The Last Gasp Before Hyperinflation – Are We There Yet?

hyperinflationAll hyper-inflations hinged on the budget deficit point of no return.
We are going to hit the monetization inflection point at some point soon – if we haven’t already. The likely trigger could be indirect; it could even be something small.
A bank failure or crisis in China (happening now) or a smaller conflict will be enough to push confidence over the edge.

sic semper tyrannis

 
By Dr. Jeffrey Lewis, Silver-Coin-Investor:

Among the alternative financial press there is a renewed buzz regarding a slowly unfolding crisis.

The fear is certainly justified. Money or credit creation is now exponential. The US Federal Reserve is on a path toward monetizing anything and everything, while the European Central Bank is about to unleash its own bond buying program.

Japan is equally a basket case.  Paving the way for long-discussed direct monetization of equities is becoming evermore a reality. The US central bank, together with its Japanese counterpart, is monetizing an unprecedented $125 billion in direct bond buying.

Despite shrinking deficits, there is no way either central bank can taper these purchases without pricking the latest in yet another series of asset bubbles. Both central banks have morphed into politically controlled arms of their respective Treasuries.

Getting the Inflation Wish

Meanwhile, equities are trading at all time highs. We are back to dot-com IPO’s by which well-meaning companies ultimately take all the risk, helping Wall Street make money for nothing without risk of failure.

Home prices have soared back from the lows experienced 5 years ago. At the same time, nearly fifty percent of all home purchases made with cash in the 3rd quarter of 2013 in the US are acquired by private equity and hedge funds.

All the while, inflation is considered tame by mainstream consensus. Basically every major economic data point or indicator is so completely manipulated that there is no wonder that most investors cannot see the true state of risk.

Gold and silver continue to suffer from “painted-tape syndrome”. This is a situation in which overnight sell orders have routinely broken the CME trading platform on at least three occasions in the previous 6 months. These moves occur surrounding zero economic or financial developments.

Recently, the US Census Bureau has become embroiled with scandal. Among such scandal is that, as long suspected, the data collected for the all important unemployment rate was found to be grossly manipulated around the last presidential election.

We are at the critical juncture where the population is split mainly between the unknowing and those whose paycheck depends on not knowing. The rest shake their heads and prepare for the worst.

We Have Been Here Before

History repeats in large cycles. The relatively short interval of these cheap credit drive super cycles is evidence that the system is now spinning out of control.

While the alternative media has long pointed out the unsustainability of the current world financial system, we are now witnessing the likes of very carefully orchestrated, albeit political, posturing. Such posturing takes the form of warnings coming from some of the larger investment firms and institutions.

The fact that the larger voices document their positions in this way could be an early sign of the end of confidence.

The Inflection Point

Sunshine_Mint_Bars

We are going to hit the monetization inflection point at some point soon – if we haven’t already. The likely trigger could be indirect; it could even be something small. A bank failure or crisis in China (happening now) or a smaller conflict will be enough to push confidence over the edge.

The conduit for money velocity will be the Treasury, via the Federal Reserve. Government spending on its own will bid up prices for its own economic and political survival.

It is harrowing that modern systems, hopelessly lacking in redundancy and yet working on the surface, are treading on so much fragility.

History Rhymes

All hyperinflations hinged on the budget deficit point of no return, where more than 50% of annual deficits are monetized directly or half spending more than half of what was collected. The Obama administration’s recent budget requests contain $2.902 trillion in receipts and $3.803 trillion in outlays for a deficit of $901 billion, or around 24% of government spending.

The closer we get, the more important it is to hold various assets as insurance – precious metals being an obvious choice – high on the list.

Comments

  1. You notice we have many silverdoctor’s commenters sitting in their lawnchairs staring at their watches waiting for the show to start LOL!

  2. Hyper-inflation with no wage growth, no credit expansion, no infrastructure spending, and no velocity of money, not gonna happen.
     

    • If we already have inflation yesterday and today, then why we can’t be in the hyperinflation tomorrow?

      Remember, hyperinflations don’t start with the middle class dumping the currency. They start with the rich. The rich – the so-called smart money – sees what is happening first, and responds to it. That’s why stock markets and the price of collectibles are soaring. These events are a clear vote of no confidence in the dollar. (KWN).

    • The 1% are dumping stocks like crazy…

  3. Wage growth is at best coupled to official annual inflation figures. Never actual. People will hurt before they survive, possibly.

  4. Wouldn’t it be strange if hyperinflation was already preplanned, in the works, a known commodity of inflation and someone somewhere in the bowels of the FED, BIS or another CB was waiting for the right time to pull the trigger and unlease hyperinflation. It might be somewhat due to inadvertent policies that run out of control or someone who knows how to pull the trigger directly or indirectly and sets the Genie loose
    We know how it starts and ends.  Don’t worry about Weimar, just look south to Argentine and Venezuela. They are both hyperinflating at 50-60% per annum and running 6% per month at the present moment. Look very closely at what is happening right now.
    It starts slowly and then moves very fast, but predictable in how it evolves and ends. We know exactly what it does to the ordinary folks, big government, business etc.
    It smashes the value of fixed rate bonds which, by the way, will make the UST worth 10 cents on the dollar and crush the bond bubble. Woe be tide to anyone holding USTs. Great way to get rid of that debt burden
    It destroys anything indexed to some made up inflation index, like Chained CPI calculations of 1.5% this year  WTF!?!??!!?!   We are running 8-9% SS Medicare, Vet benefits, all pensions fixed by rate of return.
    So those holding pensions, either private or public, will get creamed. Just like the retired Austrian lady who was told by her banker when she asked “What of the bonds”  ‘They are worthless, my dear lady”
    Just imagine a hyperinflation that destroys even a modest 90% of our currency. It can and will happen, just as the UK saw 25% per year and a dozen other countries in the lasts 20 years
    When will it happen?   When it HAPPENS! You’ll see it in thewalking talking disaster of low income people. Ouch. Most of us occupy that slot now, or at least I do. That was pretty much something I planned so as to move under the radar.
    We will notice it like the frog in the boiling pot.  The only way to save some semblance of our weath, income and financial security is PMs and solid value producing farm land and commodity producing properties.
    Until then, we can just watch these move and front run inflation, a 5 year process, by buying those assets and sitting tight.

    • @AGXIIK  BRAVO

    • Hyper inflation is not something triggered in the basement of the Fed. Yes they control “the dollar” but they are not the sole creators of the dollar.  In reality its the banks that create dollars… and in reality hyper inflation is nothing like inflation.
      Hyper inflation is caused by people distrusting the dollar on a massive scale.  Its caused by the belief that buying today will yield dramatically more “bang for the buck” than it will tomorrow, or the next day.  It isn’t caused by an over supply of dollars.  Its caused by a lack of demand for dollars.  Its what happens when people start spending currency ASAP because they have more demand for everything else and not the currency.  Strangely the introduction of digital currency has twisted the hyperinflation scenario from what it was in the past.  We now see that PHYSICAL currency value soars over digital.  We can guess that PHYSICAL dollars may in fact go up in demand while digital dollars decrease.  We saw this in Cyprus just recently.  The demand was for PHYSICAL Euros — not digital.  Demand for any other currency than the national one in Venezuela and Argentina says a lot….
      In a sense: Hyper inflation is caused by people like us who spend our dollars for real things like Silver, Gold, Ammo, and other stuff.  Its caused by us who refuse to “save” in a system of corrupt banks and cartels.  Its caused by people awakening in some form to what you and I and everyone else on this forum knows:  The dollar is worth less than anything you can buy… and is worthless (no space)… and will always be worth less (space separation).

      (I think this was noted in the posts below)

  5. Hyper-inflation with no wage growth, no credit expansion, no infrastructure spending, and no velocity of money
     
    Your looking at hyper-inflation as demand push, it is not.  Hyper-inflation and price inflation are 2 very different animals.  Look at college tuition in the U.S.: 1100% increase since 1980, the highest rise of any consumer cost.  Is that hyper inflation in tuition? Where was the hyperinflation in the 2000′s bubble? we had a huge credit expansion.   
    Hyper-inflation is loss of faith as in currency destruction.  When governments solves problems by creating more FIAT faith is eventually lost.  Look at Weimar: for a few years money printing solved all their problems and everything was good until it wasn’t. 
    I wish people would stop tying hyper-inflation to consumption.  

    • correctamundo cash only  Thank you for the reminder about the two distinctly separate phenomenons.
      We have that nasty upsy downsy price inflation.  Gas and oil prices wobble back and forth.  PMs do the same.  Home prices go up and down over a decade or less.  Food can drop occasionally and yes, this is not hyperinflation. Just that nasty relentless grinding that takes more substance from our  pockets and puts it into the comsumables, taxes healthcare or anything else we have trouble avoiding as bills that float into the mail box. 
      It’s annoying but since half the people in this country don’t ‘pay for’ their goods and services because the currency used comes from insurance firms, SNAP, EBT or the government, paying for many things we take for granted, we weather this nasty grind. The US government spends a total of $1 trillion in remittances and madated payments, ex SS, Medicare and Veterans. That’s a lot of money flowing into the economy.
        This printing machine called the Fed is the Cantillion effect of trillions of dollars flowing into the economy via remittances from the gummint or our health care providers. Doctors will take 50-75% less if cash is paid. I do that all the time.  My way of countering price inflation is ask for cash discounts everywhere and anywhere.
      I am not sure exactly how much FIAT is tied up in the TBTF banks, but I do know that they have roughly $2.6 trillion is sitting idly by as deposits in excess of loans. This helps grind the equity markets higher as this play money of these banks is injected into the DOW, S&P and NASDAQ. The rest is sitting in other deposits doing little more than marking time. Once the equity markets collapse, the government starts doing NIRP rates on depposits and bail-ins plus pension grabs be commonplace, the poop will hit the fan.

      The really bad hyperinflation will come when we consumers experience a massive currency devaluation and see our FIAT becoming increasingly worthless against our comsumables.  That will become a hysterical rush to buy stuff.  I saw fights break out over gas when it shot up 100% overnight in 1974 and 1979. Yes, that was price inflation but it scared the peewadden out of Average Joe.
       Maduro, the Pres of Venezuela,  is presiding over 60% inflation after Chavez devalued the Bolivar 47% in Feb 2013
        Now that precipitated hyperinflation. 
      Since then,  this idiot politician is killing the economy and private sector. Just try to buy toilet paper in Caracas.  No Mas TP  Senor.
      We could experience that type of hyperinflation.  It sure happend to the precious metals when skyrocketed 2,000% in the 1970s as people chased silver and gold with their stack of FRNs. This was an overreaction to our loss of faith in the US dollar, thus chasing PMs to the moon. Scarcity then precipitated outrageous price increase then as it could now.
        I was there and missed the best of that inflation in PMs but turned a desk drawer with a goodly amount of leftover tips into some serious cash.  Junk bullion was worth $30-35 an ounce and a 50 cent piece fetched $15
      Ah the good old days.
      But we, the consumers, will have to lose that loving feeling for the greenback before hyperinflation takes off

      We did have what was called Stagflation, a crappy no growth economy, 10% unemployment and 8-12% inflation Not hyperinflation by any means but nasty in its unrelenting evaporation of our pay checks by fast cost increases in consumables along with increases in taxes to finance the relentless Guns and Butter spending insanity of Johnson, Nixon and Carter. That massive overspending that left us with a $1 trillion debt by 1980 was staggering. Those were the days when a billion was a lot of money. Now a billion is pocket lint, something you find in the sofa. Today our moron politicians throw Trillions around like they are stale pop tarts.
      Better we throw the political jackasses out with the garbage.

  6. We got 2011 highs in the metal market without hyperinflation.  I’d be happy to see another pump up to 40 something.  If it happened before it can happen again hyperinflation or not.  I’m with you though.  Are we there yet? When hyperinflation does get here you can say goodbye to cheap Silver.  Oh wait.  That’s why we buy it.   Never mind.   

  7. With them finally admitting to false unemployement numbers at election time, maybe the real numbers of 24% real unemployment will be admitted to.  That would put enough faith in our economy to get the show started.

  8. I have never really commented before because I didn’t even take econ 101 but even a blind man can know that something is amiss. One thing I have never seen commented on is about the price of silver going over $150, most would be happy with it getting back to $40. Back in 2009 Paladium was $175 now sitting at $700, nobody even flinches at that so why if silver is in such a shortage couldn’t it hit $700 or $1700?

  9. Just64 
    you pinged something that got me to thinking about FRNs, aka FIAT; the USD.   
    A short story first. 
     For over 40 years my wife and I forced to pay into the Social Security “Trust’ fund.   Each of us had been in the system for 40 years. Half that time we were day job workers.  We and our employers each paid 50% of the  FDR extraction tithe.   For the next 20 years we owned businesses.  We both had our respective business incomes, paying to the SS system at the max tax rate.  In that case we each paid the roughly 12% of net income, not subject to personal deductions.  That means we both were hit from both sides.  If the Average Joe knew how much total SS was taken, there would be riots in the streets. 
    My wife just started taking her SS income, roughly $1,500 a year at age 62.  I will do same in early 2014, at age 62 and receive maybe $1,800 a  month   We both put a good bit over $300,000 into SS in the last 40 years.  It will take at least 15 years for either of us to recover even the nominal $300,000, with little chance of seeing any real increases since SS was subject to the chained inflation adjustment of 1.5% in 2013.  15 years of 1.5% would represent an increase of 25% compounded.  Not enough to cover even 1/5th  of real inflation.  I am not complaining. These are just the facts
    Since the $600,000 plus in SS extractions collectively collected from us has roughly a negative 1% return, representing the overhead of running the government bureaucracy, it is unadjusted dollars in and largely unadjusted dollars out, inflation notwithstanding.
    The point of this is the SS is a Ponzi scheme, relying on the future generation’s tax burden to pay our SS receipts.  We paid into the SS system and supported our parents SS draw.  Our parents paid to support their parents, the very first people to start paying into the system that started in 1937.  The first payees received 10, 50 and even 100 times as much as they paid in.  The next generation paid modest taxes into the system and received, by some estimates, 2 to 3 times as much as paid in over the earning careers.
    The present generation of retirees will maybe break even if the benefits start at age 62.  Assuming a lifespan for a male of 77 or so, then I will have extracted just about what I paid in if I hop the twig at 77.   My wife will earn more if she hangs in until age 82.
    My total payins were about $330,000 so I gave myself a bit of a fudge factor. If she lives to 82 she will get an inflation adjusted return of maybe 80% more than she paid in.
    Who’s paying these taxes that are sent to us?  The next generation, a group of younger people who are in a fairly high bracket of 12% on the first $110,000 in income.   They may get less than 50% of their entire tax sent to the bureaucracy.  But the plan today is getting to an actuarial tipping point since there is $2.7 trillion in the IOU trust fund not year tapped, but if employment weakness continues, the fund will be tapped much sooner than expected.  And thus the Madoff-like  Ponzi scheme system, largest in the world, continues until is can no longer continue and it will stop dramatically.  The yougest generation will pay in and receive nothing.
    The first into a good deal get the best deal.
    The first to get out of a bad deal get the best deal
    Let’s then shift to the 1913 formation of the Fed and the commencement of the FRN/income tax based system in this country.  The first people into this system got a good deal.  The FRNs were worth 100%. 
    Today those same FRNs are worth about 2% of their value in  1913.  That sounds like a Ponzi scheme since the income tax was started to pay the interest on the FIAT produced by the Fed through the cost of the treasury bonds that funded wars, welfare and all the other pet projects of politicians who found a multi trillion honey pot courtesy of the FED.  It’s been a good ride, funded largely by debt and printing.
    So who gets the best deal when the bad deal shows up, as it is now?
    I propose the only ones who get a reasonable decent deal as this Fed FRN Printing Income Tax enterprise runs to the end of its cycle are the people who exit FIAT and shift to precious metals. 
    There is a saying in the world of Ponzi schemes.  The purveyors of the schemes NEVER leave before the crash.  Yes, many of the implementors of this Ponzi scheme have died, some have left the country, some got out and moved on with their ill gotten gains.  The last holders of the bag of FRNs will get hammered right along with the people who have tried, like the slot machine and numbers  players, to make money when the racket is rigged.  No matter how much is left in the FIAT FRN bag, there will never be enough to evenly distribute the losses to all the players.  Madoff lost $60 billion and only about $16 billion has been recovered. 
    The FIAT FRN PONZI scheme will leave the last holders of the bag completely devoid of any return on their purported investment. 
    Like the man said  “If you like your FIAT, you can keep your FIAT”
    The players who exited FRNs to date will be the last ones who left that barn before the door was closed.  We are lucky in that regard.
     

    • AG,
      I have come to the conclusion, as bizarre as it may seem, that the U.S. has 4 ponzi schemes running.  Although they may not quite fit the exact description of a ponzi, they are definitely not what they seem:
      Listed low to high:
      U.S. college education system
      Social Security
      Market/Wall St.
      U.S. Dollar
      I believe when the end comes it will take out all the above at once.  You can conclude that pensions, MUNIs and all others areas of “debt investment” will be erased.   If anyone is wondering why the G’vt is prepping and planning so hard think of it as the “coach turning back into a pumpkin” in just a flash.  Only the coach/pumpkin will be the American standard of living.

  10. Sorry about the long post. The connection I was trying to make is that just like the government-mandated Social Security system creating greater and greater taxes to finance larger and larger benefits, the FED/FRN/FIAT machine produced greater and greater benefits for those who were able to extact the goodies before the benefits are washed out by the inevitable collapse of a Ponzi scheme.

    • Never apologize for those great posts AG. They are on point and very informative. Always.
       
      Cheers mate…

    • Great post on SS AGXIIK – I recall getting my first paycheck in the early 80s and realized it was actually double of what I was being fleeced for.   I started to study the SS Ponzi scheme and was quickly beside myself at what fraud it was.  I had also known about the “Pig through the Python” that the Baba Boomers were and did a little calculation and realized that somewhere around 2000-2010 we would be hitting a debt wall.   Sho’nuff.  
      One note about the amount of money printing…The Fed is buying $45B in TBills and $40 in MBSs, but they are also (according to Bloomberg) rolling their interest payments from the gubmint for a total of $91B per month in “out-of-thin-air” Fresh Fiat…add Japan’s estimated $70B per month and you get $161B, not the $125B stated in this article.   Also often overlooked is the UK that is doing their share to impoverish the Brits with several extra billion averaged out per month.  And add China as noted in a recent ZH post (ie $15T in new liquidity) and Bang – the answer to “What’s in your wallet?” looks more and more like confetti everyday.    So the $125B per month above is an understatement from just the tallies from the US and Japan, when the whole world is on the race to the bottom game.  
      One of the real “heros” in all of this is Merkel, not necessarily because of her steadfast convictions, possibly more out of her desire to keep her job, has held the line on fiat expansion by the ECB.  Not that the ECB hasn’t figure out some “beyond their mandate” methods to inject liquidity (ie underwrite CB’s purchases of worthless sovereign debt to hold back bankruptcy since insolvency is everywhere you look.)  
      http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water
      Keep stackin’ – this won’t end well. 

    • Forget debating $125B or $161B for the US and Japan’s fiat flagrance – check out this quote from the ZH article I just linked above…
       
      The US and China are add $416B month ($5T annualized!)  ”What’s in you wallet?  CONFETTI!)  Japan and the UK kick the fiat explosion to over $500B per month.   Weeeah!  
      “…the world is now fully addicted to about $5 trillion in annual liquidity creation between just the US, Japan and China alone!”

  11. Jersey Joe  funny you should mention about the Pig in the Python.  The Python is theUSG/ FED.  We are the pig.
    32 years ago Reagan was elected. I started noticing things about debt, inflation and taxes since that was about the time I started making some real money.  Once I passed a certain income I got a “RAISE’  Actually it was the point at which my SS payments were maxxed out for the year.  Sometimes it was $500 a month.  $500 was real money back then
    Little did I realize that we Boomers, the 30 somethings starting our career, were the ones the gummint, Reagan included, saw as the milch cows, or Piggies, that were being fed the Python. There was no trust fund; no magic lock box holding our retirement funds. 
    Those retirement and medicare taxes were shifted to others.
    Shift happens.
    So once I woke up to this fact I started to put money into my IRA with a vengence.
    Fast forward 32 years and $16 trillion in fresh debt; we piggies have now moved through the python.
    You know what comes out of a python when it’s finished digesting the pig. 
    Yup.  You got it
    Python Poop.
    And thus endeth the saga of the pig and the python. 
    I feel so well rested, I mean digested, today.

  12. cash only   you are on the same page. Social Security is clearly a Ponzi scheme.  The other three fit in a special way, making them Ponzi schemes too.   I kind of redefined the classic Ponzi along the lines of an investment scheme relying of cash which rewards the early adopters and punishes the late entry people, 
    SS started in 1937. We now see that the present recipients might get back their investment one for one but without any sort of reasonable inflation adjustment and absolutely zero return, in reality a 40 year ZIRP.  The next generation will see absolutely zero back no matter how much is extorted from them with the promise of a retirement income in their later years.  Those latter years will edge outwards to 70 or more, moving a poorly crafted zinc ring out of reach. Obamacare will see to it that our average lifespans will drop, given the certainty of health care rationing.  That will reduce the Social Security head count by a very large number. I read somewhere recently that the lifespan of the average American male dropped last year
     
    The FED/FIAT money game has to be a Ponzi.  The Fed and income taxes were designed by the Progressives as the most egregious form of wealth redistribution the world has ever seen   It took 100 years after Pres Jackson killed the National Bank before another reared its ugly head. Its taken another 100 years to see the value of the dollar drop by 98%.

     The return on cash assets has been very low for the better part of a century given the disasters of the depression and recessions while stock, bond and housing bubbles periodically stripped the wealth from all but the most fortunate and smartest of the top 1% (who made their killings on the backs of the mathematically inept–like me). Negative compounding of the value of the dollar versus the compounding of most investments has probably yielded little gain in 40 years. Incomes have not risen in that time. Most people today have less than $50,000 in their retirement accounts. That is a terrible situation for the oldsters.
     
    The stock market is one of the worst sorts of Ponzis.  A famous Merrill Lynch (I think) broker said smart money comes in first and dumb money comes in last.  Smart money and insiders are selling 50 to 1, fleeing a boat full of holes. Anyone in the market now, coming in at the top, will get fleeced sooner or later.

    The really evil one is student loans.  Graduating with a decent BS degree in 1975, my total tuition and books came to less than $5,000 for five years of studies. I took an extra year to graduate due to a 6 months sabbatical and 6 months of extra courses that interested me. I made $4 an hour and in 3 months of summer work was able to pay 100% of tuition and personal living expenses. The Teamsters paid well.
    Today the largest form of consumer debt is student loans, totally $1 trillion. Nearly all are backed by the government, grants and the like.  13% are delinquent and millions of students with low paying or zero jobs cannot pay these loans much less discharge these loans through bankruptcy.  This will embegger a whole generation of students who should have been getting out into the job market making good income, starting families and buying homes.  This is not happening. 
    38% of students 18-26 live with their parents. 75% of the graduating classes are settling for minimum wage jobs, part time jobs or doing nothing at all.  Unemployment ranges to a high of 50% in some age ranges.  We risk losing a generation. This ponzi started with the promise of a degreee and igh paying job. In 30 years that promise has evolved to heavy debt and a low paying job with little hope for the future.
    Who got in first, receiving the best deal?
    Me and my generation. 
    Who’se getting in late with the worse deal?. 
    Gen Millennials. 
    They are, on average, encumbered with $30,000 in student loans right from the git go. The government will not release those loans. The only way to pay them is debt servitude with low end jobs. The government ends up being the slave master to these people.
    When JPM said their were exiting the student loan market, you know the jig is up.  If that pack of vultures finds no meat remains on the students bones, the tidings are pretty sad.
    All of these Ponzi schemes have 3 common elements
    1.  They involve the government as the overseer, guarantor and ultimate beneficiary of the systems
    2.  They reward the first adopters who are often voluntary investors and stake holders.
    3.  The late adopters end up bankrupt, forced to participate under the threat of imprisonment or lack of access to jobs.

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