Inflation, deflation, gold and currencies

[Trevor]

The problem is: what about all the Credit Default Swaps and the investors who are going to be very much harmed by this? The Europeans are getting tired of throwing money down a black hole, to which I don't blame them in the least. I expect some of the countries to fall into dictatorships and Greece may very well be one of them. Also, the long-standing hatred between Greece and Turkey may be a component of the coming war.

As for China, there's a question I'm asking: is their defense spending actually slowing down or does it just appear that way because they realize that we're starting to pay attention to them and thus, they've decided to conceal more than before?

[Higgenbotham]

In other words, we go into, say, a post-deflationary super-volatile environment in where we just don't know by the minute how much money is "approximately out there" due to crazy hoarding-and-release patterns, and we can only make "huge range guesstimates" in regards to how much is out there.

I think this is likely. Or another way to look at it is money velocity will be too volatile to accurately measure because, for one thing, the debt markets will no longer be there to anchor it. Once this happens, it will likely lead to demand for and usage of alternative currencies in the growing black market. Gold or gold money may be a logical choice for some applications because people will know how much is out there. To get true hyperinflation I think there will need to be a breakdown of the corporatocracy because they will use US dollars no matter what as, like we mentioned previously, they are joined at the hip with the US government.

[Trevor]

I looked back at the panic of 1857 and the Great Depression, the worst of which began in 1931, and I noticed they were triggered by the same thing: a bank failure. Ohio Life Insurance and Trust Company collapsed in 1857, rapidly spreading through the United States and the rest of the world, and in 1931, the Credit-Anstalt bank in Austria helped trigger a financial crisis in Europe.

[Marc]

Dishonoring the insurance function of credit-default swaps will no doubt amplify all this monetary volatility, too, whether this CDS problem happens due to "voluntary" restructuring or simply because counterparties cannot pay even if they wanted to. Greece may well be the first big test of this. But regardless of who is first, the CDSs out there are no doubt going to give the upcoming global currency crisis a big thrust. Thanks, Higgie and Trevor, for sharing your further insights. —Regards, Marc

[Trevor]

I wouldn't exactly call it a voluntary agreement, since they're essentially being forced to lose most of their money in this deal. Despite the problems, I think some kind of deal will go through for Greece to have an "orderly" default.

After that, it'll likely be Portugal that gets the attention, since they're second in the Eurozone. Spain and Italy are also falling and that's the real problem. Europe can't bail them out and the United States and China are having problems of their own, and that's not taking into account the anger over bailing out other countries.

[Marc]

To get true hyperinflation I think there will need to be a breakdown of the corporatocracy because they will use US dollars no matter what as, like we mentioned previously, they are joined at the hip with the US government.

This makes sense to me; I don't think that in the US, that we've had in the past the level of oligopoly (and near-monopoly) that we presently have today since shortly before the Great Depression kicked in. Today's government-aligned corporatocracy structure and power would heavily need to be fractured for a new monetary reality and paradigm to take place, I similarly feel. —Regards, Marc

[Trevor]

Well, the financial will be kind of like a massive forest fire that destroys many of the businesses, leaving room for others to take their place. Some may be able to adapt, but as for which ones, we'll have to see.

[Marc]

Existing businesses which have flexible, learning-oriented cultures, which are also populated by people at the top who have a vested interest in the long-term health of the business and who are able to manage both "the big picture" and "the little pictures" (i.e., attention to detail with people and processes without micromanaging) are best likely to succeed, I feel. And, there's a crapload of businesses out there which don't have those benefits; many of those will get their comeuppance and fail. —Best regards, Marc

[Trevor]

well, I think micromanaging everything, or trying to, is a very bad idea. In WWII, it went a long way towards ensuring Germany's defeat. it's not like anyone could tell Hitler: "You're out of your damn mind!" Whether running a business or a war, the principle remains. The people who have to deal with things on a daily basis are likely to know better than someone outside what needs to be done for success.

[Marc]

Indeed, that's why command economies, be they Communist or Fascist or something else, wind up failing. Of course, with an organization or a government, there needs to be leadership and reasonable levels of policy-making. But, as we know, it can be overdone. Many look at Nazi Germany as a model of efficiency. However, something such as the Manhattan Project would have been exceptionally difficult for it to pull off. The key Nazi intelligence agencies wound up spying on each other, whereas Allied intelligence was very good. In peacetime or war, the right balance of flexibility in management/administration certainly does matter. —Best regards, Marc