Daily Digest

Daily Digest 5/26 - The End of 'Easy Oil', Debt Ceiling Jeopardizes Dollar's Reserve Status, How To Get 76 MPG

Thursday, May 26, 2011, 9:54 AM
  • Debt Ceiling Jeopardizes Dollar’s Reserve Status
  • Co-Founder Of Reaganomics, Paul Craig Roberts, "There Is Probably More Democracy In China Than There Is In The West"
  • The System is Anti-U.S.
  • Mish: Hyperinflation Nonsense in Multiple Places
  • Chart Of The Day: Have You Seen The Spike In U.S. CDs?
  • Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future
  • Nothing stops bankers from ripping off population again – journalist
  • China Widens Lead in Renewable Energy Ranking
  • Facing Up to End of 'Easy Oil'
  • Whisky Power: New Plant Will Generate Electricity From Distillery By-Products
  • Car Hacker's Hummer Gets 60 MPG
  • How To Get 76 MPG
  • Fukushima Reactor 1 Drywell Reading Hits All Time High 204 Sieverts/Hour
  • Nuclear Plant Workers Suffer Internal Radiation Exposure After Visiting Fukushima

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Economy

Debt Ceiling Jeopardizes Dollar’s Reserve Status (Joe P.)

U.S. Treasury Secretary Geithner has warned that delays in extending the U.S. debt ceiling may cause irreparable harm. While borrowing costs for the U.S. government have not yet risen, irreparable harm may have already been done to the U.S. dollar and its status as a reserve currency. Ironically, it’s not a plunging, but a rallying bond market that is a symptom of the problem. Let us explain.

Co-Founder Of Reaganomics, Paul Craig Roberts, "There Is Probably More Democracy In China Than There Is In The West" (Joe M.)

Paul Craig Roberts: "The west prides itself that it is the standard for the world, that it is a democracy. But nowehere do you see democratic outcomes: not in Greece, not in Ireland, not in the UK, not here, the outcomes are always to punish the innocent and reward the guilty. And that's what the Greeks are in the streets, protesting. We see this all over the west.

The System is Anti-U.S. (Ilene)

So Friday could be a REALLY depressing day on the data front, where we see incomes dropping, prices inflating and home sales dropping off a cliff - all ahead of a holiday weekend that will make or break the retail season with gas still around $4 a gallon (35% more than last year).

None of that matters though, as long as the Dollar behaves itself and refrains from showing any signs of life. NO ONE wants to see a strong Dollar - especially the guys who are in charge of it in America.

Mish: Hyperinflation Nonsense in Multiple Places (Don S.)

Every time the US dollar ticks lower, commodity prices tick higher, or the CPI rises two tenths of a percent, hyperinflationists come out of the woodwork with nonsensical predictions and silly comparisons to Zimbabwe or Weimar Germany.

Given that the US dollar recently fell to the lower end of its trading range, hyperinflationists once again came forth with their message of impending doom.

CHART OF THE DAY: Have You Seen The Spike In U.S. CDS? (hucklejohn)

While yields remain at rock-bottom prices, there's been a noticeable uptick in 1-year CDS on US debt, notes Markit. As evidence that there's something unique to the US going on, that spike is not mirrored in the UK. Not only that, volumes on the US have surged as well. Politicians would be wise to pay attention.

Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future (pinecarr)

First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.

Nothing stops bankers from ripping off population again – journalist (pinecarr)

Lack of post-crisis prosecutions of fraudulent bankers is dangerous, says investigative journalist Matt Taibbi.

Energy

China Widens Lead in Renewable Energy Ranking (pinecarr)

China took a lead in the wind and solar industries in recent years, and last year, the government’s China Development Bank Corp. agreed to lend 232 billion yuan ($35.7 billion) to Chinese renewable companies. The UN’s top climate change diplomat, Christiana Figueres, in January said China will leave “all of us in the dust” because of their commitment to win the “green economy race.”

Facing Up to End of 'Easy Oil' (Phil H.)

Saudi Arabia became the world's top oil producer by tapping its vast reserves of easy-to-drill, high-quality light oil. But as demand for energy grows and fields of "easy oil" around the world start to dry up, the Saudis are turning to a much tougher source: the billions of barrels of heavy oil trapped beneath the desert.

Whisky Power: New Plant Will Generate Electricity From Distillery By-Products (jdargis)

The combined heat and power plant in Rothes in Speyside will use distillery by-products to generate enough electricity to power 9,000 homes and produce animal feed.

The biomass plant is believed to be the first of its kind in the world. It will generate 7.2 megawatts of electricity - most for export to the national grid - and will also produce an animal feed in the form of pot syrup.

Car Hacker's Hummer Gets 60 MPG (Larry)

f you haven’ heard of the Motorhead Messiah, Jonathan Goodwin, let me introduce you: he hacks cars for a living, and he can get 60 mpg out of an H3 Hummer while doubling the horsepower and cutting emissions in half. Unbelievable? Yes, but this is no joke, and it’s doesn’t defy the laws of physics either. The hacked H3 is a hybrid with the gasoline fuel system removed.

How To Get 76 MPG (Larry)

As explained on Ernie’s website, automobile drag occurs mostly at the rear, where the course of smooth-flowing air is disrupted. Think about an airplane wing, which reduces air resistance by by guiding it along the wing’s surface to a thin edge. Although the VW beetle might seem somewhat aerodynamic to the untrained eye, drag is produced as air follows the curve of the frame. To solve this problem and create smoother air flow, Ernie installed a homemade spoiler, improving fuel economy by 5-8%.

Fukushima Reactor 1 Drywell Reading Hits All Time High 204 Sieverts/Hour (pinecarr)

Remember Fukushima, the worst nuclear catastrophe in the last 20 or so years which soon will surpass Chernobyl in total radioactive emissions into the environment? Well, the radiation in the now officially melted down Reactor 1 has just hit the highest ever reading since the crisis began, or 204 sieverts/hour, recorded in the drywell. Not Micro. Not Milli. Sieverts. It appears the "excuse" that the counters are broken isn't being used this time, although we are confident that the "spurious reading" allegations will fly.

Nuclear Plant Workers Suffer Internal Radiation Exposure After Visiting Fukushima (VeganD)

Another male worker in his 40s told the Mainichi that he had waited at his home, about 30 kilometers from the crippled nuclear plant, following a hydrogen explosion at one of the troubled reactors. He later went through a test which showed his internal exposure to radiation had reached 2,500 cpm. "I think most of the radiation derives from iodine (which has a short half-life), and therefore the radiation reading is expected to drop. But I am worried," the man said.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

35 Comments

JAG's picture
JAG
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Mish Rules!

That piece by Mish made my day. Glad to see it was posted here....Jeff

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saxplayer00o1
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VTB CEO Says U.S. 'Nearly Bankrupt' as Instability Lingers

"The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.

The report, an update of the UN “World Economic Situation and Prospects 2011” report first issued in December, noted that the dollar exchange rate against a basket of other key currencies had reached its lowest level since the 1970s."

"Andrei Kostin, chief executive officer of VTB Group, Russia's second-biggest bank, said global instability and the risk of the U.S. defaulting on its debt continue to roil the financial industry, stifling credit flows.

"The constant threat of a financial crisis, defaults hangs over the financial banking sector, and on the whole, the overall situation on the global market remains very complicated," Kostin said at a conference in St. Petersburg today. "We see that the United States is nearly bankrupt.""

  • Other news, headlines and opinion:

Q1 GDP up unrevised 1.8%, well below expectations

Default Swaps Trading on US Debt Doubles on Government Deficit Wrangling

US default ‘more likely than in Indonesia’ (Financial Times)

Deficit May Clip 12-Year Tax Streak for Wealthy Americans

The $1 Trillion Fighter-Jet Fleet

Greece Is 'Insolvent,' Unlikely to Honor Debt, Issing Says

Greek debt restructuring bears high risks -Germany

Pimco Says ECB, Central Banks Have EU130 Billion of Greek Risk

Commissioner warns Greece may exit euro

Why a Greek Default Would be Worse Than Lehman Brothers' Collapse (CNBC)

Belgian Finance Minister: Greece Needs More Time To Cut Deficit

German FM: Greece may need more time

Spain May Miss Its 2011 Budget-Deficit Goal, OECD Report Says

Korea's Household Debt Exceeds US$727 Bil. in Q1

India May Raise Diesel, Kerosene Prices in June to Narrow $44 Billion Loss

State Lawmakers Tap $3.2 Billion From Rainy Day Fund (Texas)

Layoffs are likely in Compton as auditor questions city's solvency

Moody's cuts Bahrain bond ratings one notch, says unrest creates 'highly uncertain' situation

Record numbers of Europe CMBS falter in April-S&P

Italy: Business' confidence in economy worsens

Fuel shortage in Egypt adds to the poor's woes

Dark skies ahead for Lorain Schools' budget

Scranton looks to make payment on defaulted loan

City of Newburgh calls for state receivership

Lauderdale Lakes ousts city manager, looks to get help

Lee County schools plans to lay off 10 percent of its employees

More people applied for unemployment benefits, a sign the job market remains weak

US House Republican Pushes Measure Against IMF Bailouts

Distressed Homes in U.S. Sold at 27% Discount in First Quarter

Merkel-Sarkozy Bond Frays Heading Into G-8

Juncker Says IMF May Not Release Its Portion of Aid for Greece Next Month

China Luring Crude From U.S. as Ecopetrol Targets Asia for Surge in Output

Yemen Shortages Worsen as Street Violence Leaves Locals Searching for Food

Forty killed in Yemen fighting as civil war looms

Fed Gave Banks Crisis Gains on Secretive Loans

 

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More sensationalized headlines...

How about this one:

The 4 Trillion dollar food stamp program

just as accurate as the "The $1 Trillion dollar fighter-jet fleet".  Nice that the headline isn't a bit more accurate, like "Fighter jet to cost $1T over the next 50 years for 2500 planes".  Are the jets a worthwhile expense?  Maybe, maybe not but it sure would be nice if the narritive was a discussion of the merits between various programs and their costs and not about sensationalizing one expense over others.  Perhaps we should be asking questions like these:

Is it worth $62.50/yr to each person in the US  (1T / 50 years / 320M people) to have these planes defending us?

Is it worth $289/yr for everyone not on food stamps to pay for those that are?

Is it worth $18.75/yr for everyone in the US to subsidize ethanol?

Is the TSA worth $25.63/yr for everyone is the US?

It would be nice to put things in a context like this so that we each can individually decide whats important.

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Poet
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China Drought Impact Widens, Reaching Shanghai

China Drought Impact Widens, Reaching Shanghai
"China's worst drought in a half-century is deepening, with the parched weather that has left millions in the Yangtze River region without enough drinking water pushing inflation higher and adding to widespread power shortages."
http://news.yahoo.com/s/ap/20110526/ap_on_bi_ge/as_china_drought

Poet

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Orszag: Panic needed before debt ceiling boost

 

A former White House budget chief said Thursday that Congress won't reach a deal to raise the nation's ability to borrow until the financial markets panic.

Peter Orszag, who used to run the Office of Management and Budget, said he believes that Congress has no appetite to raise the debt ceiling -- just as they had no political will to pass the 2008 bailout package to banks to save the financial system.

"We won't get to that kind of conceptual agreement until we get some kind of turbulence in the bond market," said Orszag, who now works as a Citigroup (C, Fortune 500) vice chairman of global banking. He spoke at the Peter G. Peterson Institute for International Economics.

Orszag predicted that, perhaps as early as July, financial markets will start to seriously worry about the United States' ability to pay its debts."

......................Orszag Predicts 'Temporary' Market Turbulence in Debt Debate

 

======================================================

Notice the national debt numbers from Treasury Direct:

 

 

Date Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
05/06/2011 9,680,750,181,123.70 4,641,936,724,436.31 14,322,686,905,560.01
05/09/2011 9,681,179,453,898.66 4,644,605,091,889.65 14,325,784,545,788.31
05/10/2011 9,681,417,347,166.90 4,650,105,450,714.71 14,331,522,797,881.61
05/11/2011 9,681,617,664,759.55 4,640,440,091,757.58 14,322,057,756,517.13
05/12/2011 9,666,109,562,809.12 4,641,689,778,754.69 14,307,799,341,563.81
05/13/2011 9,666,271,678,566.97 4,642,113,503,083.13 14,308,385,181,650.10
05/16/2011 9,717,694,227,528.65 4,627,843,278,273.80 14,345,537,505,802.45
05/17/2011 9,708,669,803,594.86 4,636,855,058,765.22 14,345,524,862,360.08
05/18/2011 9,718,512,519,012.13 4,626,999,697,976.90 14,345,512,216,989.03
05/19/2011 9,716,152,725,750.72 4,629,358,121,484.54 14,345,510,847,235.26
05/20/2011 9,717,285,305,168.49 4,628,213,097,570.29 14,345,498,402,738.78
05/23/2011 9,716,224,504,953.51 4,629,236,562,052.56 14,345,461,067,006.07
05/24/2011 9,712,166,006,111.72 4,633,282,614,630.08 14,345,448,620,741.80
05/25/2011 9,722,806,787,651.37 4,622,629,386,545.07 14,345,436,174,196.44

 

 

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Saxplayer, I'm not asking

Saxplayer,

I'm not asking you to do this (you do enough for this site), but it would be interesting to plot the number of posts you do on a weekly basis for the past year.   The bad news seems to be growing exponentially.  The good news - Chris says we can't grow exponentially for very much longer!

Nate

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    JAG wrote: That piece

 

 

JAG wrote:

That piece by Mish made my day. Glad to see it was posted here....Jeff

I take SOME exception with this though...:

Mish wrote:

Similarities? What Similarities

  • Germany lost World War I
  • The Treaty of Versailles imposed repayment conditions on Germany that could not be met
  • To enforce the treaty, France occupied parts of Germany
  • Germany printed money so fast people burnt stacks of money for heat

What part of that remotely resembles anything that is happening in the US today?

 

Well......

  • America lost the War in VietNam, Iraq, and Afghanistan....
  • The repayments on the US's debt will also NEVER be met...
  • China may well end up occupying the USA, even if it isn't physically so...
  • And it's possibly only a matter of time before Americans also start burning dollars to keep warm!

Mike

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Mish piece

Thank you all for commenting on the Mish post.  This is the dialog I was hoping for.  I'm actually hoping Chris will comment on it himself.  Mish presents such a different perspective.  I wasn't expecting that.  ... dons

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Comparisons....
Damnthematrix wrote:

Well......

  • America lost the War in VietNam, Iraq, and Afghanistan....
  • The repayments on the US's debt will also NEVER be met...
  • China may well end up occupying the USA, even if it isn't physically so...
  • And it's possibly only a matter of time before Americans also start burning dollars to keep warm!

Mike

Come on!

  • We lost VietNam 35 years ago.  We have not lost militarily in Iraq or Afghanistan.  We are not being forced into war reparations, however we certainly are stupid enough to continue to "pour money into those holes". 
  • TPTB seem to believe they can.  Certainly Ben "printing press" Bernanke thinks we can as long as we don't run out of trees or ink.
  • How exactly is China going to end up occupying the USA?  When governments get into trouble the first people to get the shaft are foreign creditors.   After all they can't vote.
  • Anyone that has excess dollars please send them my way.  I will even trade burnable wood,  pound for pound for your paper dollars.  This is a win-win.  After all, my wood will burn a lot longer for you and I might actually pay off my mortgage with your worthless paper.

This is what really gets me about the hyper-inflationists.  There is no way hyper-inflation is going to happen when unemployment is high, wages are stagnant, and all the new QE is still debt that needs to be repaid.   I don't doubt that hyper-inflation could very well happen someday but there is no way it happens when the average person, who is sitting on so much debt ( mortgage, credit card, student loans, auto loans, ... ), that they actually do well because it effectively results in their debts being forgiven. 

Nope, hyper-inflation will only happen after most people have been forced to liquidate most of their possessions, attempting to stay afloat in a typhoon of unemployment and defaults.  To think otherwise is to believe that in a world awash with debt, taking on more debt will somehow be rewarded.  Seems unlikely to me.

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Mish-ish

Mish states the deflationist argument well, which has always made more sense to me than hyper-inflationist arguments.  For instance, China and the U.S. are absolutely joined at the hip; both countries (together with Japan) have the peacetime equivalent of "mutually assured destruction" when it comes to trade imbalances and sovereign debt.  They can't quit buying our debt anymore than they can quit selling us their stuff.  But Mish uses logic at the expense of truth, though, when it comes to peak oil and its likely effect on the economy.  As has been pointed out before, if what you don't need costs next to nothing, but what you do need costs nearly everything, it will be little comfort to learn that, on a theoretical level, you are not experiencing actual inflation.

As for Paul Craig Roberts, anyone who is willing to argue that China is more democratic than the U.S. is, to borrow an artful turn of phrase from a much-missed member here, a moron. 

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goes211 wrote: Damnthematrix
goes211 wrote:
Damnthematrix wrote:

Well......

  • America lost the War in VietNam, Iraq, and Afghanistan....
  • The repayments on the US's debt will also NEVER be met...
  • China may well end up occupying the USA, even if it isn't physically so...
  • And it's possibly only a matter of time before Americans also start burning dollars to keep warm!

Mike

Come on!

  • We lost VietNam 35 years ago.  We have not lost militarily in Iraq or Afghanistan.  We are not being forced into war reparations, however we certainly are stupid enough to continue to "pour money into those holes". 
  • TPTB seem to believe they can.  Certainly Ben "printing press" Bernanke thinks we can as long as we don't run out of trees or ink.
  • How exactly is China going to end up occupying the USA?  When governments get into trouble the first people to get the shaft are foreign creditors.   After all they can't vote.
  • Anyone that has excess dollars please send them my way.  I will even trade burnable wood,  pound for pound for your paper dollars.  This is a win-win.  After all, my wood will burn a lot longer for you and I might actually pay off my mortgage with your worthless paper.

This is what really gets me about the hyper-inflationists.  There is no way hyper-inflation is going to happen when unemployment is high, wages are stagnant, and all the new QE is still debt that needs to be repaid.   I don't doubt that hyper-inflation could very well happen someday but there is no way it happens when the average person, who is sitting on so much debt ( mortgage, credit card, student loans, auto loans, ... ), that they actually do well because it effectively results in their debts being forgiven. 

Nope, hyper-inflation will only happen after most people have been forced to liquidate most of their possessions, attempting to stay afloat in a typhoon of unemployment and defaults.  To think otherwise is to believe that in a world awash with debt, taking on more debt will somehow be rewarded.  Seems unlikely to me.

The other thing is that Germany was forced to pay reparations in currency it did not control.  US debt is all in its own currency.  It does not need to hyperinflate.  It only needs to devalue the currency by 20-50%.  That is not hyperinflation, and I don't even know how or if they can be "succesful" even in this when credit refuses to grow and velocity is in worm-crawl mode.  Actually, I take that back - I've seen worms crawl pretty darn quick. 

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Mish

Everytime I read shedlock's crap, I end up yelling at the computer screen and my wife asks me what's wrong.  He's got it all figured out. . . there is no evidence of inflationary policy and no chance of hyperinflation.  Go on about your business.

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He's wrong on the economy too.

He's got peak oil wrong, and he's got the economy wrong too.

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Mish likes to look at credit

Mish likes to look at credit to see if things are inflating, which he correctly states is not inflating. And we should be in a deflationary environment, but we're not. I like to look at prices to see inflation, since that's what we pay for things, whether it's with credit or cash. To me, more money in circulation chasing the same, or less, amount of goods and services is inflation. Since I have been spending lots of money the past year or so preparing, I have felt quite a bit of price inflation. And it's not just me. I ask all of my contractors and every single one has told me prices of materials are rising. Maybe it's the area I live? It's expensive here. I hold out that possibility.

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Asyptotes rule, or to infinity and beyond.

The exponential functions are sliding off to infinity.

http://en.wikipedia.org/wiki/Asymptote

Fromhttp://en.wikipedia.org/wiki/Asymptote

The reason we cannot figure out what is happening is the exponential nature of our reality.

From http://en.wikipedia.org/wiki/Chaos_theory

A the numbers (Population, Money/debt, Oil) slide to infinity or zero, reality bi-farcates again and again until it is just white noise.

And then it will approach another Strange Attractor, another stable reality.

http://en.wikipedia.org/wiki/Chaos_theory

This is why we are confused. It is all the white noise.

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U.S. Treasury Secretary

U.S. Treasury Secretary Geithner has warned that delays in extending the U.S. debt ceiling may cause irreparable harm.

Tim has it wrong; what is really causing irreparable harm is that we have too much debt, not too low a debt ceiling!

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First off I would like to

First off I would like to say that I like Mish and I think he is a very bright guy. I just haven't been convinced by the deflationists arguments. While the deflationist make good arguments those arguments always seem strangely academic to me.

Moreover, Japan and China are more dependent on the US for their export model than the other way around. The odds China or Japan would not take US dollars is virtually zero. Both economies would crash without exports to the US. China's unemployment would soar and so would political unrest.

I keep stating, and it keeps falling on deaf ears, that as long as the US runs a trade deficit, it is a mathematical certainty that some country is accumulating US dollars or US dollar denominated assets.

...Moreover, neither Japan nor China wants their currency to rise out of fear it would hurt exports and lower employment. China is particularly worried about a slowing economy and is overheating now as a consequence

Export model? Yes China is not creative enough to come up with its own 'model' that benefits China more than the US.

Yes I've heard this nonsense about China, Japan and the US all in the same boat so we had better all hang together if we know what is good for us. Come on. Give me a break. Each of these 3 countries is going to do what is in it own best interest.

China, Japan and the US know their current economies are in serious trouble if not out right doomed. Do you really think that China and Japan are going to do whatever they can to keep the dollar alive forever? No. Each one of these countries is trying to figure out how to free themselves from the dollars toxic touch.

Here's something I'll bet Mish hasn't thought about. The long term. What if the BRICS could become the new basket of world reserve currencies? And what if to help this along China dumped all it's 907 billion dollars of US treasuries on the market and collapsed the US bond market? Yep. That a big hit for China to take but think about the long term rewards. I think they would recover their 907 billion rather quickly and wouldn't have to worry about 'hanging together' or that pesky dollar ever again.

Once again we see the silly statements regarding the pricing of oil in Euros or some other currency from someone who does not understand that currencies are fungible.

It does not matter one iota what oil is priced in unless one tried to do it in Yap Island stones or some other highly illiquid currency. Oil already trades in Euros and Yen just as gold does. One does not need dollars to buy oil any more than one needs dollars to buy gold. Currencies are fungible. I remain amazed at the number of people who trip over this simple construct.

Well it actually does matter to the US. If oil is purchased in other currencies and is "fungible" then I'm assuming that Mish is saying that this unit transfer will remain constant. In other words whatever the Euro and/or Yen is priced at today will stay in the same ratio with the dollar. If that were the case then yes it wouldn't matter. But that won't be the case. Currencies fluctuate against each other all the time but once the dollar falls against the Euro or Yen then oil priced in US dollars will soar. The cheap (cheap in regards to what the rest of the world pays) will end and that will severly impact the US in many ways.

Hyperinflationists have myopia. They only see (or only focus on) problems in the US. They ignore overheating in China, enormous problems in the UK, and huge structural issues in the EU.

No. They don't.

The US may have more problems than elsewhere (or not), but that does not imply the dollar might collapse to zero against the currencies of other countries.

Intermediate-term, I actually expect the dollar to rise, but should it sink, it will not be a sign of impending hyperinflation

Maybe not zero but it doesn't have to go to zero to destroy our economy.

If all fiat currency are falling because of money printing does it matter who is on top at any given point as it crashes to earth. In the end they all fail.

Can The Fed Cause Hyperinflation?

I do not think the Fed itself can cause hyperinflation and more importantly I am sure they would not if they could. The reason is "Hyperinflation Would End The Game"

  • Hyperinflation by definition would destroy the currency and thus the banks
  • Hyperinflation would destroy the wealthy and all their corporate bond holding
  • Hyperinflation would destroy the Fed
  • Hyperinflation would destroy the wealthy political class

To understand how powerless the Fed is, one needs to understand the difference between credit and money, how much the former dwarfs the latter, and what the Fed's role is in getting banks to lend. I discussed those ideas above and in far more depth in Fiat World Mathematical Model.

Note that the Fed has no power to give money away. Nor would they do so if they could.

Unlike the Fed, Congress could give money away Can The Fed Cause Hyperinflation?

I do not think the Fed itself can cause hyperinflation and more importantly I am sure they would not if they could. The reason is "Hyperinflation Would End The Game"

  • Hyperinflation by definition would destroy the currency and thus the banks
  • Hyperinflation would destroy the wealthy and all their corporate bond holding
  • Hyperinflation would destroy the Fed
  • Hyperinflation would destroy the wealthy political class

To understand how powerless the Fed is, one needs to understand the difference between credit and money, how much the former dwarfs the latter, and what the Fed's role is in getting banks to lend. I discussed those ideas above and in far more depth in Fiat World Mathematical Model.

Note that the Fed has no power to give money away. Nor would they do so if they could.

Unlike the Fed, Congress could give money away

With statements like; "Note that the Fed has no power to give money away. Nor would they do so if they could. The reason is "Hyperinflation Would End The Game" or "..the Fed's role is in getting banks to lend." Its difficult to have a serious response if someone really believes this.

This really stinks of academia. WAKE UP! Mathmatical models? This Keynesian idea that the Fed is 'in control' is completely off the mark (I'm not saying Mish is a Keynesian just that the assumption of being in control is keynesian). Its completely out of control and that it what leads us to Hyperinflation.

Let's go back to the beginning, with a definition of the word: Hyperinflation is a complete loss of faith in currency. Typically a political event, not a monetary event is the cause.

Right. And your point is...?

Mish is assuming that the Fed is in control so there won't be hyperinflation because that would be the 'end game'. Consider, just for a moment, that the Fed isn't in control. Consider that we got where we are now because the Fed didn't know what to do when the crisis of 2008 occured so they panicked and gave way to the age old 'solution' of printing their way out of a problem. Now they are stuck with that solution whether it works or not.

Typically a political event, not a monetary event is the cause.

This statement really pisses me off because I've heard it so much.

Its a monetary event that leads to a political event. If you keep devaluing peoples saving then of course they lose faith in the currency.

The rest of Mish's article continues on this same academic argument of being in control and guiding monetary policy. Look. I think Rubino is right. We will have hyperinflation then deflation but believe me the fed has a tiger by the tail they are not in control, the tiger is.

Johnny Oxygen's picture
Johnny Oxygen
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Arthur Robey wrote: The
Arthur Robey wrote:

The exponential functions are sliding off to infinity.

http://en.wikipedia.org/wiki/Asymptote

Fromhttp://en.wikipedia.org/wiki/Asymptote

The reason we cannot figure out what is happening is the exponential nature of our reality.

From http://en.wikipedia.org/wiki/Chaos_theory

A the numbers (Population, Money/debt, Oil) slide to infinity or zero, reality bi-farcates again and again until it is just white noise.

And then it will approach another Strange Attractor, another stable reality.

http://en.wikipedia.org/wiki/Chaos_theory

This is why we are confused. It is all the white noise.

Arthur

Will you please send me some of that stuff you are smoking?

Love you brother. Smile

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guardia
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Hyperinflation before deflation?
Johnny Oxygen wrote:

The rest of Mish's article continues on this same academic argument of being in control and guiding monetary policy. Look. I think Rubino is right. We will have hyperinflation then deflation but believe me the fed has a tiger by the tail they are not in control, the tiger is.

"We will have hyperinflation then deflation", wohw, that's a new one to me... ! I have a hard time imagining that after burning up most dollar bills they suddenly take on value again? Is this possible or is this an error?

Samuel

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guardia wrote:Johnny Oxygen
guardia wrote:
Johnny Oxygen wrote:

The rest of Mish's article continues on this same academic argument of being in control and guiding monetary policy. Look. I think Rubino is right. We will have hyperinflation then deflation but believe me the fed has a tiger by the tail they are not in control, the tiger is.

"We will have hyperinflation then deflation", wohw, that's a new one to me... ! I have a hard time imagining that after burning up most dollar bills they suddenly take on value again? Is this possible or is this an error?

Samuel

 

Oops.

Lol

Deflation (really devaluation) then hyperinflation

I need to proof read.

Sorry

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Good post
Johnny Oxygen wrote:

First off I would like to say that I like Mish and I think he is a very bright guy. I just haven't been convinced by the deflationists arguments. While the deflationist make good arguments those arguments always seem strangely academic to me.

<Much more follows>

Johnny

Nice work on the rebuttal.  You’ve got your thinking cap on tonight.  I hope you rewarded yourself with a beer. Wink

Travlin

 

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Johnny Oxygen
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Re: Good Post

I have my scotch cap on tonight. Smile

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Johnny, nice work. Chris, it

Johnny, nice work.

Chris, it seems to me that there should be some flow chart or table that shows the outcome of hyperinflation vs deflation, along with the conditions or beliefs that would lead towards accepting one or the other as the likely outcome.

Johnny, again, nice work.

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JAG
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The Real Game
Rector wrote:

Everytime I read shedlock's crap, I end up yelling at the computer screen and my wife asks me what's wrong.  

Rector,

When I read Mish, I end up laughing at the computer and my wife gives me a look like I'm crazy, lol.

The whole "inflation camp vs deflation camp" paradigm is about as useful as the democrat vs republican, left vs right brainfart; meaning if you take a side you have already lost the game. The real game is Wall Street exploiting our fears, beliefs, and identities to separate us from our money. 

I am often "accused" of being a deflationist in this community, but the reality is that I take a contrarian stance to many topics in the financial blogosphere simply because it's the only way to insulate myself from the exploitations of Wall Street. The hardest part of surviving this mess, is just recognizing that you are being played. It reminds me of the old saying:

"The greatest trick the Devil ever pulled was convincing the world he didn't exist"

Wall Street has co-opted our world, and the biggest mistake you can make is believing that you are not playing their game. So it behooves us to regularly examine how our convictions can be used against us and beat Wall Street to the punch.

Best....Jeff

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BRICS

Johnny Oxygen said:

"Here's something I'll bet Mish hasn't thought about. The long term. What if the BRICS could become the new basket of world reserve currencies? And what if to help this along China dumped all it's 907 billion dollars of US treasuries on the market and collapsed the US bond market? Yep. That a big hit for China to take but think about the long term rewards. I think they would recover their 907 billion rather quickly and wouldn't have to worry about 'hanging together' or that pesky dollar ever again."

Well. I've thought about it.  I don't know if India is part of this, but it does seem that China, Brazil, and Russia are moving in that direction, or at least setting the stage so that that could happen when they feel the time is right.  All we need is a big shove like that and this giant could come tumbling down.  Then they pick up the pieces.  Isn't that what this gold rush is all about?

Here in the United States there aren't many people who think any longer term than their retirement checks.

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''

 ''

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Damnthematrix
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Toyota, Honda output halved after Japan quake

Toyota, Honda output halved after Japan quake

By North Asia correspondent Mark Willacy, wires

http://www.abc.net.au/news/stories/2011/05/27/3229342.htm?section=justin

Japanese auto giants Toyota and Honda say their global production has been badly hit by the March earthquake and tsunami.

The companies say the twin disasters and nuclear crisis disrupted supply chains and sparked a massive slump in production because of power cuts.

Honda has reported a 53 per cent year-on-year drop in global output, while Toyota says its production fell 48 per cent.

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TOYOTA TO CLOSE U.S. PLANTS, AFFECTING 25,000 WORKERS 4-4-2011

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Damnthematrix
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TOYOTA TO CLOSE U.S. PLANTS

Operating profit down 84%.......  OUCH!!

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Johnny Oxygen
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Re:TOYOTA TO CLOSE U.S. PLANTS

Note how little notice something that big gets.

No one is paying attention nor do they care.

When TSHTF I'll bet the majority of the populations concern will be whether or not it will effect the shipping of the new ipad.

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KugsCheese
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Nothing Stops Bankers from Ripping Off Population Again

Regarding:  Nothing stops bankers from ripping off population again – journalist (pinecarr)

I am on the fence regarding RT (Russia Today web magazine).   What are its intentions?   I tend to think it is only a tool for Putin to pull the puppet levers.

BTW I agree 100% with M. Taibbi.   And worse is coming.

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KugsCheese
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Re: Mish Rules!
JAG wrote:

That piece by Mish made my day. Glad to see it was posted here....Jeff

Similarities? What Similarities...

  • Germany lost World War I -> USA Lost Manufacturing Race
  • The Treaty of Versailles imposed repayment conditions on Germany that could not be met -> USA cannot repay its government bonds; only refinance when/if yields are low.
  • To enforce the treaty, France occupied parts of Germany -> China is buying major US-based companies and land.
  • Germany printed money so fast people burnt stacks of money for heat -> USA is printing money by the FED keypresses. 
KugsCheese's picture
KugsCheese
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re: Panic needed before debt ceiling boost
saxplayer00o1 wrote:

 

A former White House budget chief said Thursday that Congress won't reach a deal to raise the nation's ability to borrow until the financial markets panic.

Peter Orszag, who used to run the Office of Management and Budget, said he believes that Congress has no appetite to raise the debt ceiling -- just as they had no political will to pass the 2008 bailout package to banks to save the financial system.

"We won't get to that kind of conceptual agreement until we get some kind of turbulence in the bond market," said Orszag, who now works as a Citigroup (C, Fortune 500) vice chairman of global banking. He spoke at the Peter G. Peterson Institute for International Economics.

Orszag predicted that, perhaps as early as July, financial markets will start to seriously worry about the United States' ability to pay its debts."

......................Orszag Predicts 'Temporary' Market Turbulence in Debt Debate

 

======================================================

Notice the national debt numbers from Treasury Direct:

 

 

Date Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
05/06/2011 9,680,750,181,123.70 4,641,936,724,436.31 14,322,686,905,560.01
05/09/2011 9,681,179,453,898.66 4,644,605,091,889.65 14,325,784,545,788.31
05/10/2011 9,681,417,347,166.90 4,650,105,450,714.71 14,331,522,797,881.61
05/11/2011 9,681,617,664,759.55 4,640,440,091,757.58 14,322,057,756,517.13
05/12/2011 9,666,109,562,809.12 4,641,689,778,754.69 14,307,799,341,563.81
05/13/2011 9,666,271,678,566.97 4,642,113,503,083.13 14,308,385,181,650.10
05/16/2011 9,717,694,227,528.65 4,627,843,278,273.80 14,345,537,505,802.45
05/17/2011 9,708,669,803,594.86 4,636,855,058,765.22 14,345,524,862,360.08
05/18/2011 9,718,512,519,012.13 4,626,999,697,976.90 14,345,512,216,989.03
05/19/2011 9,716,152,725,750.72 4,629,358,121,484.54 14,345,510,847,235.26
05/20/2011 9,717,285,305,168.49 4,628,213,097,570.29 14,345,498,402,738.78
05/23/2011 9,716,224,504,953.51 4,629,236,562,052.56 14,345,461,067,006.07
05/24/2011 9,712,166,006,111.72 4,633,282,614,630.08 14,345,448,620,741.80
05/25/2011 9,722,806,787,651.37 4,622,629,386,545.07 14,345,436,174,196.44

 

 

Again ignoring 'Unfunded Obligations in Present Dollars'.  Tack on at least another $50T for those.  Bingo: true panic.

Ignoring the Unfunded is insane.  It is a little like procreating offspring without planning for the cost of those little kiddies -> Food Stamps, Medicaid, etc.  Who pays?

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dave s wrote: Mish states
dave s wrote:

Mish states the deflationist argument well, which has always made more sense to me than hyper-inflationist arguments.  For instance, China and the U.S. are absolutely joined at the hip; both countries (together with Japan) have the peacetime equivalent of "mutually assured destruction" when it comes to trade imbalances and sovereign debt.  They can't quit buying our debt anymore than they can quit selling us their stuff.  But Mish uses logic at the expense of truth, though, when it comes to peak oil and its likely effect on the economy.  As has been pointed out before, if what you don't need costs next to nothing, but what you do need costs nearly everything, it will be little comfort to learn that, on a theoretical level, you are not experiencing actual inflation.

As for Paul Craig Roberts, anyone who is willing to argue that China is more democratic than the U.S. is, to borrow an artful turn of phrase from a much-missed member here, a moron. 

Short-term we can very well have a massive Asset Crash while product/service prices spike.   Then what?

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littleone
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Posts: 203
Funding Blind Spot

KugsCheese wrote:

Ignoring the Unfunded is insane.  It is a little like procreating offspring without planning for the cost of those little kiddies -> Food Stamps, Medicaid, etc.  Who pays?

 

KugsCheese,

Yes, there is a large moral blind spot...look at how families care for their infants. Mothers outsource childcare so they can do more profitable work...ignoring the real labor of a mother.  The strange outcome this produces is that all people become only tools for profit. 

 

-littleone

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