Hyperinflation Watch

Posted: December 14, 2010 in Current Events, Federal Reserve, Financial Survival, World Events

On fgmr.com James Turk continues his hyperinflation watch.  I am not saying this financial crisis will end in hyperinflation, however with the Federal Reserves irresponsible money creation and the monetization of our countries debt it is becoming more likely.   If nothing else expect to see massive inflation next year and for the forseeable future for everything you need food, energy, healthcare and education.  Other goods such as houses and electronics will continue to plummet. 

Take a look at the chart below, numbers do not lie.  Federal Tax receipts are plummeting as outlays and debt soar.  This is unsustainable and in my opinion will likely lead to a currency collapse much sooner than people could imagine.  Many people in this country our suffering from ‘Normalcy Bias“.  Normalcy Bias can be defined by the following: an extreme mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of the government to include the populace in its disaster preparations.

This financial crisis was a disaster and did not disappear. Yet many are doing absolutely nothing to prepare for the possible currency crisis we may see, if the same policies continue.  Most people  believe a currency crisis could never happen in the US as if economic laws stop at our shorelines.  Yes we are the world’s reserve currency for now, however this is changing.  Recently Russia, China and Turkey have announced they will no longer trade in US Dollars.  There are many parts of the world where dollar’s are not excepted.  This trend will excelarate as our deficits soar.

From Wikipedia on the call for a new major reserve currency:

Other nations, such as Russia and the People’s Republic of China, central banks, and economic analysts and groups, such as the Gulf Cooperation Council, have expressed a desire to see an independent new currency replace the dollar as the reserve currency. China has proposed using the Special Drawing Rights, calculated daily from a basket of U.S. dollar, euro, Japanese yen and British pound, used by the International Monetary Fund for international payments.[12]

On 3 September 2009, UNCTAD issued a report calling for a new reserve currency based on the SDR, managed by a new global reserve bank.[13]

The Chinese yuan or renminbi (RMB) cannot be used as a reserve currency as long as the PRC maintains capital controls on the conversion of its currency.[14] The currency would not be attractive to central banks for holding unless China developed a strong open bond market.[15]

Russian president Medvedev has proposed a new ‘world currency’ at the G8 meeting in London as an alternative reserve currency to replace the dollar

 Numbers Don’t Lie

December 13, 2010 – For several months I have been warning that hyperinflation of the US dollar is looming.  The ominous signs of this impending currency train-wreck are becoming increasingly clear. 

For example, crude oil is threatening to break above $90 per barrel.  Copper has broken through $4 per pound to a record high price.  The prices of many other commodities are also in uptrends. These commodities are not in short supply.  There is no shortage of oil or copper.  Rather, these high prices are the result of too much money printing, which if not quickly stopped by returning to a sound money policy will ultimately lead to hyperinflation.

Last week another important part of the hyperinflation puzzle fell into place.  Long-term interest rates surged, continuing their sharp upward path that began two months ago.  The 10-year T-note during this two month period has risen from 2.4% to end last week over 3.2%, a remarkable and therefore telling jump.

This rise in long-term rates lays bare the flawed logic of the Federal Reserve’s newly announced $600 billion so-called “Quantitative Easing” program supposedly designed to help the economy.  This new round of money printing is not going to help the economy, which has been hollowed out by years of debt financed consumption along with too little savings and production.  This money printing is serving only one purpose.  This central bank trickery is providing the federal government with all the dollars it wants to spend. 

So despite the fact the Fed will be purchasing $600 billion of US government debt instruments, T-bond and T-note yields are climbing, a clear sign that investors are rushing to sell their US government paper.  Why?  Because they know the purchasing power of the dollar is being debased by QE, and more importantly, will continue being debased.

I have discussed this reckless monetary policy before.  “The [Federal Reserve] has one mission.  It is to make sure that the federal government obtains all the dollars it wants to spend.  If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them.  The Fed must print them.”

The following chart illustrates that the US government continues to spend and borrow recklessly.  Despite all the pump-priming by the Federal Reserve aimed at stimulating the economy and therefore increasing US government revenue, there has been no meaningful reduction in the deficit.

Federal expenditures remain far above federal revenue.  More worrisome is the resulting growth in US government debt – now nearly $14 trillion – much of which the Fed is turning into currency with its QE actions.  The transformation of government debt into currency by the central bank is the core cause of hyperinflation.

The dollar not only remains on the road to hyperinflation, the rise in commodity prices and bond yields mean that the dollar is picking up speed as it heads toward the fiat currency graveyard.  Remember, numbers don’t lie.  But the same thing can’t be said for politicians who refuse to accept reality or central bankers willing to experiment with the US economy just to test their chalkboard theories

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Comments
  1. […] and education is here, you need to prepare.  Lets hope we only see massive inflation and not hyperinflation.  There is a real possibility confidence in the US Dollar is lost next year or 2012 at the latest, […]

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