[seahorse2]

There are those that argue hyperinflation is a response to deflation. Here's one of those arguments:




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Just Another Trillion…
Posted: Nov 24 2008 By: Jim Sinclair Post Edited: November 24, 2008 at 1:52 pm

Filed under: General Editorial

Dear Friends,

I am repeating this small missive because with the trillion dollars worth of more funds promised to financial institutions this morning by the Fed (which means the Obama Administration) plus the upcoming huge Fiscal Stimulation to create jobs, hyperinflation cannot and will not be avoided.

The spin is that in order to transmute hyper liquidity into hyperinflation you must have an improvement in business conditions. This is totally FALSE. History declares that hyper inflation comes from a loss of confidence followed by a sequence of events as outlined at the close of the missive.

Prior Article:

1. Hyperinflation takes birth and is currency-visible during major economic upheavals. There is NO historical truth that business recovery is a necessary criterion to transmute massive increases in money supply into hyperinflation.

2. What has been the major cause of the transmutation of massive liquidity into hyperinflation has been one form or another of Quantitative Easing combined with a loss of confidence in the inflator.

Quantitative Easing does not sterilize its offspring - violent inflation. We will see this offspring not in the far future but in 2009, 2010, 2011 and maybe much further.

It is akin to the Japanese Sci-Fi out of the 70s titled “The Green Blob That Ate the Earth.” It just grew and grew until it consumed everything.

For the moron financial TV hosts claiming that major inflation is well down the road because inflation requires a business recovery to occur, tell them to review:

Angola 1991-1999
Argentina 1981 – 1992
Belarus 1993 – 2008
Bolivia 1984 – 1986
Bosnia – Herzegovina 1992 – 1993
Brazil 1986 -1994
Chile 1971 – 1981
China 1948 – 1955
Georgia 1993 -1995
Germany 1919 -1923
Greece 1943 – 1953 At the high point prices doubled every 28 hours. Greek inflation reached a rate of 8.5 billion percent per month.
Hungry 1944 – 1946
Israel 1971 – 1985 (price controls instituted)
Japan 1934 – 1951
Nicaragua 1987 – 1990
Peru 1987 – 1991
Poland 1990 – 1994
Romania 1998 – 2006
Turkey 1990 – 2001
Ukraine 1992 – 1995
USA 1773 – not worth a Continental
Yugoslavia 1989 – 1994
Zaire 1989 – present (now the Congo)
Zimbabwe – 2000 to present. November of 2008 – inflation rate of 516 quintillion percent

From http://en.wikipedia.org/wiki/Weimar Republic

The steps to hyperinflation are and have throughout history always been quite simple:

1. This is it.
2. It is now.
3. It is out of control in terms of the size and constancy of fiscal and monetary injection in world liquidity.
4. Loss of general confidence in paper assets.
5. Hyperinflation

Please understand how important it is for your knowledge of economic history, and therefore why this missive is repeated and emailed to those who have expressed their interest in closer contact.

Have you really considered the following:

I have no doubt that $1650 will come. My concern is not that it will not happen, but that I am much too conservative in my long-term price objective held since 2000.

If major banks can be torn apart how can we have faith in the small local institutions that hold most of your ready cash?

When I said "It is Out of Control," it is not something that I take lightly. Never in 49 years in finance have I seen a set of circumstances so challenging to the man in the street.

What I am getting at is a simple question. Are you prepared? You have heard us talk repeatedly on removing financial intermediaries between you and your assets, but the time has come for us to recommend going one step further:

Do you have a true-custodial-ship account?

Even if you think you do has your counsel read the agreement and blessed it?

Hold enough cash at your household to last you a month or two. It may be largely unnecessary for the majority, but what do you have to lose?

If your bank should fail this will save you a lot of grief in the short term. If they do not, you still have all your cash that can easily be deposited back into your account.

Respectfully yours,
Jim

$this->bbcode_second_pass_quote('uNkNowN ElEmEnt', 'A')ll of the deflationary periods the second poster listed all have one main thing in common. The dollar at that time was pegged to gold.

[thuja]

Personally I think we are in for quite a bit of time for deflation- perhaps a truly extended period of a decade. My guess is that we will continue pumping enormous amounts of fiat liquidity into the system to try and combat an epic downturn.

At some point, we will have to pay the piper on this enormous debt. At the same time, Peak Oil is likely to return as an imminent and dangerous threat. Even if the world reduces consumption by 5-10 million barrels a year during this recession, oil production will start declining in that time and there will create enormous inflationary pressure on prices.

The combined effect of a massive increase in liquidity combined with the effect of looming resource shortages within a decade is likely to produce severe inflationary pressure.

I just happen to think its as much as a decade away. This deflationary depression will take years to unravel.

[gnm]

$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('seldom_seen', 'A')n economy predicated on endless growth requires endless amounts of energy to feed that growth.

[Micki]

You only need to expect 'growth' in the sector you are investing in.
Just like PO can bring growth in alternatives even if many other areas of the economy crumbles.



By the way here is another site (besides shadowstats that is frequently quoted) where they compiled their own M3 and presented a whole lotta nice charts on monetary base etc etc.
nowandfutures

[yesplease]

$this->bbcode_second_pass_quote('gnm', '')$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('seldom_seen', 'A')n economy predicated on endless growth requires endless amounts of energy to feed that growth.

[MrBean]

$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('seldom_seen', 'A')n economy predicated on endless growth requires endless amounts of energy to feed that growth.

[MrBean]

$this->bbcode_second_pass_quote('Micki', 'Y')ou only need to expect 'growth' in the sector you are investing in.
Just like PO can bring growth in alternatives even if many other areas of the economy crumbles.

[MrBean]

$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('gnm', '')$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('seldom_seen', 'A')n economy predicated on endless growth requires endless amounts of energy to feed that growth.

[yesplease]

$this->bbcode_second_pass_quote('MrBean', '')$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('seldom_seen', 'A')n economy predicated on endless growth requires endless amounts of energy to feed that growth.

[yesplease]

$this->bbcode_second_pass_quote('MrBean', 'T')hat was not the point. The point is that a system ("economy") based on endless growth will collapse when it meets the limits of growth. Like a cancer that will die too when the host dies.

[hope_full]

I'm seriously considering selling my over-valued house. I don't know where I'd move to, as we have to stick around for jobs (which we still have). Perhaps we'd rent for a time, but I just don't know.

The mortgage is paid way down, but we still own six figures (which isn't that much in my neck of the woods). And our house payments are less than we'd pay in rent in this area.

My question is, if inflation or even hyper-inflation returns, wouldn't it be better to be a property owner?

And doesn't inflation favor the debtors and deflation favor the debt-free?

Which is it gonna be - inflation or deflation - and how do you preserve your equity in this market? Houses here are still fetching a handsome price, but I wonder - for how much longer? And how is it possible to avoid inflation, given the fantastic sums of new money being dumped in by the Fed?

Surely I'm not the only one in this boat. This single question - inflation or deflation (and the right response) are taking up a lot of space on my emotional hard drive. We worked long and hard to pay down this mortgage. I'd hate to lose our equity to a deflating economy. Yet, when gas was $4 a gallon, these houses were selling very well, due to their proximity to the city's thriving downtown.

It's a puzzle. Thanks for advice.

[shady28]

$this->bbcode_second_pass_quote('hope_full', 'I')'m seriously considering selling my over-valued house. I don't know where I'd move to, as we have to stick around for jobs (which we still have). Perhaps we'd rent for a time, but I just don't know.

The mortgage is paid way down, but we still own six figures (which isn't that much in my neck of the woods). And our house payments are less than we'd pay in rent in this area.

My question is, if inflation or even hyper-inflation returns, wouldn't it be better to be a property owner?

And doesn't inflation favor the debtors and deflation favor the debt-free?

Which is it gonna be - inflation or deflation - and how do you preserve your equity in this market? Houses here are still fetching a handsome price, but I wonder - for how much longer? And how is it possible to avoid inflation, given the fantastic sums of new money being dumped in by the Fed?

Surely I'm not the only one in this boat. This single question - inflation or deflation (and the right response) are taking up a lot of space on my emotional hard drive. We worked long and hard to pay down this mortgage. I'd hate to lose our equity to a deflating economy. Yet, when gas was $4 a gallon, these houses were selling very well, due to their proximity to the city's thriving downtown.

It's a puzzle. Thanks for advice.

[alokin]

First six figures and six figures low or high, I mean there can be a lot of difference.
You tell that you still have jobs how safe are they? Do you have a plan what you will do if you loose your jobs?
Do you wish to buy a homestead after loosing the job?
That are the questions you might answer first deflation or inflation - I would not look if you loose money or not, but what life chances do you have.
Maybe it's an option selling now, living in a miserable flat somewhere and buying/mortgaing some land elsewhere in the first place as a weekender.
If you want to stay were you are and your house is something decent (not the size and the number of bathrooms, but quality of construction) and if it has sufficient land and you like the suburb then I would maybe stay, and would not worry about loosing money.
A house is no bank account it's a house.

[the48thronin]

When in doubt PUNT