Inflation, deflation, gold and currencies

[Trevor]

I know this is going to sound partisan (and off-topic), but when the war begins, I'm hoping it's led by somebody other than Obama. His inexperience combined with Gen-X nihilism would make him a lousy choice. I've seen his record on conducting the war and he's constantly trying to control everything, making decisions and completely ignoring the recommendations of the commanders on the ground, whom, based on a bit of research, all seems to be Boomers. To be fair, Bush did a lot of this too, and dragged his feet about things, but ultimately did listen. Obama seems incapable of that.

I don't see it beginning for a few years, so maybe I'll get lucky.

[Marc]

I know this is going to sound partisan (and off-topic), but when the war begins, I'm hoping it's led by somebody other than Obama. His inexperience combined with Gen-X nihilism would make him a lousy choice. I've seen his record on conducting the war and he's constantly trying to control everything, making decisions and completely ignoring the recommendations of the commanders on the ground, whom, based on a bit of research, all seems to be Boomers. To be fair, Bush did a lot of this too, and dragged his feet about things, but ultimately did listen. Obama seems incapable of that.

I don't see it beginning for a few years, so maybe I'll get lucky.

I appreciate your thoughts into this issue, Trevor. It is surely a very important issue. If total war does break out in the near future (and maybe it won't), Obama's Generation-X nihilism, as John stated, may help Obama "hate the enemy" and be an especially effective field marshal. Also, if total war were to break out in the next few years, Obama is apt to finally have a united Congress that will staunchly help him to defeat the enemy. But, again, I don't have a crystal ball — we could be surprised and see no crisis war in this Fourth Turning, and see America and maybe even China enter a special Fifth Turning with perhaps a more palatable outcome for America. All of this is anxiety-provoking but certainly relevant and critical to discuss. —Best regards, Marc

[Trevor]

We're going to have a war; there's no doubt of that in my mind. I see no way to avoid it. However, i believe a financial collapse has to happen first. Greece may not trigger it alone, but considering that China's bubble is rapidly deflating and unlike us, they have no way to slow it down, they will likely decide to launch an external war rather than suffer a civil war. I think Obama would be a liability in this, based on what his record so far has been. He left Iraq against his general's warnings, he's gutting our military programs against it, and he's leaving Afghanistan. That worries me. A combination of nihilism and inexperience is a deadly one and could cost us a victory. Lyndon Johnson did the same thing with the Vietnam War and look at how our loss still effects us, even today.

Of course, in a way, I don't think anyone will truly "win" this war, or at least it'll be a Pyrrhic victory.

[thomasglee]

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?

I think it's a combination of issues. 1) China is concealing more and 2) Believe it or not, in defense, they're really cracking down on corruption, so in many instances, they're spending less, but actually getting more. South Korea is currently trying to get graft and corruption under control in their defense industries (have been working on it for about five years give or take now) and they too are starting to get "more bang for their buck". The corruption in many countries adds hugs amounts to their defense spending, and just by cutting out 50% of the corruption can reap them HUGE benefits (you'll never eliminate it all).

[thomasglee]

I know this is going to sound partisan (and off-topic), but when the war begins, I'm hoping it's led by somebody other than Obama. His inexperience combined with Gen-X nihilism would make him a lousy choice. I've seen his record on conducting the war and he's constantly trying to control everything, making decisions and completely ignoring the recommendations of the commanders on the ground, whom, based on a bit of research, all seems to be Boomers. To be fair, Bush did a lot of this too, and dragged his feet about things, but ultimately did listen. Obama seems incapable of that.

I don't see it beginning for a few years, so maybe I'll get lucky.

I appreciate your thoughts into this issue, Trevor. It is surely a very important issue. If total war does break out in the near future (and maybe it won't), Obama's Generation-X nihilism, as John stated, may help Obama "hate the enemy" and be an especially effective field marshal. Also, if total war were to break out in the next few years, Obama is apt to finally have a united Congress that will staunchly help him to defeat the enemy. But, again, I don't have a crystal ball — we could be surprised and see no crisis war in this Fourth Turning, and see America and maybe even China enter a special Fifth Turning with perhaps a more palatable outcome for America. All of this is anxiety-provoking but certainly relevant and critical to discuss. —Best regards, Marc

At some point, Obama will become very strong (if he's still in office when the "GREAT, GREAT WAR" breaks out) and will likely be very diligent in executing his military plans.... the problem is, will he target the right enemies?

[Higgenbotham]

Unit labor costs, which the Federal Reserve watches closely for signs of inflation, rose at an annual rate of 2.8 percent in the fourth quarter, the Labor Department said, revised sharply up from the 1.2 percent pace it reported last month. Third-quarter wage growth was raised to a 3.9 percent pace from the previously reported drop of 2.1 percent.

Hourly earnings, adjusted for inflation, rose at a 2.8 percent rate in the fourth quarter, revised from the previously reported increase of 1.0 percent. It was the largest gain since the second quarter of 2010.

"There is no room for policy complacency on the inflation side," said Alan Ruskin, head of G10 currency strategy at Deutsche Bank in New York. "The Fed is going to be confronted with a very difficult decision on how to proceed if the economy remains on its current path, and there is no evidence of core disinflation."

Vince, you may remember that one of the reasons I gave against hyperinflation last year was that wages weren't going up. Not only are wages going up, but at the rate they are going up, we can see that when hyperinflation comes, it can come quickly, as we've stated. From a reported drop of 2.1% to a gain of 3.9%.

[Trevor]

We're not going to know for sure until the financial crisis hits. For all we know, we could have both of the above.

[vincecate]

Vince, you may remember that one of the reasons I gave against hyperinflation last year was that wages weren't going up. Not only are wages going up, but at the rate they are going up, we can see that when hyperinflation comes, it can come quickly, as we've stated. From a reported drop of 2.1% to a gain of 3.9%.

Many people think that as long as there is high unemployment that we can't get inflation in wages so their can't be a "wage price spiral". They may keep thinking this even as we get hyperinflation.

Hyperinflation is really about government debt, deficit, and how they have to print money like crazy if people stop rolling over government bonds and just take their cash when bonds come due. So the thing I think will really signal it is when private bond holdings start to drop (the more the Fed owns the more money they have printed). I have URLs for foreign Treasury holdings, Fed holdings, and SOMA activities, but would also like to have just total private Treasury holdings. Do you have a good URL that? Any other URLs for seeing how fast government debt is being monetized?

http://www.treasury.gov/resource-center ... ts/mfh.txt
http://www.federalreserve.gov/monetaryp ... eports.htm
http://www.newyorkfed.org/markets/soma/ ... dings.html

I believe the Fed is forcing interest rates down, so interest rates do not seem a good indicator of what the market thinks of government debt.

[richard5za]

After hyper-inflation

I have come to the conclusion that there is more than a 50% probability that the US dollar will hyper inflate, or in other words become worthless. Being the worlds reserve currency that will cause global turmoil and hardship. Which then poses the question "What will the USA and the world be like after hyper-inflation?" - assuming that is where we are headed.

The land of my birth and schooling was Zimbabwe so I take a continued interest in events. After hyper inflation there is very high unemployment, and severe poverty, and whilst the currency being used is the US dollar, which to some extent has stabilised things, people live there for the way of life not 21st Century materialism.

It seems to me that the effects of hyper-inflation and serious deflation upon ordinary people are similar. Those who read the signs correctly have the potential to make fortunes, and many will lose everything

[vincecate]

I have come to the conclusion that there is more than a 50% probability that the US dollar will hyper inflate, or in other words become worthless. [...] Those who read the signs correctly have the potential to make fortunes, and many will lose everything

It looks like you, me, and Higgie think this. I think reading this right may be the most important financial decision any of us will make in our lives. If you have your money in 10 year Treasuries and the value of the dollar is destroyed in less than 1 year, you lose. If you have your money in gold or silver options and the options market holds together into hyperinflation, you could do well. Gold or silver coins probably are the safest investment going into hyperinflation.

Big ticket items that are normally financed tend to drop in real terms. Nobody gets 30 year loans during hyperinflation so what people can pay is lower. Often real estate is purchased for cash.

Again, I recommend that anyone who has not read up on hyperinflation do so. Here are my notes:

http://pair.offshore.ai/38yearcycle/#hyperinflation