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Debate Over: It's Hyperinflation (and Us Economic Collapse)

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Quite a long article

first couple of paras

The economy and to a great extent the world today is run by would-be economic seers and prognosticators, probably more so than ever before in history. I say "would-be", however, because their track records are rather spotty. This contradiction should be no surprise to anyone who has been paying attention to the plentiful (and well-deserved) criticism of the Fed's recent actions (and statements), but many have also noted that it seems the Fed and its economic peers and groupies never seem to "get it right". There is a structural problem here, I would say; I think it has something to do with the true objective of these people being political rather than predictive success.

The investment community, surprisingly, doesn't do much better, and I include in that the "contrarian" crowd -- and to some extent even the Austrians. This group has been preoccupied with an "inflation vs. deflation" debate for at least the last two years (myself among them), and it shows no signs of letting up. As I will argue below, I think there is now ample evidence to make the call one way or the other.

First, regarding prognostication, I want to share a little trick I use that works pretty well. All you do is look at the current picture -- putting aside at least for hypothetical purposes one's own pre-conceived ideas of the answer -- and make a genuine attempt to see the situation for what it is. By "current picture" I mean actual data, though one doesn't usually need to dig too deep into minutiae.

This is how the Mortgage Lender Implode-o-Meter came about and became such a success: with a basic understanding of the importance of housing finance to the US economy, I looked at a nascent trend of imploding, non-integrated mortgage lending shops, and said "that's the end of that game." I then made a web site about it, and people were shocked! Some caught on quickly, but amazingly (or not), the mainstream took well over a half year to finally come to terms with the total upending of the housing market (some still think the problem is just "subprime", sadly).

A handicap I think a lot of the commentators have is that they don't really invest or trade in a direct way corresponding to the theses they write extensively about. In other words, they don't "put their money where their mouth is". I always strive to do so -- and even when I don't, I approach the economic prognostication game with the secondary question "so how should I invest?" If I can't answer that secondary question, then I probably don't really know the primary answer either!

When I combine this discipline with looking at the current data in the most comprehensive

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Well lets see, banks receive 100's of billions, cheques sent to every home, another 300 billion to bail of mortgages this week, rising prices of everything in the shops. Sure looks to me like they are dropping cash from helicopters and prices are rising in response.

It would have been deflation if left alone, but they have chosen the opposite. There can never be deflation with fiat because you can just get out your helicopter and drop more cash. If done right they would create just enough new cash to counter the deflation. But that isn't what they want, they want to lessen the debt burden by inflating it away so consumers can spend again. There goes your savings. What else do you expect, all the current CB'ers are Keynesian's. To them its all about growth via consumption, the debt gets in the way, you remove the debt. Best thing to do is take out maximum debt whilst moving your savings into something they cant inflate. A house matchs perfectly if they were not dropping like stones.

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  • 2 weeks later...

Compare it with Zimbabwe. The hyperinflation is caused by Mugabe needing to pay his troops and bureaucrats without the production being there to support that, so he prints the money. The fed is doing the same. The US government doesn't take in anywhere near enough from tax's to pay for its spending. The fed simply creates money to buy the governments T-bonds and creates more to bail out the banks. Its the same sort of situation in both countries. The published US inflation figures are of course a lie just as they are in the UK.

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  • 2 weeks later...

I am very sympathetic to the views posted by bleakhouse, and the website that he points to.

I agree with the idea that we are entering into a new depression period, and that life is going to get awfully tough. I wrote an essay back in November on the future of the UK economy, and came to the same conclusions. In the essay I predicted exactly where we would be now, and have predicted much worse to come. The essay is here. It is long, but has to be to explain how we got in the mess.

The one point I disagree with is the point on inflation. I think that inflation will disappear as quickly as it arrived, barring food inflation. I explain why here.

Life is going to get very tough indeed, but the problem is not sub-prime, which is rather just a symptom of the underlying economic problems. There is a massive imbalance in the world economy that is currently being 'fixed', and that fix involves pain. A lot of pain.

We can no longer take for granted our economic success :(

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