Shadow Government Statistics: Hyperinflation could be experienced as early as 2010

[touchring]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

Think about all the debt affected by raising short term rates. That 5% HELOC today isn't getting paid on time. What happens when there's even more interest? And then there's the national debt to be serviced. We're getting people to buy bonds at below-inflation rates now. What happens when that stops?

Hyperinflation for the dollars. Everyone switches to euro for oil and commodities to avoid being sucked into hyperinflation. America living standard drops through the floor when the same dollar buys fewer fuel and commodity whilst wages remain stagnant due to depression.

[jk]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

It'd be the thing to do. But since when in the last 20 years or so have they done the 'right thing' vs the politically expedient in the short term thing?

i think raising the fed funds rate while buying long tbonds is in the same "creative" intervention ballpark as bernanke's new alphabet soup of lending facilities that direct liquidity to particular targets.[

Think about all the debt affected by raising short term rates. That 5% HELOC today isn't getting paid on time. What happens when there's even more interest? And then there's the national debt to be serviced. We're getting people to buy bonds at below-inflation rates now. What happens when that stops?

in the scenario that williams paints, long bonds would have sold off and long rates skyrocketed. bringing down long rates would reduce servicing costs, depending on the mix of bonds and bills marketed by the treasury. short rates wouldn't have to be raised all that high to be internationally competitive these days.

[raja]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

I can't see gold and silver, clothing, canned goods, etc. entering into a barter system. Totally unfeasible especially with the level debt most people are in already. Credit cards instantly not working anymore. This is not the same scenario as the Great Depression at all.

My thought is that I would wait out the hyperinflation (should it occur), then trade my gold for whatever new currency comes into being after things have calmed down. Gold would serve as a storehouse of wealth, and could be later converted into the "coin of the realm".

[Nervous Drake]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

.

[Finster]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

I read John William's piece on hyperinflation. It struck me as extreme. So I returned to the Fed's site to see how the charts are doing that I asked Atlee and Hudson to check out. Here's what I found...

Maybe Williams isn't so crazy after all and our modest 100% inflation over six years forecast from 2005 was wildly optimistic.

When I showed these charts previously I received nasty emails from readers who were convinced we'd made these charts ourselves. They are available at the St. Louis Fed's web site here and here.

I had the same reaction on reading William's piece. After seeing these charts, it still seems just as extreme, but less implausible.

Baaaart!!!

You follow this kind of data regularly ... what do you make of this?

[c1ue]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

The most interesting thing about the gold bug position is that somehow this time the lessons of the past won't be learned by those who are causing the problems.

As a government, it is a trivial matter to outlaw use of anything for money. The government outlawed private stockpiles of investment gold - what is to prevent an extension of this same law towards all precious metals as a function of money, period?

Do all the wizened Fed banker gnomes somehow not comprehend the huge weakness their inflation scheme theoretically exhibits when confronted by its Kryptonite-equivalent - the yellow metal?

Are all the gold bugs somehow knowing something so much better than everyone else when confronted with the same information?

I've been doom and gloom since the beginning - in true fanatic style I have kept the thesis that the sum of American debts is unpayable except through inflationary means, and furthermore that the style of inflation will perforce have to be dramatic in order to be effective.

As time drags on, the evidence is pointing stronger toward my (admittedly gut feeling based) position rather than some other way.

Yet I still exhibit caution toward the supposed can't miss PMs.

One lesson history teaches repeatedly: those who prepare for the last war are inevitably unprepared for the next one.

To that, I add: One thing I learned from various games of chance is that sometimes it is best to just not play. Win or lose, you lose.

Get out and stay out of the dollar.

[Guest]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

I think you just pissed them off with a bunch of screeds along the lines that iTulip is following the lead of others. ... It's disrespectful.

Ann - iTulip, and apparently you, are so obsessed with the trauma of surviving "idea theft" that you failed to note the entire discussion that got sparked on the thread your term my "long screed" was because Janszen referred to Leeb as a "doomertainer" right off the bat, while evidently having read little or nothing of the man's writing. If someone called iTulip a bunch of entertainers in a very public venue they would probably be slightly pissed off at the flippancy of the remark if it became clear this commenter had never read anything of Janszen's, no?

Janszen is very busy and I fully understand the potential for small oversights in attribution of other analysts positions, merit on an issue, etc. The more interesting thing is how one reacts when someone suggests a reexamination of the facts. Last time iTulip indulged this kind of erroneous dismissal of an analysts thesis was of Jim Puplava, calling him a "deflationista" and lumping him together with the likes of Mish, et. al. Anyone who has spent ten minutes reading Puplava knows he's an inflationist. It is of course a tiny issue, but you understand the point about editorial discretion I'm talking about here? You don't dismiss another analyst as an "entertainer" unless you are willing to substantiate it, period.

I offered up, repeatedly, a defense of Leeb, and iTulip editors take a moment to mull it over and come back with a "Yup, we just checked and Leeb is indeed a doomertainer folks, and you can take that to the bank"!

You are posting a stern reprimand claiming I was engaging in a lengthy attempt to "prove that Leeb said this that or the other before iTulip"?. Ann, that's simply not factual. I have zero interest in who said what first. iTulip may be obsessed with idea theft, and I certainly endorse their right to be so, but I personally don't care at all who said what first, when, how, why, etceteras. What I DO care about is that if you issue a derisive remark one day on the ridculousness of inflationary collapse, you take scrupulous care the next day when you suddenly rehabilitate that thesis to offer a sporting minor retraction to the author you derided for it the day before.

I seem to have you wagging a finger at me now for having the temerity to suggest with the wisdom of 24 hours hindsight, that deriding this author's ideas about inflationary collapse was indeed wrong. Look around - the very next day the CEO here is acknowledging the idea may be right, as it's now tabled by another analyst with a Masters in Economics, and meanwhile editors here have "explained" to readers that an entire erased thread was instead all about egregious "shilling for another analyst's website". This is a quite mischeiveous misrepresentation. I have no interest in plugging one or the other, unlike a few people here so wrapped up in demonstrating their joined at the hip loyalty to iTulip (yes Ann, I think it's a great community also but with a little more independence), get to sounding like Marching Oompah Bands on occasion in their enthusiasm for plugging "iTulip Uber Alles".

I wish to note this much only: when you choose to deride someone for their "inflationary collapse" thesis, it's very good, and gracious form to offer just a tiny murmur of acknowledgement in rehabilitation of that analyst when circumstances have you formally endorsing the very idea you dismissed, the next day!

"Yup, we just checked and Leeb is indeed a doomertainer folks, and you can take that to the bank"!

You are scolding me for having the impropriety to call that to this website's attention? Inflationary collapse is BACK and iTulip is getting behind the concept. Screw that idiot we just trashed for this loopy idea yesterday!

Now you weigh in with a finger wagging "I think you just pissed them off". Yes Ann - that much is eminently clear, even to this poster. The question is whether your summary recollection of what I was posting is correct. My posts in what you and your editors here refer to now officially as an "egregiously offending thread" boiled down to simple questions to Eric Janszen - why one author talking "collapse" is reiterated (repeatedly and after an exhaustive five minute deliberation) to be kook while the next day another author talking the same thing is directly endorsed. Thank you for your input. I must respectfully disagree with your summary of this manifest illogic. And seeing entire threads summarily hacked off out of pique because a simple request to substantiate was ignored?

In your zeal to show "blind loyalty" to iTulip (they can make no misstatements in your view - ever - which is manifestly improbable in the real world we actually live in rather than the world of editorial perfection) you mis-characterize the meaning and intent of what I actually posted. You also skate over a simple acknowledgement that Janszen has turned right around the following day and directly endorsed precisely what he was deriding Leeb for yesterday. Apparently iTulip editors checked scrupulously, and they insist that "yup, we just checked folks, and Leeb is a doomertainer" iTulip is just being mean-spirited - stingy with the most fleeting acknowledgment this analyst was not talking through his hat. No-one is being "disloyal" to iTulip in pointing out the above.

Is there any remote chance you may be mistaking warm and fuzzy loyalty here with being editorially scrupulous perhaps? A 24 hour flip-flop on the merit of the "collapse" issue?? Please, before you fly into a burst of indignation at my impugning the objectivity of your editorial oversight, please stop, take a deep breath, and think the editorial logic through: One day there's no inflationary doom and collapse, and it's proponents are ENTERTAINER KOOKS, the next day hyperinflationary doom and collapse are SERIOUS BUSINESS, and are now officially OK, fully endorsed - yet there is zero acknowledgment that an entire thread was erased the day before whose entire content revolved around the exact same "specious idea" espoused by a confirmed "doomertainer". How do we spell 'cognitive editorial dissonance"?

[GRG55]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

there is a case williams did not consider: that at some point the fed RAISES rates to support the dollar. the argument would be that by the time of williams' hypothesized monetization, long bonds would have sold off and thus long rates would be quite high. if at that juncture the fed raises rates, the dollar would be supported and - hypothetically- long rates might come down some, flattening the curve a bit and, overall, reducing the treasury's cost of borrowing. perhaps, in order to facilitate this, the fed will buy long bonds in order to inject money, instead of buying tbills. we know that bernanke discussed this very possibility in his "keeping 'it' from happening here" paper.

so, to recap, imagine the fed raising short rates while buying long bonds. this might cause the unwinding of the dollar carry trade which is appearing now, and thus support the dollar even more strongly.

the concern, of course, is that higher short rates would hurt the economy, but in this scenario, i think it would be a preferable policy.

Bernanke's list of possible Fed actions was in the context of deflation [the consequence of a collapse in aggregate demand]. In his speech the action of buying further out on the curve was conditioned by the assumptions that 1) efforts to prevent deflation had failed, and 2) the overnight Fed funds rate was already at the zero bound.

In that speech Bernanke makes clear that the Fed's concern about severe deflation is an increase in purchasing power of the US Dollar, creating a situation where the real cost of borrowing and debt repayment becomes prohibitive.

Bernanke proposed that the Fed would influence longer term yields using two methods 1) explicitly commit the Fed to hold the short term rate at zero for a specified period (e.g. Japan's ZIRP) and 2) the more direct method of purchases of long-dated Treasuries close to maturity [he suggested bonds maturing within 2 years] at prices consistent with the targetted yield. In both instances the Fed is trying to influence the expectation of future interest rates so the yields on longer-term public bonds and private debt fall.

The Fed is today facing a situation markedly different from anything it likely contemplated at the time of Bernanke's speech.

• The effectiveness of any Fed move to buy longer dated bonds in an effort to influence yields downward would seem less likely in the current environment of rising inflation expectations [is the Fed going to buy every outstanding T-bond in a vain effort to have its way?];
• The ongoing banking crisis would suggest it essential the Fed maintain a steeply positive yield curve. Flattening the yield curve would probably require the Fed and Treasury to take other actions to guarantee bank profitability. Not out of the question, as we have seen, but such alternative actions are likely to be visibly inelegant and politically charged, as we have also seen.
• Raising the purchasing power of the US Dollar [by raising short term rates] creates exactly the trap of rising borrowing and debt repayment costs that the Fed fears will put further downward pressure on aggregate demand.

So I suppose it comes down to what does the Fed today fear most...falling aggregate demand, rising real cost of debt repayment, future inflation expectations, or another bank implosion.

[Guest]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

... this time the lessons of the past won't be learned by those who are causing the problems. ... huge weakness their inflation scheme theoretically exhibits when confronted by ... the yellow metal? ... Are all the gold bugs somehow knowing something so much better than everyone else when confronted with the same information? ... One lesson history teaches repeatedly: those who prepare for the last war are inevitably unprepared for the next one.

C1ue - your objection that the banks hold the trump card over the gold bugs because they can "change the rules and confiscate your right to own gold" has limited applicability at the international scale. The flaw in your reasoning is that your are looking at mature economies bankrupted by their social contracts, liabilities and balance of payments. There are a growing group of other economies, fat with hard currency earnings who will be the REAL trump card on the gold bid.

You have progressively more bankrupt mature economies who will change the rules on their citizens in the scenario you envision, and pull the rug out from under their feet by simply outlawing gold? Yesa up to a point locally in mature economies, but it doesn't work that way internationally - because you have a whole tier of other, very large, well endowed (cheap labor, or lots of resources per capita) fast growing economies worldwide who will be very happy to convert their currency reserves into gold in the next decade as global senior currencies go through turmoil.

The flaw in your theory is that it is an international market for gold - and there are countries out there who will deploy a moderate amount of their cash reserves into gold (possibly considerably more than moderate amounts!) - this will make Western banks efforts to "change the rules"and yank the "gold-bubble-play"out from under their citizens ultimately merely a futile last ditch end-game play for their fiat economies.

Another point - gold is now dispersed widely out of central bank holdings into the public, scattered around the globe, and you can't put that genie back in the bottle in this globally inflationary environment. The smart money has already figured this out - so we might see some wobbles in the end game as Western CB's try to change the rules, but foreign CB"s in countries with bursting ecoomic growth (Brasil, China, India) will have overwhelming reasons to snap up any spare gold on the markets as fiat currencies get increasingly abused in the next 15 years.

Bingo - the gold bugs are laughing all the way to the bank in the end game. Sophisticated counter-strategies out-guessing the goldbugs probably come up short when you consider the massive currency reserves of emerging economies that will require protection due to merging Peak Cheap Oil - so these sophisticated arguments predicated on a cynical expectation of the power of Western governments are probably destined to be outflanked by emerging world growth.

Gold bug cynics are caught long on ideas, but short of gold, when all this dog and pony show winds up. As China, Brazil and India CB's become increasingly rich, they will buy lots of gold. Bottom line? Keep it real simple, and protect your long term money.

[GRG55]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

The most interesting thing about the gold bug position is that somehow this time the lessons of the past won't be learned by those who are causing the problems.

As a government, it is a trivial matter to outlaw use of anything for money. The government outlawed private stockpiles of investment gold - what is to prevent an extension of this same law towards all precious metals as a function of money, period?

Do all the wizened Fed banker gnomes somehow not comprehend the huge weakness their inflation scheme theoretically exhibits when confronted by its Kryptonite-equivalent - the yellow metal?

Are all the gold bugs somehow knowing something so much better than everyone else when confronted with the same information?

I've been doom and gloom since the beginning - in true fanatic style I have kept the thesis that the sum of American debts is unpayable except through inflationary means, and furthermore that the style of inflation will perforce have to be dramatic in order to be effective.

As time drags on, the evidence is pointing stronger toward my (admittedly gut feeling based) position rather than some other way.

Yet I still exhibit caution toward the supposed can't miss PMs.

One lesson history teaches repeatedly: those who prepare for the last war are inevitably unprepared for the next one.

To that, I add: One thing I learned from various games of chance is that sometimes it is best to just not play. Win or lose, you lose.

Get out and stay out of the dollar.

The problem with most "gold bugs" is they think that the yellow stuff is the only answer. Think of gold as you might the fire insurance on your home. You hope you never need it, but you [hopefully] sleep better than you might if you didn't have it.

[jk]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

Bernanke's list of possible Fed actions was in the context of deflation [the consequence of a collapse in aggregate demand]. In his speech the action of buying further out on the curve was conditioned by the assumptions that 1) efforts to prevent deflation had failed, and 2) the overnight Fed funds rate was already at the zero bound.

In that speech Bernanke makes clear that the Fed's concern about severe deflation is an increase in purchasing power of the US Dollar, creating a situation where the real cost of borrowing and debt repayment becomes prohibitive.

Bernanke proposed that the Fed would influence longer term yields using two methods 1) explicitly commit the Fed to hold the short term rate at zero for a specified period (e.g. Japan's ZIRP) and 2) the more direct method of purchases of long-dated Treasuries close to maturity [he suggested bonds maturing within 2 years] at prices consistent with the targetted yield. In both instances the Fed is trying to influence the expectation of future interest rates so the yields on longer-term public bonds and private debt fall.

The Fed is today facing a situation markedly different from anything it likely contemplated at the time of Bernanke's speech.

• The effectiveness of any Fed move to buy longer dated bonds in an effort to influence yields downward would seem less likely in the current environment of rising inflation expectations [is the Fed going to buy every outstanding T-bond in a vain effort to have its way?];
• The ongoing banking crisis would suggest it essential the Fed maintain a steeply positive yield curve. Flattening the yield curve would probably require the Fed and Treasury to take other actions to guarantee bank profitability. Not out of the question, as we have seen, but such alternative actions are likely to be visibly inelegant and politically charged, as we have also seen.
• Raising the purchasing power of the US Dollar [by raising short term rates] creates exactly the trap of rising borrowing and debt repayment costs that the Fed fears will put further downward pressure on aggregate demand.

So I suppose it comes down to what does the Fed today fear most...falling aggregate demand, rising real cost of debt repayment, future inflation expectations, or another bank implosion.

right now what the fed fears most is the implosion of the banking system. they will therefore sacrifice the dollar and any hope of containing inflation expectations RIGHT NOW.

williams' piece, though, is trying to look a few years ahead, when it predicts hyperinflation in roughly 2010-2012. similarly, i am trying to look ahead to see if there are options available to avoid the hyperinflation williams predicts.

so, looking ahead, i see high inflation rates and a very steep yield curve after bonds [finally] sell off in recognition of that inflation. [we already have tips with a yield of zero, so perhaps people are beginning to get it.]

so, looking ahead, i see bernanke no longer worrying about deflation. i see a few years of a steep yield curve allowing the banks to recapitalize, and time for the busted mortgage paper to be written off gradually as they are brought back onto the banks' balance sheets from their sequestration in one of the new fed lending facilities. the dollar index has already dropped to about 52. the boomers start turning 65 [medicare] in 2011, and 66 [social security] in 2012.

in THAT context, is there anything the authorities can do to avoid hyperinflation? the government can means test social security and medicare [or the equivalent, make the benefits fully taxable], and the fed can raise short rates and intervene to lower long rates.

[bart]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

Maybe Williams isn't so crazy after all and our modest 100% inflation over six years forecast from 2005 was wildly optimistic.

When I showed these charts previously I received nasty emails from readers who were convinced we'd made these charts ourselves. They are available at the St. Louis Fed's web site here and here.

It sure doesn't paint a pretty potential picture.
I've also received more than a few nasty grams... and much worse.

I had the same reaction on reading William's piece. After seeing these charts, it still seems just as extreme, but less implausible.

Baaaart!!!

You follow this kind of data regularly ... what do you make of this?

It's 100% on target and true. The actual bank reserves that are behind checking and "transaction" accounts have been borrowed from the Fed, and then some. Required reserves in H3 are around $45 billion, and the amount borrowed is around $90 billion... and in plain English, the banks have borrowed about double the money they need to meet reserve requirements.

Reserve requirements:
http://www.federalreserve.gov/moneta...req.htm#table1


I track H3 data and reserves on my Fed watch page:
http://www.nowandfutures.com/images/..._long_term.png
http://www.nowandfutures.com/images/fed_excess_total_reserves.png

[Finster]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

It's 100% on target and true. The actual bank reserves that are behind checking and "transaction" accounts have been borrowed from the Fed, and then some. Required reserves in H3 are around $45 billion, and the amount borrowed is around $90 billion... and in plain English, the banks have borrowed about double the money they need to meet reserve requirements.

Reserve requirements:
http://www.federalreserve.gov/moneta...req.htm#table1


I track H3 data and reserves on my Fed watch page:
http://www.nowandfutures.com/images/..._long_term.png
http://www.nowandfutures.com/images/fed_excess_total_reserves.png

Thanks Bart. Can you help us sort out the implications? For one thing, I'm wondering what impact it might have on the inflation outlook. EJ implies that it's highly inflationary, but I'm not sure exactly why. It looks like the banks are waaaaay short cash ... to an unprecedented degree. In my limited understanding of these sort of data, that would seem to imply high demand for cash ... which is deflationary, just as high supply is inflationary. On the other hand, maybe it portends a massive production of cash... it's just not clear to me what these data imply in terms of net impact on money supply and credit growth or by what mechanism they may affect those variables.

[c1ue]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

Lukester,

There are international markets for everything, but the United States has large bodies of water between us and almost all the large ones.

If the government of the US outlaws the use of PMs for any form of money, it is pretty impractical to get on a plane to go exchange your PMs for some other currency.

If you store your PMs somewhere else, then you run both the cost of storage/security and the risk entailed with leaving large sums of value far away and unsupervised.

Once again, I merely point out that unlike Europe - for example - it is not so easy to find another place to cash out a PM. From any point in Europe, you can reach a half dozen major financial centers without air travel.

Haven't you ever wondered why any country in Europe was never able to confiscate its citizen's gold? Because in Europe, you can go to Switzerland, to Luxembourg, to the UK, to Andorra, etc etc and stash your valuables there.

Where are you going to go here? An Indian reservation? Mexico? Canada? None of these places are politically or financially set up to act as long term repositories for value (or flight funds as GRG has noted in another article).

[bart]

Re: Shadow Government Statistics: Hyperinflation could be experienced as early as 201

Thanks Bart. Can you help us sort out the implications? For one thing, I'm wondering what impact it might have on the inflation outlook. EJ implies that it's highly inflationary, but I'm not sure exactly why. It looks like the banks are waaaaay short cash ... to an unprecedented degree. In my limited understanding of these sort of data, that would seem to imply high demand for cash ... which is deflationary, just as high supply is inflationary. On the other hand, maybe it portends a massive production of cash... it's just not clear to me what these data imply in terms of net impact on money supply and credit growth or by what mechanism they may affect those variables.

It certainly not a positive on the short term inflation front, but its far from the only item that affects inflation too... and I'm not trying to weasel away from an answer. The real and fuller answer depends greatly on the time frame being addressed.

You're right about a demand for cash though - negative or borrowed reserves is both an indication of major solvency issues and a financial crisis (and disinflationary too)... and its also a huge kick to monetary base in the sense that effectively reserves are now zero.
You'll remember the last time that base was kicked in 1995, and also that there was not an immediate effect (the old concept of monetary lags applies)... and the effect was rather significant when it hit too.

And in the lags area, we have the M2/M3 correlation to inflation and M3 is not exactly dropping nor has it dropped in the last two years. 18 months ago, M3 was growing at about 10% and CPI+lies is now growing at about 12%... and M3 now is around 18-20%, depending on whether you're looking at John Williams or my reconstruction.

And then we have the bull in the closet (and way off the beaten path element ) of velocity - the speed with which money moves through an economy. Its very much sentiment based and also goes back to one of the basic definitions of money being "an idea backed by confidence". In plain English, velocity is very likely to be in the very early stages of taking off as shown by the University of Michigan's inflationary expectations measure.

Here's two pictures of it, the first starting in 1978 and then the discontinued one that starts in 1952 and ends in 1978.












And as an addition, here's one of my charts that just shows all the monetary measures advanced 18 months, along with my GDP forecast. It should give you an idea what the Fed is looking at when they say that they expect an economic recovery later in the year.







And finally (and off topic and to tweak EJ and Fred a bit... :rolleyes: ;) ), here's my recession prediction chart which shows when it started.