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Don’t bet on hyperinflation!

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  • Sat, Mar 14, 2009 - 09:24am

    #1
    draper87

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    Don’t bet on hyperinflation!

I just finished reading one of Mike Stathis’ articles on financialsense.com

 http://www.financialsense.com/fsu/editorials/stathis/2009/0313.html

So I was just wondering whether anyone with a little bit more knowledge than a 22 year-old could share their views on this article.

Personally, I feel he makes a strong point but like I said I’m young and would just like a second or third opinion.

 

Mike 

  • Sat, Mar 14, 2009 - 11:19am

    #2
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

Ok, I’m sorry but this article is rediculous. Everyone is totally entitle to their opinion. but his entire basis has no standing or merit for that matter. It seems to me it is just a guy that wants to believe in his country (which is fine)

Here is the first paragraph that tips me off…

"Sure, I know the federal debt is $11 trillion (the real debt is much higher). In fact, based on my forecasts, it could triple over the next decade. And yes, I understand the massive bailouts and the near 0% short-term interest rates. Based on my forecasts, America is going to have eye-popping annual budget deficits for years to come. Only off-balance accounting tricks can hide what will be an inescapable decade-long period of massive annual deficits. As well, I expect several trillions of dollars to go towards additional bailouts and stimulus packages over the next couple of years. Washington will keep throwing money into the fire pit until they see signs of improvement."

So, this guys is saying he expects all of this to happen, and doesnt even mention any of the other things coming down the pike we all know about. We can’t even afford what w have now, how are we to afford "tripple in 10 years." Then to top it off here is his argument on why it wont happen…

"Now stop and take a step back. While America has many problems, it’s still America. It’s still the most powerful nation on earth. Don’t get me wrong. Things are a mess and have been for many years. The working class keeps getting squeezed. Job quality has been in decline for two decades, while incompetence and fraud in Washington and corporate America continue to reach new highs. America’s enormous debt is going to skyrocket….guaranteed. But that doesn’t necessarily translate into hyperinflation. In America’s case, it most certainly won’t; not in our life time anyway. "

I thought I would include this paragraph to show he seems to contiune to list problems with absolutly no reguard for what the future holds for them. How can the working class get squeezed, and job quality decline, yet we are m agicly going to pay off this massive debt? After all the government gets its income from taxes…and this is at the current debt, what happens when it is double, god help us if it tripples. now for he reasons,

"Now ask yourself the following questions. Does America still have the world’s leading economy? Does America still have the world’s leading military? Does America still lead the world in technology and innovation? The answer to all three questions is yes. However, the gap is closing. And at some point in the future America could find itself in a period of instability that ultimately leads to hyperinflation. But over our life time, it’s not going to happen. Nations just don’t jump from top to bottom over a couple of decades. It takes many decades of devastating financial mismanagement, societal, economic, and political demise"

Now lets ask these questions

Does ameria still have the worlds leading economy? I would argue No we do not, infact just the idea that China is looking at growth still says something (although I dont think I am a firm believer in perma growth)

Does America still have the worlds leading military? I’m not an expert, but being active duty USAF I would argue against this too. We are in no ways the weakest either, but not the leading. To throw one example up here; about 98% of our fleet is more than 40 years old. The tanker we use (the only one, not counting the KC10 which is older) is older that 50 years. It is costing more to try to keep them in the air than it would to buy new, but thats a whole other issue…

Does America still lead the world in technology and innovation?  I would argue this too with one word…Japan. We are not last here either, but we don’t lead the pack

Then he goes on to say, "it takes decades of mismanagement." How many decades does he want? The way I see it we can go m back to the 30’s. Every generation just pushed the problem out to the next until it could not be pushed out anymore which leads us into now.

I would quote  more of this article, but alll he says over and over is it won’t happen. His only reasons are what I posted above and that America will start a war first. Although the war part could prove to come true (no way we can predict). I can tell you I don’t think this time around america could handle. We are stretched to thin, with aging equipment, and no money just to name a few.

I hope this helps… I would highly recommend this guy take the crash course. I’m not saying hyperinflation is iminant, but the way I see it, inflation is coming. The more they spend and expand the money base the worse it will be. 

Inflation=the expansion of the money supply without expansion in the product base…EXACTLY what we are doing

 

Mike

  • Sat, Mar 14, 2009 - 11:34am

    #3
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

I agree with the last post.

Wars are in fact one of the leading causes of hyperinflation, since they cost an enormous amount of money to wage, which the government doesn’t have so it relies on the central bank to print the ‘money’, which devalues the ‘money’, which is inflation………

  • Sat, Mar 14, 2009 - 12:08pm

    #4
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

And DONT FORGET there are no winners in War only losers and the objective is to loose the least.

Cambodia – Vietnam – Iraq and all the others that do not make the news or if they do not objectively reported.

The One to lose the least cries I won!

  • Sat, Mar 14, 2009 - 01:00pm

    #5
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

Cheers guys I totally agree, I was second guessing myself firstly because I’m pretty young and not that experienced in reading the economy/monetary systems, the other reason being that this guy seemed like he knew about the problems in the economy.

But at a second glance and with your insight it seems as though he is misinformed, I myself was a little confused when he said that USA would go to war before they let inflation kick in. Wouldn’t that make the inflation problem worse, clearly every war the USA have been in is inflationary.

Anyway, thanks again people…lots of help in clearing that up for me!

First things first, let’s see how high this dead cat (Dow) bounces before it comes crashing back down. Some interesting weeks/months lie ahead.

 

Mike

  • Sat, Mar 14, 2009 - 02:07pm

    #6
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

But at a second glance and with your insight it seems as though he is misinformed, I myself was a little confused when he said that USA would go to war before they let inflation kick in. Wouldn’t that make the inflation problem worse, clearly every war the USA have been in is inflationary.

Iraq, Afghanistan, Pakistan. Aren’t these wars? And isn’t the U.S. spending a trillion or so on these wars each year? Most of the Western world is in the same boat and it is based on the fact that we are part of the NATO and the UN. NATO was meant to be a defense covenant and the UN was meant to bring peace to the world, but nobody seems to remember it. Today we are talking about bringing freedom to the people all over the world. We don’t care about that fact that we haven’t declared war. We just send our troops to foreign countries and we don’t know what happens. Sure, you can watch TV and learn what you should know, but you don’t know reality.

So besides the existing "conflicts", we are looking for additional wars? If you want to know how fast hyperinflation can happen, then look at German history:

By late 1923, the Weimar Republic of Germany was issuing two-trillon Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000; 100 billion on the long scale). One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×10^19, or 33 quintillion) Marks. (Source: http://en.wikipedia.org/wiki/Hyperinflation)

You don’t need a lifetime, you don’t even need a decade. Of course it seems extraordinary, because we tell ourselves that hyperinflation can take place everywhere, but not in our country. 

The Germans once thought the same and unless mankind is willing to look at history, it will repeat, even in the U.S. It’s all based on trust and I can tell you that the U.S. is losing trust rapidly. Because of this, there have to be measures very quickly, probably at the next G20 meeting. Otherwise it’s only a matter of time unless countries are starting to actively sell their U.S. bonds and stop lending more money, which will be the beginning of massive inflation. Not necessarily hyperinflation, but high inflation. If as a result the U.S. Dollar is dropped as the world reserve currency, then there is a good chance for hyperinflation. Just look at the U.S. trade deficit. You can import goods as long as you can pay in Dollars. Once Dollars are not accepted anymore, you have a big problem.

China is sending clear signals that they are worried about the U.S. Dollar. And China does not belong to the countries the U.S. can occupy, like Iraq and Afghanistan, so a war isn’t really an option, unless you are very destructive. If that happens, we certainly have different problems. The U.K. publically announced that they are now printing their way out of this mess. Maybe they are printing (creating) enough money to step in and buy U.S. Treasury Bonds, which eventually leads to the same situation you had more than 200 years ago, when the Bristish Empire controlled America.

History repeats.

  • Sat, Mar 14, 2009 - 02:33pm

    #7
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

[quote=jdownie]

I agree with the last post.

Wars are in fact one of the leading causes of hyperinflation, since they cost an enormous amount of money to wage, which the government doesn’t have so it relies on the central bank to print the ‘money’, which devalues the ‘money’, which is inflation………

[/quote]

Over the course of a year, the US spends about $9B per month – for 72 months, ~$656B so far for the wars Iraq and Afghanistan.

Contrast that to $787B in a stimulus package that ‘created’ the money out of thin air.  That works out to a spending rate of $65B per month.

An observation – stimulus packages are seven times worse than war??  Anyone know what 7 X hyperinflation is?

Heptacontainflation?

  • Sat, Mar 14, 2009 - 03:15pm

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    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

[quote=Dogs_In_A_Pile]

Heptacontainflation?

[/quote]

Thats awsome…..Im gonna use that one too, lol

  • Sat, Mar 14, 2009 - 04:49pm

    #9
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

[quote=Dogs_In_A_Pile][quote=jdownie]

I agree with the last post.

Wars are in fact one of the leading causes of hyperinflation, since they cost an enormous amount of money to wage, which the government doesn’t have so it relies on the central bank to print the ‘money’, which devalues the ‘money’, which is inflation………

[/quote]

Over the course of a year, the US spends about $9B per month – for 72 months, ~$656B so far for the wars Iraq and Afghanistan.

Contrast that to $787B in a stimulus package that ‘created’ the money out of thin air.  That works out to a spending rate of $65B per month.

An observation – stimulus packages are seven times worse than war??  Anyone know what 7 X hyperinflation is?

Heptacontainflation?

[/quote]

 

I don’t know what you guys are going on about. Why just yesterday Obama assured the country that everything is going to be just fine after we get through this difficult period.

I believe it. Of course I do. Of course I do Of course I do Of course I do Of course I do

 

NOT

  • Sat, Mar 14, 2009 - 04:56pm

    #10
    Peak Prosperity Admin

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    Re: Don’t bet on hyperinflation!

KenC,

Great post,
I think the majority of Americans want to believe that crap. I think Obama does too.

The sad fact is positive thinking is about as likely to change the outcome as Cheering loudly is to make your football team win.

Mike (That1guy), what do you do in the USAF? If you’re not ok with posting, send me an email.
I’m USAF Alumni as well. Seems to be quite a few of us around… I think we’ve got the submariners well outnumbered 😀

I’ll be watching further discussion on this topic – Personally, I’m betting on hyperinflation… but I’m not as savvy as most on this topic!

Cheers!

Aaron

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