THE GLOBAL FINANCIAL
Kristie Pelletier and Michael S. Coffman, Ph.D
September 7, 2013
III—Inflation or Hyperinflation?
[Federal Reserve Chairman] Mr. Bernanke‘s extraordinary efforts
to debase the U.S. currency in late-2010, the dollar had lost its traditional
safe-haven status by early-2011. Whatever global confidence had remained
behind the U.S dollar was lost in July and August 2012. That was in
response to the lack of political will—shown by those who control
the White House and Congress—to address the long-range insolvency
of the U.S. government, and as a result of the later credit-rating downgrade
to U.S. Treasury debt. —John Williams, American
Business Analytics & Research, LLC, 2012
Obama administration and the mainstream media would have the American
people believe that we are in a recovery following the deep recession
caused by President Bush. It’s just a matter of time, we are promised,
before the economy is once again robust and people are back to work.
After all, claims Morgan
Stanley’s CEO, James Gorman, “When [bond] rates rise,
it is a reflection that the economy is recovering.” Louis
Basenese, Co-Founder, Chief Investment Strategist for Wall Street
Daily agrees: “Contrary to conventional wisdom that rising
rates will undercut this economic recovery, it’s actually a sign
that the economy is getting back to normal and won’t need the
Fed to prop it up much longer.” The Fed is the Federal Reserve,
the U.S. Central Bank.
these are all empty promises surrounded with flashing lights, bells
and whistles to distract the American people from the nasty reality
that we are heading for dire trouble. It maybe even a collapse that
will make the Great Depression look like a walk in the park. This is
not the opinion of the authors; it is the concern of dozens of well-known
economists and financial advisors cited below. John Williams, in
his report above, believes that the “precursors to ultimate
dollar disaster are in place; 2014 remains the outside
timing for same.” (Italics added)
is a top economist who has had numerous major Fortune 500 corporations
as clients. He realized the government was cooking the books to make
the economy appear better than it is. He found it to be so bad that
any semblance to reality was coincidental. For instance, if today’s
was calculated the same way it was in the Great
Depression (including long-term unemployment), it would be over
23 percent; just as bad as the Great Depression. Obama (and presidents
before him) have covered up the suffering Americans should be undergoing
with the huge government deficits and mammoth debt accumulations needed
to pay for unemployment, welfare and other distorted social programs.
Even the more July, 2013 U6
unemployment rate which includes those want to work full time, but
can’t find a full time job, is 14.0 percent.
the Obama administration is trying to hide the same type of suffering
that occurred during the Great Depression with huge deficit spending,
the facade is starting to crumble. Median family income is down by a
minimum of $2,500 annually. Increasingly, it is being called the
new normal. As is discussed in Part V of this Financial Death Spiral
series, Obamacare and Obama’s Keynesian economics is destroying
American lives and families. Tragically, this debt and Quantitative
Easing (printing money out of thin air) will not end well for the U.S.
and her citizens.
to the corrupted unemployment statistics used to hide the shocking truth,
consumer inflation today (July 2013) as calculated using 1980
would be 9 percent. It is not the 2.5 percent reported by the federal
government. While harming everyone, this hurts seniors on Social Security
(SS) the most.SS benefits are calculated using the 2.5 percent consumer
price index (CPI). While real inflation has been close to ten percent
every year for the past three years, SS benefits have only gone up 2.5
percent; for just one year. SS benefits are buying less and
less over time.
no longer includes food and fuel costs to the consumer. Billionaire
Steve Forbes (Forbes Media), Bob Wiedemer (economist and author of NY
Times Best-Seller Aftershock), James Rickards (economist and security
advisor to the Pentagon, CIA and the Director of National Security)
and Sean Hyman (global currency analyst and advisor) presented stunning
information in their video presentation called “Currency
Wars.”After doing the math, they found that food prices have
inflated 148 percent and energy prices 468 percent since 2001. This
is a shock to the entire economic system, but especially impacts the
poor and elderly consumers the most on a day to day basis.
is a huge difference between what the Fed is doing today compared to
the Great Depression. During the Great Depression, the Federal Reserve
(Fed) contracted the economy by printing less money. Today
the Fed is expanding the economy by deficit spending and printing
money out of thin air called “monetization.” Otherwise,
the recession of 2009-2011 would have likely turned into a real depression.
Nonetheless, even though the impact of the recession was initially hidden
by government spending, the underlying economic hollowing is still
occurring. The correction has not yet occurred. The longer the correction
is postponed the worse the consequences, perhaps much worse than the
Great Depression. Williams
believes this will lead to hyperinflation:
U.S. economic and systemic-solvency crises of the last five years
continue to deteriorate. Yet they remain just the precursors to the
coming Great Collapse: a hyperinflationary great depression. The unfolding
circumstance will encompass a complete loss in the purchasing power
of the U.S. dollar; a collapse in the normal stream of U.S. commercial
and economic activity; a collapse in the U.S. financial system, as
we know it; and a likely realignment of the U.S. political environment.
Outside timing on the hyperinflation remains 2014, but events of the
last year have accelerated the movement towards this ultimate dollar
the hyperinflation Williams predicts correct? Economists sharply disagree.
For instance, economist James
Montier doesn’t think so. Typically, economists believe that
hyperinflation occurs when nations print money out of thin air (monetization)
in order to cover huge deficit spending. It’s the classic theory
of too much money chasing too few goods, resulting in rising prices
to compete for the too few goods. If that was the only thing that caused
hyperinflation, the U.S. would already be in it. Most economists thought
inflation would skyrocket when the Fed starting monetizing the debt
in November of 2008.
help explain why the U.S. is not already in hyperinflation, Monitier
has to get down into the weeds where most American’s eyes glaze
over and they lose interest – at their peril. If this describes
you, understand this:President Obama’s constantly claim he is
“saving the middle class” is nothing but misdirection and
theater. In fact, he is destroying it. To grasp what is happening, try
to wade through the following pages of discussion. Explains Montier:
takes something much worse than simply printing money [to create hyperinflation].
To create the situations that give rise to hyperinflation's, history
teaches us that a massive supply shock [disasters that interrupt supply
of goods, like war], often coupled with external debts denominated
in a foreign currency, is required, and that social unrest and distributive
conflict help to transmit the shock more broadly. On the basis of
these preconditions, I would argue that those forecasting hyperinflation
in nations such as the US, the UK, or Japan are suffering from hyperinflation
gives numerous examples of this fundamental need to create a massive
supply shock. One of the most widely known examples of hyperinflation
is the Weimar Republic (Germany). Germany’s productive capacity
had been significantly damaged by World War I, both in terms of factories
destroyed and the resources redirected to military use. These events
clearly constituted a large supply shock. Following the war, the allies
forced war reparations on the Republic which had to be repaid in gold.
Germany was expected to earn this gold through exportation of manufactured
goods, but it no longer had the productive capacity to even meet domestic
demand, let alone have enough to export much of anything to achieve
income needed to buy gold. This added even more shock to the ability
of Germany to supply products of every sort.
argued that the reparations were to blame for the hyperinflation. The
unfavorable trade balance (lots of imports but no exports) caused the
depreciation of the German mark. Inflation was“not the cause of
the increase in prices and of the depreciation of the mark; but depreciation
of the mark [was] the cause of the increase in prices and of the paper
the U.S. Heading for Inflation?
Montier and other like-minded economists are correct as far as they
take it. Since the U.S. has not suffered from massive supply shock like
a war, this could be part of the reason we have not seen high inflation,
let alone hyperinflation. Even so, inflation is much higher than the
government would have us believe – up to 13 percent since 2008
according to Williams.
the world has never seen the type of economic crisis that exists today.
As detailed in our companion articles, “The Financial Death Spiral,
Parts I & II – Global Troubles” Europe, Japan, China
and many other nations are on the verge of collapse. Japan’s bond
market is in meltdown and China’s hidden debt puts a lie to all
the glowing prosperity it publicly shows the world. The Third Currency
War and the attack on U.S. dollar as the world’s reserve currency
spell big problems for everyone, especially Americans. Montier
even admits the European quagmire, created by socialist overspending
and bad policy decisions could lead to Eurozone hyperinflation:
one were to worry about hyperinflation anywhere, I believe it would
have to be with respect to the break-up of the eurozone. Such an event
could create the preconditions for hyperinflation (an outcome often
ignored by those discussing the costs of a break-up). Indeed, the
past warns of this potential outcome: the collapse of the Austro-Hungarian
Empire, Yugoslavia, and the Soviet Union all led to the emergence
however, is not thinking big enough, nor is he considering the potentially
cataclysmic impact of the loss of the dollar’s reserve currency
status. Nor has he considered debt in the brew of troubles discussed
previously. The U.S. national debt is $17
trillion with another $125 trillion in unfunded
entitlement liabilities as of August 2013. That’s over $1.2
million per taxpayer. That’s not even including state
debt and unfunded liabilities of over $4 trillion and $2.8 trillion,
notes that “We began the year 2013 with a net public debt that
has more than doubled since the year BEFORE Barack Obama took office…Various
other government agencies and private companies taken over by the government
also have obligations of nearly another $5 trillion.” That totals
to $27 trillion! We have more government debt than any country in the
history of the world, including all of Europe.
is only one bright spot. Personal debt is going down as private citizens
are getting out of debt as fast as they can. Personal purchases
are almost in balance with people’s paychecks for the first
time since 1965. Citizens are apparently a lot smarter than their government.
unprecedented increase in debt due to a failed economic theory called
Keynesian economics. This will be discussed in Part V of the Financial
Death Spiral series. It is crystal clear, however, that the Keynesian
model the U.S. (and Europe) has been following since Franklin D. Roosevelt
is not only reckless, but insane.
put this in context, the Fed
cites the M0 –all U.S. dollars in the entire world at any
one moment in time – skyrocketed from about $26 trillion in July,
2012 to $31 trillion in July, 2013 – a 19 percent leap! This is
the result monetization. True that $31 trillion is recycled many times
during the year to add up to hundreds of trillions of dollars, but you
get the point. This is so serious that billionaire Jim
Rogers, founder of the Quantum Fund and creator of Rogers International
Commodities Index (RICI), has warned, “There's this gigantic artificial
flow of money floating into our economy, and this is going to end badly
because it is artificial.” Rogers continues in another interview,
“The first two central banks in the U.S. went bust and the Greenspan-Bernanke
Fed will, too.” Rogers is so convinced of the coming collapse
he has pulled all his money out of the U.S.
is simply no way we can possibly pay off the national debt and unfunded
entitlement liabilities. None.The only possible exception is to rein
in the Fed, slash unneeded regulations to
allow the free market to work like it should, and dramatically reduce
the size and funding of the federal government. Even then, we would
have to prepare for a decade or more of belt-tightening. More on this
in Part V of the Financial Death Spiral series. Unfortunately, the present
administration and the desire of the citizenry to demand more and more
government handouts (as shown in the ballot box and polls), the probability
of that happening is near zero. The only other possibility is high inflation
or hyperinflation when the dollar is debased to essentially zero, allowing
the debt to essentially become worthless.
actually worse. The
M1 Money Supply– money that is not in the U.S. Treasury, Federal
Reserve, or in vaults of depository institutions[a]
– only increased
11 percent compared to 19 percent for the M0 monetary supply. That’s
almost half the percentage increase of the M0 supply created with Quantitative
Easing. If the M1 supply is only increased at 50 percent of the M0 increase,
half of the M0 increase went into the Treasury, Fed or other depository
vaults, not into Main Street where it would have benefited the middle
class. However, it would have also caused inflation to jump.
federal government’s claim that our inflation is only 2.5 percent
is a malevolent misdirect designed to deceive the American people while
our government and the Fed are bleeding us dry, all while papering over
the real truth of the U.S economy. Since Federal Reserve Enabling Act
requires U.S. citizens to pay back most of this insane borrowing,[b]
the Fed and U.S. government is also stealing from the middle class to
make the rich richer. That is outright theft on a staggering scale.
Obama and the progressives badmouth the 1% for being too greedy, it’s
actually the Obama administration, the progressives on both sides of
the isle, and the Fed that are guilty of making it happen.
The so-called 1% is only doing what they are legally allowed to do.
While the 1% is not guiltless, the real scam belongs to Obama and the
progressives who are guilty of creating this monster, with no small
pressure from lobbyists, while deftly shifting the blame onto the Republicans
and the 1%.
back to the conflicting theories of Montier
discussed in the introduction of Part III, we are not having a “massive
supply crises triggered by a war” (although the currency war could
start an conventional war), as Montier says is needed to create hyperinflation,
but a massive crisis triggered by the huge debt, the Fed’s monetary
debasement, currency war, and/or loss of the dollar as the world’s
reserve currency as described by Williams. The U.S. could survive any
one of the financial crises discussed in this series, except the loss
of the dollar as the world’s reserve currency. But, not all of
them simultaneously.We seem to be approaching the perfect storm for
a major financial collapse and perhaps hyperinflation.
summarizes the deep concern of dozens of economists/financial experts
when he says:
expect there will be a near-complete shut-down of the American economy.
Life as we have known it for more than 40 years will essentially cease
to exist. Our governments on both the Federal and State level will shut
down. Banks will not open. Businesses will at least temporarily shutter
their doors. I expect we'll see martial law, enforced by the U.S. military.
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seems to rule in Washington no matter who is president or in power in
Congress. Unfortunately this is one of the symptoms of a government
having almost no checks and balances. It’s perhaps worse when
progressive democrats are in power because they salivate at the idea
of big government having absolute power to crush all opposition, while
getting wealthy at the expense of the people they are supposed to serve.
Republican progressives can be as bad. They are the primary architects
who salivate after military might and have conspired with the progressive
liberals to create a world government and constructed the financial
house of cards that put us in this financial death spiral.
Quantitative Easing is already causing the bond market to crash, soon
to be followed by the stock market and high inflation (maybe hyperinflation)
is the subject of Part IV in the Financial Death Spiral series.
here for part -----> 1, 2,
I—The Disintegration of the Global Financial Architecture
Part II—China, Currency Wars and the U.S. Dollar
Part III—Inflation or Hyperinflation?
Part IV—The Bond Market Crash
Part V—The Failure of Keynesian Economics
Part VI—The Success of Austrian Economics
Part VII—The Root of What’s Wrong – Progressivism
M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve
Banks, and the vaults of depository institutions; (2) traveler's checks
of non bank issuers; (3) demand deposits at commercial banks (excluding
those amounts held by depository institutions, the U.S. government,
and foreign banks and official institutions) less cash items in the
process of collection and Federal Reserve float; and (4) other checkable
deposits(OCDs), consisting of negotiable order of withdrawal (NOW) and
automatic transfer service (ATS) accounts at depository institutions,
credit union share draft accounts, and demand deposits at thrift institutions.
G. Edward Griffin. The
Creature from Jekyll Island.