Saturday, July 21, 2012

Nadeem explains how the inflation mega trend can accellerate towards hyperinflation

The Quantum of Quantitative Easing Inflation is Coming!

The next stage is QQE, which will involve the UK government (same applies to the likes of the US) via a number of mechanisms to directly spend money printed electronically by the Bank of England without it going through the mafia banking system i.e. direct transfer from the Bank of England to Government. The exact mechanisms used and what they will eventually be called will only become fully clear in hindsight but the basic outcome will be as I indicate here in that the Government will spend money printed (electronically) without it adding to government debt! If QE is akin to pouring petrol onto the inflation fire then QQE is akin to pouring rocket fuel onto the Inflation fire. It will result in an ACCELERATION of the EXPONENTIAL Inflation Mega-trend.

Posted by libertas @ 12:35 AM (3383 views)
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14 thoughts on “Nadeem explains how the inflation mega trend can accellerate towards hyperinflation

  • Nadeem serves up as news that the expressly stated purpose of QE (to reduce government interest payments) is the secretly intended purpose that only he can see. What a d*ck.

    Of course there’s no need for a state to pay any interest on its debt, or even to have debt at all. It produces currency at will. No sh*t.

    The limit to this idea is of course that confidence in your system is lost and your exchange rate is shot (but only assuming other countries are not doing the same thing to the same extent) before you get very far.

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  • @Bellweather
    Precisely. Though another limitation is the Maastricht treaty which legislates against direct funding of government debt. Hence the backdoor shenanighans of QE?
    N

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  • Bellend, whereas you may well get it, 99% of the public a flummoxed by QE and have no idea what it is and that it could well be expanded into what he calls QQE. The people, in general, have no idea that these actions put the entire financial system and certainly their purchasing power at risk and probably only 1% of 1% have actually shifted their assets into true safe havens to weather the storm.

    If he is such a Dick, then pray tell, where are your voluminous tomes on the web or in print. Please show me your sage articles and attempts to warn the general public prior to spouting off.

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  • @3
    There are no true safe havens, because any ostensible safe haven will become subject to speculative trading and therefore volatility. QE does not necessarily put the financial system at risk – the Japanese have been doing it for decades and their financial system is still bumbling along. Austerity, on the other hand, puts peoples incomes and livelihoods at risk by wrecking the economy.
    N

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  • ===========================================================================================
    Austerity, on the other hand, puts peoples incomes and livelihoods at risk by wrecking the economy.
    N
    ===================================================================

    only for a short(5-10 years) time

    americas austery in the 1930s turned it into a can do superpower

    japan…no change in 20 years,zombie banks/companies,no-one trusts property or stockmarket(75% and 40% down since 1991)…oh and the kids left the country

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  • Nadeem is taking a view. Nothing wrong with that.

    NW’s view is a little extreme for me. I feel that at present there is a degree of confidence in the £,$ and Euro. I agree there is a possibility of higher inflation returning (say 6%), but this is just a gut feel. Once a panic starts anything can happen (read Northern Rock’s tale).

    An extreme example of what happens when confidence is lost and banks print endlessly can be seen in Zimbabwe. I don’t think this situation appears on my radar, right now.

    IMHO there is a bigger threat in the Eurozone with Sicily and Valencia going bankrupt and triggering defaults. Once the haircuts start the pension funds of telephone engineers, call centre staff, administrators and train drivers get reduced and there is less money for their pensions.

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  • bellwether said…
    Nadeem serves up as news that the expressly stated purpose of QE (to reduce government interest payments) is the secretly intended purpose that only he can see. What a d*ck.

    I know that it isn’t what you want to hear, being as much into paper as you are……..

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  • Love the dramatic predictions. Yet to see one play out. Monkeys, typewriters, eventuality, etc.

    From now on I’m calling Bellwether MACHETE!

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  • stillthinking says:

    On zerohedge there was this interesting piece;

    http://www.zerohedge.com/news/guest-post-falling-interest-rates-destroy-capital

    Which suggests that for companies that financed projects at previous higher rates, they face competitive disadvantage for one thing, and have difficulty buying back their bonds to retire (because yields are down so the price is up) and when they do their accounts they are in a terrible position because there is no inflation discount on their future bond payments. Anyway you can read it.

    So the UK government can and does force their own borrowing costs down. But in order to control inflation (and basically I am supposing that they do ) from the increased money, they need to push the interest rates onto the public generally i.e. one group can have lower interest rates as long as another group has higher rates.

    But the constant refrain is that some modest stable inflation is a good thing, and the deflation is the big scare. However, if moderate inflation is a good thing then moderately high rates must also be a good thing. So you can see from this angle, that a possible goal of the BoE is to increase -nominal- rates while maintaining very low real rates. At the moment the BoE cannot increase nominal rates -and- have low real rates this would be the problem (directly setting nominal to 5% would be killer real rates). What I mean is that there is no direct correlation between nominal and real rates, they are both set environmentally. So nominal is a function of money quantity but real is more about animal spirits. You could have low nominal and high real (the disaster situation ..) also.

    So maybe the BoE is hoping for nominal on the basis that real rates will be subdued because there is currently no (borrower) bidding competition for savings due to the still global glut. If the BoE fire up a wage price spiral then that is equivalent to resetting the price level to evade the damage done over the Labour administration, which certainly is unfair on those who stayed out and certainly causes problems in the future, but I don’t see that you can argue that because of nominal and real moving together during an inflationary collapse that means anything … its a collapse the money is meaningless.. Within the envelope of normal effective BoE and government policy they are not necessarily linked and there are many actions to control real rates while relaxing nominal. Thats an idea anyway.

    As far as Nadeem is concerned I think he just bangs about inflation and hasn’t really added to any of his earlier essays or even explored the point he makes to any extent.

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  • Stillthinkinking, low rates also destroy capital because the stop people from saving money, which would make loans available to businesses. They instead focus on speculation rather than long term investment.

    The economic principle is, that lower interest rates reduce the time preference for money, favoring spending and speculation, whereas higher interest rates lengthen the time preference of money, encouraging savings and long term investments in productive capital.

    When the market sets interest rates, interest rates fall when savings are sufficient for lending demand, and they rise when savings are not sufficient or when asset prices are bid too high. By artificially depressing interest rates and pumping money into the system, it tricks the economy into believing that we have too much in savings and that demand is higher than it really is. What happens is that businesses then invest in commodities and short term production with borrowed money, that people cannot afford and they then then get wiped out when interest rates then rise.

    Austrian Theory of the Business Cycle, Prof Guido Hullismann and Lew Rockwell: http://www.lewrockwell.com/lewrockwell-show/2008/08/12/17-austrian-theory-of-the-business-cycle/

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  • general congreve says:

    @1 – Nadeem serves up as news that the expressly stated purpose of QE (to reduce government interest payments) is the secretly intended purpose that only he can see. What a d*ck.

    What do they say on the news when more QE is announced? The newsreader says the BoE have done some more QE to boost the economy. You and I might know it’s to cheapen borrowing for the govt. and the keep the wolf from the banks door, but your average bloke who just watches the headline doesn’t.

    The limit to this idea is of course that confidence in your system is lost and your exchange rate is shot (but only assuming other countries are not doing the same thing to the same extent) before you get very far.

    “This is Captain Bellwether, we have been hit mid-ships and are going down. Do not panic men, the u-boat that sank us has been hit by us with a depth charge and is sinking at the same speed. This means we will survive.”

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  • general congreve says:

    @8 – When you jump off a tall building, you suffer no harm for a time.

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  • “What do they say on the news when more QE is announced? The newsreader says the BoE have done some more QE to boost the economy. You and I might know it’s to cheapen borrowing for the govt. and the keep the wolf from the banks door, but your average bloke who just watches the headline doesn’t.”

    Nor does average bloke read market oracle.

    “When you jump off a tall building, you suffer no harm for a time.” – The calm before the storm? Like the calm in Japan decades ago?
    When you jump off a cliff, you just get wet. Your premise is exactly the point I’m questioning, so what point your conclusion?

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  • general congreve says:

    @13 – Nor does average bloke read market oracle.

    Neither did I once upon a time, but I stumbled upon it nearly 4 years ago and had a few questioned answered, thanks to the contributors I found there.

    so what point your conclusion?

    As if you don’t already know. To summarise, we are beyond the point of no return in terms of being able to grow our way out of this debt burden. It must be defaulted on, either via natural deflationary collapse under free market forces, of stagflationary collapse by governments putting off the inevitable via more money printing. Both will result in currency collapse and loss of wealth for those in paper.

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