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THE COMING PANDEMIC OF PAPER MONEY

This time the deflationary depression will be accompanied by an extraordinary global

currency crisis. Government attempts to reflate their deflating economies will instead

give rise to additional massive economic distress.

Just as low 1 % interest rates reflated economies in 2002 but also caused property prices

to balloon then collapse in 2006, today’s even lower 0.25 % rates coupled with today’s

unprecedented monetary creation will create an unmitigated global currency disaster that

will destroy money as we know it.

To stimulate deflating economies, so much fiat money is being printed that money will

eventually become worthless. Throughout history this is how all fiat currencies have

ended, in the uncontrolled printing and circulation of increasing amounts of increasingly

worthless paper.

Last month, M-2, the monetary aggregate in Japan increased at a rate even greater than

100 % annually. The printing presses are now being run as never before in the US, the

UK and Japan in the desperate hope that it will save them from the overwhelming

gravitational pull of deflation, an economic black hole of immense inertia.

The borrowing, printing and circulating of excessive amounts of fiat money has been

done before and does not work. Doing so is a recipe for disaster; albeit a time-honored

recipe that has been tried in the past always with the same result.

It will be no different this time. If you think otherwise, just wait and see.

QUANTITATIVE EASING INTO ECONOMIC DEATH

The term quantitative easing disguises the incredible absurdity of governments borrowing

from themselves. The practice first emerged in the 1990s when deflation forced the

Japanese to do so in order to keep its vulnerable economy afloat.

It is no coincidence that quantitative easing is now being adopted by the US and UK nor

is it a good sign that it is being done. Quantitative easing is a sign that deflation has

reached a level where governments cannot survive unless extreme measures are

implemented.

…when a government resorts to quantitative easing, it shows that it has run out of other

means to finance its endeavors. It has reached the end of the line.

The Meaning of Quantitative Easing, Michael S. Rozeff

We are now witness to otherwise bankrupt nations with contracting economies planning

to re-spend themselves back into prosperity on borrowed money—money to be borrowed

from themselves.

The US, the UK and Japan—the economic troika of the living dead—are all engaged in

quantitative easing and are now in the last stages of capital destruction and economic

collapse.

THE END OF THE LINE

Banks and governments—especially the US, the UK and Japan—have reached the end of

the line; indeed, we have all reached the end of an era. The bankers’ game of debt-based

capital masquerading as money in order to indebt and profit from the productivity of

others is now in its final stage.

The bankers’ resultant debts are now so large, they can no longer be retired, serviced,

sold, or even rolled over. That governments have announced they will guarantee all bank

deposits and increasing amounts of public and private sector debt when they themselves

are broke is a sign of the times—the end times.

Two weeks after the historic August 2007 credit contraction froze global credit markets, I

spoke at Session II of Professor Fekete’s Gold Standard University Live in Hungary. The

last segment of my speech was titled, “The Path To The Future Is A Cliff”.

In May 2009, it is clear that we have now fallen off that cliff. The recent rebound in

global stock markets indicates only that we have not yet hit the bottom. We will. Just wait

and see.

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snipped...

love the thread title & just knew what would be in it. :D

I presume the author thinks that QE will stop then & hence the deflationary collapse.

I have only skimmed it, will read it properly inbetween the hilariously titled " Pound To Rally After 20% Slump Makes British Real Estate A `screaming Buy" thread & the very interesting but totally expected "S&P downgrade the UK" thread. ;)

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love the thread title & just knew what would be in it. :D

I presume the author thinks that QE will stop then & hence the deflationary collapse.

I have only skimmed it, will read it properly inbetween the hilariously titled " Pound To Rally After 20% Slump Makes British Real Estate A `screaming Buy" thread & the very interesting but totally expected "S&P downgrade the UK" thread. ;)

along similar lines

The marginal productivity of debt

Hyper-inflation or hyper-deflation?

Most critics the Obama plan suggest that the punishment for the bailouts and stimulus-packages will be a serious loss of purchasing power of the dollar and, ultimately, hyperinflation, as evidenced by the Quantity Theory of Money. However, the quantity theory is a linear model that may be valid as a first approximation, but fails in most cases as the real world is highly non-linear. My own theory, relying on the concept of marginal productivity of debt, predicts that it is not hyperinflation but a vicious deflation which is in store. Here is the argument.

While prices of primary products such as crude oil and foodstuffs may initially rise, there is no purchasing power in the hands of the consumers, nor can they borrow as they used to in order to pay the higher prices much as though they would have liked to do. The newly created money has gone into bailing out banks, and much of it was diverted to continue paying bloated bonuses to bankers. Very little, if any of it has “trickled down” to the ordinary consumers who are squeezed relentlessly on their debts contracted in the past.

It follows that price rises are unsustainable, as the consumer is unable to pay them. As a consequence the retail and wholesale merchants are also squeezed. They have to retrench. Pressure from vanishing demand is passed on further to the producers who have to retrench as well. All of them are experiencing an ebb in their operating cash flow. They lay off more people, aggravating the crisis further as cash in the hand of the consumers is diminished even more through increased unemployment. The vicious spiral is on.

But what is happening to the unprecedented tide of new money flooding the economy? Well, it is used to pay off debt by the people who are desperately scrambling to get out of debt. Businessmen in general are lethargic; every cut in the rate of interest hits them by eroding the value of their previous investments. In my other writings I have explained how falling interest rates make the liquidation value of debt rise, which becomes a negative item in the profit/loss statement eating into capital that has to be replenished as a consequence. Worse still, there is no way businessmen can be induced to make new investments as long as further reductions in the rate of interest are in the cards. They are aware that their investments would go up in smoke as the rate of interest fell further in the wake of “quantitative easing”.

Self-fulfilling speculation on falling interest rates

The only enterprise prospering in this deflationary environment is bond speculation. Speculators use new money, made available by the Fed, to expand their activities further in bidding up bond prices. They pre-empt the Fed: buy the bonds first before the Fed has a chance; then turn around and dump them in the lap of the Fed. This activity is risk-free. Speculators are told in advance that the Fed is going to move its operations from the short to the long end of the yield curve. It will buy $300 billion worth of long dated Treasury issues during the next six months, and probably much more after that. Speculation on falling interest rates becomes self-fulfilling, thanks to the insane idea of open market operations of the Fed making bond speculation risk-free. Deflation is made self-sustaining. (For another view of risk-free bond speculation, see the article by Carl Gutierrez’ in Forbes mentioned in the References below.)

Note also the crescendo of the dumping of equities and the desperate attempt to redeem toxic assets by private parties, sending the demand for cash sky high. The dollar, at least the Federal Reserve note variety of it, will be increasingly scarce. Rather than falling through the floor as under the hyper-inflationary scenario, the purchasing power of the dollar will soar. You say that Ben Bernanke and his printing presses will take care of that? Well, just consider this. The market will separate vintage Federal Reserve notes from the new issues with Bernanke’s signature on them. In a classic application of Gresham’s Law people will hoard the first, bestowing a premium on it relative to the second variety, which will fall by the wayside.

Bernanke can create money but cannot make it flow uphill

Already some tip sheets openly advise people to hoard Federal Reserve notes in amounts up to twenty-four months of estimated household expenditure, while cleaning out all deposit accounts. Depositors are urged to forget about the $250,000 limit on deposit insurance, which is rendered literally worthless as the resources of the F.D.I.C. have been hijacked by Geithner and diverted to guaranteeing the investments of private parties that were foolish enough to buy into toxic debt at the behest of the Obama administration.

Karl Denninger envisages unemployment in excess of 20%, with cities going “feral” as showcased by downtown Detroit (see References below).

What has all this got to do with the marginal productivity of debt? Well, once it is negative, any further addition of new debt will make the economy shrink more, increasing unemployment and squeezing prices. Bernanke can create all the money he wants and more, but he cannot make it flow uphill.

Bernanke is risking something worse than a depression

The newly created money will follow the laws of gravity and flow downhill to the bond market where the fun is. Risk-free bond speculation will further reinforce the deflationary spiral until final exhaustion occurs: the economy will collapse as a pricked balloon. Instead of hyperinflation and the destruction of the dollar, you’ve got deflation and the destruction of the economy.

Denninger says that the “death spiral” will lead to fire sales of assets in a mad liquidation dash and, ultimately, to the collapse of both the monetary and political system in the United States as tax revenues evaporate. He opines that probably not one member of Congress understands the seriousness of the situation. Bernanke is risking something much worse than a Depression. He is literally risking the end of America as a political, economic, and military power.

Indeed, the financial and economic collapse of the last two years must be seen as part of the progressive disintegration of Western civilization that started with government sabotage of the gold standard early in the twentieth century. Ben Bernanke, who should have been fired by the new president on the day after Inauguration for his part in causing irreparable damage to the American republic may, in the end, have the honor to administer the coup de grâce to our civilization.

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this is interesting:

"Watching the wrong ratio

The key to understanding the problem is the marginal productivity of debt, a concept curiously missing from the vocabulary of mainstream economics. Keynesians take comfort in the fact that total debt as a percentage of total GDP is safely below 100 in the United States while it is 100 and perhaps even more in some other countries. However, the significant ratio to watch is additional debt to additional GDP, or the amount of GDP contributed by the creation of $1 in new debt. It is this ratio that determines the quality of debt. Indeed, the higher the ratio, the more successful entrepreneurs are in increasing productivity, which is the only valid justification for going into debt in the first place."

so you can't just add that new debt onto the old debt stats & tally up the new GDP ratio....

this new debt is totally sh1te...in a nut shell.

so we are in a "£1 of new bad debt is like £10 of old bad debt" type scenario........in layman's terms.

edited - I may have over simplified it, but I like to keep things simple.

Edited by grumpy-old-man-returns

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this is interesting:

"Watching the wrong ratio

The key to understanding the problem is the marginal productivity of debt, a concept curiously missing from the vocabulary of mainstream economics. Keynesians take comfort in the fact that total debt as a percentage of total GDP is safely below 100 in the United States while it is 100 and perhaps even more in some other countries. However, the significant ratio to watch is additional debt to additional GDP, or the amount of GDP contributed by the creation of $1 in new debt. It is this ratio that determines the quality of debt. Indeed, the higher the ratio, the more successful entrepreneurs are in increasing productivity, which is the only valid justification for going into debt in the first place."

so you can't just add that new debt onto the old debt stats & tally up the new GDP ratio....

this new debt is totally sh1te...in a nut shell.

so we are in a "£1 of new bad debt is like £10 of old bad debt" type scenario........in layman's terms.

edited - I may have over simplified it, but I like to keep things simple.

zero hour approaches when new debt issued does not increase GDP

collapse follows

could go either way though depending on govt response

hyperdeflation or hyperinflation

the market wants deflation and in gold thats what we are going to get

come on injin - timescale on graph below

debtcontributions.jpg

post-2696-1242900762_thumb.jpg

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zero hour approaches when new debt issued does not increase GDP

collapse follows

could go either way though depending on govt response

hyperdeflation or hyperinflation

the market wants deflation and in gold thats what we are going to get

come on injin - timescale on graph below

debtcontributions.jpg

current course is hyper-inflation even with O'Bombya's new-boss-same-boss policy

BUT

you are right of course. If they stop QE this year, then hyper-deflation it is.

Why would they stop printing though ?

regime change would surely be the only reason & we have just had that with the saviour of the ghetto's but he's really a bush, put there to calm the chav class/working class rioting/starving/armed ethnic masses.

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