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Thread: Deflation Precedes Hyperinflation-Long Answer

  1. #1

    Default Deflation Precedes Hyperinflation-Long Answer

    It is impossible to call the exact time that the U.S. dollar will collapse; I would be a fool to try. But I will tell you that I think our fiat monetary system is approaching the end of its lifespan right now. I certainly didn't read the signs which predict hyperinflation until now. The signs that a hyperinflation is coming are detailed here. To qualify this post I will tell you that I am an avid reader, and I have a Masters Degree in administration, and a Bachelors Degree in history with minors in psychology and economics

    I believe that a monetary collapse is fast approaching. I have been studying economic history to figure out how the U.S. could possibly have asset deflation when hyperinflation is what I was betting on. It seems counterintuitive that deflation could be occurring (cheaper assets) when liquidity is flooded into the economy from Federal Reserve policy.

    The problem with economies is that they are not machines. An economy is not controlled by the monetary policy of governments or central banks. Evidence of this is QE1 and QE2: the liquidity did nothing to free up credit markets. The QE did not work because, fear has taken center stage. People are not buying homes because it is hard to catch a falling knife-they are scared of depreciation and they are not secure in their jobs. Economies are controlled by people within the economy. People spend fiat when they are sure of their job security, and they have faith that the future will be secure. Fiat works well when people are secure. Machines do not have desires, and fears about the future. If the economy were a machine you would only have to give it gas and it would run faster. But when you gas an economy, you can never be sure of the result. In trying to re-inflate the housing market Ben Bernanke has caused inflation in other areas. Bernanke’s sworn enemy is deflation, and he will fall for the deflationary head fake very soon.

    What I discovered is that before hyperinflation there is always a period of asset deflation and a fiat currency rally. We are seeing that fiat rally in the U.S. dollar right now. Even gold and silver (both assets) are deflating as people clamor for U.S. dollars and U.S. Treasuries. This is one obvious sign of the impending fiat collapse. What is not disputed is that when people get scared, they raise cash or flee to the next best sure thing: U.S. treasuries. Cash is king: but this is only for a short time.

    I want to try to explain this a bit in the next post....

  2. #2

    Default Continued....

    The Federal Reserve has created money as a back stop to take the moral hazard out of every bad investment for some time. That easy money from the fed is “scared money” trying to find safety. Institutions now find it too risky to loan money to the American consumer. Americans have been losing their jobs and swimming in debts for years. The jobs that left are simply gone-and they are not coming back. These bailed out institutions can’t believe their good fortune and they pay their employees and executives with the easy money from the fed. People who would have lost their jobs when their institutions failed are also bailed out. But, these employees are not certain of the economy so they hang onto their money. They do not buy a bigger house, or a new car, and they spend less. They keep their money in U.S. dollars and treasuries which they believe are certain to be a store of value. The institutions freeze pay, and refuse to hire new employees or invest in job creation.

    It is all about the flow of capital. This is how it looks when money flows into the pyramid during credibility inflation. Picture this upside down pyramid as “credibility inflation” which has been occurring for the past forty years. Money flows into those investments which have “credibility”.



    You will notice that the dollar is at the bottom of the inverse pyramid, right above gold. For the past forty years people inflated assets with "credibility" all manner of bubbles and asset classes with easy credit. Think dot com bubble, think real estate bubble, think commodity bubble. Now as capital exits, the assets, businesses and derivatives it flows down and the U.S. dollar certainly sees a rally. But that will be short lived (it is happening now). The dollar is not the true foundation of the pyramid since it is merely a "government sponsored fraud". And as such, its value can be EASILY controlled by the Fed. As the higher levels on the pyramid have lost credibility there is only one place for smart money to flow to and that is the U.S. Dollar-and eventually Gold! The flight to quality will certainly end with gold since it is an asset with intrinsic value.

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    Last edited by jdourekas; 11-13-2020 at 05:41 PM. Reason: Kitco copyright policy 120 word limit

  3. #3

    Default Continued



    Countesy of FOFOA-All fiat currency is a short position on gold.
    Notice the bottleneck at the bottom of the pyramid? That is because there are not enough U.S. dollars or gold to supply everyone who will want them. This sounds wrong doesn't it? Well you should know that the U.S. holds 90% of the money supply in reserve. Only about ten percent of the U.S. dollars are actually in circulation. Most of the money supply actually only exists in the form of zeros and decimals in bank computers. When people rush to banks to get their fiat, there will have to be a bank holiday to get fiat to the banks. And after that rush to fiat, when fear chases people out of the dollar there is not enough gold in the world to convert the trillions in fiat which will seek conversion from zero value paper. All of the gold in the world has a value of about 9 trillion dollars. The debt of the U.S. alone is almost twice the value of all gold in the world.

    When the confidence is shattered there are not enough dollars to provide cash to everyone who will demand it. That is when the banks will need a bank holiday. Banks will close for a few days so that the U.S. can supply them with dollars which everyone will want. In every country which experienced hyperinflation it was like lightning had struck. What I have done is researched what actually occurs directly before a period of hyperinflation.

    Here is the progression which confirms the hyperinflationary direction.
    1. Monetization of bad debts is the beginning-bailouts, car and home buying subsidies-buying all bad debts and FDIC insurance-nobody loses
    2. Deflation of assets is the second stage-as people become fearful of investing and fearful banks invest in safe assets-like cash and treasuries
    3. A rise in the value U.S. dollar will follow-(happening now) up 13% since flirting with 71.
    4. Next is the collapse of the dollar when fear takes over and the dollars will immediately seek conversion to value

    It is after #4 in the progression that the Federal Reserve will resort to printing money in greater quantity to meet their obligations. The fear is what causes the hyperinflation. The fear of holding dollars which are supposed to be a store of value. Businesses will demand cash and reject checks and credit cards before the hyperinflation takes hold.

    You see most of this has started already. It has begun and yet the fear has not gripped the public yet. They have not recognized the deflationary head fake. When people do realize what is happening it will be too late to preserve your wealth or gather what you need to sustain you through the hyperinflationary time.

    Have a look at the chart to see when Zimbabwe's hyperinflation started.



    The next chart is the "deflationary head-fake" (Argentina) right before the onset of hyperinflation as the private bank credit money disappears...



    So first comes hyperinflation, then, and only then, comes the massive printing as the central bank tries desperately to keep the government functioning. So don't look for massive printing to see hyperinflation coming. Look for the monetization of bad debt (already happened) and the first signs of real price inflation (we are seeing it now in food and health care 10%), even in the face of apparently deflationary forces.
    Last edited by lubbad; 12-27-2011 at 03:14 PM. Reason: Kitco copyright policy 120 word limit

  4. #4

    Default continued

    ...velocity & money demand.
    Jim Powell explained velocity:
    And that brings us to what economists call velocity. Money responds to the law of supply and demand just as everything else does. Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low. This is deflationary....When demand for the money is low, velocity is high.

    A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply. The biggest problem with velocity and money demand is they can turn 180 degrees overnight. If people trust the currency, and suddenly perceive some kind of big threat to their futures, money demand can shoot up.

    If you don't spend your money, that's the same thing as taking it out of circulation. This can instantly cause the equivalent of a sharp deflation of the money supply by 10 or 20 percent, or more.

    That's what happened in the Great Depression. The Fed was inflating. In 1932, the money supply was $20 billion, and by 1940 it was $38 billion. But fear was so great that velocity was falling faster than money supply was rising. This is why Franklin Roosevelt said in his first inaugural speech, "The only thing we have to fear is fear itself." People were afraid to spend their money, as they are now, and velocity was falling, which has the same effect as deflation, because if you don't spend your money, it's not in circulation.

    These wild shifts in money demand and velocity have the same effect as massive, instantaneous shifts up and down in money supply. It's like we're having a huge inflation, then a deflation, every few hours — because our fears change every few hours — because the politicians have all this arbitrary power and we don't know what they're going to do to us!

    It is important to see that the economy is not a machine. Machines don't feel, they don't have fear...But people, biological organisms, do have feelings. They do fear, and their fears can change instantaneously.

    Velocity of money is just like the stock market which is controlled by fear and greed.

    The world is certainly not going to end after the currency collapse. We will just move to a fresh system. The government will certainly repudiate the current U.S. Dollars, and it will be decades before the general public will accept another fiat currency backed by nothing. But in the mean time your ability to survive the currency collapse is most important. Understand this: hyperinflation is the process of saving debt at all costs, even buying it outright for cash. This is exactly what our congress and quasi-government Federal Reserve has been doing.

    This has caused issuers of bad debt to stop issuing debt and flee to safer investments, which in turn has caused the public to have less credit? This is what is impossible to control for our government-even the operation twist will be unsuccessful in making banks free up credit for consumers. And all of this has caused the deflationary head fake which has led to a flight to U.S. dollars. And this will all end in a currency confidence collapse. And dollars will seek conversion to real goods. And that is when hyperinflation will begin.

    Further References:
    Fiat Paper Money: The History and Evolution of our Currency Raph T. Foster
    FOFOA- http://fofoa.blogspot.com/2010/09/just-another-hyperinflation-post-part-2.html
    My Blog: http://tacticaldefensellc.com/Blog.html
    James Quinn
    Peter Schiff
    Michael Pento
    Last edited by lubbad; 12-27-2011 at 03:33 PM. Reason: Kitco copyright policy 120 word limit; added noparse tag

  5. #5

    Default Saving Private Ryan

    There was a scene in the movie, Saving Private Ryan where an American soldier was shot and dying. His comrades gathered around him and tried to stop the bleeding.
    The soldiers try to save the man by pouring sulfa on his gut wound. The wounded man asks for morphine. They quickly give him a shot of morphine. It does nothing for the man and the bleeding intensifies. Quickly the soldiers pour more sulfa on his wound; the bleeding will not stop. Finally one soldier begs the wounded man, “How can we fix you?” The wounded man asks for more morphine. At this point the men all look at each other. They realize another shot of morphine will kill the wounded man. But they understand that he is dead anyway…so they give him the morphine. Better that he dies comfortably.

    This is the way I see the American economy. The American economy is the dying soldier in the movie. The morphine is the QE1,2 and eventually 3. The QE will kill the economy, but the economy is going to die anyway. So with nothing to lose, and some temporary comfort to gain, the QE is administered in whatever dose that is necessary to arrest the pain.

  6. #6

    Default

    This might be the end as we know it!

    . . . but we did survive the great depression, so maybe we'll survive this.

  7. #7

    Default Gosh bum Otie!

    Your explaination seems to lend credence and gives the operative dynamic to what Gonzalo Lira has previously stated! If accurate, this makes this craziness we're seeing even more scary. Could you expalin why gold is at the bottom of the inverse pyramid? I have my guess but what do I know?! Peace

  8. #8

    Default

    I feel sure you have your comments online somewhere. Would you be so kind as to give us a link so I can read this intact. Thanks!
    "Our Government will always make the right decision after it has exhausted all other possibilities!"

    loosely interpreted from a Winston Churchill quotation

  9. #9

    Default Gold is money

    Quote Originally Posted by kenn682 View Post
    Your explaination seems to lend credence and gives the operative dynamic to what Gonzalo Lira has previously stated! If accurate, this makes this craziness we're seeing even more scary. Could you expalin why gold is at the bottom of the inverse pyramid? I have my guess but what do I know?! Peace
    People abandoned gold when they got comfortable with paper. This process took hundreds of years. So now when someone sees a 100 dollar bill on the sidewalk, they actually see GOLD. It has intrinsic value for what it can buy, and what people have been conditioned to believe about the paper. The governments of the world were successful in teaching people to trade paper. Paper holds value. Paper is not gold; but right now it is.

    When a person sees a piece of paper with $100 printed on it, they see value. But lately people see that the same $100 loses purchasing power each year. And the government cannot be trusted to mange the supply of paper.

    It is the law of supply and demand which dictates: when supply exceeds demand, the price will fall. The oversupply of fiat has already happened. The government sees that spending has not picked up, so they suspect "Deflation". But America is awash in liquidity-it is just that people are hanging on to the fiat as a store of value. Soon people will discover that holding fiat is dangerous-they will buy anything of value-chairs, lamps, backpacks-anything that can hold value; it will all be better than holding paper since the purchased item can be traded later.

    Gold is scarce, and it has always been considered to be money. A person can take gold anywhere in the world and it will be weighed-and you will receive what you like. When people realize that they have been fooled into thinking paper was money, they will seek to convert their fiat to the only logical honest money. In every case of currency failure: people turn to gold and silver since it is a store of value. There have been more than three thousand examples of fiat currency in the world, and every single one has ended in failure. No exceptions.

    I hope I answered your question.
    Last edited by lubbad; 09-28-2011 at 05:38 PM.

  10. #10

    Default Excellent read!

    Excellent read. I have recommended this to a few others! Thanks!

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