Inflation, deflation, gold and currencies

[vincecate]

I think gov't have 2 choices really:

1. Inflate the currency to pay off debts = kill the value of their currency but save their debt rating.
2. Default on debts = kill their credit rating but defend their currency.

So far #2 is winning and accelerating with twin turbos.

Even if they default, they are still spending nearly twice what they get in taxes. Defaulting eliminates the debt but does not fix the deficit. They are still broke and would get hyperinflation, I think.

What makes you say #2 is winning? You mean other countries?

I don't believe there has ever been a case where a country defaulted on debts in paper money that they could print themselves. There have been over 100 cases of hyperinflation. So if you invest based on the odds, I think you have to go with the hyperinflation not default.

[Higgenbotham]

I don't think that anyone question whether the final endpoint will be hyperinflation or, if one prefers, that the financial system blows up and fiat money becomes worthless. In my opinion, the only thing that's being debated is the path that it will take. In thermodynamics, you can fix the beginning and end points and then plot out the path - adiabatic, isothermal, etc. I think one thing we can be sure of is the system will take the slowest path to hyperinflation that it can. One way to do that is for the Fed to keep everyone off balance with wild and unexpected gyrations. That way, the herd will never become unanimous enough to tip things in one direction or the other. Just a thought.

[John]

I don't think that anyone question whether the final endpoint will be hyperinflation or, if one prefers, that the financial system blows up and fiat money becomes worthless. In my opinion, the only thing that's being debated is the path that it will take. In thermodynamics, you can fix the beginning and end points and then plot out the path - adiabatic, isothermal, etc. I think one thing we can be sure of is the system will take the slowest path to hyperinflation that it can. One way to do that is for the Fed to keep everyone off balance with wild and unexpected gyrations. That way, the herd will never become unanimous enough to tip things in one direction or the other. Just a thought.

Huh?????? What have I been writing about for the last eight years?

John

[Higgenbotham]

Huh?????? What have I been writing about for the last eight years?

John

For the last 8 years, you've been saying it's 100% certain that there will be an approximately 30% deflation during the generational crisis period. Nothing beyond that.

I've never heard you opine that US dollar fiat in its present form will be the world's money indefinitely. People have been espousing imminent hyperinflation for decades. I once mentioned that in 1983 I bought a book written in 1968 called Death of the Dollar in a used book store. It cost a dollar. While I haven't seen hyperinflation in the immediate future since I started reading about it 35 years ago, I do believe it is the ultimate outcome and don't know how it could be otherwise (or collapse of the money system if one prefers).

[vincecate]

I don't think that anyone question whether the final endpoint will be hyperinflation or, if one prefers, that the financial system blows up and fiat money becomes worthless. In my opinion, the only thing that's being debated is the path that it will take. In thermodynamics, you can fix the beginning and end points and then plot out the path - adiabatic, isothermal, etc. I think one thing we can be sure of is the system will take the slowest path to hyperinflation that it can. One way to do that is for the Fed to keep everyone off balance with wild and unexpected gyrations. That way, the herd will never become unanimous enough to tip things in one direction or the other. Just a thought.

Everyone agrees the final endpoint will be hyperinflation? Wow. I had not really noticed that. Or do you mean it might be 50 years from now?

If I had been alive and looking over things close in 1932 I might have predicted the currency would fail back then and been "off balance" when they took everyone's gold and hid the bankruptcy of the Fed. But there were plenty of people back then who thought they would end gold convertibility so maybe I would have expected that at least the dollar would detach from gold. But now I can't see how they can save the dollar and I don't see anyone else with a workable plan either. I can't really even imagine how it could last another 2 years. Can you?

[John]

> For the last 8 years, you've been saying it's 100% certain that
> there will be an approximately 30% deflation during the
> generational crisis period. Nothing beyond that.

Amazing! I've probably mentioned the 30% figure fewer than 10 times,
but I've written about deflation probably hundreds of times,
discussing it from every possible angle.

I guess I don't make much of an impression.

John

[John]

Listening to Bernanke predict 2% inflation in the medium term,
I guess it's still "Bernanke and Xenakis against the world."

John

[Higgenbotham]

Everyone agrees the final endpoint will be hyperinflation? Wow. I had not really noticed that. Or do you mean it might be 50 years from now?

If I had been alive and looking over things close in 1932 I might have predicted the currency would fail back then and been "off balance" when they took everyone's gold and hid the bankruptcy of the Fed. But there were plenty of people back then who thought they would end gold convertibility so maybe I would have expected that at least the dollar would detach from gold. But now I can't see how they can save the dollar and I don't see anyone else with a workable plan either. I can't really even imagine how it could last another 2 years. Can you?

The final endpoint will be hyperinflation or, if one prefers, the total collapse of the monetary system. This is about the only thing I can say on this matter that is absolutely 100% certain.

As far as when it will happen, I have no idea, but Bernanke has taken gigantic leaps to that eventual conclusion. I think it very unlikely it will happen within the next 3 years but I can't say it's absolutely certain that it won't. Beyond that, I don't know.

[Higgenbotham]

> For the last 8 years, you've been saying it's 100% certain that
> there will be an approximately 30% deflation during the
> generational crisis period. Nothing beyond that.

Amazing! I've probably mentioned the 30% figure fewer than 10 times,
but I've written about deflation probably hundreds of times,
discussing it from every possible angle.

I guess I don't make much of an impression.

John

You've discussed deflation mostly in general terms from the standpoint of reversion to the mean, collapse of structured securities, less money in the world every day, and interlocking global realities that make the deflationary outcome inevitable. The 30% figure has been used more times than I can remember and it's probably more than 10 because my memory is pretty good.

Another thing I should mention - if you are using a straight line log plot to model prices, the ultimate outcome of that is more likely hyperinflation because eventually one of the swings back up over the line in a rising trend is more likely to become unstable.

Here are 10 references to the 30% figure:

This is the "deflation" problem. As the amount of money in the world contracts, there's less money available to buy things, and so prices come down. As I've been saying since 2003, my expectation is that the Consumer Price Index will fall 30% by 2010.

http://www.generationaldynamics.com/cgi ... gd.e070910

The same Generational Dynamics methodology which arrives at that conclusion also predicts that America is in a deflationary period, with prices expected to fall by 30% by 2010.

http://www.generationaldynamics.com/cgi ... d.e050802b

This prediction is largely based on the adjacent graph, which shows the long term CPI values with an exponential growth trend line. This graph indicates that consumer prices should decline 30% or more in the next few years.

http://www.generationaldynamics.com/cgi ... gd.e040717

As we've previously said, if you look at long-term trends instead of just a few months, we're actually in a long-term deflationary period. We actually expect prices to fall by 30% in the next few years.

http://www.generationaldynamics.com/cgi ... d.e040910b

As we've previously said, if you look at long-term trends instead of just a few months, we're actually in a long-term deflationary period. We actually expect prices to fall by 30% in the next few years.

http://www.generationaldynamics.com/cgi ... d.e040916b

As we've previously said, the fundamentals are clear that we're in a period of long-term deflation, and can expect prices to fall by 30% in the next few years. Jawboning might postpone (and indeed has postponed) that result, but the fundamentals will win out sooner or later.

http://www.generationaldynamics.com/cgi ... gd.e080919

Generational Dynamics predicts that we're entering a new 1930s style Great Depression that will cause a stock market correction of 50% or more, and a deflation of American currency by 30% or more. All that's required is some kind of "shock," and that could happen next week, next month or next year. But it's going to happen with 100% certainty, and sooner rather than later.

http://www.generationaldynamics.com/cgi ... gd.e050705

Based on long-term trends, I'm expecting the CPI (Consumer Price Index) to fall, rather than increase. That means that things you buy will become cheaper, rather than more expensive. In 2004, I wrote that I expect prices to fall by 30% by the 2010 time frame, and that still seems to be a reasonable estimate, because of the financial crisis and deflationary spiral that seems to be more and more imminent.

http://www.generationaldynamics.com/cgi ... gd.e080718

I've been writing since 2003 that we're in a deflationary spiral, and that I expect the CPI to fall by 30%. I've pointed out that interest rates have been extremely low for most of the decade, and that if inflation were to occur, then it would have occurred already.

http://www.generationaldynamics.com/cgi ... gd.e101104

My prediction in 2003, based on long-term forecasting techniques, was that the Consumer Price Index (CPI) was at a secular high and that prices would fall by 30% by the 2010 time frame. That's still my prediction today, based on the scenario that an inevitable stock market crash and financial crisis will cause massive deflation.

http://www.generationaldynamics.com/cgi ... gd.e070725

[Higgenbotham]

Higgie, are you still heavily shorted in the stock market?

John

No, I pulled out of all my shorts the Friday before last because the panic cycles weren't taking hold in stocks.

I went 35% short late this afternoon. By 35%, I mean usually I carry a full position of so many contracts and I am now at 35% of that. If the market had crashed, I think the crash would have bottomed this afternoon. You can see the inversion created - there was quite a bit of excitement on this upcrash. Stocks have gained several percentage points in the last few trading sessions. Even more "exciting", I think silver upcrashed over 6% today but it was unable to reach its Sunday night high.

My guess would be that stocks can get a bit higher than they are now. I'll take that day by day. The reason I say that is the end of the 1929 crash was not the near term bottom. There was a rally, then a lower low in November. We may see something similar here: a high this week, followed by a dip, then a higher high in May or June. But now that we have this upcrash and cycle inversion taking place a strong deflationary pulse could begin at any time.