Tuesday, September 14, 2010

I would recommend you panic.

How Hyperinflation Will Happen In America

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?

Posted by devo @ 08:39 PM (1571 views)
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11 thoughts on “I would recommend you panic.

  • Again..”Hyperinflation food shortages”… add a major bank run into the mix.

    Le Crunch.

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  • This is the second article this week that reiterates what I wrote here at the end of last week..

    ..do people actually read this stuff..!

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  • House prices (albeit denominated in dollars) are mentioned on page 5 of the article…

    This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.

    This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.

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  • This is the second article this week that reiterates what I wrote here at the end of last week..

    ..do people actually read this stuff..!

    I think you are on your own, in terms of ruling it out completely.

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  • Surely you must have read all of the article to make judgement ?

    Which would also answer your question 🙂

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  • Mike Shedlock discusses this article here:
    http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html

    To quote:

    Supposedly … A slight rise in oil will cause a “jiggle” in treasury yields.

    As a result of that jiggle “asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.”

    Really?

    Since when are much despised treasuries the “principal asset” of asset managers? And pray tell, why would the asset managers “have to sell”?

    Oil at $140 did not start a chain reaction before. Why would a “slight but sudden rise” in commodity prices start such a chain reaction, now?

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  • thanks capitalist for pointing that out.

    i think Mish makes a few pertinent comments – i have highlighted 2 as follows, but really the first part of the first one is key – as i have said before its not what they can do (they could do whatever they wanted – its what they will be ALLOWED to do):

    “What Could Cause Hyperinflation?

    As noted above, the Quantitative Easing will not cause hyperinflation. Moreover, it is doubtful the Fed can cause it at all. The Fed cannot give money away nor can the Fed force banks to lend or consumers to borrow. Those who disagree must still address the difference between theory and practice.

    Unlike the Fed, Congress could give money away.

    I do not know if giving everyone in the US $60,000 would do it or not, but announcing a plan to give everyone $60,000 a month indefinitely would sure do it.

    How likely is that?

    The answer is 0%. Congress struggles right now extending unemployment insurance. There is little political will for more stimulus. The next Congress is a guaranteed bet to be more conservative.

    To be sure, more stimulus and more Quantitative Easing are coming but the latter does not matter and the former will be in insufficient quantity.”

    2nd point

    “Theory vs. Practice

    Please note that banks do not want hyperinflation or even massive inflation. The reason is simple: Banks will not want to be paid back with cheaper dollars, especially worthless dollars, and Congress is beholden to itself and the banks.

    Hyperinflation could theoretically come from massive sustained political will to bail out the little guy at the expense of the banks, the wealthy, and the political class. However, unlike Mugabe and Zimbabwe, neither the banks nor the Fed nor the political class wants to bail out the poor at the expense of the wealthy.

    Indeed, Bernanke’s, Paulson’s, and Geithner’s actions to date have done the exact opposite!

    We have bailed out the banks at the expense of the ordinary taxpayer (keeping the little guy in debt).

    This is what it comes down to: In theory, Congress can easily cause hyperinflation. In practice, they won’t, and neither will the Fed. As Yogi Berra once quipped “In theory there is no difference between theory and practice. In practice, there is.””

    i love that last Yogi Berra quote!

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  • the other nugget is this:

    “Given that hyperinflation is a complete loss of faith in currency, tangible goods, any tangible goods must by definition rise exponentially in such a situation. Yet amazingly many hyperinflationists are bearish on housing.

    Hyperinflation accompanied by a housing collapse is simply impossible – by definition.”

    This has been my exact point against the hyperinflationists and even general [high] inflationists for some time. it dont make no sense to me to be arguing for both since they completely oppose each other.

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  • Quote ready for Bernanke to say at the financial apocalypse (apologies to Oppenheimer)

    I gazed into the screen at the mushroom of dollars and my eyes turned to glass as I said

    “I am become press, destroyer of wealth”

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  • techieman,

    “Given that hyperinflation is a complete loss of faith in currency, tangible goods, any tangible goods must by definition rise exponentially in such a situation. Yet amazingly many hyperinflationists are bearish on housing.”

    if you think housing is a tangible good, why were you ever bearish on housing ?

    for me, housing is not portable enough, it’s not really a tangible good that i can just walk away with ie it’s cemented into the ground.

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  • of course you can have hyperinflation and a bearish housing market.

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