Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The Debate continues...

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Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The Debate continues...

Many of you may have seen the News link listed here by Erik Townsend a few days ago:

Hyperinflation Ends The Game - So It Is Unlikely (Erik T.)

This three-way conversation between “Blogger Extraordinaire” Mish Shedlock in the US and private investors Erik Townsend and Michael Hampton in Hong Kong cuts through the fog surrounding the deflation versus hyperinflation debate. Mish and Mike update their mostly accurate forecasts for 2010, and Erik T. chips in with some key demographic challenges facing the US.

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

Erik provided a link to a 3-way podcast, which has received much favorable comment on the web.  One of those who listened to the podcast was Gonzalo Lira, a Santiago, Chile based writer and blogger who has written some well received articles on the Inflation versus Debate.  You may have seen his:  How Hyperinflation Happens, and a Termite-riddled House (about Treasury bonds.)

/see: Davos: http://www.peakprosperity.com/forum/one-best-articles-i-have-ever-read/44011

Gonzalo himself contacted me after the Mish & Erik podcast, and offered to do a "follow-up" with me to better explain his rationale.  That podcast has been recorded, and is now available on the web:

The trigger for a Hyperinflationary shock
Podcast with Gonzalo Lira
===============================

Link: http://globaledge.podbean.com/2010/09/10/the-trigger-for-a-hyperinflationary-shock/

In this conversation between Michael Hampton and Gonzalo Lira in Santiago, Chile, the two discuss the shock event which could trigger a sudden move into hyperinflation within the US. Mr. Lira argues that there is already enough money in the system to trigger a "Shazaam moment." And Mr. Hampton argues that there is a third alternative to default and hyperinflation, and that's Haircuts and sharing the pain, the pathway that the UK has started down. The discussion gets lively as the two put forth opposing points of view, and they agree that hypenflation, if it comes, may play out differently than many expect. For instance, will property be a good investment in a hyperinflation scenario?

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Dr.Bubb

thank you for the link to the Gonzalo Lira interview.  I don't know what it is... perhaps just a gut feeling, but I still think we'll ultimately have hyperinflation.  Something about our massive debts, two wars, lost industrial base and net importer status makes me feel that way.  We are not in the same situation as the great depression.

I understand the deflationist argument... that there is 54 trillion dollars of credit being destroyed.  That was a counter argument to the 10-12 trillion that foreigners/foreign nations own and could potentially dump.  No way that 54 trillion of collapsing credit can be overcome.  I feel that the shazzam moment could definitely occur.  It may be part of the exponential function that CM talks about.  slow increase (in awareness of the imperiled dollar) for a long time, then the hockey stick upstroke (when a critical mass of people are aware).    My argument is this: the 54 trillion of credit is widely distributed into housing, ipods, commercial real estate, beauty parlors, health care entertainment, and by the way, food, and fuel.  While that 54 trillion in credit is being destroyed with a deflationary impact, I still believe that when that shazzam moment occurs, and all the foreigners dump their dollars, those dollars will go straight into commmodities (food fuel, etc) as Gonzalo has stated.  in other words, those dollars are going to be dumped into the things that matter the most, creating the hyperinflation.  

 

Brian

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Thanks for the comment.  

Those who say that Hyperinflation is inevitable, tend to be those that say that there are only two ways the US can go: Massive default, or Hyperinflation, and they go on to say, "The US will not default on its obligations."

The "only two choices" crowd is wrong IMHO. There is a third and more likely path: "Haircuts, more haircuts, and sharing the pain" - the pathway of austerity. It is happening right before your eyes in the UK, in Ireland, and in other European countries. Some will argue that most countries, do not have the will to stay the course, and they will move to massive default, forcing big losses on their bondholders. That is possible. But I think that most countries, the US included, may find a way to "share the pain", and force some big haircuts, and job reductions upon public sector works, while reducing the size of the US military presence, and restricting the social security and medicare costs. Eventually, there may also be some haircuts for debt holders. But if those haircuts came with/ or after spending cuts, they will be more acceptable to debtholders, and the whole process will be different from the "massive default" alternative, which many say is impossible.

The "haircuts" scenario would be acceptable to the deflationists like Mish Shedlock and Robert Precher, and it would be interesting to see what others like Steve Keen and Marc Faber think of it. 

Do people here really think the hyperinflation is more likely than "haircuts"? If so, they why has the UK chosen to go down the austerity-and-haircuts pathway?

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drbubb wrote:

deleted i was tooooo rude

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We have become to deeply entrenched in our pathetic perfect world...we have no stomach for haircuts.  I think the mindless zombies will become enraged "rats" before they will allow you to stop the NFL, Dancing with the Stars and Beer.    

Americans are all about self.  Let the cuts come to my neighbor, not myself.

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Some would have said that about the UK too.

But after the election, the new coalition began to tackle the problems with austerity, secure in their view that they could blame the pain on the prior Labour government: They could say:  "We needed to cut, in order to fix the mess that the Labour government had left the country in.

Might we see a similar sea-change in the US, if many incumbents are thrown out?

I live in HK, so who am I to say?  But is this really unimaginable to those who live in the USA?

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Davos, do you object for some reason, to my placing a link to your thread about Gonzalo Lira's article?

I thought it was relevant here.

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GL presents a very interesting idea when he says "there's more than enough kindling to start a hyperinflationary fire" without any more money printing by the Fed or more spending by Congress. This is really the key to his argument and allows him to get around the persuasive points made by deflationists such as Mish, Steve Keen, etc. who emphasize the fact that outstanding debt is much more than current levels of money supply excluding credit, and that the government is helpless to create inflation even if they could politically get away with more spending and printing. GL's point is certainly something that needs to be thought about and investigated much more.

My initial impulse is to get back to the basics and ask what about the debt? When treasuries are dumped and commodities are bid up, making energy, food, etc. less affordable for consumers, what will happen to the trillions in debt still owed by individuals, corporations and governments? Usually in times of hyperinflation, creditors lose out because people pay back their debts with devalued currency. But since there is so much more debt outstanding than money right now, it's just not possible for people to pay back all of their debts (and this realization is what GL thinks will trigger the treasury dumping in the first place). So even when the debt is becoming more affordable, people will still end up defaulting and losing their homes while corporations lose their secured assets. Many banks will also go under so that means credit markets will freeze up. Obviously this will all lead to unemployment skyrocketing and that means more people with no source of income, especially when the government can't spend anymore on handouts.

All of this seems to suggest that unless large swaths of debt obligations are simply wiped out, the deflationary force of collapsing cash flows and money supply would quickly reverse the process of rising commodity prices. As GL put it, the hyperinflation would burn itself out. People often talk about hyperinflation as a loss of confidence in the currency as a store of wealth, which it certainly is, but maybe the loss of confidence in the economy will overwhelm that in the short-term, since cash is still a liquid means of exchange.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Some would have said that about the UK too.

But after the election, the new coalition began to tackle the problems with austerity, secure in their view that they could blame the pain on the prior Labour government: They could say:  "We needed to cut, in order to fix the mess that the Labour government had left the country in.

Might we see a similar sea-change in the US, if many incumbents are thrown out?

I live in HK, so who am I to say?  But is this really unimaginable to those who live in the USA?

Dr.Bubb

this is a really hard question to answer.  Politically it would be impossbile to call for haircuts.  For example, Peter Schiff was was running for the Republican senatorial seat in Connecticut.  He lost out to Linda McMahon and was never much of a threat.  Apparently, if he had become enough of a threat, the McMahon campaign was prepared to launch adds calling Peter Schiff "the guy who wants to take away your social security"  On the flip side, if the govt does cut Social Security and Medicare, I wont expect to see 75 year olds rioting in the streets.  

I was also taking to a friend who works for the state govt of New York.  I tried to politely relay to her that the New York state budget was out of control and their going to have to cut spending.  She looked at me like I was from outer space

I don't believe the general American society really understands whats going on?  It is kind of a pseduounderstanding and those who can still grab a beer and watch a football game on the weekend just aren't concerned.  I still hear people complaining about "Obama's socialism", but in the same breath saying they had better not touch my medicare.   Americans are still the spoiled children of the world.

Brian

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drbubb wrote:

Davos, do you object for some reason, to my placing a link to your thread about Gonzalo Lira's article?

I thought it was relevant here.

Hello DrBubb: My comment had nothing to do with Lira's article and everything to do with this:

drbubb wrote:

The "only two choices" crowd is wrong IMHO.

You might, in fact be correct that something else can happen. There is after all a movement underfoot to make SRD's the reserve currency. These SDRs would be more of a globally weighted basket comprising other nations.

But, even so, unlike Greece - the US can - and will still print.

I think you might want to look at a few things your statement doesn't take into account:

  1. The Fed is not acting like some potted plant. In just the past year it has guaranteed another 5++ trillion for the GSE's in addition to the 12.8 trillion that the 700 billion TARP was sold to us as.
  2. I've read un-conservative  figures exceeding our tax liability for all this BS that exceed 28 trillion.
  3. Trash is trash. I have a VP of big bank who is a friend who preaches to me about how, unlike the auto industry we are going to make money off this trash. BS. They acquired it a 100% on the dollar, barring hyperinflation (which is an endgame where nobody wins) they are going to lose on this.
  4. This is NOT an economy based on capitalism. It is a Corporatocacy, these morons are (read: and have been) adding heaps of debt to us. There is no end in site. 3 trillion of stimulus failed to get Romer's "put 1 buck into the economy and wave the Keynesian wand over it and watch it grow to a buck fifty. As I pointed out in this piece Sprott found 200 billion made it to GDP. So if Romer could distinguish her backend from Berkeley she'd realize that you toss 1 buck in and get .07 cents out. Remember that buck is borrowed so I doubt after a variable rate interest over many years you are going to get even that.
  5. And this point should be underscored: The debt they have added is already ours. It is NOT some program that they can cut and make go away - like Social Security or any of the many other unfunded looted liabilities. Think student loan debt here. Default or re-denomination or hyperinflation is the only way to shed that debt.
  6. We are counterfeiting and have been for a long time, because we take in less than we make and we can't borrow from Communist China et-al enough to cover the difference. That has and will continue to debase the dollar.

Maybe I'm nuts but to do what you are saying would mean: Slash government by 80%. Disban the military. Don't pay unemployment and food stamps. Cancel the unfunded liabilities. And then, you'd have unemployment numbers at God knows what levels. And even with this I think you would find we still couldn't pay our obligations. At that juncture - with unemployment levels (I haven't calculated a scenario like this or figures so this is a pie in the sky guess based on the fact unemployment is at 22% now) at or above 65% we'd be like Greece asking for bond sales.

That is my simmered from last night take.Cool

 

 

 

 

 

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Thanks for the comment, ashvinp.

"what about the debt? When treasuries are dumped and commodities are bid up, making energy, food, etc. less affordable for consumers, what will happen to the trillions in debt still owed by individuals, corporations and governments? Usually in times of hyperinflation, creditors lose out because people pay back their debts with devalued currency."

The conventional answers are:

+ In a severe deflation, many or most debts are defaulted upon, and not repaid

+ In a hyperinflation, they may get paid back, but with dollars of much lessor value

+ In the LDC crisis of the 1970's, they got repaid, but only after stiff haircuts, and with a "Brady process" where the principal was backed with US treasuries

All of the above are still open possibilities IMHO, although the third one is rarely discussed.

"As GL put it, the hyperinflation would burn itself out. People often talk about hyperinflation as a loss of confidence in the currency as a store of wealth, which it certainly is, but maybe the loss of confidence in the economy will overwhelm that in the short-term, since cash is still a liquid means of exchange.."

Indeed.  I suppose under the "haircuts" scenario, the creditors lose confidence in the borrowers ability to pay (as happened with the LDC's in the 70's) and the creditors welcome a negotiated process where they take a haircut, while the borrowers take certain sensible steps to reign in reckless economic policies.

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"Politically it would be impossbile to call for haircuts.  ... calling Peter Schiff "the guy who wants to take away your social security"  On the flip side, if the govt does cut Social Security and Medicare, I wont expect to see 75 year olds rioting in the streets."

Maybe things will need to get worse, or at least another financial shock may need to hit, before the general public will accept that they are nklt going to see those promises kept.  The sad thing, is by failing to address the real issues now, what will be left for the Boomers in their retirement, is getting smaller and smaller, as the damage to the economy escalates.

Here in HK, we had a visit from a very savvy and well-known economist recently (who shall remain nameless here), and I got a chance to speak with him/her privately.  I found out that he/she was living in Connecticut, and I asked for an opinion of Peter Schiff's campaign.  What I heard was that he was "right about the economy for the wring reasons", and that some of his policies made sense.  However, people who had met Peter and knew him over the years, were put off by his personality, and his "rather huge ego."  Somehow this all rang true to me.  Just look at the way that Mish sent money to Peter to help his campaign, and somehow they wound up with a feud.  

The Libertarian movement will need to find candidates who are less likely to alienate potential voters.

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Davos, have I unknowingly walked into an old debate, where warm feelings are still simmering?  It seems that way.  

Is there anyway that I can bring fresh thinking to an old batteground?  I will never know, without trying. So here goes...

Have you been to the UK?  I lived there for years, and I got as wound up as you do, by the foolish policies of Gordon Brown and the Labour government. In fact, with Alan Greenspan, Barney Frank, Nancy Pelosi, and Paul Krugman, Brown made it onto the "official Villain's list" of my GEI website.  He almost single-handed bankrupted the UK with his policies as Chancellor and as unelected Prime Minister.  And the recklessness of those policies was one of the main reasons why I left the UK to settle in HK with my partner, who is Chinese, and wanted to be closer to her parents.  (We spoke briefly spoke about moving to the USA, but i felt the economic policies there were no less reckless than those in the UK.)

Now here's why I asked that: There was an election in May, and Labour was defeated by the conservatives, but it was a close election and no single party had enough votes to form a government on its own.  So the Conservatives formed a Coalition government with the LibDems, and that has allowed some  dramatic changes in economic policy.  The Coalition has drawn the line on wasteful Labour spending, it has tallied up the size of the huge budget deficits and accumulated debts, and announced its firm intention to bring the debts down.  They are doing this through an austerity program where the pain of cuts is being shared across the board.  (These cuts were not discussed before the election, David Cameron was clever enough not to reveal his intentions in the campaign.)

The clever thing is that the pain that will be felt, provided it comes soon enough, can be blamed on the out-of-power Labour government.  The Coalition is simply doing its best to correct the excesses left by the previous government.

For these sorts of policies to work, the pain needs to be spread across the board, with all the usual beneficiaries of government spending taking a piece of it... And we haven;t come to it yet, but at some stage, haircuts may be required of creditors too.  They will be more willing to go along with that, if they see that genuine, strong, and painful efforts have been made to cut spending, before they are asked to contribute by taking a discount on their debt.  (I am just guessing that things are headed that way - The government has correctly not mentioned this yet.)

In short, the picture that I am painting of the UK, is a country in a real mess, that is facing up to it, and addressing its problems in a mature way.  Do you really find it impossible to imagine Americans doing that?  How might your views change, if many incumbents are thrown out of office in November, and some new policies emerge, just as they did in the UK.  Many (including) some Tory voters were surprised by this.

When I recorded the following podcast back in May around the time of the election, I spoke of the need to "share the pain", and many thought that I was just dreaming in putting forth this scenario:

China Leads. The West Must Share The Pain

http://commoditywatch.podbean.com/2010/05/18/china-leads-the-west-must-share-the-pain/

 

But in fact, that is exactly what has happened.  I am far from the states now, and I feel further away than I am from the UK, but my intuition tells me that when all the "easy cures" have been tried, and have failed, then people turn to the sensible, hard cures.  The US did that with Paul Volcker in Jimmy Carter's prsidency, are Americans really that different today?

 

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Hello DrBubb:

Perhaps you can find it in your heart to excuse my passion for this topic. I'm passionate because as CM says: Deflation is simple, all you need is cash, inflation is trickier. I'm paraphrasing.

IMO people, including yours truly (read: me) don't want to even consider hyperinflation as a distinct possibility. Asked on any given day if I'd rather put glass in my eyes or go through hyperinflation it would be a difficult question to answer.

Yet, if they get the 50/50 part wrong (assuming we don't have status quo what others call stagflation) they are scr#wed. Scr#wed to the wall for good. Their financial life will be so shot that they will never recover. Game over.

IMO people are fooling themselves with deflation. Incumbents? Two Parties? You'd need 535 guys like Ron Paul or Paul Ryan. Pete Schiff couldn't even get elected over a a pro-wrestling manager. Say what you want about egos and all that, he was a fiscally responsible adult. I'm writing about this now. It all boils down to this:

  1. We have massive debt, cut what you want these rats have added more debt to bail out the rats they serve. 
  2. Our congressional leaders are rats that whore themselves out to corporate rats who bribe them to do tricks via lobyrats. Incumbent, Republican, Democrat - doesn't matter. Rat whores is what they are and will be. They represent the corporate rats not us and we pay the tab from Jan1-Aug15. NO economy can survive without consumers and the consumer makes 1973 wages thanks to corporate rats off-shoring (read: Globalization) mfg jobs that provided a surplus. No consumer can consume with 4 months of 40 year old wages. The debt rat is the biggest rat in the room and these rats will NEVER cut that debt, it is way too late for that. Your premise is imo (and I don't want to sound rude) an utter and absolute pipe dream.
  3. Our media rats have not defined our situation so there are like 1 million you and I and the rest of us bloggers who see the stereo gram's picture below the picture. 309 million others sense TSWHTF and are PO'd but can't articulate the problem. In short they are in the dark. If 309 million people knew we'd have 535 fiscally responsible servants and your idea (provided they could shed the latest dead wood debt) would be debatable.
  4. We have university rats (all but 2 colleges in the US) that teach Keynesian Economics which is 100% bogus, retarded and flawed. The result of this is we had 99.9999999% of economists who missed this train wreck. A train wreck that Austrian economists saw, a train wreck that home-schooled bloggers saw. We have a chairwoman (until recently) of the WH economic advisors that said put 1.00 into the system and you'll get 1.50 out when in reality she got .09 cents out. Put a buck in and wind up with 9 cents??????? @ssinine. Colleges like Keynesian because they can charge 100k for an education. Kids today are winding up with 100k++++ debt. You can not run anything on flawed architecture. 
  5. We have leadership deficit rats that are failures. They are stuck on leaving the moron rats that created this mess in there and expect that doing what they did to create it will fix it.

So, with all respect I think your idea would be a benefit to mankind but I think it is 40 years too late and I think it is an absolute pipe dream. Deflation to me is a con. People want to believe that it'll all work out. I think the entire deflation debate puts people in front of a train. Nothing stokes me as much as this stuff.

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drbubb,

I can appreciate the fact that many people out there are currently willing to implement austerity and solve their debt problems by doing a national bankruptcy-style process in which debts are renegotiated and creditors take haircuts. Certainly your knowledge of the UK coalition's policies show that they are willing to take that path at this point. However, I have two major issues with your premise:

1. Just because the UK government is beginning to implement austerity now, does not mean they will stick with that plan once the rubber meets the road. As I'm sure you know, austerity measures and haircuts will not be pleasant for an economy which has accumulated so much private and public debt, and people will get extremely frustrated and angry even if the pain is shared equally (which is also another big assumption).

2. Your argument seems to view the UK economy in a vacuum instead of as one part of the global economy. One or a few countries who take the "responsible" path of austerity and supporting the value of their currency will see the effects of deflation magnified as other countries remain much more competitive with devalued currencies and fiscal/monetary supports. Of course the latter countries will eventually implode in a much bigger way, but in the short term I imagine UK citizens would suddenly forget about deficits and be screaming for their government to start spending again.

That being sad, I definitely don't rule out the possibility that other countries decide to take UK's lead and go down the austerity/haircut path. You may have a valid point there if leaders around the world realize they are helpless to create organic growth in their respective economies and have the courage to face reality. I'm just not too sure any democrat, republican or maybe even libertarian in America (or the UK politicians for that matter) has that kind of foresight and courage after they get into office and feel the pressure from the status quo to keep playing the "extend a pretend" game.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Deflation,to an ignorant farmer, is the sucking sound heard by all at the birthday party from Grandmas' lungs before her inflationary breath blow the candles out

It makes cyclical sense obeying some sorta trig'metric

 

Happy Hyperinflation Day 

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So, Davos you think they are ALL rats, and we should give up?

It sounds too hopeless for me to embrace this thinking.  I do agree that the Financial sector has grown too big, and become parasitic.  I think the economy would become MORE efficient, if there was less financial speculation.  But as you say, it is tough to manage this when the financial chieftains have shown that they can "buy of" poltical leaders.  But I do see signs of hope.  If Eilzabeth Warren heads up the new consumer protection agency, I think there's a good chance she will not be bought off - no wonder the banks are opposing her.

Let's think what can be done, and argue for it, while doing what we can to improve our own situations, rather than abandoning all hope.

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"I definitely don't rule out the possibility that other countries decide to take UK's lead and go down the austerity/haircut path. You may have a valid point there if leaders around the world realize they are helpless to create organic growth in their respective economies and have the courage to face reality." - but you don't see an American political leaders who are ready to rise to the challenge.

That's fair enough... They may not be there.  But I think there are some rumblings out there... Let's wait until after the November election , and see if that changes the politicl landscape, as it seem to have done in the UK

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...
drbubb wrote:

In short, the picture that I am painting of the UK, is a country in a real mess, that is facing up to it, and addressing its problems in a mature way.  Do you really find it impossible to imagine Americans doing that?  How might your views change, if many incumbents are thrown out of office in November, and some new policies emerge, just as they did in the UK.  Many (including) some Tory voters were surprised by this.

When I recorded the following podcast back in May around the time of the election, I spoke of the need to "share the pain", and many thought that I was just dreaming in putting forth this scenario:

China Leads. The West Must Share The Pain

http://commoditywatch.podbean.com/2010/05/18/china-leads-the-west-must-share-the-pain/

 

But in fact, that is exactly what has happened.  I am far from the states now, and I feel further away than I am from the UK, but my intuition tells me that when all the "easy cures" have been tried, and have failed, then people turn to the sensible, hard cures.  The US did that with Paul Volcker in Jimmy Carter's prsidency, are Americans really that different today?

 

DrBubb,

 

You may be correct, but ask yourself one important question.  Is the electorate mature enough to understand?

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"You may be correct, but ask yourself one important question.  Is the electorate mature enough to understand?"

I live in Hong Kong, and before that I was in the UK for years - so you are in a better place to answer that than I am.

No doubt, the US voters have been successfully dumbed-down by a series of vile politicians and a unspeakable mainstream media.  But not every one is like that - Are you?

Maybe it is the time for a politican to ask more of voters.  Ron Paul did that to some extent, and made some impact from it.  The real thing to watch is whether the Ron Paul style of political discourse is growing or shrinking.  My sense is that it is growing.  And that is a hopeful sign, if true.  Let's watch the November election, and see what further signs can be seen.

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drbubb wrote:

"You may be correct, but ask yourself one important question.  Is the electorate mature enough to understand?"

I live in Hong Kong, and before that I was in the UK for years - so you are in a better place to answer that than I am.

No doubt, the US voters have been successfully dumbed-down by a series of vile politicians and a unspeakable mainstream media.  But not every one is like that - Are you?

Maybe it is the time for a politican to ask more of voters.  Ron Paul did that to some extent, and made some impact from it.  The real thing to watch is whether the Ron Paul style of political discourse is growing or shrinking.  My sense is that it is growing.  And that is a hopeful sign, if true.  Let's watch the November election, and see what further signs can be seen.

DrBubb,

I'm a brit, but I haven't lived in the UK for a good number of years. People in the UK seem to accept that pain is necessary, they have been condition to that at least. However, when the axe starts to fall you will see uproar rather than people accepting what happens as being for the greater good. You only have to walk round any town in the UK on a Friday or Saturday night to see that people don't worry about the consequences of the nights drunken excess and tomorrow's hangover. In fact I would even say that they don't even care as a general comment. 

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...
drbubb wrote:

So, Davos you think they are ALL rats, and we should give up?

It sounds too hopeless for me to embrace this thinking.  I do agree that the Financial sector has grown too big, and become parasitic.  I think the economy would become MORE efficient, if there was less financial speculation.  But as you say, it is tough to manage this when the financial chieftains have shown that they can "buy of" poltical leaders.  But I do see signs of hope.  If Eilzabeth Warren heads up the new consumer protection agency, I think there's a good chance she will not be bought off - no wonder the banks are opposing her.

Let's think what can be done, and argue for it, while doing what we can to improve our own situations, rather than abandoning all hope.

There are three classifications hope fall into:

  1.  Optimism
  2. Delusion
  3. Realism

Dennis Kneale and the gang over at CNBS have hope that the rats who blew up the economy can in their elevated positions fix what they destroyed. Fix it by adding more of what broke it - debt.

I call that delusional thinking - not optimism.

I have faith I'm going to get through this. I am a realist to think that you can't fix something until you address it's structural problems. And like an approach gone bad to an airport or like a house infested with termites - somethings you have to abandon and redo or rebuild. As a realist I'd advocate that this is one. Fixing the economy requires that consumers have 2 things:

  1.  Money to spend. They can NOT give 227 days of their income to Uncle Scam and fix the economy with 138 days of income.
  2. Income on 1973 wages because we compete against folks making 2 bucks a day thanks to Globalization/off-shoring our manufacturing jobs.

You know, I'd be slightly optimistic if it was just more than 1 million of us financial bloggers that could clearly annunciate the problem. When you have 309 million people with their head in the sand and 535 leaders with their head up their but or turning lobbyrat tricks for their Johns (read: they serve corporate rats (not us) & we get the bill for what they give the rats) I'd be a delusionist to think a situation gone to far can be fixed the way you advocate.

I'm not being mean, or pessimistic. I simply refuse to be a Dennis Kneale delusionalist.

And as far as a change of the public servants here: I'll offer up Connecticut. JoeManC from this blog served Pete Schiff on his election efforts and I followed it quite closely. Pete Schiff is a financial blogger, runs his own brokerage, has made the CNBS rounds, has a #13 best seller on the NY Times list, it is a book on economics, he called the housing bubble, he knows intimately what needs to be done to fix the economy. Did he get elected? No. A pro-wresting manager did. So you are telling me I'm a pessimist because I refuse to believe that it won't be more of the same when we had 2 people up there (Ron Paul and Paul Ryan) and we couldn't even get a 3rd fiscally responsible non-rat-whore elected?

 

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

The US voted in the current party because the other party was doing such a terrible job.

It appears that once again the US citizens will throw the current bums out, and vote back in the previous bums. Hardly a recipe for a cure for the mess we are in. The system is broken, it is flawed, and it is corrupt. It's citizens are overtaxed already and it's debts are too large to ever be paid off by any means.

It does not need a haircut, it needs to be rebooted.Those in power are too clueless, or too spineless, to do that in an organized way, so we all wait for reality to catch on. The US has reached such a point of insolvency that it can no longer pay it's bills, it can no longer borrow enough, and has to now print counterfit money to make it through the day. Put that on a personal level, a citiizen in the same situation could not straighten a mess out like this by tightening his budget, he'd have to declare bankruptcy... and be thankful that if he wasn't put in jail for printing money.

TD

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Davos, re; your:

"When you have 309 million people with their head in the sand and 535 leaders with their head up their but or turning lobbyrat tricks for their Johns (read: they serve corporate rats (not us) & we get the bill for what they give the rats) I'd be a delusionist to think a situation gone to far can be fixed the way you advocate.

I'm not being mean, or pessimistic. I simply refuse to be a Dennis Kneale delusionalist."

Are you calling me a "delusionalist"?

As I have said, it takes a certain amount of imagination to try to understand how things are in the US, when you live in Hong Kong.  So you may think that my imagination has extended into the fantasy realm.  I hope not.  But I am relying on what I can see and hear from half way around the world.

Do you live in or near New Jersey?  If so, you may have heard of Gov. Chris Christie.  And I watch videos of him on You Tube, when I start thinking things are hopeless, and all leaders kowtow to corrupted fools like Pelosi and Barney Frank.

Here are two short videos, that I can recommend:

1/

2/

Do they make you feel that there is a chance that someone will come on the National scene and speak the unvarnished truth?  Maye it is my "delusion", but this guy gives me hope.  And I am sure there are others I could find.  Even some mayors, like Detroit's Dave Bing are speaking sense now - though he deals with unions less effectively than Christie, I think.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Hair cuts

Regarding so-called “hair cuts.” Is there enough haircutting out there to truly make a difference? Is raising the retirement age a couple of years really going to make things right? Is reducing what someone is supposed to get paid out in ten years in the form of a pension going to solve today’s problems that have already reached critical mass? Is reducing a mid-sized town’s police force by 20% the silver bullet?

But what about really tough or severe austerity measures one could ask. However, wouldn’t these measures just seal the deal in terms of the societal/economic collapse of the US? Clearly, severe measures would simply create higher unemployment (because so many are employed either directly by the government or indirectly via private companies whose only impetus for hiring was government largesse), less opportunity, less wealth, less community security (due to elimination of police, fire, social programs, etc.), significantly less consumer spending, and an even more compromised vital infrastructure, especially in a world in which the average person is so ill-equipped to do anything on their own in terms of traditional self-sufficiency skills. This is a formula for social unrest if I’ve ever seen it and sounds like the classic IMF blueprint for third world countries.

What further troubles me about austerity isn’t that people would now have to make it own there own or become de facto libertarians (that will all come soon enough) but that it ignores the systemic fraud within the game or de-prioritizes it almost to the point of ignoring it. I thought the problem with the economy was that it’s essentially a ponzi scheme based upon infinite growth, temporarily propped up by infusions of fiat money/credit, ideologically buoyed and apologized for by an academic/media/servant class, and positioned as if it somehow best represents teary-eyed proclamations about free markets, “real” capitalism, and Adam Smithisms.

Austerity measures are going after the little guy for $500.00 of back taxes when the big guy was just handed trillions of dollars to do as he sees fit beyond the gaze of any responsible counterparty and opaque to any legal or moral lens. So austerity measures are like telling a terminal cancer patient that fixing that sprained ankle (the cop’s bloated salary) will make everything better.

Austerity measures are code for making the citizenry suffer while the oligarchs and their handmaidens rob people blind behind the scenes en route to their temperate get-aways.

Why weren’t “austerity measures” implemented in the fall of ‘08 when large, global institutions were groaning under the weight of their own malfeasance? Because they do God’s work and are indispensable to the perpetuity of homo sapiens.? Or because they are God and would simply never take a hair cut? Especially when you can take one.

Economics isn’t the only thing at play

There’s also an elephant in the room here. If the US government (not the citizenry mind you but the government) were a person it would be a homicidal maniac/bully. Because of this fact and the fact that it is a well-understood fact by the US government’s creditors, there are forces here at work that go well beyond the normal scope of the pseudo-science that is economic theory. So if people are having a discussion about this topic and this somehow does not fit into their logic, then they are glancing askew at the subject. It’s a rigged game, people, more influenced by geopolitical strategizing than economic theory or fundamentals.

It’s as if TV commentators are discussing what team they see prevailing in a given sporting match. They analyze every possible perspective, conjuring up obscure data points, citing how a certain player performs under varying circumstances, etc. But they choose to never address the fact that the celebrity-owner of one of the teams is so powerful that whenever his team is in jeopardy of losing he simply pays the other team to throw the game. And then, following yet another come from behind victory for the corrupt/fraudulent team, the commentators explain the “engineered” victory in typical sports theory parlance ignoring the fact that these forces (which do apply in many/most situations) had no impact whatsoever regarding what just transpired.

This perspective, then, affords a view that generates the following set of related questions. Which path will the power elite choose for the United States regarding its debt and long-term obligations? Which path is more suitable for the relationship between them and the aggrieved (the citizenry) staying the same? Which path will transform the status quo the least in terms of social, economic and political infrastructure?

It would seem at first glance that hyperinflation would have zero chance of happening in the United States if one is to assume that it would have the galaxy of very negative effects usually ascribed. (I will assume that hyperinflation would have disastrous impacts and leave the debate about a gentler, kinder, temporary hyperinflation for another discussion.) Because of this I can’t imagine hyperinflation not being the end of the United States as we know it and a massive, uncontrolled refiguring of the global economic and financial system. And because of that I can’t imagine it ever being allowed to occur.

However, like Stoneleigh but unlike Mish, I see massive deflation coupled with severe austerity eventually landing the US and the world in the same place -- with a shocking and, to most, very disruptive remaking of the global order. Since I see the end as the same result in either case I think that the means will be those that offer the power elite the greatest amount of guidance over the process. And I believe that process to be deflation/severe austerity and not the more unpredictable free-fall of hyperinflation.

That said, hyperinflation could be forced upon the ruling order. And here’s how I see it.

The only thing, at the moment, that seems possible of dethroning the US government (read: the world order) are ecological forces: severe, abrupt climate change; heretofore unseen natural calamites; resource scarcity/peak energy.

In terms of geopolitical forces/headwinds, I don’t see these dethroning the US government anytime soon in a vacuum. However, I feel that the ecological forces are already at play and that, ultimately, the geopolitical side of the equation will opportunistically emerge following the lead of the ecological ones to act in concert to dethrone the US government -- or, at the very least, to make the world much less uni-polar.

This is why I think it’s a very keen observation to note that hyperinflation can be a purely geopolitical phenomenon and not an economic one. Therefore making the questions about adequate caches of kindling and fire-starter moot, as well as conventional economic theories that conveniently render hyperinflation “impossible.”

Not all deflationists are the same

One final point. Instead of grouping economists/bloggers/regular folk according to whether they are deflationists or inflationists, what about grouping them based upon whether they think the US economy will collapse or not.

I bring this up because Stoneleigh and Mish are often corralled together as deflationists when in fact they have radically different views of where the global economy is going. Stoneleigh is far more doomerish than Mish is. She’s actually a hard-core doomer; she’s said that petroleum products won’t be available to the average person within five years’ time and that health care for the general population will also cease to be available in a similar time frame. Doesn’t get much more doomerish than that, does it?

(Quick note here to avoid needless debate. I don’t consider the word “doomer” and all its incarnations to be a pejorative, and I don’t use it that way here. I’m a big fan of Stoneleigh’s mind. I’m very optimistic about the future and think a collapse just might be the best thing for everybody at this point.)

Whereas Mish seems to think that what we’re experiencing now is more of a temporary problem that will be solved someday by electing the right politicians. In this sense, I don’t see Mish as big picture/cross-discipline kind of guy like Stoneleigh or our very own Chris Martenson.

So I say we need a Stoneleigh vs. Mish debate.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...
drbubb wrote:

]

Are you calling me a "delusionalist"?

Hi DrBubb.

No, if I called you a delousionalist there'd be no questioning what I called you. I'm blunt. I've had many a post yanked.

I'm telling you from here - from watching this horse and pony show closely for umpteen years - 1 governor and a handful of Ron Pauls and Paul Ryans aren't going to fix 49/535 others. I'm not going to think that good can be done with a minority of will and or votes.

FSN had a good part 2 on debt on the News Hour this weekend. A Boston University professor (Kotlikoff) nailed it. BK is what it will take to fix this. We are beyond cuts. Take care.

 

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Hello MainCoonCat:

That was a super read. I especially like the homicidal maniac. Even though both of my feet are in the inflation camp you really raise some great merits. Thanks for the awesome read!!!!

I think if a serious downturn doesn't stop China et al use of energy and push PO back that we are going to see an ugly war. Homicidal maniacs don't share. I really hope someone will create some new energy that can be spooled up in no time.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...
mainecooncat wrote:

One final point. Instead of grouping economists/bloggers/regular folk according to whether they are deflationists or inflationists, what about grouping them based upon whether they think the US economy will collapse or not.

I bring this up because Stoneleigh and Mish are often corralled together as deflationists when in fact they have radically different views of where the global economy is going. Stoneleigh is far more doomerish than Mish is. She’s actually a hard-core doomer; she’s said that petroleum products won’t be available to the average person within five years’ time and that health care for the general population will also cease to be available in a similar time frame. Doesn’t get much more doomerish than that, does it?

(Quick note here to avoid needless debate. I don’t consider the word “doomer” and all its incarnations to be a pejorative, and I don’t use it that way here. I’m a big fan of Stoneleigh’s mind. I’m very optimistic about the future and think a collapse just might be the best thing for everybody at this point.)

Whereas Mish seems to think that what we’re experiencing now is more of a temporary problem that will be solved someday by electing the right politicians. In this sense, I don’t see Mish as big picture/cross-discipline kind of guy like Stoneleigh or our very own Chris Martenson.

So I say we need a Stoneleigh vs. Mish debate.

Mainecooncat, your analysis of our predicament was very good and I think you are exactly right about the fact that there is no easy way out. We must face a great reduction in complexity regardless of the specific way it happens and exactly where we end up. I also like your above point that we should not group everyone into a specific label of deflationist, inflationist, austrian, keynesian, etc. because there are some people who do not fit into those strict definitions, although it seems most people do like to follow a simple economic ideology that can be applied in all circumstances. On the other hand, there are people like Stoneleigh and also Steve Keen that analyze economics in a more realistic, dynamic way according to the specific circumstances we are facing and they do not try to advocate blanket "solutions". I am currently working on a piece that will address this specific topic and will post it here as well as my blog - peakcomplexity.blogspot.com - hope you get a chance to read it!

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Bravo, mainecooncat! 

That was possibly the most nuanced analysis of the inflation/deflation debate I have read to date.  The only certainty one can have about the matter is we don't know what the outcome will be.  One can make a case for what, given our circumstances, should happen, but as you note, the power elite will strive mightily to steer events in the least bad direction as seen from their perspective.  

And they may well fail.  There are many wild cards out there and I agree that climate- and resource-related ones could well be those which finally tip the canoe over.

For all of CM's sensible exhortations to prepare, I must confess to still being in paralysis mode.  Prepare in place or maintain maximum flexibility (i.e. to flee)?  For now I lean towards the latter hoping that at some point the ideal place will suggest itself.  In the meantime I will continue to try to make sense of what is going on around us.  Your post was a great help in that regard.  Thank you.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

Thanks for that reasoned post, mainecooncat 
It deserves a good response from me, but I have been busy elsewhere until now.

"Is there enough haircutting out there to truly make a difference?"

I called for: "haircuts, more haircuts, and sharing the pain" in my podcast.  The point is that you need haircuts everwhere, and some big ones to make a difference.  The culture of entitlement must be attacked and defeated.  Is it enough?  (Some in the UK think they are doing enough with their austerity programme.  We need something even bigger and broader in the US.) If the first round isn't enough, then do a second, and a third round, if necessary. 

But the pain must be shared, and shouldered by many: public sector workers, the military, benefits recipients, bailed out bankers, corporate wlefare recipients.  If it is not seen to be broadly applied, and fairly shared, it will be politically unpopular.  I do think that most people are prepared to take some share of pain - because the fear the alternative: a total collapse - but they want to feel that they are taking their fair share, not the entire burden.

"A formula for social unrest" ?

Sure.  But there's going to be social unrest, and plenty of it, whether sensible cuts are imposed if not.  Someone needs to get there, out in front of the crowds and the chaos, and articulating that there is a way forward, but it requires sacrifice, and a SHARED burden.  Gov. Chris Christie is one of those who is already there and delivering the message, and showing that it can be politically feasible, even if the head of a teachers union has asked her members to pray for his death.   He took it, and suggested that she be fired.  If she is not fired, then people of conscience should be fired up, and communicate to those around them the outrageous stupidity of that union and its leader.  Get angry, and get articulate, or you are contributing to the collapse, by doing nothing.

"The economy was essentially a ponzi scheme based upon infinite growth"

So shrink.  Downsize yourself, and your expectations, and ask your family and those around you to do the same.  And most important of all, cut your dependence on the state, and the addictions that the old system encourage.  Here's what I have done:  ditched my car (I had one years ago), and seek to live where you can walk where you need to, or have acceptable public transport.  Not only will it save you money, it will leave you less vulnberable to the changes when they hit.

Politics - "the US is a ... homicidal maniac/bully"

I don't disagree.  Military spending needs to be cut back, so do not fall for the pitchs of demogogues who try to gain power by talking about "terrorism", and blaming foreigners, for the ills of the USA.  Speak in reasoned ways, with reasoned people in foreign locations.  Try to enourage discussions that bring people to see things clearly.  I do not surround myself with like-minded Americans in Hong Kong, but rather seek to be part of an international community.  One side benefit is that that makes one see that things are more hopeful than they look in places like Detroit, where I grew up so many years ago (and return to visit my family from time-to-time.)

"Like Stoneleigh... I see massive deflation coupled with severe austerity"

 I tend to agree, since detroying the dollar will cause the wealth of many US elites to disappear

"Hyperinflation can be a purely geopolitical phenomenon and not an economic one"

I am not sure what that means.  To me, it is clear that a hyperinflation is a currency phenomenon which would have huge economic impacts upon things like how much oil the US is able to import in the future, and the types of work and real wages people will be able to receive.  So how does it avoid being an economic game-changer?

"Deflationists ... have radically different views of where the global economy is going"

I expect majopr changes, but have so far only made "financial preparations."  I would agree with you, if you expect the changes to be deep enough, you need to go beyond just buying gold, and make bigger changes which may mean moving out of a city, and joing a community. 

I do think Hong Kong will be hit in a mjor way if Stoneleigh's changes coime, but I do not think it will be the first to be hit.

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Re: Hyperinflation Podcasts - Shedlock vs. Lira, etc./ The ...

When anything; a government, a business, an individual gets tight - haircuts are in tall order.

When any of the above take in less than they make it is haircuts.

When any of the above take in less than they owe and then they borrow to cover the difference because they didn't take a haircut and get their house in order it is a recipe for never getting out of the hole with anything short of a full blown bankruptcy. 

Period.

When you start counterfeiting to cover the difference between what you owe and what you take in plus what you borrow you have embarked on the path of certain destruction where even a bankruptcy may not save you.

Exclamation point.

Your premise of haircuts was good in 1975 and 1985.

It is a pipe dream today.

The only answer is giving the creditors pennies on the dollar and reorganizing.

Your banging a dead drum.

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