Get Ready, Inflation Is On The Way
53 Comments »By Giordano Bruno
Neithercorp Press – 4/19/2010
In the professional financial world, the term “inflation” has many inferences, consequences, supposed benefits, and definitions. One Wall Street economist may have an entirely different interpretation of the word than another Wall Street economist working in the same building. This lack of a common orientation to the issue creates serious confusion for the everyday investor and the average American only looking for the fundamentals, so that they may better protect their livelihood. In fact, it is not unusual to see two financial analysts discussing inflation in the MSM, only to completely fumble over each other because they do not share a mutual idea of what it actually means.
Some consider inflation as the expansion of markets, some the expansion of profit margins, others the unbalanced increase in productivity versus demand. These are all marginal inflationary concerns compared to REAL inflation; the inflation of prices due to a devaluation of the dollar.
Since the current economic crisis officially began in 2007, we and others have been warning about the inherent danger of dollar collapse in the face of unprecedented liquidity creation by the private Federal Reserve, as well as the continued collapse of the Treasury Bond market, and the massive increase in our national debt caused by unchecked spending by the government under both Republican and Democratic administrations. While we are well aware that the mainstream media, for the most part, has shrugged off the possibility, and are currently in sing-song over our supposed “recovery”, we believe the threat has grown to substantial levels over the past three years, and that recent signals indicate that inflationary effects will soon be widely visible to the general public.
Unchecked inflation, or “hyperinflation”, is perhaps the most devastating economic circumstance in existence. Inflation not only disrupts the mechanics of a financial system, it also evaporates the buying power of currency; the very basis of trade, decimating the savings of an entire nation in one fell swoop. The United States has been on this path for quite some time. The ill-conceived (and likely engineered) journey is quickly coming to an end…
Treasury Yields Signal Approaching Dollar Plunge
By now, most Americans, even those with little interest in economic affairs, are aware of the disintegrating Treasury bond market. Foreign investment in long term U.S. debt is almost non-existent. Without a continuous flow of foreign funds to support our deficit spending free-for-all, our economy WILL collapse, along with the Dollar. It is only a matter of time. In order to delay this collapse, the Federal Reserve (in tandem with certain government officials) has been creating fiat money en masse to buy our own debt, thus monetizing it further, and setting the groundwork for a major devaluation of the Dollar. I believe that this process is nearing completion, and that treasury yields are a prominent indicator of an approaching bond bubble burst. You can track the activity in Treasury auctions here:
http://treasuryauctionwatch.blogspot.com/
Treasury yields have spiked to startling levels in the past two months, flirting with 4%, for 10 year notes and poised to increase further. Some may argue that yields have been at the same level and much higher in the past. The problem is that this did not occur while interest rates were being artificially held at zero by the Federal Reserve.
Without going into a ten page synopsis on the intricacies of the Treasury price vs. yield relationship, essentially, when yields are up, it means bond prices are going down. When bond prices go down, especially when they go down dramatically, this indicates dollar devaluation and the possibility of inflation. Yields often rise when the government cannot generate enough investment in our debt, which is exactly what has happened. Responses to bond auctions over the past year have been dismal:
http://www.businessinsider.com/us-treasury-crisis-2010-4
The MSM has skirted the issue of yields and inflation, claiming that rising yields only show that the economy is improving and that people are pulling money away from bonds and throwing it back into riskier assets such as stocks. This interpretation would make sense under normal circumstances. However, our situation is far from normal. Yields should remain relatively low while interest rates are kept close to zero, but they have not remained low, and this is cause for concern. The Federal Reserve has lowered interest rates to zero and stated clearly that they intend to keep them there for much longer than most thought they would, yet they still can’t generate enough investment in the U.S. Dollar to support our national debt, and have thus allowed yields to spike to lure in new buyers. We are practically giving away bonds, and no one wants them! This signals to me that Treasury markets could conceivably tank in the near future, and we would either be facing a sovereign debt crisis like Greece, or (more likely), the Fed will become the one and only buyer of U.S. debt with money printed out of thin air, and presto! Hyperinflation!
This article from 2007 is rather prophetic:
http://www.reuters.com/article/idUSN2431420620071224
Interestingly, while this development will hurt almost everyone, certain people will benefit, mainly the international banks, which stand to make incredible profits because they borrow short and lend long, if they lend at all. This might explain why banks who received bailout cash have so far refused to begin pumping it back into the real economy, and why credit markets have remained chilly. It is possible they invested a large portion of this money into treasuries, tightened credit, and are now sitting back making a tidy profit on the rising treasury yields. This would keep stimulus dollars wrapped up in the banking sector and perhaps the stock market, which explains how companies like Goldman Sachs and JP Morgan Chase are currently making huge profits and the Dow Jones can produce a historical rally while the rest of the economy lays down in the gutter. Of course, this can only last while the Dollar still holds some value, which may not be for much longer.
Reading The Signs In Gold And Silver
Precious metal markets are manipulated through naked short selling, and have been for decades. Anyone who researches their operations in-depth knows this is a fact. Why would corporate and central banks keep the value of PM’s down? There are a number of reasons, the primary one being that gold and silver, if allowed to function in markets normally, would compete with the Greenback and other fiat currencies, perhaps surpassing them as the currency of choice because of the fraudulent nature of paper money. The scheme dwarfs the subprime derivatives fraud that Goldman Sachs is currently being sued for by the SEC. Exposing this reality to the general public though presents mind-boggling difficulty.
The U.S. Commodity Futures and Trading Commission (CFTC), is supposed to monitor and investigate market manipulation and monopoly, and punish those corporations that would subvert precious metals for their own gain. The CFTC has failed completely in this task, either deliberately (most likely), or through pure stupidity. I have heard it said in the past that it would take nothing short of a currency crisis to bare the fraud in metals markets. Apparently, that moment has arrived…
Investors in gold and silver have been voicing their suspicions quite loudly in the past year over banker deception in PM securities. One would expect that the inflationary program instituted by the Federal Reserve would have a greater effect on Gold’s value than it has, and silver has been struggling to break the $20 an ounce mark ever since the bailouts began, which is outlandish considering the circumstances involved. Enter Andrew Maguire, former employee of Goldman Sachs and trader in PM markets. Maguire has exposed the blatant fraud in the silver trade by using inside information on the JP Morgan signals for short sellers to predict EXACTLY how the market would move before it did so!
Maguire took his concerns and evidence to the CFTC and was ignored. In response, he approached Kingworld News and GATA, and exposed the information to the world. Below, Bill Murphy of GATA confronts the CFTC board with the Maguire situation once again (keep in mind, he is speaking quickly because his presentation is on a time limit):
It would seem that the meltdown in Treasuries is beginning to boil over, creating a domino effect that has finally brought the truth of PM’s to the light of day. This is good news and bad news. Good, because the lie of fiat currency and banker suppression of gold and silver (real money) is finally being revealed to the wider public. Bad, because it also indicates that the Dollar is on the verge of crumbling. Despite manipulation, gold in particular has held very strong around the $1100 an ounce mark. Most mainstream talking head economists were predicting its downfall months ago. Not even the temporary strength of the Dollar due to trouble in the Eurozone has phased gold. This tells me that inflation is about to commence. But where will we see it first?
Oil Highly Sensitive To Inflation
Because the Greenback is the world reserve currency (for now), and oil is traded primarily in Dollars, it is certain that oil will be the first commodity to reflect inflation when it is triggered. As I discussed in previous articles, I believe that the meteoric rise in oil to $150 a barrel in early 2008 was purposely engineered by an organized group of corporate speculators, not for the purpose of profit (as the MSM claims), but to condition Americans to accept the idea of doubling gas prices in preparation for inevitable inflation in 2010-2011.
Oil is now holding near the $85 a barrel mark, and appears poised to make another jump this summer. The media will once again blame “speculation”, but this time it will not be speculators but a dissolving Dollar that is causing the increase in gas prices. It is a clever ruse to delay the public’s realization that their currency is dying. Already, the MSM is attempting to attribute current high prices to “supply shortages”, a patently false claim considering OPEC nations have not drastically changed their output, and U.S demand has remained low:
http://english.peopledaily.com.cn/90001/90777/90856/6923254.html
Watch for oil prices to show steady increases this summer followed by a surprising spike sometime late fall or early winter. This time, prices will not retreat as they did in 2008. Keep in mind that this prediction does not factor in a widening conflict in the Middle East, which could activate gas spikes sooner. In truth, escalation of war in oil producing areas such as Iran could also be used as a proxy crisis designed to hide inflationary effects on gas prices, and distract from a Dollar collapse.
China Ready To Decouple From U.S.
Nearly every piece of data I have seen on China in the past six months leads me to believe that they are ready to drastically change their trade relationship with the U.S. to our detriment, or, they are ready to cut off from their interdependency with us completely, and they are ready NOW. What they are waiting for is open to debate, but I suspect they are holding back until the IMF is able to fully circulate SDR’s (Special Drawing Rights), until SDR’s are rooted enough to replace the Dollar as world reserve currency.
As we have covered in great detail in recent articles, China has frozen investment in long term U.S. Treasuries and begun dumping those they already own. Their interest in short term treasuries has been mediocre at best. That means the U.S. can no longer count on China to invest in our debt. This alone is enough to assure an eventual Dollar implosion, however, there is more…
Talk of a Yuan de-peg from the Greenback has accelerated as we predicted it would over a month ago. A lot of melodrama has been fabricated in the media over this issue, leading Americans to believe that the U.S. government and the Chinese are at odds over Yuan appreciation. It’s mostly a facade. China has been ready to de-peg for at least half a year now, and likely has been planning to all along. Why? Because they no longer need American export markets to survive.
Much has been written about China’s sudden explosion in growth since the first phase of the collapse waned. China produced its own stimulus and bailout programs, cut millions of migrant workers off payrolls without counting them on their unemployment numbers, and helped to finalize the ASEAN trading block, which is obviously the first step towards a kind of “Asian Union”. This has caused an incredible rebound in their overall exports. Western economists often attribute the rise in Chinese exports to improving conditions in the U.S. That is to say, they think we are spending again like we used to in 2007. But, if one examines the import statistics of the U.S. over the past year, they would find that imports have been rather stagnant, and that American spending has had only minor improvement:
http://www.census.gov/foreign-trade/statistics/historical/goods.pdf
http://www.census.gov/foreign-trade/statistics/historical/gands.pdf
U.S. exports and imports are down on average 20% to 25%, while Chinese exports grew by 8% in 2009 and are projected to grow another 10% this year. What this shows is that indeed, China’s exports are recovering, but not because the U.S. is buying. They have replaced U.S. markets with others, including ASEAN, and are moving to deal more in African trade as well. China no longer needs the U.S. to sustain growth, so there is no reason for them to continue pegging the Yuan to the Dollar.
Mainstream economists have argued that a rise in the Yuan will allow U.S. companies to export more to China, and in turn improve our economy. This is a naïve assumption. China has cheap labor, extensive industrial capacity, and new trading partners, which means they will have little demand for products from the U.S. The Corporate Elite here in the states have almost completely dismantled our industrial capacity and shipped it overseas, which means we do not have the ability to sustain our economy on exports and won’t for many years to come. Some argue that the U.S. is one of the largest producers of goods in the world, but this is only half true. We do utilize capital to produce many goods, but most of the factories we use to do the actual work are in China, Indonesia, and South America. The factories are not on OUR soil, which means we do not have true industrial capability in the event of a monetary breakdown.
Once the Yuan has been de-pegged from the Greenback, China will probably increase their dumping of U.S. Treasuries even more than they already have, which will devalue our currency if not destroy its reserve status entirely. One consequence of a Yuan appreciation that many people do not consider is import price increases to the U.S. Most of our goods are made in China. If the Yuan is allowed to increase, this will make it more expensive for Americans to buy Chinese made products. Now, this price boost may not be extreme, but it does offer another opportunity for our government to hide the devaluation of our currency. I guarantee, when prices start to rise exponentially, you will hear the MSM blame the Yuan de-peg, instead of the real cause, inflation and dollar collapse.
Caught In A Lie? Lie Bigger!
Americans are not happy with the current state of affairs in this country. Obama’s approval rating has plummeted to one of the lowest levels on record for any president at this point in a term. This is due in large part to his continuance and acceleration of Bush era economic policies:
http://news.yahoo.com/s/ap/20100414/ap_on_bi_ge/us_ap_poll_democratic_woes
The numbers are no better for Congress as a whole. Rather efficiently, the current government has sullied itself beyond repair in the minds of most citizens. If you know your history, then you know that times like this are the most culturally precarious. Our political leadership and the Globalists who shadow them have a knack for creating terrible distractions when they become the primary focus of the people’s ire. Wars, terrorist attacks, financial disasters, tend to strike in curious fashion whenever the establishment is directly under the magnifying glass. Of course, this could just be “coincidence”, but I’m not one to take that simplistic explanation too seriously.
Inflation, when it occurs, will lead directly back to the private Federal Reserve, the core source for most of the problems in this country. They will do everything in their power to hide it, divert the blame, and cause upheaval in other areas of society to draw our attentions away from it. The non-stop propaganda on our supposed “recovery” is only the beginning. My greatest concern is that they will use the advent of a new war or terrorist attack as a phantom target, a scapegoat for the hyperinflationary breakdown that was going to occur anyway. My greatest fear is that the majority of Americans will fall for the ruse.
If I am wrong, then we have nothing to worry about, the “green shoots” are in full bloom, the Dollar is still king, and China is still happily making our sneakers and paper umbrellas. Good for us. But if I am right, and you find one day soon that hyperinflation is ravaging our currency and our economy, remember well that it was not Iran, Russia, Pakistan, or China that caused our pains. It was not Al-Qaeda or those rambunctious “Homegrown Terrorists” that we keep hearing about. None of these countries or groups are the primary trigger of the Dollar failure.
The MSM will claim that we were on the verge of a financial resurgence; that things were getting back to normal. This will be a grand lie. The master lie. The meltdown was going to happen regardless of that war in Iran, or that dirty bomb attack on the East Coast, and the culpability for it will lay squarely in the hands of the Federal Reserve, and certain key players in our own government. If they institute martial law, or the dissolution of civil liberties in response to structural failure, it will be they who are responsible, not some devious outside menace.
Laughably, in the end some will eventually argue that inflation is a “good” thing, because it “forces Americans to spend their money before it is devalued”! Sound absurd? The article below makes this exact statement!
No matter what happens in the next couple of years, we cannot allow ourselves to forget who the real enemy is, and we cannot allow others to forget either. The last time a major western power was thrust into the nightmare of hyperinflation, we ended up with the Third Reich. Let us learn from history instead of repeating it. Let us not see a fourth…
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Hi Gio, Another great article! Thanks so much for the update! Sounds like 2010 is the year…I am having an awful time logging in to the forum – am I the only one?
Gold, guns, ammo, foodstuffs,m and a hole to hide in….
A Great rendition of the market forces and dynamics that are currently in play! You have a keen mind for the Global picture. Hang on tight everyone, the plunge in the stock market is only several weeks away and the complete USA Economic collapse is right behind the Stock plunge. These events have warning signs plastered all over the economy. Stay alert! WAR is next be assured of it.
[...] To continue reading this report, click here. [...]
OBAMA and Bernanke are featured in a movie I just saw on Sunset Blvd.– about greedy hedge funds called “Stock Shock.” Even though the movie mostly focuses on Sirius XM stock being naked short sold nearly into bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and revealed some of their secrets. I finally got the DVD to show others. DVD is everywhere but cheaper at http://www.stockshockmovie.com
Great article, and one I will widely share with the sleepers. The goat rodeo has begun with the Goldman Sachs CDO fiasco..The Icelandic volcano is a freebie, and should keep Major Hasan under wraps for a bit until a diversion is needed. You have a good grasp for their methods of madness! Keep up the strong work!
Thank you for your honest and thorough explanation of our current financial situation. There’s a glimmer of hope in knowing the American people are slowly starting to awaken from sedation; I’m afraid we’ll all be throwing rocks at soviet tanks if we don’t get the word out to our brothers and sisters in time.
Hey good article but I am disappointed, you did not mention ways of hedging the hyper inflation, specially 401Ks concerned.
PJH:
The only way I know of to effectively hedge hyperinflation is through PM’s, and certain foreign currencies in countries that are not subject to extreme deficit spending. Australia’s currency would be a relatively good example. Some claim Real Estate is a good hedge because its value is supposed to increase along with inflation, but frankly, I think Real Estate is very high risk.
very interested to see how it all plays out in the u.s over the next few years……never ceases to amaze me how someone like you (giordano) can have a completely different outlook to someone else like bernanke – and it also never ceases to amaze me that its almost always the people like you who talk the most common sence and can view the whole situation rationally rather than the clowns in charge of it all…..why does that always seem to be the case i wonder?
i left ireland in 2007 and have now setup shop in asia – i cant for the life of me see how the $, euro and british pound are anything other than completely screwed ….if i was an american citizen i would be very concerned right now but as far as i can see, the vast majority of americans
are completely unaware of the magnitude of the problem and reality of the situation – sure if the majority of your government havent a clue then what hope does
the average voter
have? i left ireland because i could see our financial woe’s coming a mile away and i refused to live under the power and control of the idiots in power there…….but then again i had the choice to leave – i had no mortgage, wife, kids or any other liabilities……most americans are not in the same boat as i was……(as far as i know the majority of american dont even own a passport which astounds me)…………i really feel sorry for the american people if what you say will happen happens…..gona be a whole lots of blood shed and tears as far as i can see………
so lets see how it pans out……..
you may be aware of this article but for those of you who are not…………..great read……….
http://www.marketoracle.co.uk/Article18787.html
the great assumption and leap of faith you make in the hyperinflation scenario is that the fed will monetize the debt… they did so to the tune of 1.7 trillion so far, but the money is still siting on bank balance sheets, and the Fed has threatened to withdraw that cash if it starts to circulate through the economy. Further, they have said they will not monetize the debt going forward. Clearly, a cross-roads will come upon the Fed at which time they will have to decide to stay on their advertised path, or choose to monetize the debt. While I am wary of what the Fed will do when this crossraods is upon them, it is by no means a sure thing as you quickly assume and move forward in towards your hyper-inflation conclusion.
As for the price of precious Metals, I do agree with your assessment that it is too low, and eventually market forces will prevail, and when it does, gold will be up to 5k to 10k an ounce… regardless of what the Fed does…
[...] Neithercorp Press [...]
funwithine:
Actually, the Fed has monetized the debt up to 24 trillion as reported by Bloomberg, and have probably monetized it further since then. Don’t believe everything you hear on the MSM. Also, if they don’t monetize the debt, the U.S. Treasury will default, and the dollar will lose much of its value, meaning we STILL see hyperinflation. Its not an assumption, its a certainty.
Thank you Giordano,
This is all very logical and many other people beside you have arrived to the same conclusion… However, there is one piece that does not fit the puzzle at all. It’s the fact that if the banksters have indeed set us up for hyperinflation, they would not be hoarding cash themselves… they would be investing to anything tangible and intangible they can get their hands on… but they don’t. Stocks, precious metals, oil, land, etc… there has been hardly any investment in them lately. Sure, stocks and commodities have gone up, but the volumes are low by historical standards. There are just a few players rolling the dice the way they want. There is no investing going on right now, no investments at all into anything. The banksters are sitting on cash. This makes me believe that they have something much more evil in the making…
to Giordano:
in response to your comment, let me ask a few questions of clarification:
1> on what basis has the Fed printed $24 trillion. I have a bloomberg terminal and have access to scores of data the public is not privvy to, and it behoves me to find any Fed # approximating $24 trillion. If you start with bad information, you draw bad conclusions.
2> What is MSM?
3> While I do believe that we are headed into rough, and potentially default scenarios for the US, let me remind you of a few premises you are missing:
a> the point at which the US tips into default is impossible to predict and the conditions preceeding it will not be recognizable… if you look for something in a certain place in a certain way, typically you will get surprised by the same outcome from a different direction, and with different preceeding symptons.
b> The timing of such will also never be when you think it will be. The US has had a reprieve for the last 15 months, as the Fed did monetize 1.7 trillion of debt, and took approx $7.5 trillion of interest rate duration out of the fixed income market. Clearly, this has professional money managers, who are all positioned for higher rates, with shorter portfolio durations than they likely should have, and further, they will be forced to chase bond yields lower, instead of getting left behind. So while the long term path is for higher rates, count on lower rates over the short term, despite consensus opinion.
c> If the Fed does not monetize debt in the next round, and it just sits on banks balance sheets, then we will resume the deflationary depression which 2008/2009 was all about. It can really go either way, depending on what the Fed does in the future.
By the way, even if you get a strong dose of deflation, and gold crashes to $600, it will then rocket into the stratosphere as folks around the world realize the dollar is not so mighty. I am a big believer in gold, but have a scenario in my playbook which allows for deflation to be the next act.
Mr. Dohmen of Dohmen Capital has spoken very intelligently about deflation first and then massive and perhaps hyper inflation in a few years. I believe the reason banks are sitting on cash is that the insiders know that we will have a deflation before the fires of hyper inflation are stoked. If you are interested in Mr. Dohmen’s interviews, you can go to McAlvany.com and archive the weekly commentary. There are a whole lot of amazing and accurate interviews on that site, well worth the time it takes to listen.
As for our own playbook, I suspect that it will behoove us going forward to have some cash onhand too. As has been said, “don’t do what they say, do what they do” in reference to the banksters. If you do hold cash (as the banksters are), prepare to use it though, as there will come a point in time when everyone thinks that the sky is falling and is selling everything they own, where a wise, calm, long-sighted individual can come in a buy real goods for a large discount. For example, if gold does crash into the 900$ range, which I think is a decent possibility, it would behoove us to pick up a few extra ounces at that point. Those that bought stocks below Dow7000 have made a very pretty penny the last year (provided they sell before the next plunge).
Nice article Giordano. None of us know the exact timing of the surge of inflation, but most of us here do smell it coming and are preparing for its’ ravages.
Be well.
Gio:
I think funwithine has some valid points here. We should not rule out a deflationary depression.
My own research leads me to believe that the world elite need nothing less than the total collapse of the U.S. to usher in their dictatorial global government. A deflationary depression would actually be more devastating IMO than would a hyper-inflationary depression.
We must remember that during an inflationary style collapse there is still the possibility that many vital public services would continue to function (at least on a basic level), due to the fact that the federal government would likely continue to finance its control of local control public services through massive liquidity injections by the FED.
I believe that it is very likely that a deflationary depression will be initiated due to the fact that this would leave many local governments which are now dependent on Federal financing to fend for themselves.
Of course, much of this argument is moot due to the fact that whatever economic skulduggery is afoot will be covered up by 9/11 the sequel. Just listen to all the crowing by our political/security and pundit class over the last few weeks with regards to the imminent threat of an Al-CIAda & Friends nuclear attack…
Great article Mr. Bruno.May I suggest the book “The Alpha Strategy”.great read. In a nutshell, put your money in tangibles. Precious metals, guns and ammo, land that will produce, tools etc.
“In a nutshell, put your money in tangibles. Precious metals, guns and ammo, land that will produce, tools etc.”
AMEN.
funwithine:
To answer your questions:
1) In November,2008, Bloomberg and others reported that the Fed’s cumulative commitment to liquidity injections and purchases of toxic debt was calculated at 8.5 Trillion:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/26/MNVN14C8QR.DTL
This number is not debatable.
In July of 2009, Fed watchdogs reported to Bloomberg that the Fed had a projected TARP commitment of $23.7 Trillion:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aY0tX8UysIaM
This number may be debatable because it is “projected”, however, I think Neil Barofsky from the Treasury’s Troubled Asset Relief Program makes sense in his analysis. Either way, the 1.7 trillion number is completely meaningless. A lot like the $700 Billion number that the media still throws around.
2) MSM is short for the mainstream media, or corporate run media like Fox, CNN, MSNBC, etc., who like to use erroneous numbers like 1.7 Trillion to hide the real threat of inflation from the public.
3) I disagree. To say that there are no signs to watch for when facing national default is simply not true. Some were seeing signs of Greece and Dubai’s default troubles in advance, even in the MSM:
http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?_r=1
http://news.bbc.co.uk/2/hi/business/7776102.stm
We’ve covered those signs in the U.S. in numerous articles over the years if you care to go back and read them. I’ve never tried to predict ‘exact’ times for default, but I have predicted timetables, and I see much evidence to suggest that a default timetable is set to play out over the next couple years. I have explained why in article after article.
I also think you have missed a very important factor considering rates; the issue of national debt, which most people in economics overlook when talking about the dollar.
If China and other nations see the threat of over-liquidity (which I believe treasury markets show that they have) then they are likely to accelerate the dumping of long term treasuries (which they have already begun to do). This will eventually force the Fed to raise rates whether they want to or not.
As I pointed out in the article, the Fed will be FORCED to continue monetizing debt because if they do not, treasury markets will collapse, and we will default. It is a catch 22 scenario. The Fed does not monetize, we default, the the dollar loses reserve status and we get devaluation and hyperinflation. The Fed monetizes, we avoid initial default, but we still get hyperinflation. This is pretty easy to understand. Either way, the dollar tanks.
I hate to even mention him, but Greenspan has admitted as much recently. What can I say, even Fed officials have to tell the truth every once in a while:
http://www.denverpost.com/business/ci_14766969
I am aware that some financial advisers like Shedlock and Prechter keep predicting deflation. Maybe you are a fan of their work. I honestly don’t think there is much to Prechter’s “sign wave” graphs, but I don’t know quite enough about him to criticize. Its just hard for me to take him seriously.
Shedlock on the other hand is pro-Gold, yet makes outlandish statements like his belief that gold’s rally was not due to increased demand from foreign central banks and a precarious dollar (which it was), but instead was due to injections of TARP money! Utterly ridiculous when you consider that international banks have been naked short selling PM’s to hold them down.
He also can’t seem to wrap his head around the idea that China would dump treasuries or decouple from the U.S., even though they have shown over and over that this is what they are about to do. Frankly, I think his obsession with T-bonds is going to lose his clients a lot of money.
Finally, the primary reason why I believe hyperinflation is inevitable would be because the Globalists NEED to remove the Dollar from the picture if they are going to succeed in their plans to institute a new World Reserve Currency. Period. The best way for them to remove the dollar is to inflate it out of existence, or devalue it through debt default.
Only time will tell I suppose, but we have been right on most counts so far. I was criticized heavily by some for predicting two years ago that China would stop buying U.S. treasuries and begin dumping their reserve, yet that is exactly what they have begun to do. There is always a chance for deflation, but the chance that it would be sustained is very minute considering the debt position the U.S. is in. The Fed WILL monetize if treasury markets continue on the path they are on.
Pantalaimon:
You have to look at the real purpose of the banks at this point. And, you have to understand their ultimate goal, which is the deliberate collapse of the U.S. economy. To this end, they are better served by keeping TARP funds locked up in treasuries and stocks. Remember what happened during the great depression? The large banks basically fashioned the collapse and then bought out small banks and businesses by the hundreds for pennies on the dollar. This is what they are doing once again, only on a larger scale.
Keeping bailout money out of the real economy helps to further bankrupt mainstreet. The banks are just tools for furthering IMF goals. They could go under, but in the end, the globalists still benefit.
Gio:
Brilliant response. Not much gets past you. I honestly wasn’t even considering the unserviceable national debt or likely dollar devaluation when I was considering deflation as a possibility.
The author writes:
Dammit, I totally failed at the blockquote. Please fix!
I was trying to quote:
It is possible they invested a large portion of this money into treasuries, tightened credit, and are now sitting back making a tidy profit on the rising treasury yields.Agent Provocateur:
Uh, I’m not quite sure, but it appears you are criticizing my take on yields? If not, then please let me know.
If so, then I suggest you read the link I included in the article which explains in detail how banks can profit from rising long term treasury yields:
http://www.dailymarkets.com/economy/2009/12/11/could-a-spike-in-bond-yields-cause-the-us-economy-to-stumble-in-2010/
Here is another article on how rising yields have (temporarily) given a boost to Regional Bank stocks and equities:
http://seekingalpha.com/article/181877-the-equity-market-likes-rising-treasury-yields
While I don’t agree with all their conclusions, the fact remains that certain people are benefiting from treasury bond chaos.
Banks can indeed make a profit while holding long term treasuries on rising yields, at least in the period before devaluation becomes rampant. After devaluation takes hold, then you are dealing with another animal entirely.
Often yields rise as a PRECURSOR, or signal, that treasury prices are ready to decrease due to lack of interest, it does not always happen simultaneously.
I have a few questions.
I have read that after the collapse of the old paper. The government will issue new currency. Coinage might retain its value as the government isn’t worried about the pocket of change most people have. The thought is when new paper comes out, 4 quarters will exchange for a new Dollar.
I’m not rich, but a few hundred in coins that suddenly gain 10 x value…..
Also, anyone making lists of all these people. If the collapse happens, there needs to be a reckoning.
Great information!
David
Giordano:
I checked out the bloomberg link above in which you cite the Fed has printed $24 trillion of money. This refers to committment to provide financial support, if needed, and for the most part contingent committments in case various financial entities fail.
The bottom line is that cumulative debt in the US is about 3.7 times our $13-14 trillion GDP. This debt already exists. The $24 trillion you refer to basically pertains to the US government being on the hook to cover losses on about half this debt.
This does not represent printing new money, or credit, but rather a committment to hold this house of cards up as the savior of last resort. And to the extent that the government prevents a deflationary collapse, so far they have succeeded as the guarantor of this much credit. IF the credit was not guaranteed by the govt, then it would have resulted in a deflationary collapse.
So for now, I would say that we are at a standoff. The govt is fighting deflation with inflationary policies. And in fact, US dollars are multiplying over-seas and being monetized in the developing Asian economies, where inflation does exist. In turn, this will push inflation in metals and resources (oil), but this is an un-even process, since some assets, such as real estate, are going to suffer for some time, relative to all other asset classes. And since housing expenses is 42% of US CPI, the Fed will remain indifferent to inflation in all other categories with this type of deflationary cover.
If the Fed actually monetizes more debt, watch their balance sheet as reported weekly in the H4.1 report, or M2 starts to grow, which would happen if the banks start lending (via the fractional reserve system), then inflation might start infecting the still deflating real estate markets.
Just as I have a deflationary collapse in my playbook, I also have a hyper-inflation scenario in my playbook too. If you compare what was going on in Germany in the 1920s, the government employed everyone, and Germany had a near zero unemployment rate while Europe had a 5% unemployment rate. The fact that we have over 10mm people collecting unemployment benefits is a testimony that we do not have everyone spending money freely, which would create hyper-inflation. WHile you might argue that paying people benefits is akin to paying them to work, there are still plenty of people outside the work force who are collecting nothing, and unemplyment checks from the govt will not support hyperinflation, just a level of existence below inflationary demand. But this too is something I keep an eye on, cause you never know when the govt will just send everyone $20,000 checks to get people spending, and the economy growing….
all I was trying to say about when you will know the US is about to tip into a collapse of confidence, is that it is so hard to exactly forecast that. Folks have lost tens of millions of dollars betting against Japan, which has the highest debt/GDP of all major countries, yet their rates are the lowest of the same group. I will admit that the US is different. My point is to not get caught up with dogmatic and consensus views, which are decisively bearish on the US. The time will come, I agree, but beware of a short term bond market rally which will create more complacency, and a set-up to the big collapse some time in the future. :)
to David – I would buy bags of pre-1965 silver coins. they are 90% silver, and $1 face value equals 0.715 ounces of pure silver, so they will be quite fungible and easy to barter, especially if you have some dimes, quarters, etc… these cost a bit more than pure silver coins, but will be easy to barter.
Funwithine:
I agree, in economics its best to be fluid and adaptable. Things change very unexpectedly. As far as Wiemar Germany goes, its true that their circumstances were extremely heightened compared to ours, but they started out a lot like us; Grand wars and a spend-free government, and global banks looking to destroy their currency because of its overt strength in world trade. My hope is that we can show people the danger of following in their footsteps. Financially, things are going to get very bad before they get better, that is unavoidable. But maybe if we warn enough people, we can stop short of Wiemar part deux.
Funwithine:
Also, Shadowstats.com tries to track M3, which is the real and total measure of money supply, but I think they have a hard time, especially since the Fed’s true balance sheet is under lock and key. The Fed purposely stopped reporting M3, I believe because it would reveal that they are creating a dollar devaluation scenario. If Ron Paul ever gets his Fed Audit bill passed, I think we would find a liquidity nightmare on their books.
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Treasuries were a good buy when rates were falling in 2008. Treasuries are not a good buy when rates are rising. Bill Gross would seem to confirm this suspicion.
How shall banks profit from rising yields given their zero-coupon or fixed-coupon T-paper holdings? All they shall see are capital losses as yields and risks increase.
Sure, they can still make money in the short term given their usurious intermediation game, but they’d make a heck of a lot more holding something other than treasuries. And they’ll have to sell the bonds before the big kaboom (to the taxpayer, presumably, via the Fed).
It’s possible they’re getting ready to stoke fear for a “safe haven” play, and that the right people know this and are long bonds. Let’s see what happens. Longer term, T-paper is tee-pee paper, no doubt.
A PERFECT CRIME? Just listen to the Kingworld News about short selling of PM. So many links, it is hard to follow up on them, but people should.
Let go back to a trigger event. You mention many times False Flag attacks, nuclear attack on the East Coast and others. Let us do an actual Goldfinger! We blow up all the Gold, but the trouble is there is nothing there to blow up. Perfect cover up??
I’m curious as to advice as to how best prepare with what time we have left.
I’m broke, nearly homeless…pretty much only have the clothes on my back, and haven’t been able to find work in a yr.
I have some wilderness skills. But I’m no where skilled enough to take care of mroe than myself…and I’m desperate for the welfare of my family.
Gaurdian,I hear you man…any advice on a stay at home bug out plan for the family Gio…or anyone? I am sure that their are articles here and elsewhere to help with this…at least ideas.Especially when we are living pay check{or not} to pay check…
ps…canned tuna and spam live forever on the shelf!…If I had any money,I would buy stock in these companies! lol! Again, any advice to the familyman/bug out situations and preparedness plans would be greatly appreciated.thanks GIO and folks!
Guardian:
I’ll be back later tonight to answer your question. Busy now. Just letting you know I’m not ignoring you…
Guardian:
Okay, I’m back and I’ve thought about your question.
Before I say anything, I would recommend you check out our recent article on survival tips and gear:
http://neithercorp.us/npress/?p=228
What you do really depends on where you live. If people can easily walk from a major city to where you live within a couple of days, then it doesn’t matter if you keep your home now or lose it. You’ll have to leave it eventually anyway. Historically, hungry refugees have a tendency to turn to looting in order to survive, and if they’ve only been walking for a couple of days, they’ll probably still have the energy to come after you.
I wish I could say that everyone would help everyone else out, but most people who expect that type of scenario have never been starving, or been in the midst of a major catastrophe. Things can get ugly. My hope is that those in the Liberty Movement will at least help each other out instead of barricading themselves in their retreats for a year and shirking every other living soul.
If this is your situation, then my suggestion would be to talk with friends or family who live away from the larger cities about possible arrangements when the economy gets dicey. Anyone with any sense would agree to work with you, for the sake of your family, and for the advantage of mutual protection. Make sure they are reliable, and not wishy washy types. Don’t just work with anybody out of desperation, including that shifty uncle or cousin everyone has. You are better off alone than you are being stuck in a survival situation with someone you can’t rely on.
Round up at least a little cash for a large All-Season Tent. If you have to leave with you’re family in a hurry, you’ll need to have something that resembles shelter. A man by himself can sleep just about anywhere, but the kids need a “safety zone”, something to put their minds at ease a little.
A rifle of some kind is a MUST. For protection and food. The Saiga .223 at $250-$300 is an excellent choice for those strapped for cash. Carry AT MINIMUM 200 rounds of ammo in your pack. Usually I recommend a large store of ammo, but if someone is broke, then they are broke.
Don’t rely on a pistol or shotgun alone for protection. You would be outmatched by anyone with a rifle (even a .22) outside 50 yards.
Work temp jobs, day labor, anything to get the money to at least have some essentials. Food with long shelf life; rice, beans, etc (2 months worth minimum). A portable water filter. And protection.
If your home is in a safer area, and you have a trustworthy neighbor or two, try to hang onto it until the collapse moves into high gear. In a hyperinflationary event, debt is pretty much meaningless. Especially if it gets as bad as we are expecting. After a dollar collapse, there will be very few people who care how much you owe on your mortgage.
Find other survivalists in your area. Try to build connections. If you have the option to work with good people, do not go it alone.
There is always a way. Never forget it. Never stop saying it. There is ALWAYS a way. The best thing you can do for your family, above all else, is never give up.
Gio…on my behalf,thank you
Gio,you are one of a few, if not the only expert ananylist, willing to take the time to help us little guys out,Thank you.A few quick questions, if you do not mind.If any of these signals for an impending collapse really become very very alarming,will you send out a general alarm over this website?After a collapse, if preparations are in place, would there still be a small window of time to get to safety?Is there any chance that we may have until the end of August 2010, before the collapse?Finally, would the Canadian currency be as good a hedge as the Australian currency?Thanx
Robb
look here
http://www.neithercorp.us/nforum/whatever_else/economic_collapse_early_warning_alert_board-t1215.0.html
[...] Get Ready, Inflation is on the Way [...]
Robb:
I do have an early warning board as Dr. E posted above. There are plenty of signs that the collapse is progressing, but I haven’t used the board yet because its really for when the true “hairiness” is about to start. I will leave messages all over this site though when I think something substantial is going to occur.
I have to admit, I really don’t know if things will still be stable in August. I expect that gas prices will start spiking around then, so get some ‘gas saver’ liquid and store a couple cans of Regular for emergencies.
It really depends on when China de-pegs the yuan from the dollar, and whether or not the government stages another false flag attack or war. Either one of those events could trigger a fast moving breakdown or martial law. If you hear that a large scale false flag has started (nuke, biological, etc.) I would go to your retreat immediately. Bring a radio and wait to see what repercussions surface. If things don’t fall completely to pieces, you can always go back home.
I think Canadian currency is high risk because it is largely tied to the dollar, and any breakdown in the U.S. is going to abruptly affect the Canadian economy. I would go with PM’s before I went Canadian.
Btw, I consider myself one of the “little guys” too, so really I’m just helping out my own kind….
Gio, thank you very much for great advise.DR.E, I tried that link that you gave me and it didn’t pan out.Is there another way of getting there?By the way, is there another separate forum, connected to Gio’s articleS?One where you have to log into.I have noticed a log in area but no area for new subsribers.I would certainly love to have access to any other forum where most of you guys are participating in.Thanx for your help Dr. E.
Neithercorp Forum | Topics | Whatever Else | Economic Collapse: Early Warning Alert Board
go here–ya know those circles on the left of the home page? click on the bottom one and that is the forum-then go to topics then whatever else–then u will see warning board
Thanks Gio
I guess I’m going to have to look out for myself. My family is spread to far out…especially if people believe this is going to happen by August.
I myself kind of expect them to try to hold it off til at least Nov or Dec.
Just cause that would make it that much more plausible for Martial Law to be seen as a necesity (and people would be less likely risk fleeing due to freezing & lack of wild food that you can find in summer)
There is a book called “Drive” by a guy named pink.
It is very inluminating bout what motiviates & demotivates people.
There is another book..have to go look it up at the libruary on community gardens.
If we had even only two yrs left…I would of suggested this as a means to wake people up in your respective areas.
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Keep up the good work, I like your writing.
I’m new here. You’ve got me depressed already. But at least I have a bunch of TIPS and a .233 with which to cuddle at night. And a home in Mexico which has, would you believe, a more stable currency.
Here’s something more upbeat:
http://www.latimes.com/business/la-fi-hiltzik-20100808,0,1359956.column?track=rss
Seems as though all we’ve got to do is to use a prudently managed country’s bonds in the trust fund and we’re home free.
I vote for Mexico.