difference between a 10 and a 4 in ratings. Another travesty is that S&P, Moody’s and Fitch were never prosecuted criminally. They were an integral part of this conspiracy. It is no wonder many want to get rid of the Fed and turn its duties back to the Treasury. US Fed owners made massive profits and nobody has gone to jail.
These distortions created on the currency, interest rate, and debt creation markets knows no historical equal. A private corporation, such as the Fed, should not have the power to inflate credit at will and in the process distort the current account in trade and flood the world with ever depreciating dollars.
Ponzi finance has to end along with quantitative easing. The system has to be purged in a classical manner. The leveraged speculation and the existence of unregulated hedge funds have to end. The dynamic is still in operation as the speculators on Wall Street and in banking continue to loot the system of everything they can before the system collapses. What is coming will make 2008 look like a mild interlude. There is the collapse of Greece that could be the trigger that will unravel the entire mess over the next few years. As we aid from the beginning on Greek radio, TV and in the press, Greece must default, leave the euro and implement its own austerity program. That will soon become reality. The road ahead will be strewn with financial victims and those who do not have their assets in gold and silver related assets will pay a heavy price.