-- Posted Tuesday, 11 December 2012 | | Disqus
By Tekoa Da Silva
I saw a YouTube video published by Nick Barisheff recently (not an endorsement), which details his argument for hyperinflation and $10,000 oz. gold. While I don't doubt the possibility of $10,000 oz. gold, I’m highly skeptical of the possibility of hyperinflation in the United States and Europe. The reason is simple: Money today is not what money was 50 or 100 years ago.
Money today is digital, and all money can be controlled through digital mechanisms. Money can be "shut-off", the flow of money can be temporarily halted, and money supply can be "erased". Additionally, tools within the banking system, such as a debts being called-in on mortgages, credit lines & access to credit being eliminated, can create money-draughts and reduce the money supply. An economy wide debt-calling collection would create a shortage of money, along with forced liquidations of financial assets and commodities.
Said liquidations would then cascade into further liquidation, as the paper chase towards digital currency accelerates.
On the other hand, if we were living in a world of paper money only---and each time the government borrowed money, the Federal Reserve/US treasury printed the borrowed sum on new paper, and handed it over to the government to spend, control of paper money would be lost once it was spent.
For example, if the government borrows $1 billion from the Federal Reserve and prints each dollar...and then hands it over to Defense Company Inc. for military expenses...once Defense Company Inc. hands out that physical cash to its employees and shareholders, it circulates through the economy and cannot be controlled by the banking system (unless deposited back into a bank account).
However, if the government borrows that same $1 billion digitally (as is does today), and the ownership of each dollar is transferred from party to party digitally---it still remains within the domain of the banking system, and can be controlled (or turned off/eliminated/erased) at the flip of a switch. That’s a big difference. For that reason I am skeptical of, and will say that I will never expect to see a Weimar-style hyperinflation in the West---ever.
A Slow Grinding Decline
I am more of the opinion these days that over the next 10-15 years, while everyone is arguing about the coming currency collapse, the US dollar will have been slowly devalued by 50-75%. A slow devaluation is better for business globally, it will give multinationals time to adjust to the new order of things, and it will be gradual enough (in a political sense), to preserve American social order to the best extent possible.
We all know the story of the lobster in warm water.
So that's that. A slow devaluation over the next two decades, with emerging markets forgetting to call home to "Grandpa West". Meanwhile, Grandpa West sits back in his rocking chair and drinks a cold lemonade, reminiscing to nobody listening about the days of his youth and the "prettiest girl in high school"...
All the best,
Tekoa Da Silva
http://bullmarketthinking.com/
-- Posted Tuesday, 11 December 2012 | Digg This Article
| Source: GoldSeek.com
