The Weimar Nightmare in Review

[Mn_Mark]

Re: The Weimar Nightmare in Review

I was always told to follow the money... Where do the richest 1% hold their wealth?

With Bernie Madoff?

[Mn_Mark]

Re: The Weimar Nightmare in Review

weimar... wrong example. Try this

After the story about the impoverished Russian pensioner, the author writes:

"Given that unsustainable deficits necessitating tremendous monetizations are typically the underlying causes of hyperinflations, the remedy would then have to address (i) the deficit non-sustainability as well as its consequence, and (ii) huge amounts of newly created money in circulation."

It is hard to imagine a hyperinflation actually coming to pass in the U.S. because it's never happened here in living memory. But if hyperinflations are indeed caused by unsustainable deficits being monetized, I don't see how that is such a remote, "1%" possibility.

I haven't seen any serious effort to control deficits in the U.S. since the Gramm-Rudman-Hollings bill passed back in the 1980s(?). Remember that? That was supposed to be the end of deficits because it required Congress to balance the budget. But in subsequent years Congress simply passed modifications to it to delay it, and then at some point it was simply ignored, forgotten, or expired. Since then there has been no serious action to address deficits. They're given some lip service by Presidents who then go on to spend as much as they like on wars or new entitlements or "stimulus" packages.

Now we've got something like a 2 trillion dollar deficit and a President who is intent on passing what amounts to MASSIVE new spending proposals. (And please don't insult my intelligence by suggesting that his saying that "costs will be controlled" means anything.)

In short there is nothing I can see in our political, economic, or social culture that suggests that people take deficits seriously. And we're already seeing "quantitative easing" by the Fed - and this is when the government is able to borrow at low single-digit rates. We can imagine what will happen to the interest costs on the debt when rates are up to 10% or 15% or more.

So given that hyperinflations are caused by monetizing unsustainable deficits, and given that deficits are soaring with every possibility of them continuing to soar for some time to come, and given a President and Congress intent on huge new spending programs, and given that there is no social/economic/political cultural seriousness about dealing with the deficit, it seems to me that eventual hyperinflation is not only not that remote a possibility, but, bluntly, unavoidable.

In short, how does this NOT end in hyperinflation? By what series of realistic events or choices do you see the deficit and the debt tamed? What evidence do you see out there that those choices will actually be made? I'm not seeing any.

So while hyperinflation seems hard to imagine because we've never experienced it, when I look at the facts of the situation I don't really see how we avoid it.

[jimmygu3]

Re: The Weimar Nightmare in Review

But 30% gold is too much for me. Not to sound obnoxious, but where would I put it?

I would suggest a safe or a buried coffee can. Maybe you're Bill Gates, I don't know. But if you have a $1M portfolio, 30% in gold St. Gaudens would weigh about 12 lbs.

Jimmy

[hayekvindicated]

Re: The Weimar Nightmare in Review

The Weimar charts demonstrate that while gold provides some protection against hyperinflation, it is actually quite limited protection - when things get really bad, the cost of essentials skyrockets and this is what hits people hardest. Gold has admirable qualities as a safe haven investment and a hard asset but it also has severe limitations - the problem is that it is effectively useless in reality (other than for the purposes of Jewellery).

There are other options too - one fairly solid option would be quality wine. I don't know what happened to wine prices during hyperinflation but my guess is that as an investment, wine outperformed gold (EJ hinted at Whisky but wine may be better). Also, another benefit wine may have over gold is that it performs well even during relatively benign periods (during the last twenty five years, some wines have registered ROIs of about 18 percent compounded - this is far better than Gold which was a losuy investment between 1980 and 2001).

Perhaps gold's greatest utility is for the rich - if you have a LOT of money and need a safe haven in which to park it, gold is an option. But if you have a limited amount of money and fear hyperinflation, gold may not be the best protection for you. Farm land may be a better option - after all, people still have to eat, hyperinflation or not.

I would not regard the chance of hyperinflation in the US as a 1 percent possibility. The scale of the US Government's debts are such that I believe the chance of the dollar becoming worthless within the next decade or two is higher than 80 percent. Marc Faber has already stated that he regards high double digit inflation in the US a 100 percent certainty. Faber (unlike Schiff) never exaggerates and never bloviates. Whenever I've ignored him in the past, I've regretted it. He is to be taken seriously.

[charliebrown]

Re: The Weimar Nightmare in Review

Perhaps at some point the bond vigilante's will be re-awakened.
Social security is still a net buyer of treas. debt soon they will turn into a net seller. Japan is out. So that leaves who Saudi's and China. Soon they will have had enough too.

Oh wait. I forgot, there will be some cockamanie (sp?) plan to force 401k into treasuries. Saying its for the good of the people.

[nero3]

Re: The Weimar Nightmare in Review

Bernanke is becoming the man that "saved", the US from a depression. Therefore he is becoming difficult for Obama to replace, even a guy like Summers would had been better choice for Obamam as Summers would had been more pro inflation. The boom coming will be from monetizing treasuries, and therefore an inflationary boom, even as debt deflation goes on, the inflationary boost from monetizing the deficiet will offset and ease the deflationary effects from the deleveraging process, similar to WW2. Then, they will hike interest rates as in 1949, maybe they will take short term rates to 6-10 %, and then, you get the "long boom". I think Bernanke is already feeling the pressure to monetize more to get unemployment down. I am almost certain the majority is wrong. I dont think it will be sluggish once it get started. I rather think it will be to much of a boom.

The deficits around 12 %, plus the feds actions of around 20 % of GDP together will push things ahead, especially if the fed monetize it, then it get up to around 1/3 of GDP total. That is more than 6 times the printing level considered acceptable for a country without the currency heading south.

About today: The market today, was a in a deflationary boom kind of move. Very funny.