-- Posted Friday, 8 October 2010 | | Source: GoldSeek.com
By R. D. Bradshaw
Deflation versus inflation arguments continue. For some clues on which way the Fed will be moving, the FOMC met recently in Aug and Sep. In these meetings, the privately owned central bank had a perfect opportunity to fan the fires of inflation or deflation. But its official statements suggested that the bankers were for the time being following a middle path but with an option to commence more so called quantitative easing if necessary (which translates to further big bailouts eventually for the Rothschild Cabal of bankers).
While supposedly following a middle ground presently, there have been at least two Fed governors who have spoken out to urge a formal move to inflation. But my take is that the Rothschild Cabal owners of the Fed are not apt to publicly disclose their secret plans and manipulations until they are already in process and history (250 years of Rothschild history prove their penchant for secrecy and deception). As a minimum, people trying to follow the secret operations of the Fed now suggest that the Fed has silently been buying up US Treasuries which some say will spur inflation.
But either way, whatever the Fed does or does not, money will dry up. The Cabal right now is trying hard to impose a deflationary collapse to protect its favorite currency, the dollar, to continue its rule of the world and exploitation of various nations for profits, gain and control. This deflationary process is intended to eventually end in a collapse whereby only the Rothschild Cabal and its relatives and agents will have money (this goal will then mean world government under the Rothschild Cabal masters). Everybody else won’t have any money to meet basic needs and will be perpetually in debt to the bankers forever.
The Deflation Possibility
A good case for deflation was made on Jul 16, 2010 at www.veteranstoday.com which had a provocative story on The U.S. Is On The Edge Of A Growing Deflationary Sinkhole which addressed the US unemployment situation and compared it to the 1930s deflationary depression.
This report said that “The U.S. caused the 1930s deflationary depression and is again the cause of the current contraction. Although similarities exist between the two, the differences between them insure a far more consequential outcome today than in the 1930s. [Indeed, the world] now finds itself on the edge of a growing deflationary sinkhole created by the sequential collapse of two large U.S. bubbles, the dot.com and U.S. real estate bubbles.”
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides some further reformatted and edited [..] excerpts from Darryl Robert Schoon’s (www.drschoon.com) which said: “Global demand is again falling as credit contracts, a sign that debt-driven deflation is back but, today, there is an additional danger as well. Since 1971, because of the U.S. default on its gold obligations, money no longer possesses intrinsic value and the consequences will soon become apparent. Deflationary depressions and a collapse in the value of fiat money have happened before but never simultaneously. Soon, they will.
“The Day of Reckoning Has Arrived. We are in what Stephen Roach, Chairman of Morgan Stanley Asia, calls the end-game, the resolution of past monetary excesses and imbalances, excesses and imbalances that reached never-before-seen heights in the last decade.
“The Problem. Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the U.S., the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more [in] what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems. The amount of outstanding U.S. debt, according to Martin D. Weiss, www.moneyandmarkets.com, has now reached levels that can never be paid off. The United States government and its agencies have, by far,
- the largest pile-up of interest-bearing debts ($15.6 trillion),
- the largest accumulation of unsecured obligations (over $60 trillion),
- the largest yearly deficit ($1.6 trillion), and
- the greatest indebtedness to the rest of the world ($4.8 trillion).
“The unpayable levels of U.S. debt are not just the problem of the U.S. because the U.S. dollar is the lynchpin of today’s fiat money system, U.S. debt is everyone’s problem. The U.S. dollar is the world reserve currency and a default by the U.S. will have far-reaching consequences, especially in China, its largest creditor.
“The Solution. Bill Gross, co-founder of PIMCO, the world’s largest bond fund and an expert in matters of debt, wrote in 2006 that the way a reserve currency nation [such as the US] gets out from under the burden of excessive liabilities is to inflate, devalue, and tax.
a) Inflate. Inflation destroys the value/cost of liabilities by eroding the value of money. Debts are paid back with inflated currencies, a process which benefits the debtor and injures the creditor. This is why reserve currency nations usually inflate their way out of debt by printing what they owe.
b) Devalue. Devaluation is another option afforded reserve currency nations. By devaluing the value of their currency, the value of what they owe falls relative to other currencies. Again, the benefit is to the debtor at the expense of the creditor.
c) Tax. Taxation is another option but is no longer available to the U.S., as its liabilities are now too high. It would be like forcing the elderly and morbidly obese to engage in strenuous exercise to regain youth. Of the three, inflating away debt is by far the preferred option but it is one the U.S. can no longer choose.
“Why Inflation Won’t Work. It’s tempting to think that the U.S. can inflate its way out of its fiscal problems. A faster, sustained increase in prices would erode the real value of past debt, and higher future inflation would – other things equal – reduce the real resources needed to service and pay back the promises we are making today. However, inflating away U.S. debt won’t work because as Richard Berner points out nearly half of federal outlays are [now] linked to inflation, meaning that increments to debt would [also] rise with inflation.
“Inducing monetary inflation would also raise aggregate U.S. debt resulting in a self-defeating cycle of higher prices and higher debt. However, there is also another more fundamental reason why inflating away U.S. debt won’t work, to wit: Inflation is almost impossible to induce during severe deflationary contractions. Fed Chairman Ben Bernanke understands this difficulty quite well. Bernanke’s late mentor, Milton Friedman, theorized the Great Depression could have been prevented by sufficient monetary stimulus and so in 2008, faced with the possibility of another deflationary depression, Bernanke put Friedman’s theory to the test. Unfortunately, when tested, Friedman’s theory didn’t work. Despite Bernanke’s massive monetary expansion, global credit is still contracting and lending is drying up.
“Inflating away debt is virtually impossible in the presence of deflation, but if U.S. monetary expansion is sufficiently large, it could result in the hyperinflation of the U.S. money supply, which would destroy both U.S. debt and the U.S. economy as well. Managing Director and Chief U.S. Economist at Morgan Stanley, Richard Berner, recently discussed the reasons in We Can’t Inflate Our Way Out, February 24, 2010. www.morganstanley.com/views/gef/index.html#anchor6647bf63-2073-11df-978b-bbc960980e46
“Will Devaluing The U.S. Dollar Work? Devaluation is the U.S.’ only remaining option but, as pointed out in Comstock Partners’ special report of February 25th, “The Cycle of Deflation, Impediments to Debt Relief”, the major impediment to a U.S. devaluation to reduce debt is China saying: “There is a stumbling block to the normal competitive devaluations that typically take place. In the past, a country that incurred too much debt just did what they could to devalue their currency in order to export their way out of the dilemma by exporting their goods and services to their trading partners…[but] the Chinese have linked their currency to ours, so as we debase our currency, one of our major trading partner’s currency is also declining and China becomes the major beneficiary of the debasement of our dollar.”
“The China peg to the U.S. dollar thus prevents the U.S. from altering its trade deficit by currency devaluation, but it does not prevent the U.S. from devaluing the dollar for other reasons. If the U.S. does devalue the dollar, it will not be to reduce debt—it will be to maintain its advantage over the world in general and China in particular.
“The Influence of China On U.S. Actions. U.S. dominance is being challenged by China. While it is not possible to know what the U.S. will do, it is naďve to believe the U.S. will do nothing; but whatever happens, U.S. debt and the U.S. dollar will be affected. China has now significantly reduced its buying of U.S. debt leaving the U.S. with growing deficits and a virtual boycott by China of new U.S. IOUs. This will impact future U.S./China relations. The tentative but mutual benefits of the past are being replaced by self-interest as U.S. spending and consequent debt is increasingly perceived as being out of control by China. That perception is correct. Since the 1980s, America’s focus has been on borrowing more, not spending less and the implications are clear.
“With China moving away from increasingly risky U.S. debt, the U.S. is now far more likely to treat China as a challenger than as a needed creditor and, while devaluing the U.S. dollar would have minimal impact on overall U.S. debt, it would have a significant impact on China. In December 2009, total foreign holdings of U.S. government debt equaled $3.29 trillion. With total U.S. obligations now close to $100 trillion, a 30 % devaluation of the U.S. dollar would impact only that debt held by foreigners. China currently owns at least $1.7 billion in U.S. dollar denominated securities and, if the U.S. devalued the dollar by 30 %, China’s losses on its investments would be in excess of $500 million.
“As stated earlier, it is not possible to know what the U.S. will do but since WWII geopolitical considerations have always outweighed economic factors in U.S. policy decisions and there is little reason to expect this to change—even as the end-game approaches.
“The End Game and Sovereign Default. The U.S. is trapped. Caught between rising expenditures and the need to borrow more, outstanding U.S. debt is incapable of ever being repaid and should the credit rating of the U.S. ever reflect its actual state, sovereign default, not devaluation would be the result.
“In 2008, Kenneth Rogoff and Carmen Reinhart, in their book “This Time Is Different: A Panoramic View of Eight Centuries of Financial Crisis,” reviewed the history of sovereign defaults concluding that the then dearth of defaults was in actuality a warning of more to come. They were right. As the end-game progresses it is impossible to know what the U.S. will do. It is likely the U.S. doesn’t know itself. What the U.S. does know is that it is now trapped by increasing levels of mounting debt from which there is no easy exit.”
*http://beforeitsnews.com/story/21/656/Will_the_US_Devalue_the_Dollar.html
The Hyperinflation Blow-off Alternative
Conversely, there are some people out there opting for a soon-coming hyperinflationary blow off. I doubt that the Cabal is working for this option. But it may happen anyway. And if it should happen, I submit that the results/fall out will be much the same as in deflation. The people are simply not going to have money to meet their basic needs, even in hyperinflation. Of course, the Cabal masters and their relatives and agents will have stolen most of the wealth of the US and should therefore have money to buy things. But the rest of us will not. The problem will be the exploding prices which will make our incomes and assets inadequate to stay up with the price increases.
All the while the Rothschild Cabal masters and rulers of the United States have been continuously lying to us that inflation is flat or low; yet, the reverse has been true. Of course, there are idiots in the US who believe these Cabal lies. But many people are beginning to wake up and realize that we are being lied to and deceived. John Williams (at www.shadowstats.com) and a number of other analysts are now positing that the US is running at 8 to 10% inflation per annum.
Beyond the lies and deceit, some persons are going on record that the next big spike-up will be coming soon in food prices. Just recently, the London Telegraph had an article predicting food inflation of 10% or more by 2011. The consensus of many is increasingly that price inflation will take off next year and could quickly hit the hyperinflation level. The only thing for sure that can be said is that whatever happens the Rothschild Cabal masters running the United States will lie to us and try to con us about the real world out there. They think we are all idiots and can be easily deceived by their prostitute government agents and controlled media powers.
Frankly, I look for this second course ultimately (an eventual hyperinflationary bust) although we may have a deflationary fall first of a short duration—simply because the Cabal runs things and this is on their agenda (as discussed in Understanding Money and War XIV at www.analysis-news.com). The Cabal master crooks and criminals made so much money off of us, the suckers, in Sep 2008, that I have believed for some time that they would try again to repeat that scenario for more huge profits. Hence, we are long overdue for another hard fall and one which will wipe out more stocks and real estate and hurt commodities (though not for long on the commodities as they should soon rebound).
Whether we have such a hard fall or not won’t change anything because increasingly more and more Americans are at the poverty level (perhaps 50 to 60 million are there now). We are moving to be a nation with a few well off Haves and many Have-nots living on social security, unemployment benefits, food stamps and other so-called welfare. Many Americans are now living on the streets, out of cars, on side-walks, in public welfare facilities, in tent cities and wherever they can squat. In this environment, the Haves have money to buy goods and services while the Have-nots are at best restricted to food, taxes and minimum needs.
Foreign sellers of consumer manufactured goods depend on high volume to sell with lower margins. Since only the Haves will be buying, producers will look for higher returns/more profits to stay in business. The big corporate retail stores (like Walmart) will be in no mood to cut prices. They’ll cut inventory levels as they have been doing (which will further cut production). Tragically, many/most of the American people no longer have money to buy things. Only the Haves have money to buy and there are limitations in their numbers.
With food stamps, food producers can still sell; but the Fed works to depress agriculture prices (since food producers/farmers are the easiest to cheat and defraud in the futures markets). Farmers are taking a beating with high petroleum costs for fuel, fertilizers, chemicals, etc. Many will go out of business, leaving the big corporate farmers who are not going to produce at a loss. Too, some 28% of US food is produced overseas. High fuel costs will keep these costs up. This will mean higher food prices for imports. Consequently, food cannot go much lower in prices.
This means short term that we will have no real end to inflation, nor will there really be any substantial deflationary mode in America as the Cabal is trying to impose on us.
The Bottom Line
The point of this is that despite the Cabal efforts to impose deflation on us, there is increasing inflation and eventual hyperinflation. In that context, welfare payments, retirement benefits and what little income most Americans are now receiving will simply not be enough to keep up with price increases, even assuming that these payments continue at the present levels. Frankly, I don’t think they will continue at the present levels. But even with this assumption, most Americans will be in a fix trying to make ends meet with the accelerating inflationary demands.
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-- Posted Friday, 8 October 2010 | Digg This Article
| Source: GoldSeek.com
