This looks Bad, VERY BAD!!!!

[Munger]

Re: This looks Bad, VERY BAD!!!!

That is my general take, as well. A true hyperinflation -- as opposed to a period of very high inflation -- is not an investment opportunity. On the other hand, I would expect hyperinflation to be localized within a national economy inasmuch as it is a phenomenon of the national currency. That suggests that a fund betting on hyperinflation which invests outside the national economy where hyperinflation is expected might actually do okay. For instance, if you were a Zimbabwean hedge fund manager prior to the hyperinflation there, and simply invested all your money in US Treasury bonds held in Switzerland, your clients probably would have come out ahead. The main danger, as you point out, is betting on hyperinflation inside the national economy that is about to go down. Given the prominence of the dollar and the US economy, it may be harder to find quality investments that are truly outside the path of destruction. Also, given the potential difficulty keeping hold of and using any external investment gains realized during a hyperinflationary scenario, I think the best strategy if one plans to invest for hyperinflation outside the US is to also live outside the US. That being the case, you would not really have made a "profit" from the hyperinflation -- you would merely have side-stepped it and avoided the loss.

After reading about the fund, I think Taleb is using the term "hyperinflation" very loosely, probably for marketing purposes. What we would refer to as high inflation in the more precise iTulip lexicon.

[charliebrown]

Re: This looks Bad, VERY BAD!!!!

In reality can they do this? We are a nation addicted to debt. Our creditors would punish us. This would be basically declaring bankruptcy.
If we were willing to live within our means, we could do this but what happens when China/Saudi's/Canada etc says no more stuff for U.S. money/debt? You must trade us goods, or pay in gold?

[WildspitzE]

Re: This looks Bad, VERY BAD!!!!

That is my general take, as well. A true hyperinflation -- as opposed to a period of very high inflation -- is not an investment opportunity. On the other hand, I would expect hyperinflation to be localized within a national economy inasmuch as it is a phenomenon of the national currency. That suggests that a fund betting on hyperinflation which invests outside the national economy where hyperinflation is expected might actually do okay. For instance, if you were a Zimbabwean hedge fund manager prior to the hyperinflation there, and simply invested all your money in US Treasury bonds held in Switzerland, your clients probably would have come out ahead. The main danger, as you point out, is betting on hyperinflation inside the national economy that is about to go down. Given the prominence of the dollar and the US economy, it may be harder to find quality investments that are truly outside the path of destruction. Also, given the potential difficulty keeping hold of and using any external investment gains realized during a hyperinflationary scenario, I think the best strategy if one plans to invest for hyperinflation outside the US is to also live outside the US. That being the case, you would not really have made a "profit" from the hyperinflation -- you would merely have side-stepped it and avoided the loss.

I agree as well, it's rubbish.

I think, as another poster suggested, that what he is calling hyperinflation for marketing purposes really is mass inflation.

[metalman]

Re: This looks Bad, VERY BAD!!!!

EJ!
http://www.moneyandmarkets.com/new-h...collapse-34202
Mike

prefer analysis w/o the hysterics. compare to... Flow of Funds Q4 2008: Debt Deflation confirmation

[charliebrown]

Re: This looks Bad, VERY BAD!!!!

you know metal that web site about quality of bank assets was quite alarming. I could not find a bank whose deliquent loans were not skyrocketing. I was just looking at local banks trying to figure out where to park my money. Even community banks getting whacked.

http://banktracker.investigativerepo...hop.org/banks/

[skyson]

Re: This looks Bad, VERY BAD!!!!

That is my general take, as well. A true hyperinflation -- as opposed to a period of very high inflation -- is not an investment opportunity. On the other hand, I would expect hyperinflation to be localized within a national economy inasmuch as it is a phenomenon of the national currency. That suggests that a fund betting on hyperinflation which invests outside the national economy where hyperinflation is expected might actually do okay. For instance, if you were a Zimbabwean hedge fund manager prior to the hyperinflation there, and simply invested all your money in US Treasury bonds held in Switzerland, your clients probably would have come out ahead. The main danger, as you point out, is betting on hyperinflation inside the national economy that is about to go down. Given the prominence of the dollar and the US economy, it may be harder to find quality investments that are truly outside the path of destruction. Also, given the potential difficulty keeping hold of and using any external investment gains realized during a hyperinflationary scenario, I think the best strategy if one plans to invest for hyperinflation outside the US is to also live outside the US. That being the case, you would not really have made a "profit" from the hyperinflation -- you would merely have side-stepped it and avoided the loss.

If US go into hyperinflation, what do you think would happen to Canada? As the last time I check, 28% of Canadian GDP is from export to the US. From all I read, Canada's monetary and banking system suppose to be conservative compared with US, and we are not engaging in Quantitative Easing. Does this mean that Canada will go into deflation, if the US economy goes down the drain due to hyperinflation?

[touchring]

Re: This looks Bad, VERY BAD!!!!

If US go into hyperinflation, what do you think would happen to Canada? As the last time I check, 28% of Canadian GDP is from export to the US. From all I read, Canada's monetary and banking system suppose to be conservative compared with US, and we are not engaging in Quantitative Easing. Does this mean that Canada will go into deflation, if the US economy goes down the drain due to hyperinflation?

My guess will be that exports will be badly hit, but real estate in Canada and retail sector to a certain extent may benefit from wealthy Americans moving to Canadian cities as crime rate soar and government services degrade (e.g. Zimbabwee).

[skyson]

Re: This looks Bad, VERY BAD!!!!

My guess will be that exports will be badly hit, but real estate in Canada and retail sector to a certain extent may benefit from wealthy Americans moving to Canadian cities as crime rate soar and government services degrade (e.g. Zimbabwee).

Will the wealthy american enough to compensate for the almost 400 billions loss of GDP?

[touchring]

Re: This looks Bad, VERY BAD!!!!

Will the wealthy american enough to compensate for the almost 400 billions loss of GDP?

i don't think so.

[Adeptus]

Re: This looks Bad, VERY BAD!!!!

I don't know in terms of GDP, but I thought 70-80% of our exports went to the USA.

FYI, our conservative banking system is not due to intelligence or ability to see what was coming, but more to do with a government that was extremely slow at making decisions that would have allowed a US style banking system to go on here. In other words, political red tape saved our butts and now of course politicians and banksters are trying to take credit by saying how good and smart we were. Bullocks!

Quantitative easing in Canada will start soon enough:
http://www.bloomberg.com/apps/news?p...d=arlm2jJc1DEk

What will affect Canada nearly as much as the USA problems is the price of oil. Overall, I think Canada will be significantly better off than the USA, but there's no way we're escaping the overall turmoil.

Adeptus.

If US go into hyperinflation, what do you think would happen to Canada? As the last time I check, 28% of Canadian GDP is from export to the US. From all I read, Canada's monetary and banking system suppose to be conservative compared with US, and we are not engaging in Quantitative Easing. Does this mean that Canada will go into deflation, if the US economy goes down the drain due to hyperinflation?

[ThePythonicCow]

Re: This looks Bad, VERY BAD!!!!

Question

I know this topic has been discussed here oft, so please excuse my ignorance on these matters, but based on the figures on this report, it seems to my untutored eye, that this type of credit destruction can only lead to massive deflation, how can they turn this into inflation unless Bernanke literally climbs into his helicopter and starts the money drops?

A massive KA (until all inventories depleted) followed by massive POOM when shortages kick in?

If the USA were a single, self sufficient, isolated economy, then you doubts would make sense. Serious inflation, even hyper-inflation, would be possible, but would require more foolishness from the Fed than is likely.

However the key thing to factor in is that the worlds economy will split. USA versus most of the Rest of World (ROW). You see, the USA is quite dependent on other nations for much of its energy, commodities and manufactured goods. It is also a big time debtor to other nations, such as Japan and China. These other nations hold dollars or receive dollars for their goods. They are no longer friends of the dollar. Many of them also have strategic interests in portions of the southern half of Asia, where the US military carries a big stick, far from home.

They'd like to dump their dollars and treasuries, and raise the dollar denominated prices they charge for their oil and other stuff.

To some extent, they will succeed in doing so. Just when, and to what extent, is not visible to us mere mortals. But to the extent that they succeed, Americans will be poorer. We (I'm one) Americans will see a flood of rejected dollars and treasuries returning home, and the price of imports, beginning with oil, rise. This will be what most of us Americans term "inflation, especially the rising price of gas at the pump.

[ASH]

Re: This looks Bad, VERY BAD!!!!

If US go into hyperinflation, what do you think would happen to Canada? As the last time I check, 28% of Canadian GDP is from export to the US. From all I read, Canada's monetary and banking system suppose to be conservative compared with US, and we are not engaging in Quantitative Easing. Does this mean that Canada will go into deflation, if the US economy goes down the drain due to hyperinflation?

I have nothing substantive to add to the excellent comments by touchring and Adeptus. I agree that hyperinflation in the US would seriously harm our ability to import from Canada, and therefore have a very negative impact on Canadian export income. There might also be a severe strain on Canadian government services, as the border is too big to effectively control, and it won't be just wealthy Americans who seek refuge in Canada in the event of a hyperinflation in the States.

From the standpoint of trade, I think that hyperinflation would accomplish suddenly what would otherwise be accomplished gradually as global imbalances unwind. Even in the event of hyperinflation, trade into and out of the US should continue. The difference is that the value of imports will have to match the value of exports because the US will no longer qualify for "vendor financing", and those exports will not include dollar-based financial products. I suppose there would be significant overshoot on the down side because the economic dislocation associated with hyperinflation would sharply reduce the volume of economic activity in the US, and this in turn would lower both productivity and demand. Hopefully we won't actually get hyperinflation, and we will converge with our new standard of living (c1ue says Poland) more gradually, and without a big overshoot. For that matter, I can "hope" that the American economy becomes more productive of non-financial goods, American labor becomes more competetive, and the drop in our standard of living is less severe.

[ThePythonicCow]

Re: This looks Bad, VERY BAD!!!!

you know metal that web site about quality of bank assets was quite alarming. I could not find a bank whose deliquent loans were not skyrocketing. I was just looking at local banks trying to figure out where to park my money. Even community banks getting whacked.

http://banktracker.investigativerepo...hop.org/banks/

USAA (San Antonio, Texas; usaa.com) is still doing well. Earlier this year, it opened up its membership to non-military people. It repeatedly gets JD Power awards for customer satisfaction as well. Their web, phone and mail service is excellent.

Disclaimer -- I've been a member for over 30 years.

[Diarmuid]

Re: This looks Bad, VERY BAD!!!!

If the USA were a single, self sufficient, isolated economy, then you doubts would make sense. Serious inflation, even hyper-inflation, would be possible, but would require more foolishness from the Fed than is likely.

However the key thing to factor in is that the worlds economy will split. USA versus most of the Rest of World (ROW). You see, the USA is quite dependent on other nations for much of its energy, commodities and manufactured goods. It is also a big time debtor to other nations, such as Japan and China. These other nations hold dollars or receive dollars for their goods. They are no longer friends of the dollar. Many of them also have strategic interests in portions of the southern half of Asia, where the US military carries a big stick, far from home.

They'd like to dump their dollars and treasuries, and raise the dollar denominated prices they charge for their oil and other stuff.

To some extent, they will succeed in doing so. Just when, and to what extent, is not visible to us mere mortals. But to the extent that they succeed, Americans will be poorer. We (I'm one) Americans will see a flood of rejected dollars and treasuries returning home, and the price of imports, beginning with oil, rise. This will be what most of us Americans term "inflation, especially the rising price of gas at the pump.

Thank you Cow - indeed it seems reasonable that declining dollar confidence may indeed be one mechanism to allow for inflow of (euro) dollars into the wider US economy, along with rising commodity prices would indeed be offsetting inflationary pressure in opposition to the deflationary debt destruction. Maybe the US economy ends with "Three Stooges Syndrome" like Mr Burns in the Simpsons. Where Burns discovers that he not only has all existing diseases (including pneumonia, juvenile diabetes and a little bit of hysterical pregnancy), but thousands of diseases the doctors apparently have just discovered in him. However, the sheer amount of diseases prevents any one disease from actually doing harm to him (a condition the doctors call "Three Stooges Syndrome").