U.S. Economy Risks Dire Prospect of Hyperinflation

[Housing-Bubble]

http://www.huffingtonpost.com/sheldo...bubblenews.com

snippet...
"The global financial and economic crisis arose out of radical deflation in the U.S. housing market, as the real estate asset bubble split asunder. With the collapse in housing prices came the contraction of another asset bubble: equities. The ongoing demand destruction has also deflated commodity prices from their recent peaks, giving rise to a collective view among economic policymakers that deflation represents the single greatest risk to the global economy."

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

http://www.huffingtonpost.com/sheldo...bubblenews.com

snippet...
"The global financial and economic crisis arose out of radical deflation in the U.S. housing market, as the real estate asset bubble split asunder. With the collapse in housing prices came the contraction of another asset bubble: equities. The ongoing demand destruction has also deflated commodity prices from their recent peaks, giving rise to a collective view among economic policymakers that deflation represents the single greatest risk to the global economy."

This was sooooooooo last year!

[vanvaley1]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Would a partial 'forgiveness' of debt directed at the general public (student loans, equity loans, car loans, housing loans etc.) coupled with a "moderate" inflation rate accelerate a recovery or just muddy the waters and extend the length and pain of a recovery?

For wont of a deep understanding or examination of any particular economic school, I'm not an advocate of ideological purity for implimenting 'the' solution to this mess. I don't care if somebody has to use an 'economic school' smorgasboard approach in solving this problem. Cuz what they're doing now doesn't appear to be working for the economy and general public but only a relatively handful of 'special' interest characters and that smacks of a really dangerous downside to this country (and others) if that isn't corrected soon. van

[icm63]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Inflation..NOTgoodforstocks001.jpg

Inflation not good, mr president !

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Would a partial 'forgiveness' of debt directed at the general public (student loans, equity loans, car loans, housing loans etc.) coupled with a "moderate" inflation rate accelerate a recovery or just muddy the waters and extend the length and pain of a recovery?

The solution is to implement a financial system *NOT* based on mathematical impossibilities.

This is a summary of an explanation in another thread:

If you walk into a bank at 7:59am and there is $10,000 in the entire monetary system, and you take a loan out for $90,000 (9:1 Fractional Reserve lending ratio), the bank creates and thus increases the money supply from $10,000 to $100,000 at 8:00am. With a 15% interest rate, you will have to pay roughly $12,782 in interest, but you mathematically cannot pay back the entire $102,782 ($90,000 in principal + $12,782 in interest) because only $100,000 exists in the entire financial system. If you audit every single account and sum up the amounts of every single account, you will get no more than $100,000. The only way the $2,782 extra dollars can be created is by the bank issuing yet another loan (and of course they will charge you interest).

Since all the transactions are denominated in dollars, and only the Federal Reserve and the banks are given the authority to create money (and they always loan it out at interest), that's what makes the mathematical impossibility stick. There's no other way around creating dollars other than going through the Federal Reserve or the banks. Unless you want to go to jail that is.

To pay the interest, when it's never created, is a mathematical impossibility and until *that* aspect of our financial system is fixed, then all the other solutions will be a wasted effort.

[Starving Steve]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

The solution is to implement a financial system *NOT* based on mathematical impossibilities.

This is a summary of an explanation in another thread:

If you walk into a bank at 7:59am and there is $10,000 in the entire monetary system, and you take a loan out for $90,000 (9:1 Fractional Reserve lending ratio), the bank creates and thus increases the money supply from $10,000 to $100,000 at 8:00am. With a 15% interest rate, you will have to pay roughly $12,782 in interest, but you mathematically cannot pay back the entire $102,782 ($90,000 in principal + $12,782 in interest) because only $100,000 exists in the entire financial system. If you audit every single account and sum up the amounts of every single account, you will get no more than $100,000. The only way the $2,782 extra dollars can be created is by the bank issuing yet another loan (and of course they will charge you interest).

Since all the transactions are denominated in dollars, and only the Federal Reserve and the banks are given the authority to create money (and they always loan it out at interest), that's what makes the mathematical impossibility stick. There's no other way around creating dollars other than going through the Federal Reserve or the banks. Unless you want to go to jail that is.

To pay the interest, when it's never created, is a mathematical impossibility and until *that* aspect of our financial system is fixed, then all the other solutions will be a wasted effort.

I have no interest in saving money or making any investment unless I get a decent rate of real return, and that means very interesting interest. So, if the system in America or the world can not pay interest, the system then needs to produce and export and obtain money from abroad. And if the system here is too proud to produce and export, then it deserves to go bankrupt. Dahhhhhhh.

"When in a debt-hole, don't dig deeper slower, dig-out." Whatever the costs are, dig-out! Don't try to screw the savers and investors who have stuck by you by shafting them with negative real interest rates.

You should have been drilling for oil this year in the U.S, not putzing around with solar power dreams. You should have been building atomic power plants, not putzing around with Bernanke's stimulus and bail-outs. Where are your new hydro-electric dams? Why did you putz around with windmills in California, especially in locations where the wind rarely blows? You should be supporting Alberta's effort to develop up-graded oil from its oil sands; instead, you are already talking about barring that oil from importation into the U.S.

I certainly do not want to hear the archaic mathematical arguments that interest can not be paid. That is all B.S. GET TO WORK AND PRODUCE AND EXPORT. <----------------period.

[cjppjc]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Is it just me, or can you hear how loud Steve:mad: is?


Btw, Ash I'm trying as hard as I can to get my mind around the above.

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

I certainly do not want to hear the archaic mathematical arguments that interest can not be paid. That is all B.S. GET TO WORK AND PRODUCE AND EXPORT. <----------------period.

You can work as hard as you want, but since the currency that determines the value of the goods you produce and export is denominated in a fictional currency, good luck selling those products since you can never pay off the debt unless a BANK will loan you the currency (at interest) to do so.

[Starving Steve]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

You can work as hard as you want, but since the currency that determines the value of the goods you produce and export is denominated in a fictional currency, good luck selling those products since you can never pay off the debt unless a BANK will loan you the currency (at interest) to do so.

How about telling Detroit's big-three to cut prices? How about pay cuts, benefit cuts, pension cuts, executive bonus cuts? What did I hear Rick Wagner's last pay cheque was at GM? Was I hearing things about millions of dollars going to him, for a failed company? And how about backing cars with better warantees? Life-long warantees? And how about taking care of your GM bond holders better?

This isn't just Detroit's problem, this is all America's problem, and to a lesser extent, all of the Western World's problem: wages are too high, prices are too high, costs of doing business are too high, energy costs are too high, land costs are way out of wack with reality, insurance costs are too high, and yes to the Republicans in the US: taxes are too high, also.

You damn right I am shrill. I have much to be pissed-off about, and especially when I see governments now trying to inflate their way out of this mess. The worst possible solution is inflation because that is the how we got into this economic mess in the first place. Prices are too damn high, and no-one can make this cost of living........ So why do we need more inflation?

The long treasury bond had no buyers, aside from the Fed to-day in the U.S, but plenty of sellers.... waves of sellers, all day long. And gold kept coming back, when it looked like it was ready to sell-off. Same thing with oil: buyers waiting in the wings, with U.S. dollars, ready to buy the dips...... Maybe the world is catching-on to the massive failure of policy at the Fed? "A collective nyet," is how one analyst descibed to-day's bond market message.

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

How about telling Detroit's big-three to cut prices? How about pay cuts, benefit cuts, pension cuts, executive bonus cuts? What did I hear Rick Wagner's last pay cheque was at GM? Was I hearing things about millions of dollars going to him, for a failed company? And how about backing cars with better warantees? Life-long warantees? And how about taking care of your GM bond holders better?

This isn't just Detroit's problem, this is all America's problem, and to a lesser extent, all of the Western World's problem: wages are too high, prices are too high, costs of doing business are too high, energy costs are too high, land costs are way out of wack with reality, insurance costs are too high, and yes to the Republicans in the US: taxes are too high, too.

You damn right I am shrill. I have much to be pissed-off about, and especially when I see governments now trying to inflate their way out of this mess. The worst possible solution is inflation because that is the how we got into this economic mess in the first place. Prices are too damn high, and no-one can make this cost of living........ Dahhhhhhhh!

Again, your rants would be and are all valid in a mathematically possible financial system. Your statements imply that you *still* don't understand the gravity of what I am saying.

The cold reality that few people want to accept, and even fewer understand, is that the instant that one cent of interest (as it exists in our current financial system) enters into the picture the entire system breaks down. My argument, that you fail to understand, is that it doesnt matter *how low* taxes are, or *how high* wages are, or how high energy costs are. All of these are moot, when compared to the mathematical impossibility of interest bearing loans.

It doesnt matter how hard someone works, how low they cut prices, or how low taxes are because the cold reality is that if everyone paid their monthly bills on time, and worked their *asses* off to do so, eventually they will run out of money (because previous money has now been redirected to interest payments), because THE INTEREST TO SERVICE THE ORIGINAL DEBT WAS NEVER CREATED IN THE FIRST PLACE.

You cannot argue with math, no matter how hard you try. You can stick your finger in your ears and yell "LALALALALALALAL" as long as you want, but that doesnt mean that now all of a sudden you are able to produce Federal Reserve Notes out of thin air. Only banks and the Federal Reserve can do it by Fractional Reserve Lending and buying Treasury Bills, respectively. Until the day comes that you can literally inject (ie print) dollar bills and have them enter the financial system (and thus cause the monetary base to increase in nominal value) will you be able to claim that your ideas will work. Until then, you are fighting with math and math always wins.

See my more thorough explanation here:

Here is a neat demonstration of the "scam" that is all bankster, interest-bearing loans (at least in the US Federal Reserve Banking system):

Say you walk into a bank at 8:00AM and take out a loan. At 7:59AM, there is exactly $10,000 in existence in the entire money supply. You need to take out a loan to start a new business and are approved for a $90,000 loan. The moment you sign the paperwork, the bank, through the magic of Fractional Reserve Banking, is allowed to extend $90,000 in credit to you to start your business (they keep 10% in deposits, the loans are recycled into banking deposits over and over, and they eventually create $9 for every $1 deposited --this is a well known mechanism of fractional reserve banking see http://en.wikipedia.org/wiki/Fractional-reserve_banking and note the table that lists how much money is created using, for example, the original $10,000 deposit).

So when the banks extend you the $90,000 loan, they literally increase the money supply by that $90,000 the instant that you agree to pay it back. So at 8:00AM when you walk into the bank and take out the loan, the money supply has now ballooned from $10,000 at 7:59AM to *exactly* $100,000 at 8:00AM. So there is now $100,000 in "money" floating around in the economy. Nothing more, nothing less.

So to recap:
Money in existence prior to loan: $10,000
Money created in your new loan transaction: $90,000
Total Money in existence (assuming no more loans are issued): $100,000

Now, obviously the bank is going to charge you interest on that loan. They are an average bank and set your interest rate at 15% (I use this figure to illustrate the point so it makes sense, but it applies with any interest rate greater than 0%). You think your revenues will be good, so you agree to pay back $5,000 every month. So let's do some more summary:

Interest rate to service the debt:15%
Original Loan Amount: $90,000
Monthly Payment: $5,000

Using these figures you will pay back the loan in 21 months (you can use this calculator to see where and how I calculated these values). Accordingly, you will pay roughly $12,758 in interest. So if you pay back the original amount and add the interest, you will be required to pay back $90,000+$12,758 = $102,758 for the total loan amount.

But wait! There is only $100,000 in existence! *ONLY* the principal has been created, not the interest. There will be a shortfall of $2,758 that if you dont pay on the loan then you will default on it. I hope you didnt offer up any capital, cause now the bank is going to confiscate that property since you agreed to pay back the entire amount PLUS INTEREST and of course you agreed to give up that property if you defaulted on the loan. Since you (the individual) is not a bank nor the Federal Reserve, you are not allowed to create US dollars (ie Federal Reserve Notes), or print it, or issue it, unless you want to go to jail for counterfeiting. So no matter how hard you work, no matter how "prudent" you are with your finances, you *will* be forced into default and if you gave capital as collateral in case of default, your capital *will* be confiscated. This is outright theft in every definition.

In order to come up with the shortfall of $2,758 you will have to go back to the bank and hope they loan you the $2,758 so you can service the debt. But wait again! They are going to charge you interest on that loan. You also can't charge higher prices and hope to get the extra $2,758 because it doesnt exist *ANYWHERE* in the financial system. It is on no one's balance sheet, and it doesnt exist anywhere AT ALL. Not a single individual, business, corporation, etc. can come up with the extra money to pay your higher price, because THEY DONT HAVE IT EITHER. IT DOES NOT EXIST ANYWHERE IN THE FINANCIAL SYSTEM BECAUSE IT WAS NEVER CREATED!

This process is so unbelievable and when I realized this very important "flaw" in our financial system, then all the problems we are having make complete 100% sense. But the reasoning screamed out by the mainstream media is so glaringly WRONG, that it either is a lie or they are absolute fools.

The reason that people dont get this is because they say "Well, I pay back loans all the time". They are correct, but the interest to pay back and service the loans has in fact come from another loan, because 100% of all US dollars/Fractional Reserve Notes are loaned into existence.

Am I crazy to see the simplicity in this scam!? How can so many people be so deceived all at once?

[Starving Steve]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

When an adolescent goes out and joy-rides in your car and smashes it in an accident, then turns to you and says: "Dad, I can't pay for the repair because it is mathematically impossible for me to pay for your car with the money I earn cutting lawns." I would say: "Get a job. Or get two jobs, maybe three jobs. The mathematics will then come-out fine."

There is no shortage of U.S. dollars in the world. But there is a shortage of will in the American people to swallow their pride and go out and earn those dollars.

This is not "supply-side economics"; this is get off your ass and produce and export economics. If you can't make the numbers work, then cut costs. Fire the CEOs. Tell the unions to go suck. Slash prices and compete. Then the numbers will work-out just fine.

Instead of putzing-around with solar power and segways, how about producing useful and needed goods cheaper than China and exporting those goods to China or Japan, wherever? How about copying Toyota, or letting Toyota produce cars in Detroit? How about damming some rivers and building atomic power plants to drive-down electric costs? How about telling the greenies to get lost, and opening up land around cities for development--- if nothing else to drive-down land costs?

[charliebrown]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

thank you ricket, I am beginning to see the light.
This only applies in a closed fractional reserve banking system correct?

If we are in a barter system this problem does not occur correct?

For example if I am a farmer and have no crops, but want to eat an ear of corn today, I can borrow corn from my neighbor to eat today, with promise to give him two ears when my crop comes in.

This system seems to balance. Difference being Each farmer can create corn.

In your monetary system above, only the banker can create money, not the borrower.

Am I getting it?

[dummass]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Ricket, how do loan defaults fit into your equation? Money that enters the closed system, but is not repaid; this may off-set the additional interest that is actually repaid.

These things can run out of balance for a long time, but maybe what we are seeing now is a balancing of the books.

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

When an adolescent goes out and joy-rides in your car and smashes it in an accident, then turns to you and says: "Dad, I can't pay for the repair because it is mathematically impossible for me to pay for your car with the money I earn cutting lawns." I would say: "Get a job. Or get two jobs, maybe three jobs. The mathematics will then come-out fine."

That's not the argument that I am making at all and you *still* do not get it. Youre assuming there is enough money in the entire monetary system to pay every single loan and have them all cancel out. I'm saying that it doesnt matter how hard he works cutting lawns and whatnot. Imagine if when he cut lawns he could *only* receive gift certificates in exchange for the yard cutting (because all of everyone else's money is tied up paying back the principal on a debt). Now if you go and try and pay for the car repairs using those gift certificates and they do not accept them, what are you going to do?

Listen, I'm not saying your arguments arent valid. I'm trying to enlighten you to a *bigger* concept here, and that is the system is designed to work against you because of a simple mathematical impossibility. This enters into the system as soon as one cent of interest is owed on a debt that is never created anywhere in the entire monetary system. Stop for a moment, breathe, and think slowly about what I'm saying because were talking about 2 different things here...

thank you ricket, I am beginning to see the light. This only applies in a closed fractional reserve banking system correct?

If we are in a barter system this problem does not occur correct?

For example if I am a farmer and have no crops, but want to eat an ear of corn today, I can borrow corn from my neighbor to eat today, with promise to give him two ears when my crop comes in.

This system seems to balance. Difference being Each farmer can create corn.

In your monetary system above, only the banker can create money, not the borrower.

Am I getting it?

I think that's correct. It seems you are indeed catching on. This aspect of our financial system keeps me up at night. The phrase "The process by which money is created by banks is so simple the mind is repelled" seems to fit aptly. Since you nor I can create the literal "money" to pay back debts with, we have to get it from a bank either through a loan, or my employer taking out a loan and giving me the principal for doing work for him. But somewhere, all along the line, every penny of money that enters the US financial system enters by way of a loan...which is charged interest.

Ricket, how do loan defaults fit into your equation? Money that enters the closed system, but is not repaid; this may off-set the additional interest that is actually repaid.

These things can run out of balance for a long time, but maybe what we are seeing now is a balancing of the books.

Loan defaults are not supposed to happen, even according to bankers. Technically, in a fractional reserve lending system, a single loan default can wipe out the deposits of every customer at the bank. What people don't realize is that using this mechanism, banks are literally *stealing* property from people because a certain subset of the loans will be forced to default on some portion of the loans simply because the amount of money to pay the interest+principal is never large enough (interest+principal is always greater than principal).

Most people would say that in a "perfect" world, with everyone working and doing a good job, that everyone should be able to pay their bills on time, every month, without question. I argue that that's impossible. Due to the interest not being created, there *WILL* be a breakdown, and eventually someone along the line will be forced into bankruptcy. It's literally *designed* into the system and there is no way around it.

[Wild Style]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Again, your rants would be and are all valid in a mathematically possible financial system. Your statements imply that you *still* don't understand the gravity of what I am saying.

The cold reality that few people want to accept, and even fewer understand, is that the instant that one cent of interest (as it exists in our current financial system) enters into the picture the entire system breaks down. My argument, that you fail to understand, is that it doesnt matter *how low* taxes are, or *how high* wages are, or how high energy costs are. All of these are moot, when compared to the mathematical impossibility of interest bearing loans.

It doesnt matter how hard someone works, how low they cut prices, or how low taxes are because the cold reality is that if everyone paid their monthly bills on time, and worked their *asses* off to do so, eventually they will run out of money (because previous money has now been redirected to interest payments), because THE INTEREST TO SERVICE THE ORIGINAL DEBT WAS NEVER CREATED IN THE FIRST PLACE.

You cannot argue with math, no matter how hard you try. You can stick your finger in your ears and yell "LALALALALALALAL" as long as you want, but that doesnt mean that now all of a sudden you are able to produce Federal Reserve Notes out of thin air. Only banks and the Federal Reserve can do it by Fractional Reserve Lending and buying Treasury Bills, respectively. Until the day comes that you can literally inject (ie print) dollar bills and have them enter the financial system (and thus cause the monetary base to increase in nominal value) will you be able to claim that your ideas will work. Until then, you are fighting with math and math always wins.

See my more thorough explanation here:


Am I crazy to see the simplicity in this scam!? How can so many people be so deceived all at once?

Some people are audio learners and some a visual learners. Maybe a series of videos would help some grasp it better link