Commentary: "The Case for Hyperinflation - US (has) less net worth per capita than Zimbabwe"

[El Pinko]

This article is reproduced in full with permission by the author "VirginiaTechDan".


http://dailymoot.com/articles/view/93


The case for Hyperinflation

Friday, February 29th, 2008


The United States is the POOREST country in the world with less net worth per capita than Zimbabwe! (Not counting natural resources) We have exported most of our wealth producing industry. We owe a huge amount of debt to foreign interests. Unless we cancel social security and medicare our future liabilities are FAR beyond what our current or future economy is capable of supporting! The rest of the world knows this. All of the social security projections were based on the assumption of a strong economy, as this crash continues tax revenue will fall dramatically causing even larger deficits. Anyone can look rich when living on debt, but that doesn’t change the reality that those who live beyond their means today must live an equal or greater amount below their means in the future (unless their means increases significantly).
Our banking system is bankrupt. For the first time in the history of the Federal Reserve System total non-borrowed reserves is -18 billion AND GROWING! (instead of over +40 billion in normal times) The federal reserve has taken to monetizing bad mortgage debt in an effort to save the banks from defaulting. Home prices across the country need to fall another 20-30% to be inline with incomes and when they do it will take out the entire banking system unless trillions of dollars are created out of thin air to monetize bad debts. It is the policy of the Federal Reserve to protect the banks, not the dollar (despite claims to the contrary). If you listen carefully, you will see that the FED is more concerned about “inflation expectations” than “inflation”, the FED and the government deliberately mislead the public about what inflation is and how fast it is happening.

FDIC is preparing for a surge of bank failures and I have seen credible estimates that as many as 1/3 of all banks will fail. (twice the size of the S&L crisis) FDIC has $50 billion dollars to back 2.8T in insured deposits. Once these bank failures get underway the government will be forced to monetize a significant amount of that 2.8T in order to meet FDIC obligations.

Popular wisdom holds that to avoid / get out of a recession consumers need to be stimulated to spend. These popular economists want people to consume without producing! It is savings that is reinvested to enable production. You can count on a host of New Deal type government spending programs as the government attempts to fight the recession and get the economy moving again. Regardless of who gets elected we are looking at universal healthcare. The democrats will be more than happy to hand money out to “deserving” “victims” of the banking crisis. This all represents more government spending and more inflation.

You have probably heard the news reports that we need $2.3 billion of capital inflow from foreign sources per day. Starting last October we have had a record exodus of money from our country. China and other countries are no longer buying our treasuries. Many countries who use to peg their currency to the dollar (through buying treasuries) have unpegged their currency to save themselves from importing our inflation.

The money supply is currently growing at 16% per year. The 1980’s CPI formula reports price inflation at 12% per year. There is usually a 12-18 month delay between money supply growth and price inflation. (1 year ago the money supply was growing at 12% and CPI at 8%). We are not seeing wage inflation in the United States because our factories are now in China and they are seeing 10%/year wage inflation. The result of this is that as food and energy costs increase the amount of money available to rent or purchase a house falls. This will push down average rents and the affordable mortgage payments. Each dollar increase in necessary expenses reduces home prices by $16. This will further exasperate the losses the banks are facing! The same can be said for tax increases!

As prices start to increase, the cost to the government will increase which will accelerate the problem. This becomes a POSITIVE FEEDBACK LOOP! Higher prices will lead to more government spending and larger deficits!

Hyperinflation is usually triggered when the following are present: Government Spending as a percent of GDP approaches 40%, there is a large amount of government debt owed to foreign interests, and a country has undermined its industrial base. Even in good times government spending represents 30+% of our national GDP. As we experience a severe recession the total GDP will shrink and cause the percentage of government spending to increase (unless the government manages to cut spending, ha!) The official GDP numbers are bogus because they are based upon the bogus inflation numbers provided by the government. In reality we have had significant negative GDP growth for the past several years. To make matters worse, the majority of the growth over these past few years has been in the housing industry!

Hyperinflation is not just “really bad inflation”, it is the complete break down of the medium of exchange. This will cause a break down in the supply chain and shortages nation wide. There is no such thing as a loan greater than 2-3 weeks with hyperinflation. Typically governments try to legislate the hyperinflation away via price controls (which cause shortages), anit-hoarding laws, outlawing non-dollar transactions, etc. None of these things work. The stock market may go up in nominal terms, but in real terms the market will crash. Companies cannot do business. The income tax laws would have to be canceled or significantly changed or else the government will be taxing false gains due to inflation.

We all spend thousands of dollars per year to insure against less likely and less severe risks. I recommend that everyone take time to store up food, guns, gold and silver. Hyperinflation normally lasts for about 2 years before the government gives up and attempts to establish a new currency.


:scared:

[El Pinko]

1. kick

nt

[indepat]

2. How can there be the prospects of hyperinflation when inflation has been so mild during junior's

reign? Besides, deficits and total government debt are not even issues in this election year. Relax and enjoy the America 'pukes have worked so long and hard to bring us, one in which 95% or so of the nation's wealth reposes with a precious few, the government is near bankruptcy, and the dollar, economy, and stock markets are tanking. :D

Edited spelling and to add economy

[El Pinko]

3. You are joking, right? Inflation was quite high from 2003-2006, and soaring now...

The oft-cited Core CPI leaves out energy and food and thus seems fairly tame, but energy and food are two of the biggest expenditures for the average family.

This table is CPI-U and includes food and energy.

[indepat]

5. There are liars, damned liars, and god-damned lying bastards who do the statistics

[Bandit]

4. But Republicans say, (and we know they wouldn't LIE)

"Reagan PROVED Deficits don't matter"

[El Pinko]

6. True.

I'm rather shocked that this thread got so little attention. I'd be curious about what people who went beyond econ 101 in school think about the likelihood of such a scenario.