We think hyperinflation in
the USA will start any time between Spring and Winter of 2011...and we're
not alone! [unfortunately]
Prelude to Hyperinflation or
monetization of Debt
Hyperinflation occurs when a country’s
bond market breaks. In other words,
the sovereign nation is no longer able to fund itself. Its bonds fall
(yields rise) to the point where the government has to print money or
default. Rising interest rates cause the interest payments to consume too
much of the overall budget. The government or central bank then begins to
print money to fund its deficit. Then the citizens start to consume,
knowing the currency is rapidly losing value. Demand has nothing to do
with the cause or the onset of hyperinflation.
Japan have hyperinflation in the 1990s? It didn’t have to monetize its
debt. It had the internal savings to be able to finance its budget. The
same thing is true with the United States in the 1930s. Even though we
devalued the currency, the bond market remained strong into the early
1940s, thus preventing runaway inflation.
catalyst for severe inflation globally is the breaking of many bond
markets. The UK, Japan and the US won’t be able to finance their budget
gaps without monetization. The budget deficits are now larger and they
come at a time of reduced global liquidity and reduced tax revenues.
Global monetization will lead to severe inflation.
point to make about severe or hyperinflation is the fact that it doesn’t
come about steadily. The preconditions and causes are all the more subtle
as hyperinflation occurs suddenly or dramatically.
The Second Phase – Economic
The lack of money becomes evident in the second phase of the crisis – the
financial crisis is replaced by an economic crisis, triggering massive
bankruptcies that would spread globally in a chain reaction.
After the series of initial difficulties encountered by home
borrowers and the construction companies, there have
been no bankruptcies so far in manufacturing, shipping, media, and food
processing, not to mention luxury goods like luxury cars, yachts and
watches, or exotic businesses like space tourism. But their time will
come. During the second phase of the crisis, another large sum of capital
will “evaporate” from the market, because a company which is going
bankrupt will leave nothing for shareholders and very little for its
bondholders. In the second stage of the crisis, unemployment will
begin to grow along with the wave of bankruptcies. The final
quarter of 2008 is only the beginning. Remember that in 1931-1932, the
unemployment rate in the USA was 20%, with one in five people unemployed.
The situation in the EU is similar and even more explosive because of the
virtual insolvency of the Social system. Argentina (where the private
pensions were nationalized) shows what probably is to happen.
The Third Phase –
the series of crises, politicians will attempt to interfere in the game,
but the third stage of the crisis will nevertheless begin. Since banks
were “saved” with large bailouts, politicians will also begin to lavish
corporations (ex. GM) with various aid packages. The recent charade of
automakers begging for money is only the beginning.
will be undertaken that, in the opinion of politicians, will help the
economy and save jobs, something that will likely become known as Obama’s
“New Deal”. This will include a multitude of spending
programs and, above all, the loaning of credit with astronomical increases
in the Money Supply, together with the classifying of the corresponding
numbers into the trillions. Just like now nobody talks any more in terms
of millions, so in the not so distant future no one will be talking any
more in terms of billions. Trillions will be the order of the day.
Perhaps bank lending standards will be relaxed. Perhaps the government
will lavish the banks with a lot more money than it does today, just to
keep them lending. Perhaps the central bank will directly monetize private
debt. Perhaps the government will guarantee many more corporate loans,
just like it recently guaranteed the securities/loans of the GSEs. Perhaps
GSEs will proliferate throughout the economy, transforming the economy
into the “GSE Economy”, transforming a former great capitalist economy
into a modern-day nationalsozialistische economy.
seem for awhile that peace has arrived, that the crisis has been overcome,
as if the bankrupt companies have been “saved”, although this will only be
the calm before the storm. There is already more money in the financial
system than actual goods, then after the subsequent injections of money,
more like dropping money from helicopters or showering corporations with
money, the economic ship will begin to heel.
this stage, the third stage, the hyperinflation scenario will begin when
people realize that the money in banks will buy them next month half as
much as it did this month. Then panic will
ensue. People will begin to buy essential and non-essential items, just as
long as there is something of value that can be obtained in exchange for
their colorful pieces of worthless paper. Manufacturing enterprises
would no longer want to sell goods, because the money received in exchange
for the sale of their goods is not sufficient to purchase the new raw
materials. Everyone who sells an actual object or good for paper money
is a loser, since the same money is no longer enough to purchase again the
same goods. Money created out of thin air electronically has brought
tremendous benefits to the initial users and issuers, but at the expense
of the wider masses through the collapse in their standards of living in
The third phase will be chaotic and difficult.
The details are difficult to predict, but if history is any judge, the
politicians won’t be asleep. They will likely pass a number of important
laws, prices will be fixed, rents blocked, wages will be standardized,
foreign currency accounts will be frozen; in general, everything that
could be done, will be done, and this will only serve to extend the agony.
Social upheaval and riots will be suppressed by brute force; many
democratic freedoms and values will likely be lost. As of today, the hyperinflation spiral and Zimbabwe
Syndrome have reached the point of no return.
Final Phase – Monetary Collapse & Deflation
event that democracy survives, then the fourth and final phase will begin,
a phase which can be called The Darkness before Dawn, the final agony
before the rising of the sun. This is the ultimate destruction of the
monetary and financial system, the loss of all electronic and financial
values that is accompanied by monetary reform throughout most of the
worst case scenario, this will result in the creation of a Global
Government; in the best case scenario, the process will take place
separately in each country. For example, at the end of the Tulip Mania
of the 17th century, all futures transactions with which tulips were
bought and sold for millions of florins were declared void. Similarly, all
electronic assets, contracts, securities, and futures contracts will be
declared void, because the world doesn’t have a court or executive power
which is capable of enforcing bankruptcies and debt collection resulting
from millions of non-performing contracts.
Only the actual collateral for loans will be demanded - land, houses,
apartments. The losers will be private persons,
while legal entities, along with their debts and non-existent collateral,
will be lost in the virtual world, the place from whence they came.