Financial topics

[John]

But I pray for inflation.

Yes, that's the point, Richard. The same people who said there
was no real estate bubble, and who use phony P/E ratios,
are now predicting hyperinflation because that's the way that
they convince people to buy stocks and give them fat
commissions.

John

[jdcpapa]

In a scenario where tax revenues collapse, which is really possible in current global circumstances, and considering that a high portion of the budget is already spent servicing debt, then budget deficits can increase to 20%, 30% even 50%, and lots of money gets printed out of necessity.

As things stand I don't know which way its going to go.

Correct me if I'm wrong, but tax revenues have collapsed here in the US. Deficits are at 50%.

Yes, that's the point, Richard. The same people who said there
was no real estate bubble, and who use phony P/E ratios,
are now predicting hyperinflation because that's the way that
they convince people to buy stocks and give them fat
commissions.John

Let's not forget the commissions on Gold!

[vincecate]

Now Vince, think about this. How does the public mood in America
today differ from the public mood in 1920s Germany or 1970s America?

Even if the U.S. government "printed" another $10 trillion, I don't
think it would make any difference, while in the 1970s, or in 1920s
Germany, it would have caused massive inflation. That's why
hyperinflation is impossible at this time. Printing money
makes no difference at all, if the money doesn't circulate.

So your contention is that public mood makes hyperinflation impossible now. Historically it seems to always happen when debt is over 80% of GNP and deficits over 40% of spending. So my guess is that when people see prices going up faster than interest accumulates in their bank account they eventually realize that they are better off to buy things they will need in the future now than to save. In other words, the public mood will change when they start to see inflation. Public mood seems a fickle thing to base an "impossible" on. And really a change in public mood is part of hyperinflation starting. It seems it usually starts very suddenly. People just start buying things before the prices go up further.

Another way to look at it is that it becomes obvious that the interest paid on government bonds is less than the inflation rate so people stop rolling over their bonds. As cash is printed to pay off bonds coming due these people put their cash into something else besides bonds, driving prices up on the other things, resulting in general inflation.

[OLD1953]

I posted a rather lengthly analysis of the tax numbers vis a vis the tax cuts/gdp and so forth a while back, and John cleaned up the formatting for me (thanks again John). It's not that there is a huge dip in receipts, though there is indeed a dip due to the Bush cuts, it's that there is a huge increase in spending, mostly for bailouts but a good bit going to "reward the donor" programs disguised as jobs bills. That's discounting the dip due to the cuts Bush pushed for OFC. There may (or may not) be a real jobs bill in the works, it's impossible to say until it's delivered and signed - you have to actually look at the FINISHED product on thomas to figure out what was actually passed. It would be nice to have media that did that for you, but alas, we do not. Really, to fix this will take a combination of tax increases and budget cuts, while living with some defict spending, and that sounds too much like "compromise" to get past Congress now. On either side.

Now, another amusing storiy has popped up:
http://online.wsj.com/article/SB1000142 ... 55786.html
NEW YORK—The dollar edged up against the euro following reports that Germany is rejecting the latest proposal to boost the euro zone's ability to bail out larger debtors.

"Germany appears to be downplaying expectations for the summit," said Andrew Busch, global currency and public policy strategist at BMO Capital Markets. "The news flow from Europe suggests more struggles for a fiscal union agreement."
************
Gee, yah think? LOL.

And:

[jcsok]

Great interview with Ann Barnhardt, who closed her brokerage firm following the MF Global debacle. In the interview she describes the corruptness of the inner core of government, and how the Chicago Merc could no longer be trusted. Global debt is more than global assets. Take your $$ out to 401k's, etc.

http://www.financialsense.com/search/no ... 0barnhardt

[Carl Lieberman]

There's a great post tonight on zerohedge. It is pretty long, but worth your time: http://www.zerohedge.com/news/why-uk-tr ... nt-1957270 It reminds me of John's reference to 123 Infinity. The whole system now depends upon layer after layer of leveraged crapola. The MF Global bankruptcy is a BIG event, but it is being completely glossed over. This point has been made before, but I really do think that it is the modern day equivalent of the Credit-Anstalt collapse.
To respond to an earlier post, where a member wished for inflation and feared the consequences of deflation. I feel just the opposite. Inflation rewards all of the behaviors that are anti social and penalizes all of the behaviors associated with virtue. It is completely destructive of the social fabric. Personally I believe that a deflation is coming, followed by a massive inflation. We could get the worst of both worlds.

[Trevor]

Things just keep getting worse and worse by the day, and what you posted about Greek bonds is unbelievable. Considering everything, why hasn't the stock market crashed again? I've looked at the list and over the past year, it seems to be holding roughly steady. It's even going up a bit.

Well, all things considering, my cheapskate methods are going to become an asset in future years.

[Marc]

Hi, Carl and others,

For those who feel that the endgame to our financial crisis is massive deflation followed by massive inflation, I'm just curious as to why you feel that way. Is it because you feel that there is the "inevitable" destruction of money going on now and for a goodly while, followed at the very end by many trillions of dollars/euros/etc. that was printed/lent for bailouts suddenly being unavoidably injected into circulation somehow? Just curious here —Best regards, Marc

[richard5za]

Personally I believe that a deflation is coming, followed by a massive inflation. We could get the worst of both worlds.

I am in cash have my options open at present and assign probabilities to the various options. I'm afraid the probabilities change quite a lot because I must confess that I am in the dark on the inflation versus deflation outcome. I have considered the option you propose quite often recently and have concluded: It is easily possible; it is the most destructive, beguiling and ruinous of all the options; I assign a probabilty of above 25% to this outcome. So I do need to be prepared in investment terms for this possibility.

[Trevor]

I think it's possible to have massive inflation if the war ends badly for us, since it's no guarantee that we're going to win this time around. That's what happened in the Confederate States, but it occurred during the war, not the panic. Where you see hyperinflation is when a crisis war, ends badly, either because you lose or it's so destructive that you may as well have lost.