Is Hyperinflation Possible?

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ed2011's picture
ed2011
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Is Hyperinflation Possible?

Just came across this site and I wanted to share with you all a brilliant eye-opening article that really puts thing into perspective for me regarding the possibility of hyperinflation and I wanted to share it and see what others think.  Make sure to check out all of the embedded links because each one goes into a lot of detail.

http://www.avaresearch.com/article_details-589.html

What the author (Mike Stathis) is saying (after he really thrashes the media's experts) is that hypeiflation is impossible because the money printed by the Fed hasn't reached consumers. This is a great point that I haven't heard anyone ever mention.

He also says that hyperinflation isn't likely due to the dollar-oil link, which means you need the dollar to buy oil around the world. He also makes an excellent case explaining why gold doesn't protect you during inflation.  The author has been dead on with just about everything he has predicted going back to his 2006 book, America's Financial Apocalypse.  I think he is right about no hyperinflation too.  Any thoughts?

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Re: Is Hyperinflation Possible?

I can't comment on the quality of Stathis' analysis, but I did enjoy the irony of the "I want you..." image at the end of that page...on his "Investment Analytics" website.

 

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Re: Is Hyperinflation Possible?

It's actually quite simple to cause hyperinflation.  Just jack interest rates up into the triple digits (like 800-900%) and then just have the banks keep loaning (there is no other money except borrowed money) so businesses can try to (ugh, it's impossible) stay ahead of the interest.

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mainecooncat
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Re: Is Hyperinflation Possible?

Just wanted to give a quick response here.

I don’t know whether your post, ed2011, is sincere or not, or if it’s some kind of pseudo-spam self-promotion. That feeling is heightened by the fact that it’s your first post.

Here’s why.

First.

You write: “What the author (Mike Stathis) is saying (after he really thrashes the media's experts) is that hyperinflation is impossible because the money printed by the Fed hasn't reached consumers. This is a great point that I haven't heard anyone ever mention.”

Ever mention.

Surely you jest.

This is one of the most common/widespread/popular reasons given by deflationists ranging from unknown bloggers to the biggest media pundits out there. Your statement is simply unbelievable to me. It’s only believable if you’ve never read an article on the matter. So that gives rise to suspicion for me.

Second.

The article you reference is a pure rant filled with hyperbole and juvenile-style boasting that I found more or less unreadable. This reaction has nothing to do with the content but only the style.

Third.

In the beginning the author claims that the mainstream media including CNBC is the home of gold bugs and perma-bears who constantly talk about hyperinflation. I won’t even legitimize that notion with a response.

But assuming that your post is real, I’ll just say that hyperinflation is a political/geo-political phenomenon almost wholly divorced from underlying economic fundamentals. Hyperinflation is not really bad inflation or inflation on steroids, it’s a currency crisis.

The phenomenon of “petro-dollars” referenced by you and the author is also a political/geo-political phenomenon that could change at any time for myriad reasons.

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Re: Is Hyperinflation Possible?

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Re: Is Hyperinflation Possible?

There is another road to hyperinflation - and it is the path we are on. The "Fed" has debased the value of "our" currency by 95% in 84 years. 5% more to go and we are at hyperinflation. Took the Roman empire 300 years to screw it up that bad. Bernanke et al are morons. I'm amazed all these smart writers can't pull their head out of their rear end to see the obvious. Must be the "dollar strength" as compared to other Fiat currencies that fools them. They should look at gold and get a clue.

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Re: Is Hyperinflation Possible?

mainecooncat, your response is so ridiculous I won't even waste time responding.

idoctor, in my opinion, Peter Schiff is not credible. He was so much more wrong than right. Schiff is a gold dealer and sells foreign securities which explains his extreme (and inaccurate) views. And his clients did worse than people who were in the US stock market. I don’t think CNBC is going to give us credible experts that can help us, just extremists that look like goofs at the end of the day, so that we go back to listening to the Wall Street bull.

Davos, thanks for your response (the only one helpful to me). But I think you are not mentioning that while a dollar isn't worth what it was 84 years ago, people are also being paid alot more today which makes up alot for this. I dont think wages have increased as much as inflation over the past 10 or maybe even 20 years, but it's not like there have been no wage increases. What do you think?

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Re: Is Hyperinflation Possible?
ed2011 wrote:

Davos, thanks for your response (the only one helpful to me). But I think you are not mentioning that while a dollar isn't worth what it was 84 years ago, people are also being paid alot more today which makes up alot for this. I dont think wages have increased as much as inflation over the past 10 or maybe even 20 years, but it's not like there have been no wage increases. What do you think?

What do I think? I'm blunt but I don't want to offend you by saying you are incredibly incorrect, so let me just say you might want to fact check your wage increase comment. 

Deflation can be fought by holding cash. Inflation can't. This point is critical for one does NOT want to screw this decision up. Going into hyperinflation without protection is sudden death/game over.

Chris did several mentions of flat wages. One was:

"The last ten years saw a doubling of debt, combined with stagnant jobs and wages. Our debt doubled, but our means to pay it back remained utterly flat. This is all you really need to know to follow the main plot line of the crisis."

Wages have NOT gone up like you claim. People took on debt, giving them and others the impression that they were doing well, giving the illusion that they were earning enough. The debasement of the dollar is very insidious. 

The wages you refer to going up may have been post 1950s but until about the 1970s one wage earner could provide a nice living for the family, since about the 1970s dual incomes and massive debt barely get folks by.

And like CM points out above: It is a double whammy. You get paid in dollars worth less, which means you have to spend more for goods and services and you have to service more debt that you took on to tread water.

You might want to spend some more time reading CM's work. You might want to read this blog on points of competing globally. One thing the Friedmans (and I'm pretty certain I read all his books) got wrong is they didn't account for Peak Oil or the fact that a worker here can't compete against a worker making 2 bucks a day.

Water always finds the water line, emerging nations will come up, ours will go down, but it'll all even out until things go local.

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Re: Is Hyperinflation Possible?

I too don't want to offend you by saying you are incredibly incorrect, so let me just say you might want to fact check your wage increase comment.

Wages have actually gone up, but not adjusted for inflation over the past decade, and not that much adjusted for inflation over the past 20 years. In order for the buying power of the dollar to crush wages as would be the case needed for hyperinflation, inflation would have to skyrocket past wages. I checked the data.

And I know this from reading Mike Stathis. You can verify this yourself from BLS, Census, and St Louis Fed data.

You stated “The "Fed" has debased the value of "our" currency by 95% in 84 years. 5% more to go and we are at hyperinflation.”

This is irelevant because wages have increased greatly since then. Can we buy as much as we could 80 years ago? I doubt it, but we certainly don’t have hyperinflation or even huge inflation.

I’m still waiting for a response to the reasons from the article that hyperinflation wont happen, namely because the money isn’t reaching consumers hands and because the US exports a good deal of inflation due to the dollar-oil link. Hopefully you will read the article again (if you even read it to begin with).

Also, gold is not a hedge against inflation, commodities are. Gold is not really considered a commodity because it’s not a staple of productivity.

As far as reading CM’s stuff, I have read Mike Stathis’ books and online articles and they’ve served me very well. As a result, I shorted the mortgage stocks and banks in early 2008 all the way down. You might want to read what Mike Stathis wrote. Here is his track record http://www.avaresearch.com/article_details-341.html

He hasn’t missed a thing. Still, all I hear about is hyperinflation so I wanted to ask around. I haven’t found anyone who can make a reasonable argument for it.

Now I don’t want to sound like a billboard for him, but I think it’s important to have an idea about a person you decide to listen to by knowing their record. Have a look at just a few pages from of 18 chapters of Stathis’ book regarding his predictions for real estate:

“What would happen if one or more GSE (i.e. Fannie or Freddie) got into financial trouble? Not only would investors get crushed, but taxpayers would have to bail them out since the GSEs are backed by the government. Everyone would feel the effects. With close to $2 trillion in debt between Freddie Mac and Fannie Mae alone, as well as several trillion held by commercial banks, failure of just one GSE or related entity could create a huge disaster that would easily eclipse the Savings & Loan Crisis of the late 1980s.”

“Furthermore, the GSEs have created very risky derivatives exposures for themselves and many financial institutions. As these debt instruments evolve into different products, less transparency and more uncertainty is created. Fannie Mae has taken about half of its MBS and pooled them into another security called a Real Estate Mortgage Investment Conduit (REMIC), otherwise known as a restructured MBS or Collateralized Mortgage Obligation (CMO). These mortgage derivatives are complex and considered very speculative. According to recent data, the total derivative exposure for all securities stands at nearly $300 trillion. However, it’s not known for certain what the net exposure is.”

“From inflated appraisals alone, 10 to 15 percent of MBS securities or up to $1.5 trillion have been overvalued by conservative estimates. Combine that with the lack of transparency, questionable risk exposure and fraudulent practices by executives at Fannie and Freddie, and you have a disaster ready to strike.”

“Now combine that with over 10 million Americans holding interest-only and ARM mortgages, throw in a million or two job losses due to say the failure of Delta, Ford, General Motors, or some other large vulnerable company, and you could end up with a blowup in the MBS market. This scenario would devastate the stock, bond and real estate markets. Most likely, there would also be an even bigger mess in the swaps and derivatives markets, leading to a global sell-off in the capital markets. Needless to say, the dollar would take a huge dive and interest rates would soar to double digits."

“The real estate fallout will no doubt cripple smaller companies such as mortgage lenders, home builders, and home improvement stores. But it will also affect huge financial institutions such as Citigroup, Bank of America, Chase, General Motors (GMAC), General Electric (GE Finance), and Washington Mutual, depending upon the extent of their exposure. As well, if things get really nasty the credit problems could extend to the ABS market which would cause further devastation.”

“Combined with the fragility of the economy, it should be easy to appreciate the enormous credit risk the collateralized markets have generated. Depending on how, when and to what extent the real estate and credit bubbles correct, large aftershocks could ripple throughout America’s financial system, triggering a massive stock and bond market sell-off, as well as huge problems for Fannie Mae, Freddie Mac, and all other banks involved with ABS and MBS.”

“Based on today’s grossly overvalued housing prices, a 35 percent correction on average seems very likely. And in some areas, a 50 to 60 percent correction is possible. Most likely, it will take several years for the real estate washout to be completed. We can only hope that the MBS market doesn’t experience its first blow up since inception, but don’t bet on it.”

“Under normal conditions, anywhere from 25 to 30 percent of the U.S. economy is directly affected by the housing sector. However, due to exaggerated asset prices from the housing bubble, this share is significantly higher. Housing prices have up to two times the effect on consumer spending as they do on declines in stock prices. Consequently, if housing prices decline by 25 percent, the economic impact will be as if the stock market declined by 50 percent.”

http://www.avaresearch.com/article_details-594.html

If CM made written predictions similar to these, I’d like to see them. As far as I can tell, no one else in the world did.

You keep mentioning CM when arguing your points, but no one else. That seems odd, especially since CM isn’t a financial or economic expert. Are the rules of this site to only talk about what CM says? If you do, does anyone bother to research track records? I noticed people praising Peter Schiff, but if you really look at what he predicted (and the fact that he has been saying the same thing since the 1990s) his credibility doesn’t have a leg to stand on.

I’m sure CM reads what the experts are saying to get his ideas, so it would seem reasonable that you might want to open your mind to others who don’t sell gold or make money selling gold ads. That way you know you’re not getting bias.

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Re: Is Hyperinflation Possible?

You might want to listen to this link: John Williams.

In the first couple of minutes Williams explains that wages are 10% below 1973 levels (obviously adjusted for inflation but based on govt. statistics (which are a bogus Enron joke) not his statistics.

Why you are harping on the velocity bit is beyond me. Do as you wish. If you think preserving your wealth - given the facts I stated - is best in dollars than don't waste your time with me. Best luck.

The bottom line as I clearly see it: The dollar is doing what all 3,800 Fiat currencies have done - gone to an intrinsic value of 0, proving Voltaire correct. There are estimates I have read from 600 trillion to 1.something quadrillion in shadow banking derivatives. So far the government has stepped in to save us from systemic collapse, and every time it does so it borrows, increases the deficit and further debases Uncle Buck. Capitalism is the cure, we don't have that, these morons think they are doing good and they are prolonging the agony before the real agony starts. Until they let this thing blow it's cookies it won't get better. FSN just emailed me to tell me my article on that hit #1 at 20,000 reads. Not bragging, just pointing out that read struck a nerve people can relate to.

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Re: Is Hyperinflation Possible?

I know about John Williams, and I think he has become a bit senile in his older years. He had some credibility until he fell in line with the other gold bugs who insist hyperinflation will happen. What's funny is that apparently, Williams is not regarded seriously by pros because he has received all the credit for discussing manipulated gov data when Stathis devoted an entire chapter to it in his 2006 book. The media stays away from real experts who aren't pro-Wall Street or gold bugs. They want extremists, not guys who can help us. They bring in extremists with no credibility so at the end of the day, the audience will go back to Wall Street because a stock market bull is better than a stock market bear since the market goes up over the long run.

As for Financial Sense, they’re all gold bugs. Stathis mentioned that he used to post articles there, but they banned him and removed all his stuff after he wrote the truth about gold and how hyperinflation wasn't possible. He also said they used "subtle forms of discrimination” against him. He suspects it’s because he isn’t Jewish. Have a look at the FSN contributors and count how many are Jewish, then count how many are gold bugs, then see who they highlight. Forget track records, lack of bias and credibility, if you aren't Jewish, you aren't getting any media exposure. Just look at the TV, newspapers, and even the big online sites.

There isn't a single person on that website that isn't somehow tied into gold, either as a dealer or marketer working with dealers. You'll get the same kind of views from kitco.com and every other gold site. That's like watching CNBC if you want to find out what's going on in the stock market. Bias breeds deceit and lies. And bias is always tied to money as far as financial reporting goes.

Finally, I'm still waiting for you to address the points I raised in the previous post. You keep pointing me to this guy and that guy without responding to my points. Meanwhile, it seems like you haven't taken the time to check out Stathis, which is a shame. There's a good reason he's been banned throughout the media and internet. His record is second to none and he has no agendas. That means he isn't going to make the gold bugs or the bull market guys happy, and if you don't do that, they will shut you out because it's all about selling ads; gold ads, ads for Wall Street firms and online brokers. It's also about pumping up gold and stocks. If you're always looking for people to reinforce your beliefs, you don't stand much of a chance in the investment game.

So, I ask two things. Address the points I made in the previous post. If you aren't able to, bring the geniuses in from gold bug sites to help. Second, check Stathis’ full track record and compare it with everyone else's, then see if what he says can be relied on. Hey, I made a boatload of money listening to him since 2007, but I'm a Devil's advocate at heart and I always consider other views. But right now I don't see anything that can sway me from his belief that hyperinflation aint gonna happen, not in the US anyway. We will have a good amount of inflation, but it won't be hyperinflation. Even if we did, gold doesn't protect against it. The best hedge against inflation are raw commodities and the very best is oil.

I owned gold a few years ago. Stathis predicted its rise. He was in it since 2002. When he got out last year so did I. He says gold is likely to go higher but the bubble will eventually burst. When it does, he says it's going to head to $300-$400, and I’m inclined to believe it.

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Re: Is Hyperinflation Possible?
ed2011 wrote:

I know about John Williams, and I think he has become a bit senile in his older years. He had some credibility until he fell in line with the other gold bugs who insist hyperinflation will happen. What's funny is that apparently, Williams is not regarded seriously by pros because he has received all the credit for discussing manipulated gov data when Stathis devoted an entire chapter to it in his 2006 book. The media stays away from real experts who aren't pro-Wall Street or gold bugs. They want extremists, not guys who can help us. They bring in extremists with no credibility so at the end of the day, the audience will go back to Wall Street because a stock market bull is better than a stock market bear since the market goes up over the long run.

As for Financial Sense, they’re all gold bugs. Stathis mentioned that he used to post articles there, but they banned him and removed all his stuff after he wrote the truth about gold and how hyperinflation wasn't possible. He also said they used "subtle forms of discrimination” against him. He suspects it’s because he isn’t Jewish. Have a look at the FSN contributors and count how many are Jewish, then count how many are gold bugs, then see who they highlight. Forget track records, lack of bias and credibility, if you aren't Jewish, you aren't getting any media exposure. Just look at the TV, newspapers, and even the big online sites.

There isn't a single person on that website that isn't somehow tied into gold, either as a dealer or marketer working with dealers. You'll get the same kind of views from kitco.com and every other gold site. That's like watching CNBC if you want to find out what's going on in the stock market. Bias breeds deceit and lies. And bias is always tied to money as far as financial reporting goes.

Finally, I'm still waiting for you to address the points I raised in the previous post. You keep pointing me to this guy and that guy without responding to my points. Meanwhile, it seems like you haven't taken the time to check out Stathis, which is a shame. There's a good reason he's been banned throughout the media and internet. His record is second to none and he has no agendas. That means he isn't going to make the gold bugs or the bull market guys happy, and if you don't do that, they will shut you out because it's all about selling ads; gold ads, ads for Wall Street firms and online brokers. It's also about pumping up gold and stocks. If you're always looking for people to reinforce your beliefs, you don't stand much of a chance in the investment game.

So, I ask two things. Address the points I made in the previous post. If you aren't able to, bring the geniuses in from gold bug sites to help. Second, check Stathis’ full track record and compare it with everyone else's, then see if what he says can be relied on. Hey, I made a boatload of money listening to him since 2007, but I'm a Devil's advocate at heart and I always consider other views. But right now I don't see anything that can sway me from his belief that hyperinflation aint gonna happen, not in the US anyway. We will have a good amount of inflation, but it won't be hyperinflation. Even if we did, gold doesn't protect against it. The best hedge against inflation are raw commodities and the very best is oil.

I owned gold a few years ago. Stathis predicted its rise. He was in it since 2002. When he got out last year so did I. He says gold is likely to go higher but the bubble will eventually burst. When it does, he says it's going to head to $300-$400, and I’m inclined to believe it.

I don't even know where to start?

  1. The Puplava's who run FSN gave me the impression of being Christian people. Personally I have friends of about every religion and many agnostic or atheists. I really fail to see what point you are making about Jews? How exactly does religion have anything to do with economics or economic writing contributers?
  2. I have addressed your merits with merits that I have.
  3. Holding raw commodities? Well I have 3 freezers packed with a dead cow, I have chickens and a garden. I don't think I'm going to take delivery of an oil contract - though I wish I had bought into my families heating an oil business years ago.
  4. Let me leave you with this to mull over, and if you think we are going to get anything but a snap into hyperinflation than that is your thoughts and I'm not going to beat the dead horse...

Remarks by Governor Ben S. Bernanke 

Before the National Economists Club, Washington, D.C.

November 21, 2002 

Deflation: Making Sure “It” Doesn’t Happen Here 

“But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed’s policy instrument–the federal funds rate–were to fall to zero. What then?” 

The conclusion that deflation is always reversible under a fiat money system follows from…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

 We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” 

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

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Re: Is Hyperinflation Possible?

He hasn’t missed a thing. Still, all I hear about is hyperinflation so I wanted to ask around. I haven’t found anyone who can make a reasonable argument for it.

From your Stathis link...

Mentioned the possibility that the Fed would intentionally create massive inflation in order to pay off the huge national debt – p. 362 

Predicted an inflationary depression followed by brief periods of deflation if things got really bad (we experienced deflation during Q4, 2008) -- Chapters 16 and 17

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ao
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Re: Is Hyperinflation Possible?
ed2011 wrote:

mainecooncat, your response is so ridiculous I won't even waste time responding. ?

ed2011,

My impressions were virtually identical to mainecooncat's.  Whether sincere or not, your post comes across as piggyback spam.  The degree to which you seem enamored with him also makes you come across as one who is a friend, family member, or beneficiary of his largesse.  I will try to keep an open mind and read his information and appreciate you bringing it to our attention but the presentation doesn't come across favorably. 

With regards to a few particulars, almost nothing he says is something I haven't read elsewhere and at times, earlier than his time of prediction.

Of course the gold bubble will burst ... everything reverts to the mean eventually with an overcompensatory drop before doing so ... again, nothing new.

In real dollars, wages haven't gone up and real dollars are what counts, not nominal dollars.

Why did he get into the gold trade late and leave prematurely? 

Also, hyperinflation, if it occurs (and he could be right that it won't) will be an emotionally driven event, not an economically driven one.

But I'll read and see what he has to say.  I'll most likely pick up his book on interlibrary loan though because, on principle, I refuse to pay for a book when the author can't take the time to have proper editing, spelling, fact checking, etc. done (check out Amazon review by "Eugene").   

 

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Mike Stathis

Mike Stathis does not make any sense at all. Rather he seems delusional: on his own website he himself writes about himself: "Mike Stathis is the best in the world." Rather peculiar since no one else agrees. He has made some youtube videos, where the title of the videos tries to give the impression that he is being interviewed by mainstream media. When watching the videos it turns out that someone else is being interviewed, and Mike Stathis has recorded his own voice over, with which he praises himself. He has no relevant credentials; indeed his whole universe seems rather frantic, infantile and delusional. I would pass on his "advice" and "analysis" anytime. 

 

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