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Laura

How Hyperinflation Will Happen (Viatreasuries)

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My evening offline reading last night http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

It's a long article & I hope I have quoted the core.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.

This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.

It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.

The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.

However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.

The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.

So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.

Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.

Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.

So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”

Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.

Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.

The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?

Commodities.

By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?

Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.

It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)

Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.

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This thesis depends on the central bank doing what they predict.

I don't think they will. The next step in wealth transfer from the poor to the rich will be seizing their assets. Rising interest rates and a non-bailout of the treasury market will be the mechanism

Hyperinflation is a disaster for the elites as it tends to result in civil disorder and loss of power. It is the last thing they want. They may remove Ben Bernanke (who is stupid and insane) if he goes down this path.

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2008 was the year many expected this to happen but CBs managed to just about avoid (as stated in the above article)

now it seems unavoidable, August is about to end, as Sept starts

I recall an expert stating that these next few weeks could be critical!!!

agreed though that hyperinflation is not a slow process which will take months & yrs as many wrongly assume,

when it happens it would be pretty quick, currrency devaluation, pretty logical.

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There will be money to be made in that burp, if you know what you are doing.

Citizens will be needing advice. I think I'll set up a helpful org.

What shall I call it?

How about something like .... 'Inside Track' ?

or 'Goldman-Sachs' ? - now that has an authoritative ring to it. Ahh, but I see it has been taken :(

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:lol:

So let's see, commodities, or perhaps oil as a proxy, will head off to the moon, or perhaps $147 a barrel. Then what?

They'll crash 80%.

Been there, done that. It wasn't a hyperinflationary holocaust.

Fantasy delusions again I'm afraid. Is there no end to them?

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:lol:

So let's see, commodities, or perhaps oil as a proxy, will head off to the moon, or perhaps $147 a barrel. Then what?

They'll crash 80%.

Been there, done that. It wasn't a hyperinflationary holocaust.

Fantasy delusions again I'm afraid. Is there no end to them?

So what would cause them to crash 80% again? Some soothing words from the central banks and politicians, while printing up some more money? We've been there, done that and it didn't work. Do you think everyone will fall for the bluff a second time?

The fact is, no one knows where this bugger is headed and I'm certainly not writing this off as 'fantasy delusions'. It's one of a series of plausible scenarios, which appears to be getting more likely by the day.

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My evening offline reading last night

It's a long article & I hope I have quoted the core.

you're a little fibber Laura. <_<

http://www.greenenergyinvestors.com/index.php?s=&showtopic=4411&view=findpost&p=180259

something like this would have been better ya fibber:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=149852

Not seen this link posted here? - Thxs to 'borassic' on GEI for finding it.

;)

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It's fairly easy to make a fortune during hyperinflation. You borrow a ton of paper money, buy some inflation-proof assets and then when it comes to pay back your loan you pay peanuts. The early stages of hyperinflation are generally accompanied by an economic boom due to the money supply soaring. During that boom borrowing will be easy - it will be 2007 all over again.

Of course we'll probably get stagflation instead: prices rise, wages don't, money supply contracts.

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This thesis depends on the central bank doing what they predict.

I don't think they will. The next step in wealth transfer from the poor to the rich will be seizing their assets. Rising interest rates and a non-bailout of the treasury market will be the mechanism

Hyperinflation is a disaster for the elites as it tends to result in civil disorder and loss of power. It is the last thing they want. They may remove Ben Bernanke (who is stupid and insane) if he goes down this path.

Does the maxim 'Chao Ab Initio' ring any bells?

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you're a little fibber Laura. <_<

Dearest GOM, you've lost me.

Are you having space/time glitches due to substance enjoyment?? (I picked up the zh article last night, you posted it on GEI early this a.m. - Is that it?)

Or are you suggesting I don't understand everything I read? (I would never disagree with you there :) )

Whatever, cheers :)

-------

For 'Frank Sidebottom':- Is this gentler article more to your taste?

http://www.safehaven.com/article/17936/hyperinflation-is-a-fiscal-not-monetary-phenomenon

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It's fairly easy to make a fortune during hyperinflation. You borrow a ton of paper money, buy some inflation-proof assets and then when it comes to pay back your loan you pay peanuts. The early stages of hyperinflation are generally accompanied by an economic boom due to the money supply soaring. During that boom borrowing will be easy - it will be 2007 all over again.

Of course we'll probably get stagflation instead: prices rise, wages don't, money supply contracts.

Quite. A peculiarly British phenomenon indeed.

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This was forwarded to me eariler - I started laughing then, and I haven't stopped since.

The Fed wants people to sell Treasuries.

And low yields don't discourage deflation, they're a symptom that you're standing in the middle of it.

The really hilarious thing about this meme is that having been so wrong for so long (and my yardstick for right is that nebulous entity called "the market"), these folk are actually more likely to miss the very event they're forecasting.

Edited by ParticleMan

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If we get hyperinflation some people on here seem to think they'll be ok if only they hold commodities... gold... silver.

If we get hyperinflation I challenge those same people to come up with a plausible plan to stave off the muggers and thieves that will be knocking your door down to steel from you and leave you for dead.

If we get hyperinflation governments will fall and armies will step in.

It isn't a matter of buying a bit of gold and being smug about it. Anyone on here who thinks hyperinflation is a synch so long as they hold gold is probably not actually thinking hyperinflation... more like high inflation environments (20-30% p/a) where governments may be able to keep the peace. In hyperinflation they won’t.

Edited by MinceBalls

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If we get hyperinflation some people on here seems to think they'll be ok if only they hold commodities... gold... silver.

If we get hyperinflation I challenge those same people to come up with a plausible plan to stave off the muggers and thieves that will be knocking your door down to steel from you and leave you for dead.

If we get hyperinflation governments will fall and armies will step in.

It isn't a matter of buying a bit of god and being smug about it. Anyone on here who thinks hyperinflation is a synch so long as they hold gold is probably not actually thinking hyperinflation... more like high inflation environments (20-30% p/a) where governments may be able to keep the peace. In hyperinflation they won't.

I thought the thieves were the bankers and the politicians.

I think it has been and is possible to have hyperinflation without going completely down the tin foil hat path. I see it as more of a cleansing process and the start of something better.

I hear another series of X factor is starting and the evenings are drawing in so there's no chance of the sheeple uprising.

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I thought the thieves were the bankers and the politicians.

I think it has been and is possible to have hyperinflation without going completely down the tin foil hat path. I see it as more of a cleansing process and the start of something better.

I hear another series of X factor is starting and the evenings are drawing in so there's no chance of the sheeple uprising.

I would accept this argument if you could show me the evidence... of previous countries not falling apart during hyperinflation. I can show you many that did; prob don't need to remind you of them but will happily if you request.

Can you persuade me through examples?

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I would accept this argument if you could show me the evidence... of previous countries not falling apart during hyperinflation. I can show you many that did; prob don't need to remind you of them but will happily if you request.

Can you persuade me through examples?

Japan, Brasil, Israel, Argentina.

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If we get hyperinflation some people on here seem to think they'll be ok if only they hold commodities... gold... silver.

If we get hyperinflation I challenge those same people to come up with a plausible plan to stave off the muggers and thieves that will be knocking your door down to steel from you and leave you for dead.

If we get hyperinflation governments will fall and armies will step in.

It isn't a matter of buying a bit of gold and being smug about it. Anyone on here who thinks hyperinflation is a synch so long as they hold gold is probably not actually thinking hyperinflation... more like high inflation environments (20-30% p/a) where governments may be able to keep the peace. In hyperinflation they won’t.

Got gold, a machete, spare food and various useful objects/tools to trade. Et tu?

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It isn't a matter of buying a bit of gold and being smug about it.

What is smug about trying to protect life savings from being used to prop up a Ponzi scheme?

Every time such aspersions are cast I assume the perpetrator doesn't have the balls to get out of fiat.

The converse of your argument is that life is safer in Sterling. Take some risks, life is crushingly boring if you don't; especially in Britain.

EDIT:- grammar

Edited by Laura

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If we get hyperinflation I challenge those same people to come up with a plausible plan to stave off the muggers and thieves that will be knocking your door down to steel from you and leave you for dead.

I have a time-machine. YOU???!!!

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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