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All Markets Suggesting Hyperinflation

-- Posted Thursday, 4 June 2009 | | Source:

By Andy Hoffman

After watching the financial markets the past few weeks, it appears my greatest fear (and expectation), that of unchecked advancement of U.S. inflation, is coming to be – NOW.  Perhaps using the taboo word “hyperinflation” doesn’t serve my purpose well, much as it hurt Cassandra to speak of “Armageddon.”  But “unchecked advancement of inflation” and hyperinflation are one and the same, no matter what you call it.

I have been speaking of the increasing likelihood of this event occurring for the past year, but now I fear the time for analyzing is about to end, and the time to act NOW. 

The majority of people do not even understand the definition of inflation, let alone the events that typically cause it and how to protect oneself against it.  Inflation, pure and simple, means accelerating growth of the money supply, NOT price increases.  The two are obviously interrelated, but the key item to watch is money supply, as all inflationary pressures stem from it (outside of product shortage issues, which unfortunately appear to be the case in nearly all commodities as well).

The U.S. money supply has grown exponentially in the past 30 years (since the day it went off the gold standard in 1971), but nothing in the 1971-2007 period compares with what we’ve seen in the past year since the “economic crisis” began.  Of course, the U.S. government discontinued the publication of M3, the broadest measure of U.S. money supply, three years ago claiming to save the U.S. taxpayer $1.5 million of administrative costs (LOL).  But smarter minds than the governments have extrapolated it out, so the exponential increase is pretty easy to see.

Of course, the aforementioned “economic crisis” started as early as 2000-02 when the real economy peaked, the China manufacturing engine exploded (taking all the U.S. manufacturing jobs), and the Fed’s loose monetary policy (as well as the government’s loose fiscal policy) went into overdrive.  These issues were of course masked by the resulting credit/housing bubble, both in the U.S. and by the trickle-down effect of an artificially propped dollar abroad, but not anymore.

Today, the U.S. economy is experiencing a 1930s-style depression which has only just started, and you can believe all you want about “green shoots” of recovery, but trust me there are none.  It is all propaganda from the government and banks to try and restore confidence via “behavioral economics”, in other words trying to influence consumers and businesses’ decisions via improving their confidence.  Of course, the fact that economic numbers have all been proven to be fudged (sorry, massaged) for years now doesn’t seem to register in the average person’s mind, but the “average person” hasn’t paid much attention to reality, or even attempted to, for close to a generation now.  Does Cheney’s admission yesterday that Saddam Hussein had no connection to 9/11 make this point well enough?  Either way, “confidence or not”, if you don’t have money you can’t spend any money.

Anyhow, back to inflation.  The biggest myth about inflation (and by extension, hyperinflation) is that it is an “economic event” caused by strong demand, and thus a bullish sign (LOL).  Yes, in selected cases so-called “demand-pull” inflation occurs, but typically it is isolated to niche markets where supply is in temporary shortage.  By the way, not only are gold and silver rising due to monetary inflation, but they both ALSO suffer from such shortages!

For the most part, hyperinflation is a “currency event” caused by the unchecked production of fiat (unbacked) currency by governments hell-bent on restoring the status quo following difficult economic times by printing money and placing it in the hands of its citizens.  Of course, in the U.S. the citizens are currently getting none of this money, only the banks that destroyed the economy via imprudent business decisions (such as subprime lending and OTC derivative creation) thanks to their enormous lobbying expenditures.  But, in our defense, we do get the bill for paying off the banks!

Hyperinflation has NEVER, EVER, EVER occurred during good economic times, and NEVER, EVER, EVER will.  This is because even fiat-currency using governments can raise interest rates to protect the currency when times are good, mitigating inflation while not destroying the economy.  But not now.  The U.S. is the world’s largest debtor BY FAR, in fact the largest debtor BY FAR in the history of mankind, with the amount of its debt rising exponentially each hour, each minute, each second.  Only because the U.S. dollar has been so widely held by foreigners (the result of the most bastardized global monetary policy ever, the U.S. dollar as WORLD RESERVE CURRENCY), has it not crashed to nothing yet. 

But it is starting now, as the dollar’s initial knee-jerk reaction upward last year as billions of dollars were repatriated during the height of the first stage of market meltdown has passed, and now the effects of U.S. “quantitative easing” (read money-printing) are showing themselves in a plummeting dollar and Treasury bond, as well as soaring gold (and other commodities) again.  The level of fiscal and monetary stimulus continues to rise exponentially, and it  simply WILL NOT STOP despite the fact that governments, central banks, and investors alike are starting to race for the exits and protect their respective net worths by selling dollar-denominated instruments and buying commodities, particularly gold and silver.

In fact, even the stock market has started to rise smartly (not that many people own stocks anymore due to the 2000-02 stock market crash and 2007-2009 housing crash), but this itself appears to be signaling hyperinflation more than anything real such as “green shoots” of economic recovery.

You see, even stock markets can go higher during hyperinflationary periods, as too much money chases too few real items.  And in most cases, stocks represent claims on real items.  The problem, however, arises when people realize that even hyperinflated stocks have not in the past, and will not in the future, achieve real gains relative to inflation, as in effect they are still paper instruments.  This is particularly the case with U.S. stocks, as international investors will likely be turned off by the fact that gains in the U.S. stock markets will likely be offset by losses in the dollar’s value.

To prove this point, read the link below describing the action of the German stock market in the 1920s, just before Hitler rose to power after the German post-World War I economic collapse.  The stock market rose from 126 in 1918 to 26 million in 1923, however the cost of a car rose to the equivalent of US$3 million as well (in 1920 dollars), meaning any stock market gains were wiped out by real losses in value.

This is verified by the top chart in the second link below, showing that the cost of living in Germany rose by 100 million times in those five years.  Multiple today’s average car price of $15,000 by 100 million, and do the math to see what a car would cost today in that environment.  And don’t think this happened only in Germany – it has happened countless times throughout history, including twice in the U.S.’s history (the Revolutionary and Civil War periods) and several times in the 20th century (Mexico, Argentina, Zimbabwe, to name a few).

And that’s the gist of it!  PURCHASING POWER is all that matters, and the loss of PURCHASING POWER is what I have long been warning you to PROTECT YOURSELF from.

And, oh yeah, check out the the prices of gold and silver in German Reichsmarks during this period, seen in the third chart down in the link below.  Silver rose from 10 marks/oz in 1919 to 1 trillion marks/oz in 1923, while during that same period gold rose from 100 marks/oz 100 trillion marks in 1923!  In other words, both outperformed rises in the cost of living, and thus were the only real way to protect Germans from the loss of 99.9% of the Reichsmarks’ purchasing power over this period.   So I wouldn’t get to excited about the prospect of $1,000 gold, or even $2,000.  There is a real possibility that these kind of numbers will once again come into play.

And for those that still want to focus on the rising Dow as a signal of something good going on (which, by the way is only rising because, as always, bankrupted companies such as GM, AIG, and Citigroup are removed from it), keep in mind that those gains have been equally offset by declines in the dollar and Treasury Bonds since the rally commenced this spring.  Commodities have been the largest beneficiary of the “green shoots” rally, particularly, no surprise, gold and silver DESPITE the largest “commercial” shorting increase ever in the COMEX gold and silver paper pits (draw your own conclusions).

So when you still have trouble paying the bills, and the unemployment lines continue to grow, yet interest rates and the price of gasoline continue to rise (as well as gold/silver), think long and hard about what is going on around you and then act to PROTECT YOURSELF with the purchase of real items of value, particularly gold/silver, food, and living necessities.


-- Posted Thursday, 4 June 2009 | Digg This Article | Source:


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