Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on October 19, 2015
“Hyperinflation Is On The Table… It Will Be Completely Uncontrollable”
Thibaut Lepouttre is a highly educated and well respected economist from Belgium. But unlike many of his counterparts who often toe the line of mainstream politicians and financial pundits, he’s not one to sugarcoat the seriousness of the current global economic, financial and monetary environment. According to Lepouttre, while the Federal Reserve has worked feverishly to prevent a widespread destabilization of the system, their machinations will soon be revealed as an abject failure.
Whereas many of his colleagues suggest the possibility of inflation is an unlikely scenario, Lepouttre says that we will see it begin to manifest in the near-term in the form of higher prices for essential resources. In his latest interview he explains why we’re within the prime target dates for inflation to take hold, the snowball effect that will lead to uncontrollable hyperinflation, and how to strategically position assets ahead of this unprecedented monetary event.
There is no doubt that the Federal Reserve has almost run out of options to get the economy going.
Let’s go back to the basics of the economy. It takes a while when money gets printed before it really gets circulated in the system. In normal economic times, it takes like 24 to 36 months before a newly printed $100 bill is really brought into circulation, and you can see the trickle down effects of that.
The problem in the current economic situation is the fact that the velocity of money is much slower than it used to be. Due to the lower velocity of the money, it takes much longer before you feel the trickle down effects. So instead of the 24 to 36 months, it’ll take, I’ll say 60-72 months before we see any of the trickle down effects into the real economy.
We’re closing in on the 6-7 year period right after the first round of quantitative easing started in the U.S. so I do expect to see some sort of inflation increase in the near future, and the problem is once the velocity of money goes up again, then you might, indeed, have some sort of snowball rolling off the slope of a hill, and it will be completely uncontrollable.
Lepouttre notes that both Russia and China see the writing on the wall, and that’s why they’ve resorted to off-loading billions in U.S.-dollar based assets over the last year. To mitigate the inevitable collapse of the U.S. dollar they have been heavily acquiring one particular asset:
Even though the Federal Reserve and the mainstream media are trying to downplay the real value of gold, it still has its monetary value.
It’s had so in the past two, three four thousand years, and it will continue to have it, because even Russia, even China, which have their own economic problems right now… they’re still buying gold.
Russia has been hit incredibly hard by the low oil price… and instead of trying to protect their own balance sheet of the Russian central bank by keeping their dollars, they are getting into the economy in U.S. dollars and buying gold with it.
So it really says a lot when a large economy like Russia, which isn’t a small economy at all, values having physical gold more than U.S. dollars for the balance sheet of the central bank.
The message could not be any clearer. To survive what’s coming investors need to be looking at diversifying their portfolios with resource-based hard assets that will retain their value when Western monetary systems buckle.
15 Comments on "“Hyperinflation Is On The Table… It Will Be Completely Uncontrollable”"
Davy on Mon, 19th Oct 2015 7:49 pm
We know why China is unloading t-bills. They have a huge financial crisis on their hands last I heard. That is how team China is funding the crisis management covert op. One tar baby after another is what they have been running into.
makati1 on Mon, 19th Oct 2015 8:15 pm
Rabbits and hats come to mind when there is a discussion on future financial events. How many more are in the Us hat?
Inflation/deflation. Either one can/will destroy the Us economy, reverberating around the world and affecting the Western and Western wannabees the most. But there are some 200 countries today and many of them may stumble, but not fall. perhaps 1/3, or more, of them will not even notice.
Here in the Ps, most of it’s trade is with Asia, not the Us. More and more of it is in non-dollars. As the Chinese new banks get rolling, the demand for dollars will decline. It may make my conversion to Philippine Pesos more difficult, but, bring it on! The sooner the Us goes down the sooner we can have world peace again. Of course the flip side is, the sooner the shooting WW3 will begin. We shall see.
joe on Tue, 20th Oct 2015 3:32 am
The rails won’t come off until the FED raises rates. Cheap and easy money at a rate below inflation effectively devalues every loan taken now, however, it creates demand for money down the road. If the FED raises rates, that money won’t be there in the future because it reverses the curve, it’s usually demonstrated in the markets as an ‘inverted yield curve’ when markets take lower rates now and exit risky investments rather than wait for better returns later because they don’t believe the returns will be there.
https://en.m.wikipedia.org/wiki/Yield_curve#Inverted_yield_curve
I believe this scenario is not likely in the near future as rates are so low. What we are coming to is some kind of stagnation as Chinese development naturally slows, we are going to see demand led inflation in the sense that low demand reduces investment and reduces supply, so the next recession is probobly going to be during the next presidency or near the very end of the Obama administration.
Davy on Tue, 20th Oct 2015 3:59 am
Well said Joe, I agree.
Davy on Tue, 20th Oct 2015 8:54 am
This is worth reading. I highlighted some interesting points.
Peak Debt, Peak Doubt, & Peak Double-Down
http://www.zerohedge.com/news/2015-10-20/peak-debt-peak-doubt-peak-double-down
Is this the situation Hyman Minsky warned about in his “Financial Instability Hypothesis”? He described the impact of debt on the behavior of the financial system by defining three stages: “hedge”, “speculative” and “Ponzi financing”. Growth and prosperity were initially created through early loans, which increase confidence and in turn drive speculation. If and when higher rates slow revenue, the ability to pay principal and interest might be jeopardized, leading to Ponzi financing or default.
With large amounts of indebtedness, cash flow shortages could result in asset sales to meet obligations. Since assets are typically used as collateral against debt, deflation could have the same result. Deflation lowers the value of assets, making liabilities harder to pay back as money due has less purchasing power. This is the basis of Irving Fisher’s “Debt Deflation Theory”, a likely concern of the FOMC.
The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons.
Firstly, the Fed has fueled a massive stampede into financial assets, yet it can no longer provide any additional fuel in the form of interest rate cuts or via a growing balance sheet (QE4 will never happen). Promises of merely maintaining the current level of stimulus will be inadequate.
Secondly, high prices mean lower future returns and greater downside. The fact that the Fed is close to ‘lift-off’, and close to shrinking its balance sheet (in 2016), means that downside risks are much greater than investors realize. The herd has not yet adequately de-risked.
Bottom line: As a result of central bank actions, many assets today pose too much risk for too little return.
“Never delude yourself into thinking that you’re investing when you’re speculating.” – Benjamin Graham
joe on Tue, 20th Oct 2015 10:42 am
Speculation is when the main selling points include the words ‘if’, ‘by that it (could should or maybe)’. Etc etc…
When the FED tries to pay for today’s cheap money by issuing tomorrow’s expensive money to pay for it, the whole lot will end up in the swaps market, eternally washing around the system until they get written off by some future tax payer and some future government.
BC on Tue, 20th Oct 2015 11:48 am
The central banks (CBs) have not run out of options. They can still print to provide liquidity to primary dealers to buy gov’t paper in order to fund deficits to prevent a contraction of nominal GDP. We’re well on our way to having a public debt/GDP of Japan, only it will take a few years.
But that is not the same as saying that the Fed can “stimulate” private economic activity much, if at all, hereafter, especially after debt service, “dis-ease” care costs, and taxes.
The Fed’s first objective has always been to provide the sufficient liquidity for the primary dealer TBTE banks that own the Fed. The TBTE banks determine/direct monetary policy via their lending, reserve requirements, etc., i.e., the Fed responds to the TBTE banks’ needs.
The Fed will resume QEternity shortly because the US fiscal deficit is set to increase as the economy decelerates with deflation and household net worth contracts from another bear market for stocks and unreal estate, as well as increasing costs of SS, Medicare, and Medicaid as peak Boomers begin to draw down on transfers en masse hereafter.
In fact, given the deep contraction in the acceleration of money velocity since late 2014 and YTD, and the level of the US net savings deficit to investment and GDP, the Fed will have to print AT LEAST $2.5-$2.8 trillion more during the next cycle to prevent contraction of nominal GDP, and that does not include bailouts, making up the shortfall for SS, Medicare, etc.
That will put the Fed’s balance sheet and banks’ cash assets/reserves/monetary base at close to total of bank loans, including the likelihood of charge-offs and run-offs during the next cycle. IOW, banking system loans outstanding will be effectively reserved at 100%, i.e., little or no fractional reserve banking at that point.
But as in 2008-14 and Japan since the early 2000s, the vast majority of the printing of bank reserves by the Fed will circulate primarily between the Fed, TBTE banks, and US Treasury, with some leakage to non-bank financial firms. Therefore, there won’t be vast amounts of actual currency circulating in the economy and thus risking accelerating inflation, and especially not hyper-inflation.
Further, the Fed printing has resulted in the decline in long rates that encouraged a MASSIVE leveraged carry trade worldwide for stocks, bonds, and other securities; therefore, the risk from the massive debt bubble bursting is deflation from extreme liquidity preference/shortage.
Finally, another round of Fed/ECB QEternity will further reduce velocity, flatten the yield curve, and shrink banks’ net margin, further discouraging growth of bank lending/deposits and money supply less bank reserves, which in turn will result in additional deceleration of the post-2007 rate of real GDP per capita, energy demand, wages, corporate revenues, and gov’t receipts.
IOW, secular stagnation, a liquidity trap, deflation, and liquidity preference/risk aversion will result in the opposite of hyper-inflation.
But for those who retain employment, gov’t checks, or have sufficient assets to draw down to maintain one’s living standard, deflation is good because purchasing power will be retained in real terms. But that also suggests that gov’ts will be starved for revenues to maintain spending for services and thus will be compelled to raise taxes at every turn, which will reduce the positive effects of price deflation.
BobInget on Tue, 20th Oct 2015 12:39 pm
Inflation seems harder then ever to achieve.
Hyperinflation seems almost impossible as long as commodities are on a tight leash.
Because USD seems so safe— compared.
It’s tough to knock it down in this highly militarized world we find ourselves.
While Iran, Russia Iraq, Venezuela are all
plotting away, desperate to jump (oil) prices higher, Saudi Arabia continues on a suicide mission doubling down, pushing production past points of good judgment. If KSA’s older fields crash, as they will inevitably, then and only then will we see massive runs on US Treasuries, terrific oil shortages and higher inflation.
One single event could change the game.
Tomorrow’s OPEC meeting.
There seems to be a major coalition brewing
to Smash Saudi Dominance. We shall see.
GregT on Tue, 20th Oct 2015 12:41 pm
So in other words a deflationary death spiral? So you don’t see the FED raising interest rates at some point BC? You may be correct, but CBs have historically always fought deflation and inflated fiat currencies away to nothing.
GregT on Tue, 20th Oct 2015 12:44 pm
“One single event could change the game. Tomorrow’s OPEC meeting.”
And five weeks after that COP21. Both, all about oil.
Revi on Tue, 20th Oct 2015 12:58 pm
We’ll see… It seems like the world is falling just as quickly as they are printing money…
GregT on Tue, 20th Oct 2015 1:06 pm
BC,
There was an interesting thread on the Kitco.com forums back in 2011, titled “Deflation Precedes Hyperinflation-Long Answer”. The guy was even interviewed on national TV about it. I would like to hear your take on this if you can find the time. Thanks.
https://gold-forum.kitco.com/showthread.php?93752-Deflation-Precedes-Hyperinflation-Long-Answer&highlight=deflation+hyperinflation
idontknowmyself on Tue, 20th Oct 2015 3:36 pm
I still believe that governments around the world will print money and deposit it directly into people bank account. Here is Canada my income tax return is already deposing directly into my bank account.
The computers and financial infrastructure to deposit money into people bank account are already in place and working. It is a matter a time before all Governments around the world agree to print money.
Because of naturals resources depletion, hyperinflation will take place rapidity and destroy confidence in currencies and stop international trade.
No international trade = die off right away.
This is how I see the future. Of course some crises like the European immigration could collapse trade before printing money
GregT on Tue, 20th Oct 2015 4:02 pm
“I still believe that governments around the world will print money and deposit it directly into people bank account.”
Awesome, then we can all go shopping for the stuff that none of us produce. Happy days are here again!
makati1 on Tue, 20th Oct 2015 7:28 pm
Putting money directly into personal bank accounts is not likely. why? Because the banks would not get a direct cut up front. That always is part of the game unless there is a time frame that it must be spent or lost to the bank. We shall see. I guarantee mine would not be there more than 8 hours until it became Pesos. LOL